Income Taxes

Income before income taxes was derived from the following sources:



	2017		2016		2015
United States	$	722,925	$	672,907	$	779,782
Foreign	605,716		441,821		652,458
	$	1,328,641	$	1,114,728	$	1,432,240

Income taxes include the following:



	2017			2016			2015
Federal
Current	$	132,420		$	235,557		$	185,761
Deferred	37,316			(45,797		)	28,108
Foreign
Current	157,518			113,146			189,826
Deferred	(5,319		)	(7,006		)	(11,208		)
State and local
Current	17,835			24,495			25,235
Deferred	5,027			(12,883		)	1,965
	$	344,797		$	307,512		$	419,687

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



	2017		2016		2015
Statutory Federal income tax rate	35.0	%	35.0	%	35.0	%
State and local income taxes	1.7		0.6		1.1
Tax related to international activities	(5.5	)	(5.2	)	(4.5	)
Cash surrender value of life insurance	(0.9	)	0.2		(0.1	)
Federal manufacturing deduction	(0.9	)	(1.0	)	(1.6	)
Research tax credit	(0.8	)	(1.9	)	(0.8	)
Share-based compensation	(2.7	)	—		—
Other	0.1		(0.1	)	0.2
Effective income tax rate	26.0	%	27.6	%	29.3	%

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:



	2017			2016
Retirement benefits	$	571,022		$	815,545
Other liabilities and reserves	144,885			126,524
Long-term contracts	61,375			64,371
Stock-based compensation	59,725			67,138
Loss carryforwards	678,486			326,707
Unrealized currency exchange gains and losses	22,212			(19,491		)
Inventory	17,809			14,693
Foreign tax credit carryforward	23,050			24,051
Depreciation and amortization	(1,080,218		)	(536,070		)
Valuation allowance	(684,079		)	(332,708		)
Net deferred tax (liability) asset	$	(185,733	)	$	550,760

Change in net deferred tax asset:
Provision for deferred tax	$	(37,024	)	$	65,686
Items of other comprehensive (loss)	(177,655		)	149,861
Acquisitions and other	(521,814		)	(7,832		)
Total change in net deferred tax	$	(736,493	)	$	207,715

As of June 30, 2017, the Company has recorded deferred tax assets of $678,486 resulting from $2,529,303 in loss carryforwards. A valuation allowance of $665,399 related to the loss carryforwards has been established due to the uncertainty of their realization. Of this valuation allowance, $633,581 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 years to 20 years. In addition, a valuation allowance of $18,680 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 $2,900,000 at June 30, 2017.

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



	2017			2016			2015
Balance July 1	$	139,907		$	145,688		$	164,813
Additions for tax positions related to current year	4,735			7,025			6,090
Additions for tax positions of prior years	2,618			2,582			14,989
Additions for acquisitions	3,939			—			—
Reductions for tax positions of prior years	(1,175		)	(627		)	(6,945		)
Reductions for settlements	(3,020		)	(10,284		)	—
Reductions for expiration of statute of limitations	(2,792		)	(4,142		)	(6,251		)
Effect of foreign currency translation	3,294			(335		)	(27,008		)
Balance June 30	$	147,506		$	139,907		$	145,688

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $95,460, $80,722 and $83,471 as of June 30, 2017, 2016 and 2015, respectively. If recognized, a significant portion of the gross unrecognized tax benefits as of June 30, 2017 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 $15,432, $12,357 and $9,514 as of June 30, 2017, 2016 and 2015, 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 2011. The Company is open to assessment for significant foreign jurisdictions for years after 2007.