INCOME TAXES

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



	2014		2013		2012
Domestic operations	$	89,598	$	36,127	$	63,018
Foreign operations	361,817		375,499		303,892
	$	451,415	$	411,626	$	366,910



The provisions for income taxes consist of the following items:
Current:
Federal, state and local	$	27,370		$	1,677	$	32,016
Foreign	53,158			68,673		63,042
	80,528			70,350		95,058
Deferred:
Federal, state and local	14,749			671		(7,187		)
Foreign	(7,818		)	10,643		(1,908		)
	6,931			11,314		(9,095		)
	$	87,459		$	81,664	$	85,963

A reconciliation of the provisions for income taxes follows:



	2014		2013		2012
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%
Foreign income and withholding taxes, net of U.S. foreign tax credits	(10.0	)	(12.3	)	(10.9	)
Net unrecognized tax benefit adjustments	(6.1	)	(2.6	)	(0.8	)
Tax credits	(0.4	)	(0.9	)	(0.4	)
Other, net	0.9		0.6		0.5
Effective tax rate	19.4	%	19.8	%	23.4	%

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 Puerto Rico tax incentive grant 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 $21,114 in 2014, $18,935 in 2013 and $14,942 in 2012.

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 fourth quarter of fiscal year 2014, the Company reached a final settlement with Germany tax authorities resolving the outstanding tax positions for fiscal years ended July 2005 through 2008. As a result, the Company reversed $6,437 of previously recorded liabilities related to tax and penalties, as well as $3,042 related to interest ($2,580 net of income tax cost) that were accrued but not assessed as part of the settlement. In the third quarter of fiscal year 2014, the Company reached a final settlement with Her Majesty’s Revenue and Customs (“HMRC”) in the United Kingdom resolving the outstanding tax positions for fiscal years ended July 2010 and July 2011. As a result, the Company reversed $10,961 of previously recorded liabilities related to tax and penalties, as well as $1,478 related to interest ($1,138 net of income tax cost) that were accrued but not assessed as part of the settlement. 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 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. 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, 2014, the Company has not provided deferred taxes on approximately $1,640,000 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:



	2014			2013
Deferred tax asset:
Tax loss and tax credit carry-forwards	$	53,513		$	43,076
Inventories	10,206			8,658
Compensation and benefits	40,393			39,231
Environmental	7,451			6,745
Accrued expenses	16,393			19,425
Amortization	2,657			2,364
Net pensions	58,431			63,144
Other	4,614			21,487
Gross deferred tax asset	193,658			204,130
Valuation allowance	(38,911		)	(25,528		)
Total deferred tax asset	154,747			178,602
Deferred tax liability:
Amortization	(45,475		)	(36,145		)
Plant and equipment	(44,843		)	(35,321		)
Revenue recognition	(3,098		)	(6,948		)
Undistributed foreign earnings	(75,955		)	(78,360		)
Other	(436		)	(419		)
Total deferred tax liability	(169,807		)	(157,193		)
Net deferred tax (liability)/asset	$	(15,060	)	$	21,409

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



	2014			2013
Other current assets	$	39,001		$	37,653
Other non-current assets	16,569			16,998
Accrued liabilities	(3,327		)	(1,718		)
Deferred income taxes	(67,303		)	(31,524		)
Total	$	(15,060	)	$	21,409

As of July 31, 2014, the Company had available tax net operating loss and credit carry forwards subject to expiration as follows:



Year of Expiration	Operating Losses		Tax Credits
2015	$	543	$	17
2016-2024	1,739		2,287
2025-2034	2,239		1,565
Subtotal	4,521		3,869
Indefinite	104,251		12,478
Total	$	108,772	$	16,347

In addition, the Company has various state net operating loss carryforwards that expire in varying amounts through fiscal year 2034.

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, 2014 valuation allowance.

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



	2014			2013			2012
Beginning balance	$	203,376		$	194,829		$	188,380
Increases for tax positions taken during the current year	31,345			40,446			40,413
Increases to tax positions taken in prior years	12,363			385			7,940
Decreases to tax positions taken in prior years	(6,757		)	(23,522		)	(16,965		)
Settlements with tax authorities	(36,138		)	(6,233		)	(15,455		)
Expiration of statutes of limitation	(5,188		)	(1,310		)	(4,885		)
Translation and other	3,563			(1,219		)	(4,599		)
Ending balance	$	202,564		$	203,376		$	194,829

Included in the balance of unrecognized tax benefits as of July 31, 2014, July 31, 2013, and July 31, 2012 are $160,346, $152,041, and $137,413, respectively, of tax benefits that, if recognized, would impact the effective tax rate.

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, 2014, the Company is subject to U.S. federal and state local income tax examinations for the fiscal tax years ended in 2009 through 2013, and to non-U.S. income tax examinations for the fiscal tax years ended in 2005 through 2012.

Expenses for interest and penalties were offset by reversals resulting in net earnings in fiscal years 2014, 2013 and 2012 of $4,128, $2,208 and $292, respectively. The liability related to interest and penalties recorded at July 31, 2014 and July 31, 2013 was $14,556 and $18,622, 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 $45,117.