Note 7.

Income Taxes

The components of earnings (losses) from continuing operations before income taxes were as follows:

Year Ended June 30,	2016			2015			2014
($000)
U.S. loss	$	(5,809	)	$	(5,326	)	$	(2,863	)
Non-U.S. income		95,764			84,438			48,504
Earnings from continuing operations before income taxes	$	89,955		$	79,112		$	45,641

The components of income tax expense from continuing operations were as follows:

Year Ended June 30,	2016			2015			2014
($000)
Current:
Federal	$	3,704		$	(146	)	$	(1,067	)
State		5			86			152
Foreign		19,783			16,978			12,675
Total Current	$	23,492		$	16,918		$	11,760
Deferred:
Federal	$	2,759		$	(2,762	)	$	(16	)
State		1,302			(251	)		148
Foreign		(3,084	)		(768	)		(4,567	)
Total Deferred	$	977		$	(3,781	)	$	(4,435	)
Total Income Tax Expense	$	24,469		$	13,137		$	7,325

Principal items comprising deferred income taxes were as follows:

June 30,	2016			2015
($000)
Deferred income tax assets
Inventory capitalization	$	6,814		$	6,614
Non-deductible accruals		2,212			1,902
Accrued employee benefits		15,543			10,297
Net-operating loss and credit carryforwards		43,516			22,232
Share-based compensation expense		11,693			13,222
Other		1,770			1,468
Valuation allowances		(42,641	)		(2,713	)
Total deferred income tax assets	$	38,907		$	53,022
Deferred income tax liabilities
Tax over book accumulated depreciation	$	(9,759	)	$	(15,937	)
Intangible assets		(29,628	)		(25,132	)
Tax on unremitted earnings		(797	)		(1,753	)
Other		(1,978	)		(2,520	)
Total deferred income tax liabilities	$	(42,162	)	$	(45,342	)
Net deferred income taxes	$	(3,255	)	$	7,680

The reconciliation of income tax expense at the statutory federal rate to the reported income tax expense is as follows:

Year Ended June 30,	2016			%			2015			%			2014			%
($000)
Taxes at statutory rate	$	31,484			35		$	27,689			35		$	15,974			35
Increase (decrease) in taxes resulting from:
State income taxes-net of federal benefit		864			1			(196	)		-			254			1
Taxes on non U.S. earnings		(13,860	)		(15	)		(11,687	)		(15	)		(6,672	)		(15	)
Valuation allowance		8,464			9			678			1			(595	)		(1	)
Research and manufacturing incentive deductions		(3,074	)		(3	)		(2,573	)		(3	)		(2,190	)		(5	)
Other		591			-			(774	)		(1	)		554			1
	$	24,469			27		$	13,137			17		$	7,325			16

During the fiscal years ended June 30, 2016, 2015, and 2014, net cash paid by the Company for income taxes was $18.5 million, $13.0 million, and $17.2 million, respectively.

Our foreign subsidiaries in the Philippines operate under various tax holiday arrangements. The benefits of such arrangements phase out through the fiscal year ended June 30, 2019. The impact of the tax holidays on our effective rate is a reduction in the rate of 0.37%, 0.22% and 0.12% for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.

The cumulative amount of the Company’s foreign undistributed net earnings for which no deferred taxes have been provided was approximately $479 million at June 30, 2016. If the earnings of such foreign subsidiaries were not indefinitely reinvested, an additional deferred tax liability of approximately $89 million would have been required as of June 30, 2016. It is the Company’s intention to permanently reinvest substantially all of its undistributed earnings of its foreign subsidiaries; therefore, no provision has been made for future income taxes on the undistributed earnings of the majority of foreign subsidiaries, as they are considered indefinitely reinvested. The Company has provided a deferred tax liability for future income taxes on the earnings of certain foreign subsidiaries as these earnings are planned to be repatriated.

The Company has the following gross operating loss carryforwards and tax credit carryforwards as of June 30, 2016:

Type	Amount		Expiration Date
($000)
Tax credit carryforwards:
Federal research and development credits	$	8,479	June 2019-June 2036
Foreign tax credits		2,594	June 2024-June 2026
State tax credits		3,218	June 2017-June 2036
Operating loss carryforwards:
Loss carryforwards - federal	$	93,081	June 2021-June 2036
Loss carryforwards - state		48,934	June 2017-June 2036
Loss carryforwards - foreign		2,049	June 2017-June 2024

The Company has recorded a valuation allowance against the majority of the loss and credit carryforwards. The Company’s federal loss carryforwards, federal research and development credit carryforwards, and certain state tax credits resulted from the Company’s acquisitions of Photop, Aegis, M Cubed, EpiWorks, and ANADIGICS are subject to various annual limitations under Section 382 of the Internal Revenue Code.

Changes in the liability for unrecognized tax benefits for the fiscal years ended June 30, 2016, 2015 and 2014 were as follows:

	2016			2015			2014
($000)
Balance at Beginning of Year	$	4,022		$	2,775		$	3,181
Increases in current year tax positions		2,146			2,450			298
Increases in prior year tax positions		190			203		2
Decreases in prior year tax positions		(67	)		-			-
Settlements		-			-			-
Expiration of statute of limitations		(732	)		(1,406	)		(706	)
Balance at End of Year	$	5,559		$	4,022		$	2,775

The Company classifies all estimated and actual interest and penalties as income tax expense. During the fiscal years 2016 and 2014, there were no interest and penalties within income tax expense. During the fiscal year 2015, there was a benefit of $0.1 million of interest and penalties within tax expense. The Company had $0.1 million, $0.1 million, and $0.2 million of interest and penalties accrued at June 30, 2016, 2015, and 2014, respectively. The increase in the Company’s current year tax positions are the result of certain unrecognized tax benefits associated with transfer pricing. The Company has classified the uncertain tax positions as non-current income tax liabilities as the amounts are not expected to be paid within one year. Including tax positions for which the Company determined that the tax position would not meet the more likely than not recognition threshold upon examination by the tax authorities based upon the technical merits of the position, the total estimated unrecognized tax benefit that, if recognized, would affect our effective tax rate was approximately $4.6 million and $3.6 million at June 30, 2016 and 2015, respectively. The Company expects a decrease of $0.3 million of unrecognized tax benefits during the next twelve months due to the expiration of statutes of limitation.

Fiscal years 2013 to 2016 remain open to examination by the Internal Revenue Service, fiscal years 2011 to 2016 remain open to examination by certain state jurisdictions, and fiscal years 2007 to 2016 remain open to examination by certain foreign taxing jurisdictions. The Company’s fiscal years 2011 and 2012 California and fiscal years 2012 through 2015 New Jersey state income tax returns are currently under examination. The Company’s Vietnam subsidiary has been notified of an examination to start in fiscal year 2017.