INCOME TAXES

The components of income before income taxes and noncontrolling interests are as follows (in thousands):



	Year ended October 31,
	2015		2014		2013
Domestic		$206,612		$185,842		$168,643
Foreign	18,352		12,730		12,118
Income before taxes and noncontrolling interests		$224,964		$198,572		$180,761

The components of the provision for income taxes on income before income taxes and noncontrolling interests are as follows (in thousands):



	Year ended October 31,
	2015			2014			2013
Current:
Federal		$65,857			$63,264			$49,275
State	8,559			10,145			9,060
Foreign	4,064			3,136			3,650
	78,480			76,545			61,985
Deferred:
Federal	(4,459		)	(14,000		)	(4,786		)
State	(1,907		)	(2,871		)	(467		)
Foreign	(714		)	126			(532		)
	(7,080		)	(16,745		)	(5,785		)
Total income tax expense		$71,400			$59,800			$56,200

A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:



	Year ended October 31,
	2015		2014		2013
Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal income tax benefit	2.4		2.9		3.1
Research and development tax credits	(1.9	)	(1.2	)	(2.6	)
Noncontrolling interests’ share of income	(1.3	)	(1.0	)	(1.3	)
Domestic production activities tax deduction	(1.2	)	(1.6	)	(1.2	)
Foreign taxes, where permanently reinvested outside of the U.S.	(.8	)	—		—
Nontaxable reduction in accrued contingent consideration	(.2	)	(3.4	)	—
Tax-exempt losses (gains) on corporate owned life insurance policies	.1		(.6	)	(1.4	)
Other, net	(.4	)	—		(.5	)
Effective tax rate	31.7	%	30.1	%	31.1	%

The Company’s effective tax rate in fiscal 2015 increased to 31.7% from 30.1% in fiscal 2014. The increase is principally due to the impact of a larger nontaxable reduction in accrued contingent consideration during fiscal 2014 associated with a prior year acquisition acquired by means of a stock transaction and the impact of higher tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the LCP in fiscal 2014 compared to fiscal 2015. These increases were partially offset by an income tax credit for qualified R&D activities for the last ten months of fiscal 2014 that was recognized in the first quarter of fiscal 2015 resulting from the retroactive extension of the U.S. federal R&D tax credit in December 2014 to cover calendar year 2014, the benefit of recognizing additional foreign tax credits related to R&D activities at one of the Company's foreign subsidiaries inclusive of amendments to prior year tax returns, and the Company's decision to not make a provision for U.S. income taxes on the undistributed earnings of a fiscal 2015 foreign acquisition.

The Company's effective tax rate in fiscal 2014 decreased to 30.1% from 31.1% in fiscal 2013. The decrease is principally attributed to the impact of a nontaxable reduction in accrued contingent consideration during fiscal 2014 associated with a fiscal 2013 acquisition acquired by means of a stock transaction. This decrease was partially offset by lower U.S. federal R&D tax credits recognized in fiscal 2014 due to the expiration of the U.S. federal R&D tax credit in December 2013 compared to fiscal 2013 during which the retroactive extension of the U.S. federal R&D tax credit in the first quarter resulted in twenty-two months of U.S. federal R&D tax credits recognized that year. Additionally, the decrease in the effective tax rate was partially offset by the impact of higher tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the LCP in fiscal 2013 compared to fiscal 2014.

The Company files income tax returns in the U.S. federal jurisdiction and in multiple state jurisdictions. The Company is also subject to income taxes in certain jurisdictions outside the U.S., none of which are individually material to the accompanying consolidated financial statements. Generally, the Company is no longer subject to U.S. federal, state or foreign examinations by tax authorities for years prior to fiscal 2011.

The Company has not made a provision for U.S. income taxes on the undistributed

earnings of a fiscal 2015 foreign acquisition as such earnings are considered permanently

reinvested outside of the U.S. The amount of undistributed earnings is not material to the

Company's consolidated financial statements.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company believes that it is more likely than not that it will generate sufficient future taxable income to utilize all of its deferred tax assets and has therefore not recorded a valuation allowance on any such asset.

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



	As of October 31,
	2015			2014
Deferred tax assets:
Deferred compensation liability		$31,520			$27,568
Inventories	24,912			23,099
Share-based compensation	9,333			7,427
Bonus accrual	3,791			4,031
Deferred revenue	2,005			2,660
Vacation accrual	1,836			1,724
R&D related carryforward	1,826			2,068
Customer rebates accrual	1,236			1,635
Other	7,450			8,258
Total deferred tax assets	83,909			78,470

Deferred tax liabilities:
Goodwill and other intangible assets	(148,448		)	(144,381		)
Property, plant and equipment	(7,667		)	(9,090		)
Other	(2,005		)	(880		)
Total deferred tax liabilities	(158,120		)	(154,351		)
Net deferred tax liability		($74,211	)		($75,881	)

The net deferred tax liability is classified in the Company’s Consolidated Balance Sheets as follows (in thousands):



	As of October 31,
	2015			2014
Current asset		$35,530			$34,485
Long-term asset	847			1,063
Long-term liability	(110,588		)	(111,429		)
Net deferred tax liability		($74,211	)		($75,881	)

The Company's deferred income tax benefit was $7.1 million, $16.7 million and $5.8 million in fiscal 2015, 2014 and 2013, respectively. The larger deferred income tax benefit recognized in fiscal 2014 is principally due to the impact of impairment losses recorded in fiscal 2014 related to certain intangible assets recognized in connection with a fiscal 2013 acquisition, the long-term deferred revenue recognized in fiscal 2014, and the impact from the timing of the extension of the bonus depreciation allowance on new property, plant and equipment that resulted in only two months of such allowance recognized in fiscal 2014.

As of October 31, 2015 and 2014, the Company’s liability for gross unrecognized tax benefits related to uncertain tax positions was $.8 million and $.9 million, respectively, of which $.5 million and $.6 million, respectively, would decrease the Company’s income tax expense and effective income tax rate if the tax benefits were recognized. A reconciliation of the activity related to the liability for gross unrecognized tax benefits during the fiscal years ended October 31, 2015 and 2014 is as follows (in thousands):



	Year ended October 31,
	2015			2014
Balances as of beginning of year		$879			$1,072
Increases related to current year tax positions	279			138
Increases related to prior year tax positions	30			10
Decreases related to prior year tax positions	(80		)	—
Settlements	(118		)	(22		)
Lapse of statutes of limitations	(203		)	(319		)
Balances as of end of year		$787			$879