12. INCOME TAXES

Consolidated income before taxes and noncontrolling interest for domestic and foreign operations is as follows:

	Year Ended June 30,

	2014		2013			2012
	(in 000s)
United States	$	163,880	$	220,439		$	161,043
Foreign		1,960		(4,164	)		3,416


Total	$	165,840	$	216,275		$	164,459

The components of the Company's income tax expense are as follows:

	Year Ended June 30,

	2014			2013			2012
	(in 000s)
Current:
Federal	$	58,997		$	73,441		$	61,115
State		6,029			8,623			9,085
Foreign		13,325			4,299			2,902


	$	78,351		$	86,363		$	73,102


Deferred:
Federal	$	(7,013	)	$	(5,346	)	$	(7,169	)
State		648			(509	)		(1,383	)
Foreign	$	(5,912	)		(3,934	)		(1,001	)


	$	(12,277	)	$	(9,789	)	$	(9,553	)


Income tax expense	$	66,074		$	76,574		$	63,549

The difference between the U.S. statutory federal income tax rate and the Company's effective income tax rate is as follows:

	Year Ended June 30,

	2014			2013			2012
U.S. federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Change in income tax contingencies		(2.3	)		1.4			2.1
State income taxes, net of federal benefit		2.8			2.6			2.8
Foreign earnings subject to U.S. tax		2.5			(0.3	)		(0.3	)
Change in valuation allowance		2.9			—			(0.6	)
Tax credits		(2.1	)		(2.5	)		(1.2	)
Domestic production activities deduction		(2.5	)		(2.7	)		(2.7	)
Foreign losses-no future benefit		1.3			0.9			2.0
Non-deductible acquisition-related costs		1.8			—			—
Other, net		0.5			1.0			1.5


		39.9	%		35.4	%		38.6	%

The major components of the deferred tax assets and liabilities are as follows:

	June 30,

	2014			2013
	(in 000s)
Deferred tax assets:
Share-based compensation	$	10,542		$	11,421
Deferred revenue, net of deferred costs		13,103			15,947
Accruals not currently deductible for tax purposes		27,521			21,764
Inventory		7,083			5,250
Net operating loss carryforwards		13,951			5,949
Intangible assets		17,111			6,438
Interest rate swap agreement		6,173			3,515
Other		3,247			4,279


Total gross deferred tax assets		98,731			74,563
Less: Valuation allowance		(6,094	)		(62	)


Deferred tax assets	$	92,637		$	74,501




Deferred tax liabilities:
Property and equipment	$	6,247		$	18,322
Intangible assets		151,016			—
Other		5,807			100


Total gross deferred tax liabilities	$	163,070		$	18,422


Net deferred tax assets (liabilities)	$	(70,433	)	$	56,079

Current deferred income tax liabilities of $0.4 million and $-0- of as of June 30, 2014 and 2013, respectively, are included in accrued and other liabilities in the accompanying Consolidated Balance Sheets.

The Company has not provided income taxes on approximately $35.2 million and $15.2 million of undistributed earnings as of June 30, 2014 and 2013, respectively, from certain foreign subsidiaries. The Company plans to permanently invest the earnings in the foreign subsidiaries and therefore has not recorded a deferred tax liability associated with the undistributed earnings. A determination of the potential deferred tax liability which would result from these earnings is not practicable at this time.

The Company records a valuation allowance to reduce net deferred tax assets to the amount more likely than not to be realizable. In doing so, the Company considers all available positive and negative evidence, including the existence of sufficient taxable income within the carryback or carryforward period available under the tax law including the future reversal of existing temporary differences and tax planning strategies that would, if necessary, be implemented.

At June 30, 2014, the Company had net operating loss carryforwards for U.S. federal income tax purposes of approximately $3.9 million. The entire amount of the net operating loss carryforwards are subject to limitations under Section 382 of the Internal Revenue Code. Section 382 limits the amount of carryforwards available per year for use against future taxable income. Based on the Company's recent history of taxable income and projections of taxable income in the future, the Company expects to utilize all of its federal net operating loss carryforwards. The federal net operating loss carryforwards expire in 2022.

At June 30, 2014, the Company also has net operating losses in foreign jurisdictions totaling approximately $50.0 million, consisting mainly of $14.0 million in Austria, $11.2 million in Gibraltar, $10.8 million in Argentina and $7.9 million in Australia. The Company has recorded a valuation allowance of $20.0 million before tax, $6.1 million tax-effected, against these foreign net operating losses. The increase in the valuation allowance for fiscal year 2014 mainly related to the valuation allowance for current and prior year net operating losses for Argentina. The foreign net operating losses can be carried forward for periods that vary from five years to indefinitely.

The Company recorded $5.7 million, $20.4 million and $6.4 million as an increase to stockholder's equity for certain tax benefits from employee share-based compensation for the years ended June 30, 2014, 2013 and 2012, respectively.

The Company had $10.1 million, $15.6 million and $12.7 million of liabilities for unrecognized tax benefits as of June 30, 2014, 2013 and 2012, respectively. Of these amounts, $9.9 million, $15.5 million and $12.7 million, respectively, if recognized, would impact the Company's effective tax rate. The Company recognizes interest and penalties related to unrecognized tax benefits as tax expense. As of June 30, 2014, 2013 and 2012, the Company had accrued interest and penalties of $0.4 million, $2.1 million and $1.7 million, respectively. The Company decreased the accrual of interest and penalties by $1.7 million and increased the accrual of interest and penalties by $0.4 million and $0.4 million during the years ended June 30, 2014, 2013 and 2012, respectively.

Changes to the balance of unrecognized tax benefits are as follows:

	June 30,

	2014			2013			2012
	(in 000s)
Balance, beginning of year	$	15,578		$	12,707		$	8,364
Additions based on tax provisions related to current year		4,223			2,361			3,099
Additions for tax positions of prior years		933			578			1,461
Reductions for tax positions of prior years		(4,138	)		—			(128	)
Settlements		(5,311	)		—			—
Lapse of statute of limitations		(1,235	)		(75	)		(36	)
Foreign currency translation adjustment		13			7			(53	)


Balance, end of year	$	10,063		$	15,578		$	12,707

The Internal Revenue Service ("IRS') commenced examination of the Company's United States federal income tax returns for 2006 through 2009 during fiscal year 2011. The IRS completed its field examination of the open tax years and issued a Revenue Agent's Report in January 2012. The Company filed a formal protest regarding certain unagreed adjustments in March 2012 and the case was assigned to the IRS Appeals Office in Laguna Niguel, California. In June 2013, the Company agreed to settle all remaining issues with the IRS. Formal closure of the case occurred in July 2013 and the Company has received a refund from the IRS of $7.7 million, including $0.6 million in interest. As a result, the Company recognized a reduction to unrecognized tax benefits and a corresponding reduction of income tax provisions of approximately $3.6 million in the first quarter of fiscal year 2014.

The IRS has commenced examination of the Company's United States federal income tax return for 2012 during fiscal 2014. To date, no issues have been raised that would materially affect our financial position or results of operations.

Including the 2012 IRS examination described above, it is reasonably possible that the Company's amount of unrecognized tax benefits may decrease within the next twelve months by up to $5.2 million.

The Company files numerous consolidated and separate income tax returns in the United States and various state and foreign jurisdictions. The Company is currently under examination in certain states and foreign jurisdictions. With few exceptions, the Company is no longer subject to United States federal, state and local, or foreign income tax examinations for years before fiscal 2009.