Note 11—Income Taxes

The Company’s provision for income taxes consists of the following:


	Successor						Predecessor
	Fiscal Year Ended				Period from August		Period from July 1
	June 30,				15, 2013 through		2013 through
	2016		2015		June 30, 2014		August 14, 2013
Current:
State	$	113	$	270	$	127	$	(395)
Federal		149		—		3		—
Foreign		8,053		7,327		4,504		375
Total current		8,315		7,597		4,634		(20)
Deferred:
State		314		(2,880)		(2,043)		(1,535)
Federal		1,094		(7,497)		(17,850)		(13,818)
Foreign		(1,868)		900		(4,222)		(248)
Total deferred		(460)		(9,477)		(24,115)		(15,601)
Income tax expense (benefit)	$	7,855	$	(1,880)	$	(19,481)	$	(15,621)

The geographic components of income (loss) before income taxes are as follows:


	Successor						Predecessor
	Fiscal Year Ended				Period from August		Period from July 1
	June 30,				15, 2013 through		2013 through
	2016		2015		June 30, 2014		August 14, 2013
United States	$	5,326	$	(29,377)	$	(68,079)	$	(41,656)
Rest of World		3,856		34,523		(3,050)		2,350
Income (loss) before income taxes	$	9,182	$	5,146	$	(71,129)	$	(39,306)

Reconciliations of expected income taxes at the U.S. federal statutory rate of 35% to the Company’s provision for income taxes are as follows:


	Successor						Predecessor
	Fiscal Year Ended				Period from August		Period from July 1
	June 30,				15, 2013 through		2013 through
	2016		2015		June 30, 2014		August 14, 2013
Income tax expense (benefit) at statutory rate	$	3,214	$	1,801	$	(24,895)	$	(13,757)
Non-deductible transaction costs		449		608		3,907		1,467
Foreign tax rate differentials		(499)		(4,245)		723		(455)
State taxes, net of federal benefit		427		(134)		(1,916)		(2,461)
Adjustment of uncertain tax positions and interest		(347)		(1,253)		—		—
Non-deductible stock based compensation		5,241		1,806		—		—
Permanent differences		1,428		1,043		1,354		16
Valuation allowance		1,012		316		1,445		—
Change in enacted tax rates		(2,438)		(2,746)		—		—
Other		(632)		924		(99)		(431)
Income tax expense (benefit)	$	7,855	$	(1,880)	$	(19,481)	$	(15,621)

Effective tax rate		85.5%		-36.5%		27.4%		39.7%

Foreign rate differentials are attributable to lower foreign statutory tax rates in multiple jurisdictions outside of the United States and based on economic zone status and foreign government tax reduction approval.

Included in the fiscal year ending June 30, 2016 is an expense of $5,241 for non-deductible stock based compensation and a net benefit of $2,438 related to a change in the enacted income tax rates in the United Kingdom and the granting of a High and New Technology Exemption (“HNTE”) for one of our subsidiaries in China, both of which impacted the amount of our net deferred tax liabilities at the respective subsidiaries.

Included in the fiscal year ending June 30, 2015 is a benefit of $1,253 reflecting the recognition of previously unrecognized tax benefits due to the expirations of statute of limitations for certain foreign uncertain tax positions and a benefit of $2,746 related to a change in the state income tax rate from 3.5% to 2%.

Deferred income taxes

The Company’s deferred tax assets and liabilities consist of the following:


	Successor
	As of		As of
	June 30, 2016		June 30, 2015
Deferred tax assets:
Inventories	$	2,183	$	2,194
Net operating losses and other carryforwards		32,374		37,342
Allowance for doubtful accounts		686		894
Stock based and other compensation		3		1,502
Post-retirement benefits		1,690		6,125
Interest		—		—
Goodwill		—		2,057
Accrued expenses and other		5,843		9,306
Gross deferred tax assets		42,779		59,420
Valuation allowance		(10,544)		(10,050)
Deferred tax assets		32,235		49,370
Deferred tax liabilities:
Property and equipment		(18,005)		(19,469)
Goodwill		(685)		—
Intangible assets		(78,960)		(99,940)
Deferred tax liabilities		(97,650)		(119,409)
Net deferred tax liability	$	(65,415)	$	(70,039)

As of June 30, 2016 and 2015, the Company has net operating loss carryforwards of approximately $120,537 and $104,939. As of June 30, 2016, U.S. Federal net operating loss carryforwards comprise approximately $55,380, which expire between 2025 and 2035. U.S. state net operating loss carryforwards are approximately $30,946, of which $17,171 can be carried forward 10-20 years, $12,863 can be carried forward 6-10 years, and $912 can be carried forward 1-5 years. Foreign net operating loss carryforwards comprise approximately $34,211 as of June 30, 2016, of which $10,895 can be carried forward indefinitely, $8,551 can be carried forward for 6-10 years and $14,765 can be carried forward for 1-5 years.

