Income Taxes

Income before income taxes was derived from the following sources:



	2016		2015		2014
United States	$	672,907	$	779,782	$	1,115,010
Foreign	441,821		652,458		441,710
	$	1,114,728	$	1,432,240	$	1,556,720

Income taxes include the following:



	2016			2015			2014
Federal
Current	$	235,557		$	185,761		$	377,404
Deferred	(45,797		)	28,108			(45,643		)
Foreign
Current	113,146			189,826			168,177
Deferred	(7,006		)	(11,208		)	(28,016		)
State and local
Current	24,495			25,235			43,860
Deferred	(12,883		)	1,965			(480		)
	$	307,512		$	419,687		$	515,302

A reconciliation of the Company's effective income tax rate to the statutory Federal rate follows:



	2016		2015		2014
Statutory Federal income tax rate	35.0	%	35.0	%	35.0	%
State and local income taxes	0.6		1.1		1.8
Goodwill and intangible asset impairment	—		—		4.5
Tax related to international activities	(5.2	)	(4.5	)	(5.6	)
Cash surrender value of life insurance	0.2		(0.1	)	(0.9	)
Federal manufacturing deduction	(1.0	)	(1.6	)	(1.0	)
Research tax credit	(1.9	)	(0.8	)	(0.3	)
Other	(0.1	)	0.2		(0.4	)
Effective income tax rate	27.6	%	29.3	%	33.1	%

Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities. The differences comprising the net deferred taxes shown on the Consolidated Balance Sheet at June 30 were as follows:



	2016			2015
Retirement benefits	$	815,545		$	614,127
Other liabilities and reserves	126,524			127,838
Long-term contracts	64,371			49,929
Stock-based incentive compensation	67,138			66,015
Loss carryforwards	326,707			316,994
Unrealized currency exchange gains and losses	(19,491		)	(17,218		)
Inventory	14,693			16,659
Foreign tax credit carryforward	24,051			29,965
Depreciation and amortization	(536,070		)	(531,258		)
Valuation allowance	(332,708		)	(330,006		)
Net deferred tax asset	$	550,760		$	343,045

Change in net deferred tax asset:
Provision for deferred tax	$	65,686		$	(18,865	)
Items of other comprehensive (loss)	149,861			57,523
Acquisitions and other	(7,832		)	(1,225		)
Total change in net deferred tax	$	207,715		$	37,433

As of June 30, 2016, the Company has recorded deferred tax assets of $326,707 resulting from $1,145,475 in loss carryforwards. A valuation allowance of $313,554 related to the loss carryforwards has been established due to the uncertainty of their realization. Of this valuation allowance, $288,515 relates to non-operating entities whose loss carryforward utilization is considered to be remote. Some of the loss carryforwards can be carried forward indefinitely; others can be carried forward from three to 20 years. In addition, a valuation allowance of $19,154 related to future deductible items has been established due to the uncertainty of their realization. These future deductible items are recorded in the other liabilities and reserves line in the table above.

Provision has not been made for additional U.S. or foreign taxes on undistributed earnings of certain international operations as those earnings will continue to be reinvested. It is not practicable to estimate the additional taxes, including applicable foreign withholding taxes, that might be payable on the eventual remittance of such earnings. Accumulated undistributed earnings reinvested in international operations amounted to approximately $3,200,000 at June 30, 2016.

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



	2016			2015			2014
Balance July 1	$	145,688		$	164,813		$	107,440
Additions for tax positions related to current year	7,025			6,090			7,752
Additions for tax positions of prior years	2,582			14,989			55,136
Reductions for tax positions of prior years	(627		)	(6,945		)	(1,359		)
Reductions for settlements	(10,284		)	—			(1,856		)
Reductions for expiration of statute of limitations	(4,142		)	(6,251		)	(5,005		)
Effect of foreign currency translation	(335		)	(27,008		)	2,705
Balance June 30	$	139,907		$	145,688		$	164,813

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $80,722, $83,471 and $71,898 as of June 30, 2016, 2015 and 2014, respectively. If recognized, a significant portion of the gross unrecognized tax benefits as of June 30, 2016 would be offset against an asset currently recorded in the Consolidated Balance Sheet. The accrued interest related to the gross unrecognized tax benefits, excluded from the amounts above, was $12,357, $9,514 and $8,198 as of June 30, 2016, 2015 and 2014, respectively.

It is reasonably possible that within the next 12 months, the amount of gross unrecognized tax benefits could be reduced by up to approximately $100,000 as a result of the revaluation of existing uncertain tax positions arising from developments in the examination process or the closure of tax statutes. Any increase in the amount of unrecognized tax benefits within the next 12 months is expected to be insignificant.

The Company and its subsidiaries file income tax returns in the United States and in various foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The Company is open to assessment of its federal income tax returns by the U.S. Internal Revenue Service for years after 2011, and its state and local tax returns for years after 2006. The Company is open to assessment for significant foreign jurisdictions for years after 2007.