INCOME TAXES

Income Before Income Taxes

The components of income before income taxes are as follows:



Year Ended June 30,	2017		2016			2015
U.S.	$	154,472	$	139,960		$	152,618
Foreign	12,494		(60,982		)	23,253
Income before income taxes	$	166,966	$	78,978		$	175,871

Provision

The provision (benefit) for income taxes consists of:



Year Ended June 30,	2017			2016			2015
Current:
Federal	$	26,456		$	45,226		$	52,861
State and local	4,692			6,349			6,884
Foreign	4,760			4,407			5,603
Total current	35,908			55,982			65,348
Deferred:
Federal	852			397			(3,799		)
State and local	535			(30		)	(153		)
Foreign	(4,239		)	(6,948		)	(1,009		)
Total deferred	(2,852		)	(6,581		)	(4,961		)
Total	$	33,056		$	49,401		$	60,387

During the fourth quarter of fiscal 2017, the Company recorded a net tax benefit of $22,246 pertaining to a worthless stock deduction. The tax benefit of this deduction was based on the write-off of the Company's investment in one of its Canadian subsidiaries for US tax purposes reduced by $1,019 of tax provided for a valuation allowance applicable to the related state deferred income tax asset.

The exercise of non-qualified stock appreciation rights and options during fiscal 2017, 2016 and 2015 resulted in $1,921, $212 and $352, respectively, of income tax benefits to the Company derived from the difference between the market and option price of the shares at the date of exercise and the fair value of the options on the grant date. Vesting of stock awards and other stock compensation in fiscal 2017, 2016 and 2015 resulted in $482, $(4) and $690, respectively, of incremental income tax benefits (expense) over the amounts previously reported for financial reporting purposes. Due to the adoption of ASU 2016-09, the tax benefits for fiscal 2017 were recorded in income tax expense in the statements of consolidated income, while the fiscal 2016 and 2015 tax (expense) 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,	2017		2016		2015
Statutory income tax rate	35.0	%	35.0	%	35.0	%
Effects of:
State and local taxes	2.8		5.2		2.5
Worthless stock deduction	(13.9	)	—		—
Stock compensation	(1.4	)	—		—
Goodwill impairment	—		27.1		—
Foreign income taxes	(2.3	)	(3.0	)	(2.5	)
Deductible dividend	(0.4	)	(0.9	)	(0.5	)
Valuation allowance	0.3		0.5		0.5
Other, net	(0.3	)	(1.3	)	(0.7	)
Effective income tax rate	19.8	%	62.6	%	34.3	%

Consolidated Balance Sheets

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



June 30,	2017			2016
Deferred tax assets:
Compensation liabilities not currently deductible	$	26,873		$	25,992
Other expenses and reserves not currently deductible	11,601			11,650
Goodwill and intangibles	5,661			6,366
Foreign tax credit (expiring in years 2025-2026)	709			849
Net operating loss carryforwards (expiring in years 2018-2037)	5,729			4,960
Other	119			83
Total deferred tax assets	50,692			49,900
Less: Valuation allowance	(1,831		)	(1,347		)
Deferred tax assets, net of valuation allowance	48,861			48,553
Deferred tax liabilities:
Inventories	(7,447		)	(4,785		)
Goodwill and intangibles	(30,482		)	(33,353		)
Depreciation and differences in property bases	(10,122		)	(9,892		)
Total deferred tax liabilities	(48,051		)	(48,030		)
Net deferred tax assets	$	810		$	523
Net deferred tax assets are classified as follows:
Deferred tax assets	$	8,985		$	12,277
Other liabilities	(8,175		)	(11,754		)
Net deferred tax assets	$	810		$	523

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, 2017, all undistributed earnings of non-U.S. subsidiaries are considered to be permanently reinvested and totaled approximately $92,106, for which no U.S. tax has been provided. 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 fiscal 2015, $17,793 of cash was distributed by one of the Company's non-US subsidiaries as a non-taxable return of capital.

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, 2017, 2016 and 2015:



Year Ended June 30,	2017			2016			2015
Unrecognized Income Tax Benefits at beginning of the year	$	2,915		$	2,604		$	2,364
Current year tax positions	574			539			472
Prior year tax positions	259			—			—
Expirations of statutes of limitations	(189		)	(132		)	(160		)
Settlements	(26		)	(96		)	(72		)
Unrecognized Income Tax Benefits at end of year	$	3,533		$	2,915		$	2,604

Included in the balance of unrecognized income tax benefits at June 30, 2017, 2016 and 2015 are $3,323, $2,691 and $2,377, respectively, of income tax benefits that, if recognized, would affect the effective income tax rate.

During 2017, 2016 and 2015, the Company recognized $163 and $127 and $49 of expense, 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 $787 and $625 as of June 30, 2017 and 2016, 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 2014 through 2017 and to state and local income tax examinations for the tax years 2011 through 2017. In addition, the Company is subject to foreign income tax examinations for the tax years 2010 through 2017.

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.