Income Taxes

The components of income (loss) from continuing operations before income taxes and income tax expense (benefit) were as follows:



	Year Ended June 30,
	2016			2015			2014
Income (loss) from continuing operations before income taxes:
United States	$	25,194		$	18,443		$	(6,068	)
Foreign	92			352			155
	$	25,286		$	18,795		$	(5,913	)
Tax provision (benefit):
Federal:
Current	$	6,707		$	4,267		$	3,184
Deferred	(2,627		)	(458		)	(5,281		)
	$	4,080		$	3,809		$	(2,097	)
State:
Current	$	1,839		$	1,372		$	594
Deferred	(424		)	(921		)	(375		)
	$	1,415		$	451		$	219
Foreign:
Current	$	59		$	58		$	(12	)
Deferred	(10		)	48			49
	$	49		$	106		$	37
	$	5,544		$	4,366		$	(1,841	)

The following is the reconciliation between the statutory federal income tax rate and the Company’s effective income tax (benefit) rate for continuing operations:



	Year Ended June 30,
	2016		2015		2014
Tax provision (benefit) at federal statutory rates	35.0	%	35.0	%	(35.0	)%
State income tax, net of federal tax benefit	5.0		4.9		(3.1	)
Research and development credits	(8.4	)	(4.8	)	(14.7	)
Excess tax benefits on stock compensation	(4.4	)	—		—
Domestic manufacturing deduction	(3.5	)	(3.2	)	(5.3	)
Income from legal settlement excluded from taxable income	(2.8	)	—		—
Deemed repatriation of foreign earnings	(0.2	)	(0.4	)	0.7
Foreign tax credits	—		—		(13.3	)
Equity compensation	0.3		(0.1	)	2.2
Officers' compensation	2.3		2.8		11.1
Stock compensation shortfalls	—		—		24.1
Deferred tax asset and liability adjustments	—		(4.2	)	—
Change in state tax rates	—		(3.1	)	—
Reserves for tax contingencies	(3.2	)	(5.0	)	—
Other	1.8		1.3		2.2
	21.9	%	23.2	%	(31.1	)%

The components of the Company’s net deferred tax assets (liabilities) for continuing operations were as follows:



	June 30,
	2016			2015
Deferred tax assets:
Inventory valuation and receivable allowances	$	12,768		$	9,264
Accrued compensation	3,267			2,563
Equity compensation	3,201			4,229
Federal and state research and development tax credit carryforwards	15,870			16,262
Gain on sale-leaseback	371			834
Other accruals	1,570			1,889
Capital loss carryforwards	3,562			3,562
Other temporary differences	4,011			1,800
	44,620			40,403
Valuation allowance	(18,472		)	(18,864		)
Total deferred tax assets	26,148			21,539
Deferred tax liabilities:
Prepaid expenses	(773		)	(1,103		)
Property and equipment	(2,451		)	(1,578		)
Intangible assets	(33,826		)	(7,110		)
Tax method of accounting change	(570		)	(854		)
Other temporary differences	(370		)	(320		)
Total deferred tax liabilities	(37,990		)	(10,965		)
Net deferred tax (liabilities) assets	$	(11,842	)	$	10,574

As reported:
Deferred tax assets	$	—		$	10,574
Deferred tax liabilities	(11,842		)	—
	$	(11,842	)	$	10,574

At June 30, 2016, the Company evaluated the need for a valuation allowance on deferred tax assets. In assessing whether the deferred tax assets are realizable, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the Company's past operating results, its forecast of future earnings, future taxable income, and tax planning strategies. The Company continues to conclude that it is more likely than not that most domestic deferred tax assets would be realizable based on recent financial performance, projected future taxable income and the reversal of existing deferred tax liabilities.

The Company continues to record a full valuation allowance on certain state research and development (“R&D”) and investment tax credits, and capital loss carryforwards as of June 30, 2016 as management continues to believe that it is not more likely than not that these deferred tax assets would be realized. Any future reversals of the valuation allowance will impact income tax expense.

The Company had federal research and development credit carryforwards of $959, which will expire from 2032 through 2033. The Company had state research and development credit carryforwards of $14,798, which will expire from 2016 through 2029. The Company also had state investment tax credits carryforwards of $113.

Upon consideration of changing business conditions and cash position in its foreign subsidiaries, management has determined that it does not need to indefinitely reinvest the earnings of certain foreign subsidiaries. Therefore, the Company has accrued deferred taxes in association with $724 in undistributed earnings and profits.

The Company files income tax returns in all jurisdictions in which it operates. The Company has established reserves to provide for additional income taxes that management believes will more likely than not be due in future years as these previously filed tax returns are audited. These reserves have been established based upon management’s assessment as to the potential exposures. All tax reserves are analyzed quarterly and adjustments are made as events occur and warrant modification.

The changes in the Company’s reserves for unrecognized income tax benefits are summarized as follows:



	Year Ended June 30,
	2016			2015
Unrecognized tax benefits, beginning of period	$	2,190		$	3,142
Increases for previously recognized positions	79			123
Reductions as a result of a lapse of the applicable statue of limitations	—			(1,197		)
Increases for currently recognized positions	302			122
Reductions for previously recognized positions deemed effectively settled	(681		)	—
Reductions for previously recognized positions	(324		)	—
Unrecognized tax benefits, end of period	$	1,566		$	2,190

The $1,566 of unrecognized tax benefits as of June 30, 2016, if released, would reduce income tax expense.

The Company’s major tax jurisdiction is the U.S. and the open tax years are fiscal 2011 through 2016.

The Company is currently under audit by the Internal Revenue Service for fiscal year 2013. As of June 30, 2016, the IRS has presented an agreement that would lead to the conclusion of the audit; the Company continues to negotiate specific terms of this agreement. It is reasonably possible that within the next 12 months the Company’s unrecognized tax benefits, exclusive of interest, may decrease by up to $757 at the conclusion of the audit. We expect that the decrease, if recognized, would not affect the effective tax rate.

The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes. As of June 30, 2016 and 2015, the total amount of gross interest and penalties accrued was $258 and $62, respectively. In connection with tax matters, the Company recognized interest and penalty expense in fiscals 2016, 2015 and 2014 of $204, $26 and $5, respectively.