10.Income Taxes

The consolidated effective tax rate was 36.2%, 37.1% and 36.9% for fiscals 2016, 2015 and 2014, respectively, and reflects income tax expense for our United States and international operations at their respective statutory rates.

The provision for income taxes consists of the following:


	Year Ended July 31,
	2016				2015				2014
	Current		Deferred		Current		Deferred		Current		Deferred

United States:
Federal	$	29,392,000	$	(216,000)	$	24,602,000	$	(425,000)	$	22,119,000	$	(896,000)
State		4,433,000		(153,000)		3,920,000		(218,000)		3,710,000		(348,000)
International		1,863,000		(1,341,000)		1,165,000		(806,000)		735,000		26,000
Total	$	35,688,000	$	(1,710,000)	$	29,687,000	$	(1,449,000)	$	26,564,000	$	(1,218,000)

The geographic components of income before income taxes are as follows:


	Year Ended July 31,
	2016		2015		2014

United States	$	92,744,000	$	73,645,000	$	67,288,000
International		1,187,000		2,546,000		1,323,000
Total	$	93,931,000	$	76,191,000	$	68,611,000

The consolidated effective income tax rate differed from the United States statutory tax rate of 35.0% in fiscals 2016, 2015 and 2014 due to the following:


	Year Ended July 31,
	2016		2015		2014

Expected statutory tax	35.0	%	35.0	%	35.0	%
Differential attributable to:
Foreign operations	0.6	%	1.2	%	(0.1)	%
State and local taxes	3.2	%	3.4	%	3.2	%
Domestic production deduction	(2.3)	%	(2.4)	%	(2.3)	%
Acquisition related items, net (a)	—	%	(1.6)	%	0.7	%
Loss on sale of business	—	%	1.1	%	—	%
R&E tax credit	(1.1)	%	(0.5)	%	(0.3)	%
Change in foreign tax rates	(0.4)	%	—	%	—	%
Other	1.2	%	0.9	%	0.7	%
Consolidated effective tax rate	36.2	%	37.1	%	36.9	%

(a)

Acquisition related items, net, consisted of non-deductible transaction costs net of non-taxable, favorable fair value adjustments of contingent liabilities, as more fully described in Note 6 to the Consolidated Financial Statements.

Deferred income tax assets and liabilities are comprised of the following:


	July 31,
	2016		2015
Deferred tax assets:
Accrued expenses	$	5,140,000	$	3,650,000
Inventories		2,990,000		1,996,000
Accounts receivable		793,000		941,000
Other long-term liabilities		252,000		690,000
Stock-based compensation		3,665,000		2,640,000
Capital investment		546,000		546,000
Domestic NOLs		—		498,000
Foreign NOLs		5,154,000		4,861,000
Subtotal		18,540,000		15,822,000
Valuation allowance		(2,334,000)		(2,037,000)
		16,206,000		13,785,000
Deferred tax liabilities:
Property and equipment		(8,089,000)		(6,154,000)
Intangible assets		(19,818,000)		(14,711,000)
Goodwill		(11,878,000)		(10,409,000)
		(39,785,000)		(31,274,000)
Net deferred tax liabilities	$	(23,579,000)	$	(17,489,000)

Reported in Consolidated Balance Sheets as:
Deferred income taxes - current asset	$	—	$	6,233,000
Deferred income taxes - noncurrent liability		(23,579,000)		(23,722,000)
	$	(23,579,000)	$	(17,489,000)

Consistent with the intent of ASU 2015-17 to simplify the presentation of deferred income taxes, we elected to adopt ASU 2015-17 on a prospective basis at July 31, 2016. Therefore, as a result of this change in accounting principles, the prior year was not retrospectively adjusted and our current deferred tax assets were reclassified as a reduction to non-current deferred tax liabilities.

For foreign tax reporting purposes, our Net Operating Losses (“NOLs”) at July 31, 2016 are $5,154,000 and originated primarily from foreign acquisitions. Most of these NOLs do not expire and are fully available for utilization against future profits in certain non-U.S. tax jurisdictions. However, we have recorded a valuation allowance of $2,334,000 for these foreign NOLs, which are primarily associated with certain early-stage foreign operations. Since these early-stage foreign operations are not yet generating profits, we believe it is more likely than not that we will be unable to utilize these NOLs.

During fiscals 2016 and 2015, no dividends were repatriated from our foreign subsidiaries. All of the undistributed earnings of our foreign subsidiaries are considered to be indefinitely reinvested at July 31, 2016. Accordingly, deferred taxes are not provided on undistributed earnings of foreign subsidiaries that are indefinitely reinvested. At July 31, 2016, the cumulative amount of such undistributed earnings indefinitely reinvested outside the United States was approximately $23,395,000. Determining the tax liability that would arise if these earnings were remitted is not practical.

We record liabilities for an unrecognized tax benefit when a tax benefit for an uncertain tax position is taken or expected to be taken on a tax return, but is not recognized in our Consolidated Financial Statements because it does not meet the more-likely-than-not recognition threshold that the uncertain tax position would be sustained upon examination by the applicable taxing authority. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the tax authorities. Any adjustments upon resolution of income tax uncertainties are recognized in our results of operations. Our policy is to record potential interest and penalties related to income tax positions in interest expense and general and administrative expense, respectively, in our Consolidated Financial Statements. However, such amounts have been relatively insignificant due to the nominal amount of our unrecognized tax benefits relating to uncertain tax positions.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows:


	Unrecognized
	Tax Benefits

Unrecognized tax benefits on July 31, 2013	$	124,000
Activity during fiscal 2014		(124,000)
Unrecognized tax benefits on July 31, 2014		—
Activity during fiscal 2015		—
Unrecognized tax benefits on July 31, 2015		—
Activity during fiscal 2016		—
Unrecognized tax benefits on July 31, 2016	$	—

The Company concluded an audit by the Internal Revenue Service (“IRS”) for fiscal years 2013 and 2012 and has been recently notified by the IRS of an audit for fiscal year 2015. With respect to state or foreign income tax examinations, the Company is generally no longer subject to examinations for fiscal years ended prior to July 31, 2008.