Income Taxes

The components of earnings before income taxes are as follows (in millions):



	Year Ended July 31,
	2016		2015		2014
Earnings before income taxes:
United States	$	90.7	$	92.4	$	131.4
Foreign	166.7		196.2		229.3
Total	$	257.4	$	288.6	$	360.7

The components of the provision for income taxes are as follows (in millions):



	Year Ended July 31,
	2016			2015			2014
Income tax provision (benefit):
Current
Federal	$	19.9		$	28.5		$	49.0
State	3.1			2.9			4.7
Foreign	46.9			54.7			54.6
	69.9			86.1			108.3
Deferred
Federal	(0.3		)	(4.2		)	(9.5		)
State	(0.2		)	0.1			0.4
Foreign	(2.8		)	(1.5		)	1.3
	(3.3		)	(5.6		)	(7.8		)
Total	$	66.6		$	80.5		$	100.5

The following table reconciles the U.S. statutory income tax rate with the effective income tax rate:



	Year Ended July 31,
	2016		2015		2014
Statutory U.S. federal rate	35.0	%	35.0	%	35.0	%
State income taxes	0.8	%	0.9	%	1.1	%
Foreign operations	(8.1	)%	(7.9	)%	(6.1	)%
Export, manufacturing, and research credits	(1.6	)%	(1.1	)%	(0.8	)%
Change in unrecognized tax benefits	(1.0	)%	1.3	%	(1.1	)%
Other	0.8	%	(0.3	)%	(0.2	)%
Effective income tax rate	25.9	%	27.9	%	27.9	%

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows (in millions):



	July 31,
	2016			2015
Deferred tax assets:
Accrued expenses	$	12.1		$	10.6
Compensation and retirement plans	59.5			39.1
NOL and tax credit carryforwards	6.5			4.3
LIFO and inventory reserves	5.4			6.9
Other	4.0			5.0
Gross deferred tax assets	87.5			65.9
Valuation allowance	(3.3		)	(2.7		)
Net deferred tax assets	84.2			63.2
Deferred tax liabilities:
Depreciation and amortization	(57.5		)	(50.6		)
Other	(1.2		)	(2.4		)
Deferred tax liabilities	(58.7		)	(53.0		)
Prepaid tax assets	4.2			4.4
Net tax asset	$	29.7		$	14.6

As of July 31, 2016 and 2015, deferred income taxes on the consolidated balance sheets include $4.2 million and $4.4 million, respectively, of prepaid tax assets related to intercompany transfers of inventory.

The effective tax rate for fiscal 2016 was 25.9%, compared to 27.9% in fiscal 2015. The effective tax rate in the current year was favorably impacted by the settlement of tax audits and the mix of earnings between tax jurisdictions.

The Company has not provided for U.S. income taxes on additional undistributed earnings of its non-U.S. subsidiaries of approximately $982.0 million. The Company currently intends to indefinitely reinvest these undistributed earnings as there are significant investment opportunities outside the U.S. If any portion were to be distributed, the related U.S. tax liability may be reduced by foreign income taxes paid on those earnings plus any available foreign tax credit carryovers. Determination of the unrecognized deferred tax liability related to these undistributed earnings is not practicable. In fiscal 2016, the Company repatriated $83.0 million of cash held by its foreign subsidiaries in the form of a cash dividend which represented total planned dividends for the current year and which consisted entirely of current year earnings.

The Company maintains a reserve for uncertain tax benefits. The accounting standard defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authorities based solely on the technical merits of the position. If the recognition threshold is met, the tax benefit is measured and recognized as the largest amount of tax benefit that in the Company’s judgment is greater than 50% likely to be realized. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in millions):



	Year Ended July 31,
	2016			2015			2014
Gross unrecognized tax benefits at beginning of fiscal year	$	18.2		$	15.0		$	18.4
Additions for tax positions of the current year	3.4			4.7			2.9
Additions for tax positions of prior years	0.1			0.1			1.7
Reductions for tax positions of prior years	(4.9		)	(0.6		)	(7.1		)
Settlements	(0.1		)	—			(0.2		)
Reductions due to lapse of applicable statute of limitations	(1.0		)	(1.0		)	(0.7		)
Gross unrecognized tax benefits at end of fiscal year	$	15.7		$	18.2		$	15.0

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the year ended July 31, 2016, the Company recognized interest expense, net of tax benefit, of approximately $0.4 million. At July 31, 2016 and 2015, accrued interest and penalties on a gross basis were $1.8 million.

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to state and foreign income tax examinations by tax authorities for years before 2008. The IRS has completed examinations of the Company’s U.S. federal income tax returns through 2013.

If the Company were to prevail on all unrecognized tax benefits recorded, substantially all of the unrecognized tax benefits would benefit the effective tax rate. With an average statute of limitations of approximately 5 years, up to $1.1 million of the unrecognized tax benefits could potentially expire in the next 12 month period, unless extended by audit. It is possible that quicker than expected settlement of either current or future audits and disputes would cause additional reversals of previously recorded reserves in the next 12 month period. Quantification of an estimated range and timing of future audit settlements cannot be made at this time.