NOTE 8 — INCOME TAXES

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. The Company performs an evaluation of the realizability of the Company’s deferred tax assets on a quarterly basis. The Company considers all positive and negative evidence available in determining the potential of realizing deferred tax assets, including the scheduled reversal of temporary differences, recent cumulative losses, recent and projected future taxable income, and prudent and feasible tax planning strategies. In making this determination, the Company places greater emphasis on recent cumulative losses and recent taxable income due to the inherent lack of subjectivity associated with these factors. The estimates and assumptions used by the Company in computing the income taxes reflected in the Company’s consolidated financial statements could differ from the actual results reflected in the income tax returns filed during the subsequent year. Adjustments are recorded based on filed returns when such returns are finalized or the related adjustments are identified.

Significant components of the provision for income taxes are as follows:



	Year ended January 31,
	2015			2014			2013
	(In thousands)
Current:
Federal	$	32,988		$	42,040		$	25,230
State	1,626			2,799			2,622
Foreign	29,733			33,022			41,333
Total current	64,347			77,861			69,185
Deferred:
Federal	6,391			(785		)	11,329
State	281			(79		)	1,103
Foreign	(7,007		)	(52,620		)	(35,191		)
Total deferred	(335		)	(53,484		)	(22,759		)
	$	64,012		$	24,377		$	46,426

The reconciliation of income tax computed at the U.S. federal statutory tax rate to income tax expense is as follows:



	Year ended January 31,
	2015		2014		2013
U.S. statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	0.5		0.8		1.2
Net changes in deferred tax valuation allowances	(4.5	)	(19.5	)	(9.0	)
Tax on foreign earnings different than U.S. rate	(11.8	)	(11.7	)	(9.9	)
Nondeductible penalties	0.0		0.0		0.5
Nondeductible interest	4.0		6.4		0.8
Reserve established for foreign income tax contingencies	0.1		0.3		0.5
Effect of company-owned life insurance	(0.4	)	(0.6	)	(0.4	)
Undistributed earnings on foreign assets held for sale	2.4		0.0		0.0
Other, net	1.5		1.2		1.4
	26.8	%	11.9	%	20.1	%

In fiscal 2015, 2014 and 2013, the Company recorded income tax benefits of $19.2 million, $45.3 million and $25.1 million, respectively, for the reversal of deferred tax valuation allowances primarily related to specific European jurisdictions which had been recorded in prior fiscal years. During fiscal 2015, the Company recorded a $5.6 million deferred tax liability related to undistributed earnings on assets held for sale in certain Latin American jurisdictions (see further discussion in Note 6 - Loss on Disposal of Subsidiaries.)

The components of pretax income are as follows:



	Year ended January 31,
	2015		2014		2013
	(In thousands)
United States	$	100,166	$	124,134	$	108,700
Foreign	139,018		80,175		120,766
	$	239,184	$	204,309	$	229,466

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



	January 31,
	2015			2014
	(In thousands)
Deferred tax liabilities:
Depreciation and amortization	$	60,235		$	70,800
Capitalized marketing program costs	5,420			4,722
Goodwill	6,050			6,108
Deferred costs currently deductible	7,605			6,094
Undistributed earnings on foreign assets held for sale	5,598			0
Other, net	7,796			7,491
Total deferred tax liabilities	92,704			95,215
Deferred tax assets:
Accrued liabilities	47,083			50,665
Loss carryforwards	96,199			125,914
Amortizable goodwill	7,930			11,915
Depreciation and amortization	7,132			7,699
Disallowed interest expense	31,898			38,481
Other, net	10,359			10,149
	200,601			244,823
Less: valuation allowances	(71,499		)	(101,340		)
Total deferred tax assets	129,102			143,483
Net deferred tax asset	$	36,398		$	48,268

The net change in the deferred tax valuation allowances in fiscal 2015 was $29.8 million primarily resulting from the $19.2 million reversal of deferred tax valuation allowances related to certain European jurisdictions as discussed previously, as well as changes from the translation of foreign currencies. The net change in the deferred tax valuation allowances in fiscal 2014 was a decrease of $41.0 million primarily resulting from the $45.3 million reversal of deferred tax valuation allowances primarily related to certain European jurisdictions as discussed previously.

