Taxes on Earnings

The provision for income taxes on earnings from continuing operations consists of the following:



	2016			2015			2014
Income taxes:
Currently payable:
Federal	$	235		$	246		$	252
State	34			31			30
Non-U.S.	47			55			42
	316			332			324
Deferred:
Federal	(17		)	(47		)	56
State	—			1			3
Non-U.S.	(13		)	(3		)	(9		)
	(30		)	(49		)	50
	$	286		$	283		$	374



	2016		2015		2014
Earnings from continuing operations before income taxes:
United States	$	705	$	803	$	1,064
Non-U.S.	144		146		84
	$	849	$	949	$	1,148

The following is a reconciliation of the effective income tax rate on continuing operations to the U.S. federal statutory income tax rate:



	2016		2015		2014
Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes (net of federal tax benefit)	2.7		2.2		2.0
Tax effect of international items	(3.0	)	(2.5	)	(1.0	)
Settlement of tax contingencies	—		(0.8	)	—
Federal manufacturing deduction	(3.2	)	(2.9	)	(2.2	)
Goodwill impairment	4.3		—		—
Claim settlement	(0.8	)	—		—
Other	(1.3	)	(1.2	)	(1.2	)
Effective income tax rate	33.7	%	29.8	%	32.6	%

Deferred tax liabilities and assets are comprised of the following:



	2016			2015
Depreciation	$	362		$	306
Amortization	541			541
Other	23			17
Deferred tax liabilities	926			864
Benefits and compensation	266			298
Pension benefits	185			92
Tax loss carryforwards	37			44
Capital loss carryforwards	88			85
Other	113			101
Gross deferred tax assets	689			620
Deferred tax asset valuation allowance	(118		)	(122		)
Net deferred tax assets	571			498
Net deferred tax liability	$	355		$	366

At July 31, 2016, our U.S. and non-U.S. subsidiaries had tax loss carryforwards of approximately $173. Of these carryforwards, $157 expire between 2017 and 2036, and $16 may be carried forward indefinitely. At July 31, 2016, deferred tax asset valuation allowances have been established to offset $143 of these tax loss carryforwards. Additionally, at July 31, 2016, our non-U.S. subsidiaries had capital loss carryforwards of approximately $307, which were fully offset by valuation allowances.

The net change in the deferred tax asset valuation allowance in 2016 was a decrease of $4. The decrease was primarily due to the expiration of tax losses, partially offset by the recognition of additional valuation allowance on tax loss carryforwards. The net change in the deferred tax asset valuation allowance in 2015 was a decrease of $29. The decrease was primarily due to the impact of currency and the expiration of tax losses, partially offset by the recognition of additional valuation allowances on other foreign loss carryforwards.

As of July 31, 2016, other deferred tax assets included $2 of state tax credit carryforwards related to various states that expire between 2018 and 2025. As of August 2, 2015, other deferred tax assets included $2 of state tax credit carryforwards related to various states that expire between 2018 and 2024. No valuation allowances have been established related to these deferred tax assets.

As of July 31, 2016, U.S. income taxes have not been provided on approximately $638 of undistributed earnings of non-U.S. subsidiaries, which are deemed to be permanently reinvested. It is not practical to estimate the tax liability that might be incurred if such earnings were remitted to the U.S.

A reconciliation of the activity related to unrecognized tax benefits follows:



	2016		2015			2014
Balance at beginning of year	$	58	$	71		$	61
Increases related to prior-year tax positions	2		9			—
Decreases related to prior-year tax positions	—		—			(1		)
Increases related to current-year tax positions	3		5			11
Settlements	—		(27		)	—
Lapse of statute	—		—			—
Balance at end of year	$	63	$	58		$	71

The amount of unrecognized tax benefits that, if recognized, would impact the annual effective tax rate was $42 as of July 31, 2016, $39 as of August 2, 2015, and $23 as of August 3, 2014. The total amount of unrecognized tax benefits can change due to audit settlements, tax examination activities, statute expirations and the recognition and measurement criteria under accounting for uncertainty in income taxes. We are unable to estimate what this change may be within the next 12 months, but do not believe that it will be material to the financial statements. Approximately $5 of unrecognized tax benefits, including interest and penalties, were reported as accounts receivable in the Consolidated Balance Sheets as of July 31, 2016, and August 2, 2015.

Our accounting policy with respect to interest and penalties attributable to income taxes is to reflect any expense or benefit as a component of our income tax provision. The total amount of interest and penalties recognized in the Consolidated Statements of Earnings was $3 in 2016, and $1 in 2015 and 2014. The total amount of interest and penalties recognized in the Consolidated Balance Sheets was $6 as of July 31, 2016, and $3 as of August 2, 2015.

We do business internationally and, as a result, file income tax returns in the U.S. federal jurisdiction and various state and non-U.S. jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the U.S., Australia, Canada and Denmark. The 2016 tax year is currently under audit by the Internal Revenue Service. In addition, several state income tax examinations are in progress for the years 1999 to 2015.

With limited exceptions, we have been audited for income tax purposes in Australia and Denmark through 2010, and in Canada through 2009.