Years Ended July 31,

2013

2012

2011

U.S.

236,118

237,596

234,035

Non-U.S.

40,754

40,460

29,842

Total income before taxes

276,872

278,056

263,877

Years Ended July 31,

2013

2012

2011

Federal:

Current

87,484

102,152

84,119

Deferred

(1,073

)

(14,557

)

278

86,411

87,595

84,397

State:

Current

3,871

3,332

7,186

Deferred

(461

)

(128

)

3,937

2,871

7,058

Foreign:

Current

9,090

8,460

5,818

Deferred

(2,591

)

(2,989

)

229

6,499

5,471

6,047

96,847

95,937

97,502

A reconciliation by year of the expected U.S. statutory tax rate (35% of income before income taxes) to the actual effective income tax rate is as follows:

Years Ended July 31,

2013

2012

2011

Federal statutory rate

35.0

State income taxes, net of federal income tax benefit

1.1

1.2

1.7

Foreign

(1.8

)

(1.9

)

(0.4

)

Compensation and fringe benefits

0.1

—

0.2

Other differences

0.6

0.2

0.4

Effective tax rate

35.0

34.5

36.9

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below, (in thousands):

Years Ended July 31,

2013

2012

Deferred tax assets:

Allowance for doubtful accounts

1,109

1,013

Accrued compensation and benefits

29,909

23,902

State taxes

438

625

Accrued other

3,376

2,634

Deferred revenue

675

2,056

Years Ended July 31,

2013

2012

Property and equipment

11,651

10,969

Losses carried forward

4,494

1,028

Federal tax benefit

7,897

7,989

Total gross deferred tax assets

59,549

50,216

Less valuation allowance

(1,597

)

(1,211

)

Net deferred tax assets

57,952

49,005

Deferred tax liabilities:

Vehicle pooling costs

(6,814

)

(4,537

)

Prepaid insurance

(1,039

)

(792

)

Deferred revenue

—

Intangibles and goodwill

(25,757

)

(24,758

)

Workers’ compensation

(81

)

(224

)

Total gross deferred tax liabilities

(33,691

)

(30,311

)

Net deferred tax asset (liability)

24,261

18,694

The above net deferred tax asset and liability has been reflected in the accompanying consolidated balance sheets as follows (in thousands):

Years Ended July 31,

2013

2012

North America current liabilities

2,216

3,601

North America non-current assets

29,928

22,279

Foreign non-current liabilities

(7,883

)

(7,186

)

Net deferred tax asset (liability)

24,261

18,694

The Company’s ability to realize deferred tax assets is dependent on its ability to generate future taxable income. Accordingly, the Company has established a valuation allowance in taxable jurisdictions where the utilization of the tax assets is uncertain. Additional timing differences or future tax losses may occur which could warrant a need for establishing additional valuation allowances against certain deferred tax assets. The valuation allowance for the years ended July 31, 2013 and 2012 was $1.6 million and $1.2 million, respectively.

The Company’s U.S. Federal net operating loss carry forward for income tax purpose is subject to various limitations under Sec 382 of the Internal Revenue Code.

At July 31, 2013 and 2012, if recognized, the portion of liabilities for unrecognized tax benefits that would favorably affect the Company’s effective tax rate is $17.2 million and $14.1 million, respectively. It is possible that the amount of unrecognized tax benefits will change in the next twelve months, due to tax legislation updates or future audit outcomes; however an estimate of the range of the possible change cannot be made at this time.

Years Ended July 31,

2013

2012

2011

Balance as of August 1

16,946

18,794

18,144

Increases related to current year tax positions

1,844

2,036

1,592

Prior year tax positions:

Prior year increase

1,474

618

519

Prior year decrease

—

(952

)

(531

)

Cash settlement

—

(452

)

—

Lapse of statute of limitations

(3,086

)

(3,098

)

(930

)

Balance at July 31

17,178

16,946

18,794

It is the Company’s continuing practice to recognize interest and penalties related to income tax matters in income tax expense. As of July 31, 2013, 2012 and 2011, the Company had accrued interest and penalties related to the unrecognized tax benefits of $5.9 million, $5.6 million and $6.0 million, respectively.

The Company is currently under audit by the states of New York and South Carolina from fiscal years 2008 to 2012. The Company is no longer subject to U.S. federal and state income tax examination for fiscal years prior to 2010, excepting the jurisdictions currently under audit.

In fiscal years 2013, 2012 and 2011, the Company recognized a tax benefit of $6.1 million, $4.4 million and $3.5 million, respectively, upon the exercise of certain stock options which is reflected in stockholders’ equity.

The Company has not provided for U.S. federal income and foreign withholding taxes on its $80 million foreign subsidiaries’ undistributed earnings as of July 31, 2013, because the Company intends to reinvest such earnings indefinitely in the operations and potential acquisitions related to its foreign operations. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. income taxes (subject to an adjustment for foreign tax credits). It is not practical to determine the income tax liability that might be incurred if these earnings were to be distributed.