The valuation allowances at both January 31, 2015 and 2014 primarily relate to foreign net operating loss carryforwards. The Company’s net operating loss carryforwards totaled $475.6 million and $617.9 million at January 31, 2015 and 2014, respectively. The majority of the net operating losses have an indefinite carryforward period with the remaining portion expiring in fiscal years 2016 through 2034. The Company considers all positive and negative evidence available in determining the potential of realizing deferred tax assets, including the scheduled reversal of temporary differences, recent cumulative losses, recent and projected future taxable income, and prudent and feasible tax planning strategies. In making this determination, the Company places greater emphasis on recent cumulative losses and recent taxable income due to the inherent lack of subjectivity associated with these factors.

To the extent that the Company generates consistent taxable income within those operations with valuation allowances, the Company may reduce the valuation allowances, thereby reducing the income tax expense and increasing net income in the period the determination was made.

At January 31, 2015, there are $499.9 million of consolidated cumulative undistributed earnings of foreign subsidiaries for which no deferred taxes have been recorded. It is not practical to estimate the amount of unrecognized deferred U.S. income tax that might be payable if any earnings were to be distributed by individual foreign subsidiaries.

A reconciliation of the beginning and ending balances of the total amount of gross unrecognized tax benefits, excluding accrued interest and penalties, for the years ended January 31, 2015, 2014 and 2013 is as follows (in thousands):



Gross unrecognized tax benefits at January 31, 2012	$	3,685
Increases in tax positions for prior years	2,890
Decreases in tax positions for prior years	(127		)
Increases in tax positions for current year	171
Expiration of statutes of limitation	(38		)
Settlements	(1,106		)
Changes due to translation of foreign currencies	124
Gross unrecognized tax benefits at January 31, 2013	5,599
Increases in tax positions for prior years	1,956
Decreases in tax positions for prior years	(420		)
Increases in tax positions for current year	93
Expiration of statutes of limitation	(77		)
Settlements	(1,295		)
Changes due to translation of foreign currencies	3
Gross unrecognized tax benefits at January 31, 2014	5,859
Increases in tax positions for prior years	845
Decreases in tax positions for prior years	(730		)
Increases in tax positions for current year	105
Expiration of statutes of limitation	(63		)
Changes due to translation of foreign currencies	(891		)
Gross unrecognized tax benefits at January 31, 2015	$	5,125

At January 31, 2015, 2014 and 2013, the amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $5.1 million, $5.4 million and $4.8 million, respectively.

Unrecognized tax benefits that have a reasonable possibility of significantly decreasing within the 12 months following January 31, 2015 totaled $0.6 million and were primarily related to the foreign taxation of certain transactions. Consistent with prior periods, the Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company’s accrued interest at January 31, 2015, would not have a material impact on the effective tax rate if reversed. The provision for income taxes for each of the fiscal years ended January 31, 2015, 2014 and 2013 includes interest expense on unrecognized income tax benefits for current and prior years which is not significant to the Company’s Consolidated Statement of Income. The change in the balance of accrued interest for fiscal 2015, 2014 and 2013, includes the current year end accrual, an interest benefit resulting from the expiration of statutes of limitation, and the translation adjustments on foreign currencies.

The Company conducts business primarily in the Americas and Europe and, as a result, one or more of its subsidiaries files income tax returns in the U.S. federal, various state, local and foreign tax jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities. The Company is no longer subject to examinations by the Internal Revenue Service for years before fiscal 2011. Income tax returns of various foreign jurisdictions for fiscal 2006 and forward are currently under taxing authority examination or remain subject to audit.