| INCOME TAXES |
10.INCOME TAXES The following is a geographical breakdown of income before the provision for income taxes (in thousands): | | | | | | | | | | | | 2024 | | 2025 | | 2026 | Pre-tax income: | | | | | | | | | | United States | | $ | 41,330 | | $ | 30,218 | | $ | 45,277 | Foreign | | | 119,884 | | | 155,876 | | | 147,469 | Total pre-tax income | | $ | 161,214 | | $ | 186,094 | | $ | 192,746 |
Our provision for income taxes consists of the following (in thousands): | | | | | | | | | | | | 2024 | | 2025 | | 2026 | Current: | | | | | | | | | | Federal | | $ | 22,229 | | $ | 12,218 | | $ | 8,583 | State | | | 2,122 | | | 2,260 | | | 2,422 | Foreign | | | 22,842 | | | 31,066 | | | 29,062 | Total current provision | | | 47,193 | | | 45,544 | | | 40,067 | Deferred: | | | | | | | | | | Federal | | $ | (13,375) | | $ | (7,667) | | $ | (1,509) | State | | | (594) | | | (853) | | | (850) | Foreign | | | (164) | | | (567) | | | 327 | Total deferred (benefit) | | | (14,133) | | | (9,087) | | | (2,032) | Total provision | | $ | 33,060 | | $ | 36,457 | | $ | 38,035 |
Net income tax payments for the year ended June 30, 2026, after the prospective adoption of ASU 2023-09, consisted of the following: | | | | United States – federal (1) | | $ | 10,351 | United States – state and local | | | 1,755 | United Kingdom | | | 11,919 | Canada | | | 2,499 | Malaysia | | | 6,277 | Singapore | | | 2,702 | Other foreign | | | 7,497 | Total | | $ | 43,000 |
| (1) | The Company’s U.S. federal payments were reduced by foreign tax credits and research and development credits. |
As of June 30, 2025 and 2026, our liability for uncertain tax positions was $15.4 million and $15.2 million, respectively. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $14.9 million as of June 30, 2026. We recognize potential interest and penalties related to income tax matters in income tax expense. As of June 30, 2026, we have accrued $3.2 million for interest and penalties. Our uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. These include fiscal years after 2022 for federal purposes, fiscal years after 2021 for state purposes and fiscal years after 2018 for various foreign jurisdictions. Future developments, such as the settlement of income tax positions or the expiration of applicable statutes of limitation, could result in changes to our liability for unrecognized tax benefits. A summary of activity of unrecognized tax benefits for fiscal 2025 and 2026 is as follows (in thousands). | | | | Balance at June 30, 2024 | | $ | 17,914 | Additions on tax positions for the current year | | | 1,296 | Additions on tax positions from prior years | | | 234 | Reduction in tax positions from prior year for dispute settlements | | | (438) | Reductions to prior year tax positions | | | (305) | Reduction to prior year tax positions for statute of limitations closure | | | (3,108) | Balance at June 30, 2025 | | $ | 15,593 | Additions on tax positions for the current year | | | 973 | Additions on tax positions from prior years | | | 58 | Reduction to prior year tax positions | | | (44) | Reduction to prior year tax positions for statute of limitations closure | | | (1,668) | Balance at June 30, 2026 | | $ | 14,912 |
Deferred income tax assets (liabilities) consisted of the following (in thousands): | | | | | | | | | June 30, | | | 2025 | | 2026 | Deferred income tax assets: | | | | | | | Tax credit carryforwards | | $ | 6,383 | | $ | 6,768 | Net operating loss carryforwards | | | 3,339 | | | 3,197 | Customer advances | | | 6,521 | | | 8,100 | Allowance for doubtful accounts | | | 3,146 | | | 3,560 | Inventory reserve | | | 14,636 | | | 14,435 | Accrued liabilities | | | 3,209 | | | 4,200 | Operating lease liabilities | | | 5,540 | | | 8,946 | Stock and deferred compensation | | | 14,504 | | | 16,816 | Other assets | | | 1,700 | | | 3,548 | Total deferred income tax assets | | | 58,978 | | | 69,570 | Valuation allowance | | | (10,471) | | | (11,352) | Net deferred income tax assets | | | 48,507 | | | 58,218 | Deferred income tax liabilities: | | | | | | | Depreciation | | | (6,280) | | | (8,621) | Amortization of intangible assets | | | (13,784) | | | (13,280) | Withholding tax on unrepatriated foreign earnings | | | (8,496) | | | (9,266) | Operating lease ROU assets | | | (5,482) | | | (8,752) | Other liabilities | | | (3,604) | | | (3,842) | Total deferred income tax liabilities | | | (37,646) | | | (43,761) | Net deferred income tax assets | | $ | 10,861 | | $ | 14,457 |
