INCOME TAXES

Domestic and foreign income (loss) before income taxes for the three years ended June 30 were as follows:



(in thousands)	2014		2013		2012
Domestic	$	98,154	$	35,792	$	18,347
Foreign	89,707		97,358		61,359
	$	187,861	$	133,150	$	79,706

Provisions for income taxes for the three years ended June 30 were as follows:



(in thousands)	2014			2013			2012
Current:
Federal	$	27,264		$	6,279		$	8,054
State	9,456			2,565			1,010
Foreign	33,242			26,651			9,608
	69,962			35,495			18,672
Deferred:
Federal	4,001			7,650			2,447
State	(905		)	(2,113		)	(869		)
Foreign	(14,291		)	(3,854		)	(3,702		)
	(11,195		)	1,683			(2,124		)
	$	58,767		$	37,178		$	16,548

Our consolidated effective income tax rate differed from the U.S. federal statutory income tax rate as set forth below:



(in thousands)	2014			%		2013			%		2012			%
Income tax expense computed at the federal statutory rate	$	65,751		35.0	%	$	46,602		35.0	%	$	27,897		35.0	%
State income taxes, net of federal benefit	5,419			2.9	%	1,914			1.4	%	(232		)	(0.3	)%
Foreign rate differential	(4,857		)	(2.6	)%	(7,960		)	(6.0	)%	(6,539		)	(8.2	)%
Change in valuation allowances	(491		)	(0.3	)%	(4,708		)	(3.5	)%	1,630			2.0	%
Change in reserves	(5,193		)	(2.8	)%	394			0.3	%	(7,655		)	(9.6	)%
Research and development	(3,284		)	(1.7	)%	(2,986		)	(2.2	)%	(2,734		)	(3.4	)%
Non-deductible losses	69			—	%	440			0.3	%	678			0.9	%
Other non-deductible expenses	1,315			0.7	%	2,074			1.6	%	393			0.5	%
Adjustment of net operating losses	—			—	%	608			0.5	%	2,243			2.8	%
Statutory tax rate changes	(623		)	(0.3	)%	798			0.5	%	(1,047		)	(1.3	)%
Other, net	661			0.4	%	2			—	%	1,914			2.4	%
	$	58,767		31.3	%	$	37,178		27.9	%	$	16,548		20.8	%

Provision has not been made for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries as those earnings are indefinitely reinvested. Undistributed earnings of foreign subsidiaries that are indefinitely reinvested are approximately $423.0 million and $368.0 million at June 30, 2014 and June 30, 2013, respectively. Due to the complexities associated with this hypothetical calculation, it is not practicable to estimate the unrecognized deferred tax liability on the earnings that are indefinitely reinvested in foreign operations.

Significant components of our net deferred tax assets (liabilities) as of June 30, 2014 and June 30, 2013 were as follows:



(in thousands)	2014			2013
Deferred tax assets:
U.S. loss carryforwards	$	1,764		$	1,981
Foreign loss carryforwards	2,814			6,240
Accrued expenses	38,915			35,340
Tax credit carryforwards	5,711			14,559
Provision for losses on receivables	920			1,161
Deferred compensation	8,219			7,517
Deferred revenue	12,698			8,949
Intercompany loans	2,752			2,765
Other	3,597			1,168
Gross deferred tax assets	77,390			79,680
Deferred tax asset valuation allowance	(5,318		)	(6,023		)
Total deferred tax assets	72,072			73,657
Deferred tax liabilities:
Property and equipment	(6,521		)	(5,606		)
Revenue recognition	(17,601		)	(26,537		)
Intangible assets	(35,372		)	(38,186		)
Other	(1,038		)	(2,491		)
Total deferred tax liabilities	(60,532		)	(72,820		)
Net deferred tax assets	$	11,540		$	837

The net deferred tax assets and liabilities included in the consolidated balance sheets as of June 30, 2014 and June 30, 2013 were as follows:



