INCOME TAXES

The components of earnings from continuing operations before income taxes are as follows:



	2013		2012		2011
Domestic operations	$	36,127	$	63,018	$	64,213
Foreign operations	375,499		303,892		304,506
	$	411,626	$	366,910	$	368,719



The provisions for income taxes consist of the following items:
Current:
Federal, state and local	$	1,677	$	32,016		$	2,779
Foreign	68,673		63,042			76,231
	70,350		95,058			79,010
Deferred:
Federal, state and local	671		(7,187		)	246
Foreign	10,643		(1,908		)	10,266
	11,314		(9,095		)	10,512
	$	81,664	$	85,963		$	89,522

A reconciliation of the provisions for income taxes follows:



	2013		2012		2011
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%
Foreign income and withholding taxes, net of U.S. foreign tax credits	(12.3	)	(10.9	)	(3.3	)
Net unrecognized tax benefit adjustments	(2.6	)	(0.8	)	(6.8	)
Tax credits	(0.9	)	(0.4	)	(1.0	)
Other, net	0.6		0.5		0.4
Effective tax rate	19.8	%	23.4	%	24.3	%

The rate impact for foreign income and withholding taxes, net of U.S. foreign tax credits, reflects the jurisdictional location of earnings, costs of certain repatriation decisions, and uncertain tax positions. The Company operates subsidiaries in Puerto Rico, Switzerland and Singapore which benefit from tax incentives. The Company recently signed a new tax incentive grant in Puerto Rico that provides the Company’s manufacturing operations with a partial exemption from local taxes through the end of fiscal year 2027. The Switzerland tax incentive grants provide that the Company’s profits will be partially exempt from local taxes. These grants expire between fiscal year 2018 and 2020. The Singapore tax incentive grant provides that the Company’s profits will be partially exempt from local taxes through the end of fiscal year 2019, with an opportunity to extend ten more years. These tax incentives as compared with the local statutory rates resulted in a reduction of tax expense from continuing operations amounting to $18,935 in 2013, $14,942 in 2012 and $10,441 in 2011.

The rate impact for net unrecognized tax benefit adjustments represents changes in the Company’s net liability for unrecognized tax benefits related to tax positions taken in prior-years, including changes in estimates, tax settlements, and lapses of applicable statutes of limitation. In the first quarter of fiscal year 2013, the Company reached a final agreement with the Internal Revenue Service (“IRS”) resolving the outstanding tax positions for fiscal years ended 2006 through 2008. As a result, the Company reversed $10,193 of previously recorded liabilities related to tax and penalties, as well as $6,704 related to interest ($4,268 net of income tax cost) that were accrued but not assessed as part of the IRS agreement. In the fourth quarter of fiscal year 2012, the Company reached a formal agreement with the Internal Revenue Service (“IRS”) resolving certain tax positions that were part of the income tax examination for fiscal years ended 2006 through 2008. As a result, the Company reversed $439 of previously recorded liabilities related to tax and penalties, as well as $4,003 related to interest ($2,549 net of income tax cost) that were accrued but not assessed as part of the IRS agreement. In fiscal year 2011, the Company reversed $22,829 of previously recorded liabilities related to tax and penalties, as well as $7,333 related to interest ($4,668 net of income tax cost) that were accrued but not assessed as part of the IRS audit of fiscal years 1999 through 2005. All income tax matters there were part of the IRS audits for fiscal years 1999 through 2008, including the matter previously disclosed for those years in Note 2, Audit Committee Inquiry and Restatement, to the consolidated financial statements included in the 2007 Form 10-K have been settled with the IRS. In closing the audits, the IRS did not assess any penalties.

As of July 31, 2013, the Company has not provided deferred taxes on approximately $1,432,131 of undistributed foreign subsidiaries’ earnings because it intends to invest substantially all such earnings in its foreign operations indefinitely. The additional U.S. and non-U.S. income and withholding taxes that would arise on the reversal of the temporary differences could be offset, in part, by tax credits. Because the determination of the amount of available tax credits and the limitations imposed on the annual utilization of such credits are subject to a highly complex series of calculations and expense allocations, it is impractical to estimate the amount of net income taxes and withholding taxes that might be payable on the remaining pool of undistributed earnings if a reversal of temporary differences occurred.

