8. INCOME TAXES

The following is a geographical breakdown of income before the provision for income taxes (in thousands):


	2013		2014		2015
Pre-tax income (loss):
United States	$	(13,111)	$	(22,604)	$	(16,428)
Foreign		82,525		98,459		105,281
Total pre-tax income	$	69,414	$	75,855	$	88,853

The Company’s provision (benefit) for income taxes consists of the following (in thousands):


	2013		2014		2015
Current:
Federal	$	(2,214)	$	(704)	$	2,502
State		(36)		113		1,276
Foreign		23,925		20,616		25,880
Total current provision		21,675		20,025		29,658
Deferred:
Federal	$	(2,422)	$	(5,366)	$	(7,910)
State		337		(1,128)		(1,180)
Foreign		5,689		14,430		3,134
Total deferred provision		3,604		7,936		(5,956)
Total provision	$	25,279	$	27,961	$	23,702

As of June 30, 2014 and 2015, the Company’s liability for uncertain tax positions was $3.2 million and $6.7 million, respectively. Of the $6.7 million, $6.4 million represents the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate.

The Company recognizes potential interest and penalties related to income tax matters in income tax expense. As of June 30, 2015, the Company had accrued $0.4 million for interest and penalties. The Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. These include fiscal years after 2012 for federal purposes, fiscal years after 2011 for state purposes and fiscal years after 2006 for various foreign jurisdictions. Facts and circumstances could arise that could cause the Company to reduce the liability for unrecognized tax benefits, including, but not limited to, settlement of income tax positions or expiration of statutes of limitation. Since the ultimate resolution of uncertain tax positions depends on many factors and assumptions, the Company is not able to estimate the range of potential changes in the liability for unrecognized tax benefits or the timing of such changes.

A summary of activity of unrecognized tax benefits for fiscal 2013, 2014 and 2015 is as follows (in thousands).


Balance at June 30, 2013	$	9,504
Additions on tax positions for the current year		1,043
Additions on tax positions from prior years		—
Reduction in tax position from prior year		(3,723)
Balance at June 30, 2014	$	6,824
Additions on tax positions for the current year		5,806
Additions on tax positions from prior years		453
Reduction in tax position from prior year		(2,034)
Balance at June 30, 2015	$	11,049

The Company does not provide for U.S. income taxes on the undistributed earnings of its foreign subsidiaries as it is the Company’s intention to utilize those earnings in the foreign operations for an indefinite period of time. At June 30, 2015, undistributed earnings of the foreign subsidiaries amounted to approximately $523 million. The amount of unrecognized deferred tax liability related to these temporary differences is estimated to be approximately $183 million. The amount of tax payable could be significantly impacted by the source location and amount of the distribution, the underlying tax rate already paid on the earnings, foreign withholding taxes and the opportunity to use foreign tax credits.

Deferred income tax assets (liabilities) consisted of the following (in thousands):


	June 30,
	2014		2015
Deferred income tax assets:
Tax credit carryforwards	$	9,314	$	9,274
Net operating loss carryforwards		5,868		5,915
Customer advances		37,777		25,797
Allowance for doubtful accounts		3,071		2,978
Inventory reserve		8,832		9,308
Inventory capitalization		2,814		3,257
Accrued liabilities		5,040		6,221
Stock & deferred compensation		13,167		21,087
Other assets		9,372		5,904
Total deferred income tax assets		95,255		89,741
Valuation allowance		(13,344)		(12,728)
Net deferred income tax assets		81,911		77,013
Deferred income tax liabilities:
Depreciation		(60,103)		(50,029)
State income taxes		(1,471)		(1,965)
Amortization of intangible assets		(11,702)		(14,412)
Prepaid expenses		(7,957)		(5,767)
Other liabilities		(561)		(13)
Total deferred income tax liabilities		(81,794)		(72,186)
Net deferred tax asset	$	117	$	4,827

The components of the net deferred income tax asset are classified in the consolidated balance sheets as follows (in thousands):


	2014		2015
Current deferred income tax asset	$	60,401	$	44,887
Current deferred income tax liability, included in other accrued expenses and current liabilities		(8,633)		(7,638)
Long term deferred income tax asset, included in other assets		21,510		33,013
Long term deferred income tax liability		(73,161)		(65,435)
Net deferred income tax asset	$	117	$	4,827

The components of current taxes receivable and payable and prepaid taxes are classified in the consolidated balance sheets as follows (in thousands):


	2014		2015
Current taxes receivable and prepaid taxes, included in prepaid expenses and other current assets	$	13,126	$	12,784
Current taxes payable		(20,556)		(9,610)
Net tax payable		(7,430)		3,174

As of June 30, 2015, the Company had domestic and foreign net operating loss carryforwards of approximately $25.1 million and $21.2 million, respectively. As of June 30, 2015, the Company had federal and state research and development tax credit carryforwards of approximately $8.4 million and $3.8 million, respectively. As of June 30, 2015, the Company had foreign tax credit carryforwards of $1.9 million. The Company’s credit carryforwards will begin to expire in the tax year ending June 30, 2017.

The Company has established valuation allowances that relate to the net operating loss of certain subsidiaries, foreign tax credits and R&D credits. During the year ended June 30, 2015, the Company recorded a net aggregated decrease of $0.6 million to these valuation allowances. The Company reviews the adequacy of individual valuation allowances and releases such allowances when it is determined that it is more likely than not that the related benefits will be realized.

The Company recognizes excess tax benefits associated with the exercise of stock options directly to stockholders’ equity only when realized. Accordingly, deferred tax assets are not recognized for net operating losses resulting from excess tax benefits. As of June 30, 2015, deferred tax assets do not include approximately $0.9 million of these excess tax benefits from employee stock option exercises that are a component of the Company’s net operating loss carry forwards. Accordingly, additional paid‑in capital will be increased up to an additional $0.9 million if and when such excess tax benefits are realized. However, to the extent additional paid‑in capital has been recognized for qualifying excess tax deductions from previous share‑based payments, the write off of the deferred tax asset when the tax deduction is less than recognized compensation cost is charged to additional paid‑in capital, with any remainder charged to provision for income taxes.

The consolidated effective income tax rate differs from the federal statutory income tax rate due primarily to the following:


	June 30,
	2013		2014		2015
Provision for income taxes at federal statutory rate	35.0	%	35.0	%	35.0	%
UK patent box benefit	—		—		(2.1)
Impact to tax rate as a result of accelerating depreciation of certain foreign assets	9.8		10.1		—
Research and development tax credits	(1.9)		(0.7)		(0.9)
Foreign income subject to tax at other than federal statutory rate	(8.9)		(10.0)		(9.4)
Change in valuation allowance	2.8		2.8		(1.1)
Unrecognized tax benefit	(2.0)		(2.5)		4.1
US tax on foreign earnings	—		0.3		4.9
Non-taxable earnings from acquisitions	(0.4)		(0.5)		(2.3)
Mexico imputed income (expense)	—		2.8		(0.7)
Other	2.0		(0.4)		(0.8)
Effective income tax rate	36.4	%	36.9	%	26.7	%

The provision for income taxes consists of provisions for federal, state, and foreign income taxes. The Company operates 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.