8. Income Taxes

The provision for income taxes is based on reported income before income taxes. Deferred income tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes, as measured by applying the currently enacted tax laws.

The provision (benefit) for domestic and foreign income taxes was as follows:


	Year Ended April 30,
	2016			2015			2014
	(in thousands)
Current income taxes:
Federal	$	13,087		$	16,569		$	6,982
State		3,271			2,412			1,939
Foreign		16,394			13,650			15,502

Current provision for income taxes		32,752			32,631			24,423
Deferred income taxes:
Federal		(5,334	)		3,140			5,094
State		(1,838	)		(239	)		177
Foreign		(6,620	)		(2,006	)		(1,202	)

Deferred (benefit) provision for income taxes		(13,792	)		895			4,069

Total provision for income taxes	$	18,960		$	33,526		$	28,492

The domestic and foreign components of income from continuing operations before domestic and foreign income and other taxes and equity in earnings of unconsolidated subsidiaries were as follows:


	Year Ended April 30,
	2016		2015		2014
	(in thousands)
Domestic	$	22,228	$	65,885	$	42,411
Foreign		26,534		53,817		56,603

Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries	$	48,762	$	119,702	$	99,014

The reconciliation of the statutory federal income tax rate to the effective consolidated tax rate is as follows:


	Year Ended April 30,
	2016			2015			2014
U.S. federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Non-deductible transaction costs		5.8			—			—
Foreign tax rates differential		(2.8	)		(4.2	)		(4.7	)
COLI increase, net		(2.9	)		(3.1	)		(2.9	)
Conclusion of U.S. federal tax audit		(4.4	)		—			(2.7	)
Non-deductible operating expenses		1.5			0.5			0.6
Devaluation of Venezuelan currency		7.4			—			—
Change in valuation allowance		(6.2	)		—			(1.4	)
Change in uncertain tax positions		1.3			(0.1	)		1.1
Foreign source income, net of credits generated		0.5			0.4			2.0
Other		3.7			(0.5	)		1.8

Effective income tax rate		38.9	%		28.0	%		28.8	%

During fiscal 2016, the Company incurred transaction related expenses in connection with the December 1, 2015 acquisition of Legacy Hay Group that are not deductible for income tax purposes. The fiscal 2016 benefit from foreign tax rate differential was less than in the prior two fiscal years because less income was realized in jurisdictions with lower statutory tax rates, partially due to acquisition, integration and restructuring costs incurred in connection with the Legacy Hay Group acquisition. In December 2015, the IRS concluded its examination of the Company’s U.S. federal income tax return for the tax year ended April 30, 2013. As a result of the conclusion of this audit, the Company recognized a financial statement benefit primarily due to the reversal of an uncertain tax position liability and substantiation of additional foreign tax credits. In February 2016, the Venezuelan government announced a devaluation of the Bolivar. The pre-tax charge resulting from this devaluation is not deductible for income-tax purposes. Finally, the Company recorded an income tax (benefit) provision from the reversal of valuation allowances previously recorded against deferred tax assets, including net operating losses, of certain foreign subsidiaries that have returned to profitability and are now more-likely-than-not to realize those deferred tax assets.

Components of deferred tax assets and liabilities are as follows:


	April 30,
	2016			2015
	(in thousands)
Deferred tax assets:
Deferred compensation	$	91,712		$	73,934
Loss and credit carryforwards		31,023			26,211
Reserves and accruals		14,189			9,344
Deferred rent		7,684			6,432
Deferred revenue		11,464			1,545
Allowance for doubtful accounts		1,431			1,831
Other		5,002			2,609

Gross deferred tax assets		162,505			121,906

Deferred tax liabilities:
Intangibles		(94,284	)		(20,828	)
Property and equipment		(10,603	)		(6,289	)
Prepaid expenses		(12,698	)		(7,687	)
Other		(815	)		(5,653	)

Gross deferred tax liabilities		(118,400	)		(40,457	)

Valuation allowances		(22,030	)		(21,608	)

Net deferred tax asset	$	22,075		$	59,841

The deferred tax amounts have been classified in the consolidated balance sheets as follows:


	April 30,
	2016			2015
	(in thousands)
Non-current deferred tax assets	$	162,505		$	121,906
Non-current deferred tax liabilities		(118,400	)		(40,457	)
Valuation allowance		(22,030	)		(21,608	)

