15. Income Taxes

The following table presents the provision for (benefit from) income taxes and our effective tax rate for the three and nine months ended April 30, 2014 and 2013:


	For the Three Months Ended April 30,						For the Nine Months Ended April 30,
(in millions)	2014			2013			2014			2013
Provision for (benefit from) income taxes	$	2.5		$	1.7		$	(6.1	)	$	7.4
Effective tax rate		24	%		24	%		-35	%		28	%

The effective income tax rate is based upon the estimated income for the year, the composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for the potential tax consequences, benefits, resolution of tax audits, tax contingencies or other discrete items.

Our effective tax rate before discrete items for the three and nine months ended April 30, 2014, respectively, is lower than the statutory rate of 35%, primarily due to lower foreign tax rates, and tax credits in the U.S. and Canada. The tax provision for the three and nine months ended April 30, 2014 includes certain discrete tax benefits totaling $0.0 million and $10.6 million, respectively. The discrete items for the three months ended April 30, 2014 consist of favorable changes in reserves for uncertain tax positions totaling $0.2 million resulting from accretion of interest, expiration of the statute of limitations and other items, as well as $0.6 million of an unfavorable adjustment to a deferred item related to equity compensation, and $0.4 million in miscellaneous favorable discrete items. The discrete tax benefit for the nine months ended April 30, 2014, consists primarily of a reduction in a net deferred tax liability of $8.8 million associated with a change in classification of our Canadian operations, and a reduction in uncertain tax positions primarily associated with federal tax credits for research and development, or R&D, for $0.9 million following the conclusion of the Internal Revenue Service, or IRS, review for the fiscal year 2009, along with $0.9 million of other items.

The effective tax rate for the three and nine months ended April 30, 2013 was lower than the federal statutory rate due primarily to lower foreign tax rates and the extension of the federal R&D tax credit.

The effective tax rate was lower in the nine months ended April 30, 2014 versus the prior year comparable period, due to the impact of discrete items in fiscal year 2014.

The total amounts of gross unrecognized tax benefits, which excludes interest and penalties discussed below, as of April 30, 2014 and July 31, 2013 were as follows:


(in millions)	April 30, 2014		July 31, 2013
Gross unrecognized tax benefits	$	6.6	$	7.3

These unrecognized tax benefits, if recognized in a future period, the timing of which is not estimable, would favorably impact our effective tax rate. In the next four quarters, the statute of limitations for our fiscal year ended July 31, 2011 may expire for federal and state income taxes and for our fiscal year ended July 31, 2007 for foreign subsidiaries. It is reasonably expected that net unrecognized tax benefits, including interest, of approximately $3.0 million may be recognized.

We accrue interest and, if applicable, penalties for any uncertain tax positions. This interest and penalty expense is treated as a component of income tax expense. At April 30, 2014 and April 30, 2013, we had approximately $0.6 million and $0.7 million, respectively, accrued for interest and penalties on unrecognized tax benefits.

We do not provide for U.S. federal income taxes on undistributed earnings of consolidated foreign subsidiaries; as such earnings are intended to be indefinitely reinvested in those operations. Determination of the potential deferred income tax liability on these undistributed earnings is not practicable because such liability, if any, is dependent on circumstances that exist if and when remittance occurs. The circumstances that would affect the calculations would be the source location and amount of the distribution, the underlying tax rate already paid on the earnings, foreign withholding taxes and the opportunity to use foreign tax credits in the U.S.

We are subject to U.S. federal income tax as well as the income tax of multiple state and foreign jurisdictions. As of April 30, 2014, we have closed all years for U.S. federal income tax purposes through the fiscal year ended July 31, 2010. We are subject to periodic tax audits in each of the jurisdictions in which we operate. We are currently under a limited transfer pricing audit in Denmark for fiscal years 2008 through 2011. We have received an initial assessment from the Danish taxing authorities and are currently disputing the findings of that assessment. Discussions with the Danish taxing authorities are ongoing and we have recorded an accrual accordingly.