The gross deferred income tax asset for these net operating losses is approximately $29,423 with recorded valuation allowances of approximately $7,128. Approximately $13,345 of the deferred tax asset is attributable to net operating losses in the US that are subject to limitations under Section 382 of the Internal Revenue Code for transactions resulting in ownership changes in the prior periods. A valuation allowance has not been recorded on these deferred tax assets as the limitations imposed by the U.S. tax laws do not result in a change in judgment as to the realizability of such assets.

Cash paid (refunded) for income taxes was approximately $12,596, $6,158, $6,207 and $(19) for the fiscal years ended June 30, 2016 and 2015, the period from August 15, 2013 through June 30, 2014 and the period from July 1, 2013 through August 14, 2013.

Uncertain Tax Positions

As of June 30, 2016 and 2015, the total liability for uncertain tax benefits was $2,106 and $2,794, respectively, including accrued interest and penalties and net of related benefits. While the Company believes its tax estimates are reasonable and that it prepares its tax filings in accordance with applicable tax laws, the final determination with respect to any tax audit could be materially different from our estimates or from our historical income tax provisions and accruals.

Unrecognized tax benefits represent the aggregate tax effect of differences between tax return positions and the amounts otherwise recognized in the Company’s consolidated financial statements and are reflected in “Other long-term liabilities” in the Consolidated Balance Sheet. A reconciliation of the beginning and ending amount of unrecognized tax benefits, including interest and penalties, is as follows:


	Successor						Predecessor
	Fiscal Year Ended				Period from August		Period from July 1
	June 30,				15, 2013 through		2013 through
	2016		2015		June 30, 2014		August 14, 2013
At the beginning of the period	$	2,794	$	1,601	$	348	$	348
Acquisitions		—		2,636		1,253		—
Accrued interest and penalties		—		65		—		—
Decreases for tax positions related to prior periods		(341)		(255)		—		—
Decreases due to lapsed statute of limitations		(347)		(1,253)		—		—
At the end of the period	$	2,106	$	2,794	$	1,601	$	348

Included in the balance of unrecognized tax benefits as of June 30, 2016 and 2015, are $2,106 and $2,794, respectively, of tax benefits that, if recognized, would affect the effective tax rate.

The unrecognized tax benefits accrual for the year ended June 30, 2016 consists of federal and foreign tax matters. It is unlikely that the Company’s total unrecognized tax benefits will decrease during the next year. The Company has elected to treat interest and penalties attributable to income taxes to the extent they arise, as a component of its income tax expense or benefit. For the period from August 15, 2013 through June 30, 2014, the period from July 1, 2013 to August 14, 2013, and the fiscal year ended June 30, 2016, no interest or penalties were required to be recorded. During the fiscal year ended June 30, 2015, the Company recorded $65 of interest and penalties.

As part of the acquisition the Company received indemnification for all taxes payable and unrecognized tax positions incurred by ASG prior to the date of acquisition from the prior owners. As of June 30, 2016, the Company has an indemnification receivable balance of $2,106 due from the former owners of ASG.

The Company files tax returns in multiple jurisdictions and is subject to examination by tax authorities in these jurisdictions. Significant tax jurisdictions include the US, UK and Germany. Tax years from fiscal 2012 through 2015 remain open and subject to examination in the Company’s major taxing jurisdictions.

As of June 30, 2016, the Company is under tax audit in Mexico for 2008, Ireland for 2015, Canada for 2012-2014 and Germany for 2009-2011.

It is the intention of the Company to reinvest the earnings of its subsidiaries outside of the UK. At June 30, 2016, approximately $103,722 of accumulated earnings were indefinitely reinvested. Determining the deferred tax liability for these undistributed foreign earnings is not practicable. A deferred tax liability may be required in the future if the Company’s business strategy changes and requires distributions of previously indefinitely reinvested earnings.