INCOME TAXES

The components of income (loss) before income taxes and equity in earnings of equity-method investees were as follows:



	Fiscal Year Ended June 30,
	2018			2017		2016
Domestic	$	(13,936	)	$	47,781	$	126,686
Foreign	95,138			40,097		(39,617		)
Total	$	81,202		$	87,878	$	87,069

The provision (benefit) for income taxes consisted of the following:



	Fiscal Year Ended June 30,
	2018			2017			2016
Current:
Federal	$	(1,309	)	$	18,331		$	9,953
State and local	1,383			(293		)	1,668
Foreign	20,542			14,884			14,737
	20,616			32,922			26,358
Deferred:
Federal	(22,612		)	(3,198		)	30,711
State and local	1,973			960			5,017
Foreign	(864		)	(8,218		)	(2,635		)
	(21,503		)	(10,456		)	33,093
Total	$	(887	)	$	22,466		$	59,451

For the fiscal year ended June 30, 2018, the Company paid cash for income taxes, net of refunds of $24,284. Cash paid for income taxes, net of (refunds), during the fiscal years ended June 30, 2017 and 2016 amounted to $(2,900) and $44,225, respectively.

The reconciliation of the U.S. federal statutory rate to our effective rate on income before provision for income taxes was as follows:



	Fiscal Year Ended June 30,
	2018			%		2017			%		2016			%
Expected United States federal income tax at statutory rate	$	22,818		28.1	%	$	30,757		35.0	%	$	30,474		35.0	%
State income taxes, net of federal benefit	2,774			3.4	%	2,757			3.1	%	4,263			4.9	%
Domestic manufacturing deduction	—			—	%	(846		)	(1.0	)%	(505		)	(0.6	)%
Foreign income at different rates	(7,174		)	(8.8	)%	(6,539		)	(7.4	)%	(4,051		)	(4.7	)%
Impairment of goodwill and intangibles	1,816			2.2	%	—			—	%	23,172			26.6	%
Change in valuation allowance	119			0.1	%	(60		)	(0.1	)%	5,067			5.8	%
Corporate tax reorganization	—			—	%	—			—	%	(4,173		)	(4.8	)%
Unrealized foreign exchange losses	—			—	%	807			0.9	%	7,056			8.1	%
Change in reserves for uncertain tax positions	(3,859		)	(4.8	)%	(4,417		)	(5.0	)%	1,448			1.7	%
Tax Act’s transition tax (b)	7,054			8.7	%	—			—	%	—			—	%
Tax Act’s impact of deferred taxes (a)	(25,006		)	(30.8	)%	—			—	%	—			—	%
Reduction of deferred tax liabilities resulting from change in United Kingdom tax rate	—			—	%	(1,841		)	(2.1	)%	(4,942		)	(5.7	)%
Other	571			0.8	%	1,848			2.2	%	1,642			2.0	%
(Benefit) provision for income taxes	$	(887	)	(1.1	)%	$	22,466		25.6	%	$	59,451		68.3	%

On December 22, 2017, the U.S. government enacted comprehensive tax legislation pursuant to the Tax Cuts and Jobs Act (the “Tax Act”), which significantly revised the ongoing U.S. corporate income tax law by lowering the U.S. federal corporate income tax rate from 35% to 21%, implementing a territorial tax system, imposing a one-time tax on foreign unremitted earnings and setting limitations on deductibility of certain costs (e.g., interest expense), among other things.

Due to the complexities involved in accounting for the Tax Act, the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) 118 requires that the Company include in its financial statements a reasonable estimate of the impact of the Tax Act on earnings to the extent such reasonable estimate has been determined. Accordingly, the Company recorded the following reasonable estimates of the tax impact in its earnings for the fiscal year ended June 30, 2018.

(a) For the fiscal year ended June 30, 2018, the Company accrued a $25,006 provisional tax benefit related to the net change in deferred tax liabilities stemming from the Tax Act’s reduction of the U.S. federal tax rate from 35% to 21%, and disallowance of certain incentive based compensation tax deductibility under Internal Revenue Code Section 162(m).

(b) For the fiscal year ended June 30, 2018, the Company accrued a reasonable estimate of $7,054 of tax expense for the Tax Act’s one-time transition tax on the foreign subsidiaries’ accumulated, unremitted earnings going back to 1986.

The final impact on the Company from the Tax Act’s transition tax legislation may differ from the aforementioned reasonable estimate of $7,054 due to the complexity of calculating and supporting with primary evidence such U.S. tax attributes as accumulated foreign earnings and profits, foreign tax paid and other tax components involved in foreign tax credit calculations for prior years back to 1986. Such differences could be material, due to, among other things, changes in interpretations of the Tax Act, future legislative action to address questions that arise because of the Tax Act, changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the Company has utilized to calculate the transition tax's reasonable estimate.

