INCOME TAXES

Income Before Income Taxes

The components of income before income taxes are as follows:



Year Ended June 30,	2014		2013		2012
U.S.	$	147,980	$	153,546	$	137,667
Foreign	18,282		24,119		29,159
Income before income taxes	$	166,262	$	177,665	$	166,826

Provision

The provision (benefit) for income taxes consists of:



Year Ended June 30,	2014			2013			2012
Current:
Federal	$	50,455		$	38,859		$	36,178
State and local	6,576			5,736			5,522
Foreign	4,619			4,742			7,706
Total current	61,650			49,337			49,406
Deferred:
Federal	(5,328		)	10,277			8,577
State and local	(267		)	346			503
Foreign	(2,614		)	(444		)	(439		)
Total deferred	(8,209		)	10,179			8,641
Total	$	53,441		$	59,516		$	58,047

The exercise of non-qualified stock appreciation rights and options during fiscal 2014, 2013 and 2012 resulted in $1,462, $1,675 and $2,725, respectively, of income tax benefits to the Company derived from the difference between the market price at the date of exercise and the option price. Vesting of stock awards and other stock compensation in fiscal 2014, 2013 and 2012 resulted in $1,211, $890 and $970, respectively, of incremental income tax benefits over the amounts previously reported for financial reporting purposes. These tax benefits were recorded in additional paid-in capital.

Effective Tax Rates

The following reconciles the U.S. federal statutory income tax rate to the Company’s effective income tax rate:



Year Ended June 30,	2014		2013		2012
Statutory income tax rate	35.0	%	35.0	%	35.0	%
Effects of:
State and local taxes	2.4	%	2.3	%	2.5	%
U.S. tax on foreign income, net	(1.6	)%	—	%	—	%
Foreign income taxes	(2.6	)%	(2.3	)%	(1.8	)%
Deductible dividend	(0.5	)%	(0.5	)%	(0.5	)%
Other, net	(0.6	)%	(1.0	)%	(0.4	)%
Effective income tax rate	32.1	%	33.5	%	34.8	%

Consolidated Balance Sheets

Significant components of the Company’s net deferred tax assets are as follows:



June 30,	2014			2013
Deferred tax assets:
Compensation liabilities not currently deductible	$	30,662		$	33,506
Expenses and reserves not currently deductible	8,364			6,131
Goodwill and intangibles	8,294			3,781
Net operating loss carryforwards (expiring in years 2017-2034)	386			432
Other	281			607
Total deferred tax assets	47,987			44,457
Less: Valuation allowance	—			(11		)
Deferred tax assets, net of valuation allowance	47,987			44,446
Deferred tax liabilities:
Inventories	(6,490		)	(9,057		)
Goodwill and intangibles	(23,254		)	—
Unremitted foreign earnings	—			(2,804		)
Depreciation and differences in property bases	(10,219		)	(11,460		)
Total deferred tax liabilities	(39,963		)	(23,321		)
Net deferred tax assets	$	8,024		$	21,125
The net deferred tax asset is classified as follows:
Other current assets	$	11,371		$	6,315
Deferred tax assets (long-term)	21,166			21,026
Other liabilities	(24,513		)	(6,216		)
Net deferred tax assets	$	8,024		$	21,125

Valuation allowances are provided against deferred tax assets where it is considered more-likely-than-not that the Company will not realize the benefit of such assets. The remaining net deferred tax asset is the amount management believes is more-likely-than-not of being realized. The realization of these deferred tax assets can be impacted by changes to tax laws, statutory rates and future income levels.

U.S. federal income taxes are provided on the portion of non-U.S. subsidiaries' income that is not considered to be permanently reinvested outside the U.S. and may be remitted to the U.S. At June 30, 2014, undistributed earnings of non-U.S. subsidiaries considered to be permanently reinvested and for which no U.S. tax has been provided totaled approximately $134,035. Determination of the net amount of the unrecognized tax liability with respect to the distribution of these earnings is not practicable; however, foreign tax credits would be available to partially reduce U.S. income taxes in the event of a distribution. In 2014, the Company recognized a tax benefit of $2,804 related to U.S. tax on foreign income which reduced the Company's effective tax rate by approximately 1.6%.

This tax benefit was due to the reversal of taxes previously accrued on a portion of the undistributed earnings of non-U.S. subsidiaries applicable to a change in the permanent reinvestment assertion. All undistributed earnings of
non-U.S. subsidiaries are considered to be permanently reinvested outside of the U.S. at June 30, 2014.

Unrecognized Income Tax Benefits

The Company and its subsidiaries file income tax returns in U.S. federal, various state, local and foreign jurisdictions. The following table sets forth the changes in the amount of unrecognized tax benefits for the years ended June 30, 2014, 2013 and 2012:



Year Ended June 30,	2014			2013			2012
Unrecognized Income Tax Benefits at beginning of the year	$	2,655		$	1,539		$	1,181
Current year tax positions	730			957			331
Prior year tax positions	—			790			398
Expirations of statutes of limitations	(1,007		)	(565		)	(371		)
Settlements	(14		)	(66		)	—
Unrecognized Income Tax Benefits at end of year	$	2,364		$	2,655		$	1,539

Included in the balance of unrecognized income tax benefits at June 30, 2014, 2013 and 2012 are $2,104, $2,342 and $1,221, respectively, of income tax benefits that, if recognized, would affect the effective income tax rate.

During 2014, 2013 and 2012, the Company recognized $16 and $3 of expense and $95 of benefit, respectively, for interest and penalties related to unrecognized income tax benefits in its statements of consolidated income. The Company had a liability for penalties and interest of $449 and $433 as of June 30, 2014 and 2013, respectively. The Company does not anticipate a significant change to the total amount of unrecognized income tax benefits within the next twelve months.

The Company is subject to U.S. federal income tax examinations for the tax years 2011 through 2014 and to state and local income tax examinations for the tax years 2008 through 2014. In addition, the Company is subject to foreign income tax examinations for the tax years 2007 through 2014.

The Company’s unrecognized income tax benefits are included in other liabilities in the consolidated balance sheets since payment of cash is not expected within one year.