Income Taxes

Income tax expense (benefit) consists of:



	Fiscal Year Ended June 30,
	2015		2014		2013
	(in thousands)
Current:
Federal	$	24,658	$	25,895	$	32,387
State	1,639		2,439		993
Foreign	4,927		3,826		3,921
Total current	31,224		32,160		37,301
Deferred:
Federal	2,165		7,933		(10,200		)
State	198		725		(519		)
Foreign	900		500		(8,218		)
Total deferred	3,263		9,158		(18,937		)
Provision for income taxes	$	34,487	$	41,318	$	18,364

A reconciliation of the U.S. Federal income tax expense at a statutory rate of 35% to actual income tax expense, excluding any other taxes related to extraordinary gain is as follows:



	Fiscal Year Ended June 30,
	2015			2014			2013
	(in thousands)
U.S. Federal income tax at statutory rate	$	34,967		$	43,088		$	18,559
Increase (decrease) in income taxes due to:
State and local income taxes, net of Federal benefit	1,318			1,974			523
Tax credits	(1,435		)	(1,935		)	(1,629		)
Valuation allowance	582			803			353
Effect of foreign operations, net	(1,665		)	(1,627		)	(1,342		)
Stock compensation	(419		)	(494		)	(148		)
Goodwill impairment	—			—			1,139
Capitalized acquisition costs	839			—			—
Other	300			(491		)	909
Provision for income taxes	$	34,487		$	41,318		$	18,364

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:



	June 30,
	2015			2014
	(in thousands)
Deferred tax assets derived from:
Allowance for accounts receivable	$	9,925		$	9,941
Inventories	5,235			7,996
Nondeductible accrued expenses	5,838			—
Net operating loss carryforwards	2,223			4,675
Tax credits	2,136			1,873
Timing of amortization deduction from goodwill	10,652			6,101
Deferred compensation	6,014			5,300
Stock compensation	5,730			5,129
Timing of depreciation and other deductions for building and equipment	83			—
Total deferred tax assets	47,836			41,015
Valuation allowance	(2,509		)	(1,696		)
Total deferred tax assets, net of allowance	45,327			39,319
Deferred tax liabilities derived from:
Nondeductible accrued expenses	—			(231		)
Timing of depreciation and other deductions from building and equipment	(549		)	(74		)
Timing of amortization deduction from goodwill	(4,908		)	(4,477		)
Timing of amortization deduction from intangible assets	(4,680		)	(1,886		)
Total deferred tax liabilities	(10,137		)	(6,668		)
Net deferred tax assets	$	35,190		$	32,651

The components of pretax earnings are as follows:



	Fiscal Year Ended June 30,
	2015		2014		2013
	(in thousands)
Domestic	$	79,364	$	104,685	$	64,581
Foreign	20,542		18,422		(11,555		)
Worldwide pretax earnings	$	99,906	$	123,107	$	53,026

As of June 30, 2015, there were (i) gross net operating loss carryforwards of approximately $1.6 million for state income tax purposes; (ii) foreign gross net operating loss carryforwards of approximately $6.5 million; (iii) state income tax credit carryforwards of approximately $0.4 million that will began to expire in 2017; and (iv) withholding tax credits of approximately $1.9 million. As of June 30, 2015, the Company recorded a $0.3 million valuation reserve against foreign net operating loss carry-forwards, related to foreign operations acquired during the period. In addition to the valuation allowance for the foreign net operating losses, the Company maintains a less than $0.1 million valuation allowance for state net operating losses, a $1.9 million valuation allowance for withholding tax credits, and a $0.3 million valuation allowance for the notional interest deduction, where it was determined that, in accordance with ASC 740, it is more likely than not that they cannot be utilized.

The Company has provided for U.S. income taxes for the current earnings of its Canadian subsidiary. Earnings from all other geographies will continue to be considered retained indefinitely for reinvestment. The Company has not provided U.S. income taxes for undistributed earnings of foreign subsidiaries that are considered to be retained indefinitely for reinvestment. The distribution of these earnings would result in additional foreign withholding taxes and additional U.S. federal income taxes to the extent they are not offset by foreign tax credits. It has been the practice of the Company to reinvest those earnings in the business outside the United States. These undistributed earnings amounted to approximately $93.9 million at June 30, 2015. If these earnings were remitted to the U.S., they would be subject to income tax. The tax, after foreign tax credits, is estimated to be approximately $16.3 million.

In prior years, financial results in Europe have generated pre-tax losses, primarily due to our European Communications business. Financial results in Belgium for the year ended June 30, 2015 produced pre-tax income of approximately $4.2 million resulting in partial, approximately 45%, utilization of the deferred tax asset. In the judgment of management, it is more likely than not that the deferred tax asset will be realized.

As of June 30, 2015, the Company had gross unrecognized tax benefits of $1.3 million, $0.8 million of which, if recognized, would affect the effective tax rate. This reflects an increase of $0.1 million on a net basis over the prior fiscal year. The Company does not expect that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Income Statement. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheet. The total amount of interest and penalties accrued, but excluded from the table below for the fiscal years ending June 30, 2015, 2014 and 2013 were $1.2 million, $1.1 million and $0.9 million, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	June 30,
	2015			2014			2013
	(in thousands)
Beginning Balance	$	1,153		$	1,034		$	1,257
Additions based on tax positions related to the current year	262			204			240
Additions for tax positions of prior years	—			—			—
Reduction for tax positions of prior years	(114		)	(85		)	(463		)
Settlements	—			—			—
Ending Balance	$	1,301		$	1,153		$	1,034

The Company conducts business globally and, as a result, one or more of its subsidiaries files income tax returns in the U.S. federal, various state, local and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities in countries in which it operates. With certain exceptions, the Company is no longer subject to state and local, or non-U.S. income tax examinations by tax authorities for tax years before June 30, 2010.