NOTE 8 — INCOME TAXES

Significant components of the provision for income taxes are as follows (in thousands):



Year ended January 31:	2017			2016			2015
Current tax expense:
Federal	$	37,724		$	71,502		$	32,988
State	4,030			5,989			1,626
Foreign	30,914			36,804			29,733
Total current tax expense	72,668			114,295			64,347
Deferred tax (benefit) expense:
Federal	(8,380		)	(3,984		)	6,391
State	(799		)	543			281
Foreign	(1,823		)	5,828			(7,007		)
Total deferred tax (benefit) expense	(11,002		)	2,387			(335		)
	$	61,666		$	116,682		$	64,012

The reconciliation of the U.S. federal statutory tax rate to the effective tax rate is as follows:



Year ended January 31:	2017		2016		2015
U.S. statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	0.8		1.1		0.5
Net changes in deferred tax valuation allowances	(3.4	)	0.0		(4.5	)
Tax on foreign earnings different than U.S. rate	(9.9	)	(7.4	)	(11.8	)
Nondeductible interest	2.1		1.6		4.0
Reserve established for foreign income tax contingencies	0.5		0.0		0.1
Effect of company-owned life insurance	(0.7	)	0.2		(0.4	)
Undistributed earnings on foreign assets held for sale	0.0		0.0		2.4
Other, net	(0.4	)	0.0		1.5
	24.0	%	30.5	%	26.8	%

In fiscal 2017 and 2015, the Company recorded income tax benefits of $12.5 million and $19.2 million, respectively, primarily related to the reversal of deferred tax valuation allowances in certain European jurisdictions which had been recorded in prior fiscal years. Additionally 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 (in thousands):



Year ended January 31:	2017		2016		2015
United States	$	92,067	$	195,219	$	100,166
Foreign	164,694		187,199		139,018
	$	256,761	$	382,418	$	239,184

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



As of January 31:	2017			2016
Deferred tax liabilities:
Depreciation and amortization	$	48,910		$	53,939
Capitalized marketing program costs	7,525			6,547
Goodwill	7,581			8,545
Deferred costs currently deductible	4,110			5,415
Other, net	5,241			5,938
Total deferred tax liabilities	73,367			80,384
Deferred tax assets:
Accrued liabilities	41,509			42,071
Loss carryforwards	92,338			103,647
Amortizable goodwill	2,191			5,315
Depreciation and amortization	4,547			6,502
Disallowed interest expense	6,249			5,140
Acquisition and transaction related costs	5,605			—
Other, net	10,928			9,659
	163,367			172,334
Less: valuation allowances	(46,764		)	(60,165		)
Total deferred tax assets	116,603			112,169
Net deferred tax asset	$	43,236		$	31,785

The net change in the deferred tax valuation allowances in fiscal 2017 was a decrease of $13.4 million primarily resulting from the reversal of deferred tax valuation allowances related to certain European jurisdictions as discussed previously. The net change in the deferred tax valuation allowances in fiscal 2016 was a decrease of $11.3 million primarily due to the impact of the translation of foreign currencies and the utilization of deferred tax assets subject to valuation allowances.

The valuation allowances at both January 31, 2017 and 2016 primarily relate to foreign net operating loss carryforwards. The Company’s net operating loss carryforwards totaled $432.8 million and $482.3 million at January 31, 2017 and 2016, respectively. The majority of the net operating losses have an indefinite carryforward period with the remaining portion expiring in fiscal years 2018 through 2034. The Company considers all positive and negative evidence available in determining the potential of realizing deferred tax assets. 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 income tax expense and increasing net income in the period the determination is made.

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.

At January 31, 2017, there are $776.9 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, 2017, 2016 and 2015 is as follows (in thousands):



For the year ended January 31:	2017			2016			2015
Gross unrecognized tax benefits at beginning of period	$	12,989		$	5,125		$	5,859
Increases in tax positions for prior years	5,443			8,443			845
Decreases in tax positions for prior years	(118		)	(348		)	(730		)
Increases in tax positions for current year	1,022			106			105
Expiration of statutes of limitation	(292		)	(77		)	(63		)
Settlements	(370		)	(104		)	—
Changes due to translation of foreign currencies	(369		)	(156		)	(891		)
Gross unrecognized tax benefits at end of period	$	18,305		$	12,989		$	5,125

At January 31, 2017, 2016 and 2015, the amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $12.5 million, $10.1 million and $5.1 million, respectively.

Unrecognized tax benefits that have a reasonable possibility of significantly decreasing within the 12 months following January 31, 2017 totaled $4.8 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, 2017, 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, 2017, 2016 and 2015 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 2017, 2016 and 2015, 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 2014. Income tax returns of various foreign jurisdictions for fiscal 2006 and forward are currently under taxing authority examination or remain subject to audit.