The components of the net deferred income tax asset are classified in the consolidated balance sheets as follows (in thousands): | | | | | | | | | June 30, | | | 2025 | | 2026 | Long term deferred income tax asset, included in other assets | | $ | 14,195 | | $ | 19,920 | Long term deferred income tax liability | | | (3,334) | | | (5,463) | Net deferred income tax assets | | $ | 10,861 | | $ | 14,457 |
The components of current taxes receivable and payable and prepaid taxes are classified in the consolidated balance sheets as follows (in thousands): | | | | | | | | | June 30, | | | 2025 | | 2026 | Current taxes receivable and prepaid taxes, included in prepaid expenses and other current assets | | $ | 10,958 | | $ | 16,352 | Current taxes payable, included in other accrued expenses and current liabilities | | | (22,285) | | | (23,266) | Net tax payable | | $ | (11,327) | | $ | (6,914) |
As of June 30, 2026, we had federal, state and foreign net operating losses carryforwards of approximately $0.3 million, $17.2 million and $7.7 million, respectively. Our net operating loss carryforwards will begin to expire in the tax year ending June 30, 2028. As of June 30, 2026, we had federal and state tax credit carryforwards of approximately $3.8 million and $6.8 million, respectively. Our credit carryforwards will begin to expire in the tax year ending June 30, 2032. We have established valuation allowances that relate to the net operating losses of certain subsidiaries, capital losses, and tax credits. During the year ended June 30, 2026, we recorded an aggregate net increase of $0.9 million to these valuation allowances. We evaluate the need for valuation allowances on a jurisdiction-by-jurisdiction basis and release such allowances when sufficient positive evidence exists to conclude that it is more likely than not that the deferred tax assets will be realized. We recognized all excess tax benefits and tax deficiencies related to equity-based compensation as a component of income tax expense or benefit in the period in which they occur, in accordance with ASC 718. An income tax benefit of approximately $1.7 and $2.1 million was recognized in fiscal 2025 and 2026, respectively. The consolidated effective income tax rate differs from the federal statutory income tax rate due primarily to the following: | | | | | | | | | June 30 | | | | 2026 | | Provision for income taxes at federal statutory rate | | $ | 40,477 | | 21 | % | State tax expense, net of federal income tax benefit (1) | | | 1,003 | | 0.5 | | Foreign tax effects: | | | | | | | United Kingdom | | | | | | | Patent box benefit | | | (5,435) | | (2.8) | | Other | | | 1,324 | | 0.7 | | Other foreign jurisdictions | | | 2,087 | | 1.1 | | Effect of cross-border tax laws: | | | | | | | Foreign Derived Intangible Income (FDII) benefit | | | (2,973) | | (1.5) | | Other effects of cross-border tax laws | | | 901 | | 0.4 | | Tax Credits: | | | | | | | Research and development tax credits | | | (2,054) | | (1.1) | | Changes in valuation allowance | | | 2,527 | | 1.3 | | Nontaxable or nondeductible items: | | | | | | | Officers’ compensation | | | 4,771 | | 2.5 | | Other | | | (4,332) | | (2.3) | | Changes in unrecognized tax benefit | | | (261) | | (0.1) | | Effective income tax rate | | $ | 38,035 | | 19.7 | % |
(1) | Massachusetts, Minnesota, New York, and Texas made up the majority (greater than 50% of the tax expense in this category). |
The following table provides the disclosures required before adopting ASU 2023-09 and reconciles our effective tax rate with the U.S. federal tax rate: | | | | | | | | 2024 | | 2025 | | Provision for income taxes at federal statutory rate | | 21 | % | 21 | % | Research and development tax credits | | (1.6) | | (1.5) | | Foreign income subject to tax at other than federal statutory rate | | 1.7 | | 2.1 | | Stock compensation | | (0.5) | | (0.9) | | Officers’ compensation | | 4.1 | | 3.2 | | Change in valuation allowance | | 1.0 | | 0.2 | | Unrecognized tax expense (benefit) | | 3.7 | | (1.3) | | State tax expense | | 0.9 | | 1.1 | | U.S. tax on foreign earnings | | (0.8) | | (0.2) | | Changes in prior year estimates | | (2.4) | | 0.3 | | Global intangible low-taxed income, net of foreign tax credits | | 0.8 | | 0.9 | | Foreign Derived Intangible Income Benefit | | (4.3) | | (1.9) | | Non-taxable earnings from acquisitions | | (0.8) | | (0.5) | | Patent box benefit | | (3.2) | | (2.8) | | Other | | 0.9 | | (0.1) | | Effective income tax rate | | 20.5 | % | 19.6 | % |
The provision for income taxes consists of provisions for federal, state, and foreign income taxes. We operate in an international environment with significant operations in various locations outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable rates.
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