Net non-current deferred tax assets	$	22,075		$	59,841

In November 2015, the FASB issued guidance that simplifies the presentation of deferred income taxes, requiring all deferred tax assets and liabilities, and any related valuation allowances, to be classified as non-current on the balance sheet. The new guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early application permitted for all entities as of the beginning of an interim or annual reporting period. The Company has elected to early adopt the guidance as of January 31, 2016 and has retrospectively applied the new requirements to all periods presented. As such, the Company reclassified $3.8 million of current deferred tax assets from current assets to non-current assets in the accompanying consolidated balance sheet as of April 30, 2015.

Deferred tax assets are reduced by a valuation allowance if it is more-likely-than-not that some portion or all of the deferred tax asset will not be realized. Management believes uncertainty exists regarding the realizability of certain operating losses and has, therefore, established a valuation allowance for this portion of the deferred tax asset. Realization of the deferred income tax asset is dependent on the Company generating sufficient taxable income of the appropriate nature in future years. Although realization is not assured, management believes that it is more likely than not that the net deferred income tax assets will be realized. Deferred tax assets and deferred tax liabilities are presented net on the consolidated balance sheets by tax jurisdiction.

As of April 30, 2016, the Company had U.S. federal net operating loss carryforwards of $3.9 million, which the Company anticipates will be fully utilized by fiscal 2028. The Company has state net operating loss carryforwards of $33.8 million, which, if unutilized, will begin to expire in fiscal 2017. The Company also has foreign net operating loss carryforwards of $105.1 million, which, if unutilized, will begin to expire in fiscal 2017.

The Company has not provided for U.S. taxes or foreign withholding taxes on approximately $375.2 million of undistributed earnings of its foreign subsidiaries as such earnings are intended to be reinvested indefinitely. If a distribution of these earnings were to be made, the Company might be subject to both foreign withholding taxes and U.S. income taxes, net of any allowable foreign tax credits or deductions. An estimate of these taxes, however, is not practicable.

The Company files federal and state income tax returns in the U.S., as well as in foreign jurisdictions. These income tax returns are subject to audit by the Internal Revenue Service (the “IRS”) and various state and foreign tax authorities. In December 2015, the IRS concluded an examination of the Company’s fiscal year 2013 U.S. federal income tax return. The Company’s state income tax returns are currently under examination by the State of California (fiscal years 2013 and 2014) and the State of New York (fiscal years 2010 through 2013). The Company’s income tax returns are not otherwise under examination in any material jurisdictions. The statute of limitations varies by jurisdiction in which the Company operates. With few exceptions, however, the Company’s tax returns for years prior to fiscal 2011 are no longer open to examination by tax authorities (including U.S. federal, state and foreign).

Unrecognized tax benefits are the differences between the amount of benefits of tax positions taken, or expected to be taken, on a tax return and the amount of benefits recognized for financial reporting purposes. As of April 30, 2016, the Company had a liability of $2.1 million for unrecognized tax benefits. A reconciliation of the beginning and ending balances of the unrecognized tax benefits is as follows:


	Year Ended April 30,
	2016			2015			2014
	(in thousands)
Unrecognized tax benefits, beginning of year	$	2,423		$	2,701		$	3,400
Settlement with tax authority		(1,963	)		(497	)		(1,946	)
Additions based on tax positions related to the current year		1,305			219			279
Additions based on tax positions related to prior years		330			—			968

Unrecognized tax benefits, end of year	$	2,095		$	2,423		$	2,701

The liability for unrecognized tax benefits is included in income taxes payable in the consolidated balance sheets. The full amount of unrecognized tax benefits would impact the effective tax rate if recognized. In the next twelve months, it is reasonably possible that the Company’s unrecognized tax benefits could change due to resolution of certain tax matters, which could include payments on those tax matters. These resolutions and payments could reduce the Company’s liability for unrecognized tax benefits balance by approximately $0.3 million.

The Company classifies interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. The Company had no accrual for interest or penalties related to unrecognized tax benefits as of April 30, 2016 and approximately $0.7 million as of April 30, 2015. The Company accrued approximately $0.1 million of interest related to unrecognized tax benefits over the last three fiscal years.