Pursuant to SAB 118, the Company is allowed a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. The Company will continue to calculate the impact of the Tax Act and will record any resulting tax adjustments during fiscal 2019. Additionally, the Company will elect to pay the transition tax in installments over a period of 8 years, pursuant to the guidance of the new Internal Revenue Code Section 965.

The Tax Act also includes a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries. The Company will be subject to the GILTI provisions effective beginning July 1, 2018 and is in the process of analyzing its effects, including how to account for the GILTI provision from an accounting policy standpoint.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Deferred tax assets and liabilities consisted of the following:



	June 30, 2018			June 30, 2017
Noncurrent deferred tax assets/(liabilities):
Basis difference on inventory	$	9,139		$	9,003
Reserves not currently deductible	11,060			23,111
Basis difference on intangible assets	(97,365		)	(124,756		)
Basis difference on property and equipment	(8,444		)	(12,086		)
Other comprehensive income	(133		)	(768		)
Net operating loss and tax credit carryforwards	12,414			19,049
Stock-based compensation	1,348			3,996
Other	41			(616		)
Valuation allowances	(14,969		)	(14,850		)
Noncurrent deferred tax liabilities, net (1)	$	(86,909	)	$	(97,917	)


(1)	The June 30, 2017 the Consolidated Balance Sheet includes $429 of non-current deferred tax assets in Other Assets.

At June 30, 2018 and 2017, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $23,057 and $25,144, respectively, the majority of which will not expire until 2033. Certain of these federal loss carryforwards are subject to Internal Revenue Code Section 382 which imposes limitations on utilization following certain changes in ownership of the entity generating the loss carryforward. The Company had foreign NOL carryforwards of approximately $30,065 and $43,306 at June 30, 2018 and 2017, respectively, the majority of which are indefinite lived.

At each of June 30, 2018 and 2017, the Company had U.S. federal foreign tax credit carryforwards of approximately $877, which have various expiration dates through 2020.

As of June 30, 2018, the Company has not provided for deferred taxes on the excess of financial reporting over the tax basis of investments in certain foreign subsidiaries in the amount of $32,967 as the Company plans to reinvest such earnings indefinitely outside the United States. If these earnings were repatriated in the future, additional income and withholding tax expense would be incurred. Due to complexities in the laws of the U.S. and foreign jurisdictions and the assumptions that would have to be made, it is not practicable to estimate the total amount of income taxes that would have to be provided on such earnings.

As required by the authoritative guidance on accounting for income taxes, the Company evaluates the realizability of deferred tax assets on a jurisdictional basis at each reporting date. Accounting for income taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of the deferred tax assets will not be realized. In circumstances where there is sufficient negative evidence indicating that the deferred tax assets are not more likely than not realizable, we establish a valuation allowance. We have recorded valuation allowances in the amounts of $14,969 and $14,850 at June 30, 2018 and 2017, respectively.

The changes in valuation allowances against deferred income tax assets were as follows:



	Fiscal Year Ended June 30,
	2018			2017
Balance at beginning of year	$	14,850		$	15,310
Additions charged to income tax expense	1,251			1,862
Reductions credited to income tax expense	(1,345		)	(1,922		)
Currency translation adjustments	213			(400		)
Balance at end of year	$	14,969		$	14,850

Unrecognized tax benefits activity, including interest and penalties, is summarized below:



	Fiscal Year Ended June 30,
	2018			2017			2016
Balance at beginning of year	$	11,602		$	16,019		$	10,759
Additions based on tax positions related to the current year	118			217			4,276
Additions based on tax positions related to prior years	—			—			1,404
Reductions due to lapse in statute of limitations and settlements	(4,990		)	(4,634		)	(420		)
Balance at end of year	$	6,730		$	11,602		$	16,019

As of June 30, 2018, the Company had $6,730 of unrecognized tax benefits, of which $2,917 represents the amount that, if recognized, would impact the effective tax rate in future periods. As of June 30, 2017 and 2016, the Company had $11,602 and $16,019, respectively, of unrecognized tax benefits of which $6,409 and $10,826, respectively, would impact the effective income tax rate in future periods. Accrued liabilities for interest and penalties were $82 and $460 at June 30, 2018 and 2017, respectively. Interest and penalties (expense and/or benefit) are recorded as a component of the provision (benefit) for income taxes in the consolidated financial statements.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and several foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to fiscal 2015. However, to the extent we generated NOLs or tax credits in closed tax years, future use of the NOL or tax credit carryforward balance would be subject to examination within the relevant statute of limitations for the year in which utilized. The Company is no longer subject to tax examinations in the United Kingdom for years prior to fiscal 2015. Given the uncertainty regarding when tax authorities will complete their examinations and the possible outcomes of their examinations, a current estimate of the range of reasonably possible significant increases or decreases of income tax that may occur within the next twelve months cannot be made. Although there are various tax audits currently ongoing, the Company does not believe the ultimate outcome of such audits will have a material impact on the Company’s consolidated financial statements.