The components of the net deferred tax asset at July 31, are as follows:



	2013			2012
Deferred tax asset:
Tax loss and tax credit carry-forwards	$	43,076		$	67,428
Inventories	8,658			8,728
Compensation and benefits	39,231			40,046
Environmental	6,745			4,354
Accrued expenses	19,425			29,514
Amortization	2,364			3,271
Net pensions	63,144			80,901
Other	21,487			31,688
Gross deferred tax asset	204,130			265,930
Valuation allowance	(25,528		)	(20,536		)
Total deferred tax asset	178,602			245,394
Deferred tax liability:
Amortization	(36,145		)	(46,320		)
Plant and equipment	(35,321		)	(34,798		)
Revenue recognition	(6,948		)	(1,754		)
Undistributed foreign earnings	(78,360		)	(10,799		)
Other	(419		)	(2,817		)
Total deferred tax liability	(157,193		)	(96,488		)
Net deferred tax asset	$	21,409		$	148,906

Deferred tax assets and liabilities in the preceding table, after netting by taxing jurisdiction, are in the following captions in the consolidated balance sheet at July 31:



	2013			2012
Other current assets	$	37,653		$	63,656
Other non-current assets	16,998			95,182
Accrued liabilities	(1,718		)	(1,052		)
Deferred income taxes	(31,524		)	(8,880		)
Total	$	21,409		$	148,906

As of July 31, 2013, the Company had available tax net operating loss and credit carry forwards subject to expiration as follows:



Year of Expiration	Operating Losses		Tax Credits
2014	$	1,033	$	11
2015-2023	2,577		2,377
2024-2033	10,754		2,083
Subtotal	14,364		4,471
Indefinite	71,465		10,729
Total	$	85,829	$	15,200

In addition, the Company has various state net operating loss carryforwards that expire in varying amounts through fiscal year 2033.

In evaluating the Company’s ability to recover deferred tax assets within the jurisdiction from which they arise, management assesses the generation of sufficient taxable income from all sources, including the scheduled reversal of taxable temporary differences, tax-planning strategies and projected future operating income. To the extent the Company does not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. Based on these considerations, management believes it is more likely than not that the Company will realize the benefit of its deferred tax asset, net of the July 31, 2013 valuation allowance.

The following is a tabular reconciliation of the total amounts of gross unrecognized tax benefits at July 31:



	2013			2012			2011
Beginning balance	$	194,829		$	188,380		$	227,256
Increases for tax positions taken during the current year	40,446			40,413			51,327
Increases to tax positions taken in prior years	385			7,940			1,516
Decreases to tax positions taken in prior years	(23,522		)	(16,965		)	(13,998		)
Settlements with tax authorities	(6,233		)	(15,455		)	(72,307		)
Expiration of statutes of limitation	(1,310		)	(4,885		)	(8,662		)
Translation and other	(1,219		)	(4,599		)	3,248
Ending balance	$	203,376		$	194,829		$	188,380

Included in the balance of unrecognized tax benefits as of July 31, 2013, July 31, 2012, and July 31, 2011 are $152,041, $137,413, and $127,182, respectively, of tax benefits that, if recognized, would affect the effective tax rate.

During the fiscal year ended July 31, 2013, the amount of gross unrecognized tax benefits increased primarily due to tax positions taken during the fiscal year, partially offset by the settlement of IRS income tax examinations for fiscal years ended 2006 through 2008, the impact of foreign currency translation and the expiration of various foreign statues of limitations.

The Company files income tax returns in the U.S. and multiple foreign jurisdictions with varying statutes of limitation. In the normal course of business, the Company and its subsidiaries are subject to examination by various taxing authorities. As of July 31, 2013, the Company is subject to U.S. federal and state local income tax examinations for the fiscal tax years ended in 2009 through 2011, and to non-U.S. income tax examinations for the fiscal tax years ended in 2005 through 2012. During fiscal year 2013, the Company reclassified $54,049 of income taxes payables and $3,954 of interest payable from non-current liabilities to current liabilities, respectively, in anticipation of resolving certain income tax examinations.

Expenses for interest and penalties were offset by reversals resulting in net earnings in fiscal years 2013, 2012 and 2011 of $2,208, $292 and $15,376, respectively. The liability related to interest and penalties recorded at July 31, 2013 and July 31, 2012 was $18,622 and $25,314, respectively.

Due to the potential resolution of tax examinations and the expiration of various statutes of limitation, the Company believes that it is reasonably possible that the gross amount of unrecognized tax benefits may decrease within the next twelve months by a range of zero to $55,870.