(in thousands)	2014			2013
Current deferred tax assets	$	54,061		$	44,236
Non-current deferred tax assets	6,669			8,556
Current deferred tax liabilities	(16,592		)	(16,512		)
Non-current deferred tax liabilities	(32,598		)	(35,443		)
	$	11,540		$	837

At June 30, 2014, federal, state and foreign loss carryforwards of $2.8 million, $35.8 million and $15.8 million, respectively, were available to offset future liabilities for income taxes. The federal net operating losses expire in the years 2025 through 2034. Included in the state loss carryforwards is $3.7 million attributable to deductions from the exercise of equity awards. The benefit from these deductions will be recorded as a credit to additional paid-in capital if and when realized through a reduction of taxes paid in cash. Use of these loss carryforwards is limited based on the future income of certain subsidiaries. The state net operating losses expire in the years 2016 through 2033. Of the non-U.S. loss carryforwards, $4.8 million will expire between 2015 and 2034; the remainder does not expire. We also have U.S. foreign tax credit carryforwards of $28.0 million, which expire in the years 2018 through 2024. Included in the U.S. foreign tax credit carryforwards is $15.4 million attributable to deductions from the exercise of equity awards. The benefit from these credits will be recorded as a credit to additional paid-in capital if and when realized through a reduction of taxes paid in cash.

A valuation allowance has been established for certain future income tax benefits related to loss carryforwards and temporary tax adjustments based on an assessment that it is more likely than not that these benefits will not be realized. The decrease in the valuation allowance in Fiscal Year 2013 was principally due to improved profitability in various jurisdictions.

As of June 30, 2014, we had $41.5 million of gross unrecognized tax benefits of which $25.4 million would impact the effective tax rate if recognized. As of June 30, 2013, we had $46.6 million of gross unrecognized tax benefits of which $31.0 million would impact the effective tax rate if recognized. This reserve primarily relates to exposures for income tax matters such as changes in the jurisdiction in which income is taxable.

Unrecognized tax benefits represent favorable positions we have taken, or expect to take, on tax returns. These positions have reduced, or are expected to reduce, our income tax liability on our tax returns and financial statements. As a result of the uncertainty associated with these positions, we have established a liability that effectively reverses the previous recognition of the tax benefits, making them “unrecognized.” Our unrecognized income tax benefits, excluding accrued interest and penalties, are as follows:



(in thousands)	2014			2013			2012
Balance at beginning of year	$	46,591		$	53,813		$	62,211
Additions related to tax positions in prior years	792			—			4,433
Reductions related to tax positions in prior years	(1,115		)	(2,869		)	(1,898		)
Reductions related to settlements with tax authorities	—			—			(477		)
Reductions related to the expiration of statutes	(5,630		)	(4,662		)	(6,789		)
Currency translation adjustments	833			309			(3,667		)
Balance at end of year	$	41,471		$	46,591		$	53,813

As of June 30, 2014, we anticipate that the liability for unrecognized tax benefits for uncertain tax positions could change by up to $6.6 million in the next twelve months primarily as a result of the expiration of statutes of limitation and settlement with tax authorities. This change is composed primarily of reserves associated with the jurisdiction in which income is taxable.

We recognize interest and penalties related to income tax matters in income tax expense. As of June 30, 2014 and June 30, 2013, interest and penalties of $5.5 million and $5.0 million, respectively, were included in our liability for unrecognized tax benefits. For Fiscal Years 2014, 2013 and 2012, an expense of $0.3 million, and a benefit of $0.9 million and $2.1 million, respectively, was recorded for interest and penalties related to tax matters.

We are subject to U.S. federal income tax, as well as income tax in multiple state, local and foreign jurisdictions. All material state and local income tax matters through 2005 have been concluded. All material federal income tax matters have been concluded through 2005. Substantially all material foreign income tax matters have been concluded for all years through 2000.