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INCOME TAXES | 12 Months Ended
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Jun. 30, 2019
INCOME TAXES |
INCOME TAXES | 9. INCOME TAXES The following is a geographical breakdown of income before the provision for income taxes (in thousands):
|  | 2017 |  | 2018 |  | 2019
Pre-tax income (loss): |  |  |  |  |  |  |  |  |
United States |  | $ | (39,686) |  | $ | (40,335) |  | $ | 6,575
Foreign |  |  | 65,437 |  |  | 77,189 |  |  | 79,589
Total pre-tax income |  | $ | 25,751 |  | $ | 36,854 |  | $ | 86,164
Our provision (benefit) for income taxes consists of the following (in thousands):
|  | 2017 |  | 2018 |  | 2019
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | 788 |  | $ | 8,518 |  | $ | 541
State |  |  | 493 |  |  | 707 |  |  | 883
Foreign |  |  | 27,616 |  |  | 30,643 |  |  | 28,480
Total current provision |  |  | 28,897 |  |  | 39,868 |  |  | 29,904
Deferred: |  |  |  |  |  |  |  |  |
Federal |  | $ | (16,314) |  | $ | 35,957 |  | $ | (1,697)
State |  |  | (484) |  |  | 338 |  |  | 1,214
Foreign |  |  | (7,424) |  |  | (10,182) |  |  | (8,053)
Total deferred provision (benefit) |  |  | (24,222) |  |  | 26,113 |  |  | (8,536)
Total provision |  | $ | 4,675 |  | $ | 65,981 |  | $ | 21,368
As of June 30, 2018 and 2019, our liability for uncertain tax positions was $4.4 million and $4.6 million, respectively. The $4.6 million represents the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate. We recognize potential interest and penalties related to income tax matters in income tax expense. As of June 30, 2019, we had accrued $0.1 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 2015 for federal purposes, fiscal years after 2014 for state purposes and fiscal years after 2007 for various foreign jurisdictions. Facts and circumstances could arise that could cause us 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, we are 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 2018 and 2019 is as follows (in thousands).
Balance at June 30, 2017 |  | $ | 11,195
Additions on tax positions for the current year |  |  | 294
Additions on tax positions from prior years |  |  | 14
Reduction in tax positions from prior year |  |  | (1,005)
Balance at June 30, 2018 |  | $ | 10,498
Additions on tax positions for the current year |  |  | 940
Additions on tax positions from prior years |  |  | 346
Reduction in tax positions from prior year |  |  | (398)
Balance at June 30, 2019 |  | $ | 11,386
Recent Tax Legislation The Tax Cuts and Jobs Act (the “Tax Act”) enacted in 2017 resulted in the U.S. Federal income tax rate being reduced from 35% to 21% effective January 1, 2018. During the measurement period, which was one year from the date of enactment, or the completion of all estimates made in connection with the Tax Act, companies were permitted to make additional income tax adjustments and revisions of estimates related to the Tax Act. During the quarter ended December 31, 2018, we concluded our analysis of the impact of the Tax Act and made no adjustments to the provisional amounts previously recorded. While our accounting for the recorded impact of the Tax Act as of December 31, 2018 was deemed to be complete, this amount was based on prevailing regulations and available information as of December 31, 2018. Additional guidance issued by the Internal Revenue Service (IRS) and changes to State laws may continue to impact our recorded amounts after December 31, 2018. The Tax Act subjects a U.S. corporation to tax on its GILTI (Global Intangible Low-Taxed Income), FDII (Foreign-Derived Tangible Income Taxes), and BEAT (Base Erosion Anti-abuse Tax). We included the impact of these taxes in our effective tax rate. Interpretive guidance on the accounting for GILTI states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. In fiscal 2019, we made the accounting policy election to recognize GILTI as a period expense. Deferred income tax assets (liabilities) consisted of the following (in thousands):
|  | June 30,
|  | 2018 |  | 2019
Deferred income tax assets: |  |  |  |  |  |
Tax credit carryforwards |  | $ | 17,591 |  | $ | 14,785
Net operating loss carryforwards |  |  | 10,473 |  |  | 9,331
Customer advances |  |  | 2,360 |  |  | 3,365
Allowance for doubtful accounts |  |  | 4,336 |  |  | 4,287
Inventory reserve |  |  | 11,735 |  |  | 11,503
Inventory capitalization |  |  | 3,043 |  |  | 2,721
Accrued liabilities |  |  | 9,174 |  |  | 5,953
Stock and deferred compensation |  |  | 15,779 |  |  | 12,737
Other assets |  |  | 3,641 |  |  | 3,157
Total deferred income tax assets |  |  | 78,132 |  |  | 67,839
Valuation allowance |  |  | (27,007) |  |  | (23,377)
Net deferred income tax assets |  |  | 51,125 |  |  | 44,462
Deferred income tax liabilities: |  |  |  |  |  |
Depreciation |  |  | (6,322) |  |  | (4,866)
Amortization of intangible assets |  |  | (31,993) |  |  | (26,056)
Withholding tax on unrepatriated foreign earnings |  |  | (5,114) |  |  | (5,114)
State transition tax |  |  | (1,754) |  |  | (1,754)
Convertible debt |  |  | (9,198) |  |  | (6,443)
Prepaid expenses |  |  | (8,680) |  |  | (3,903)
Other liabilities |  |  | (459) |  |  | (308)
Total deferred income tax liabilities |  |  | (63,520) |  |  | (48,444)
Net deferred income tax liability |  | $ | (12,395) |  | $ | (3,982)
The components of the net deferred income tax asset are classified in the consolidated balance sheets as follows (in thousands):
|  | 2018 |  | 2019
Long term deferred income tax asset, included in other assets |  |  | 2,607 |  |  | 3,997
Long term deferred income tax liability |  |  | (15,002) |  |  | (7,979)
Net deferred income tax liability |  | $ | (12,395) |  | $ | (3,982)
The components of current taxes receivable and payable and prepaid taxes are classified in the consolidated balance sheets as follows (in thousands):
|  | 2018 |  | 2019
Current taxes receivable and prepaid taxes, included in prepaid expenses and other current assets |  | $ | 5,172 |  | $ | 4,344
Current taxes payable, included in other accrued expenses and current liabilities |  |  | (8,314) |  |  | (3,094)
Net tax receivable (payable) |  | $ | (3,142) |  | $ | 1,250
As of June 30, 2019, we had state and foreign net operating loss carryforwards of approximately $34.1 million and $30.9 million, respectively. As of June 30, 2019, we had federal and state research and development tax credit carryforwards of approximately $15.0 million and $4.7 million, respectively. Our credit carryforwards will begin to expire in the tax year ending June 30, 2025. We have established valuation allowances that relate to the net operating loss of certain subsidiaries, capital losses, and tax credits. During the year ended June 30, 2019, we recorded a net aggregated decrease of $3.6 million to these valuation allowances. We review the adequacy of individual valuation allowances and release such allowances when it is determined that it is more likely than not that the related benefits will be realized. We recognized all excess tax benefits and tax deficiencies as income tax expense or benefit in the current year. An income tax benefit of approximately $3.7 million and $3.1 million was recognized in fiscal 2018 and 2019, respectively. The consolidated effective income tax rate differs from the federal statutory income tax rate due primarily to the following:
|  | June 30, |
|  | 2017 |  | 2018 |  | 2019 |
Provision for income taxes at federal statutory rate |  | 35.0 | % | 28.1 | % | 21.0 | %
Research and development tax credits |  | (2.5) |  | (1.4) |  | (1.6) |
Foreign income subject to tax at other than federal statutory rate |  | (20.0) |  | (4.8) |  | 2.9 |
Stock compensation excess tax benefit |  | (9.5) |  | (8.8) |  | (3.2) |
Officers’ compensation |  | — |  | — |  | 3.5 |
Change in valuation allowance |  | 10.4 |  | 19.6 |  | (1.8) |
Unrecognized tax (benefit) expense |  | (1.4) |  | (6.8) |  | 0.1 |
Meals and entertainment |  | 1.8 |  | 1.5 |  | 0.4 |
Tax on foreign currency gains and losses |  | 9.1 |  | (0.1) |  | 0.2 |
State tax expense |  | (1.5) |  | (1.3) |  | 1.6 |
U.S. tax on foreign earnings |  | 0.4 |  | 2.5 |  | 1.0 |
Non-taxable gain from sale of business |  | (3.6) |  | — |  | — |
Mexico imputed income or expense |  | (2.0) |  | (3.5) |  | (0.5) |
Remeasurement of U.S. net deferred tax assets from 35% to 21% |  | — |  | 16.0 |  | — |
Deemed repatriation of non-U.S. earnings |  | — |  | 102.2 |  | — |
Withholding tax on deemed repatriation foreign earnings |  | — |  | 35.8 |  | — |
Other |  | 1.9 |  | — |  | 1.2 |
Effective income tax rate |  | 18.1 | % | 179.0 | % | 24.8 | %
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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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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