Income Taxes

Domestic and foreign pre-tax income was as follows:



Year ended January 31,	2016			2015			2014
Domestic	$	(25,971	)	$	(2,991	)	$	(754	)
Foreign	144,900			170,749			163,822
Total pre-tax income	$	118,929		$	167,758		$	163,068

The provision for income taxes was as follows:



Year ended January 31,	2016		2015			2014
Current:
Federal	$	734	$	(223	)	$	(366	)
State	199		444			355
Foreign	17,994		13,677			6,585
Total current	18,927		13,898			6,574
Deferred:
Federal and state	4,402		7,687			1,333
Foreign	1,424		996			1,603
Total deferred	5,826		8,683			2,936
Total provision for income taxes	$	24,753	$	22,581		$	9,510

Actual income tax expense is different from that which would have been computed by applying the statutory U.S. federal income tax rate to our income before income tax. A reconciliation of income tax expense as computed at the U.S. federal statutory income tax rate to the provision for income taxes is as follows:



Year ended January 31,	2016			2015			2014
Federal tax, at statutory rate	$	41,626		$	58,725		$	57,074
State tax, net of federal benefit	(60		)	900			355
Impact of international operations including withholding taxes and other reserves	7,143			(27,042		)	(46,632		)
Repatriation of foreign subsidiary earnings	354			21,969			20,367
Foreign tax credits	(2,382		)	(5,143		)	(5,489		)
Tax credits (excluding foreign tax credits)	(11,539		)	(8,089		)	(12,571		)
Amortization of deferred charge	(167		)	1,168			(2,311		)
Change in valuation allowance	(21,055		)	(26,443		)	(5,929		)
Stock-based compensation expense	3,402			2,929			2,593
Non-deductible meals and entertainment	1,177			1,238			1,087
Other, net	6,254			2,369			966
Provision for income taxes	$	24,753		$	22,581		$	9,510

The tax effects of temporary differences and carryforwards, which gave rise to significant portions of deferred tax assets and liabilities, were as follows:



As of January 31,	2016			2015
Deferred tax assets:
Reserves and allowances	$	12,954		$	11,188
Accrued expenses not currently deductible	12,446			21,475
Stock-based compensation expense	8,259			6,988
Net operating loss carryforwards	24,138			34,618
Tax credit carryforwards	87,443			74,235
Purchased technology and other intangible assets	4,219			3,047
Deferred revenue	4,541			2,002
Other, net	8,394			6,762
Total gross deferred tax assets	162,394			160,315
Less valuation allowance	(63,554		)	(91,956		)
Deferred tax assets	98,840			68,359
Deferred tax liabilities:
Intangible assets	(13,163		)	(12,976		)
Undistributed foreign earnings	(87,390		)	(50,163		)
Convertible debt	(6,322		)	(8,918		)
Depreciation of property, plant, and equipment	(1,715		)	(997		)
Deferred tax liabilities	(108,590		)	(73,054		)
Net deferred tax liabilities	$	(9,750	)	$	(4,695	)

For fiscal year 2016, all deferred tax assets and liabilities are presented in our balance sheet in other assets and other long-term liabilities respectively. For fiscal year 2015, only long-term deferred tax assets and liabilities are presented in our balance sheet in other assets and other long-term liabilities, respectively.

We early adopted ASU 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes, effective January 31, 2016 on a prospective basis. This ASU requires that deferred tax assets and liabilities be classified as noncurrent in a statement of financial position. No prior periods were retrospectively adjusted.

As of January 31, 2016, we had the following foreign and U.S. Federal and state carryforwards for income tax return purposes:



Credit or carryforward	As of January 31, 2016		Expiration
Federal credits and carryforwards:
Research and experimentation credit carryforward	$	88,987	Fiscal years 2019 - 2036
Net operating loss carryforward	$	120,030	Fiscal years 2020 - 2036
Foreign tax credits	$	19,433	Fiscal years 2017 - 2026
Alternative minimum tax credits	$	2,682	No expiration
Childcare credits	$	1,843	Fiscal years 2023 - 2036
State income tax credits and carryforwards:
Net operating loss carryforward	$	202,389	Fiscal years 2017 - 2036
Research and experimentation	$	21,842	Fiscal years 2017 - 2031
Miscellaneous	$	1,038	Various
Foreign net operating loss carryforwards	$	20,093	Generally indefinite

Tax attributes created by, and associated with, excess tax benefits from the exercise of stock options are not recorded as deferred tax assets. To the extent such attributes are utilized, we may increase stockholders’ equity. Our deferred tax assets related to net operating loss carryforwards created by excess tax benefits from stock options have been reduced by $48,591 as of January 31, 2016 and $43,206 as of January 31, 2015.

The decrease in the valuation allowance largely resulted from accrual of a U.S. deferred tax liability on fiscal year 2016 foreign earnings that are not permanently reinvested and may be repatriated in the future.

We have determined the amounts of our valuation allowances based on our estimates of taxable income by jurisdiction in which we operate over the periods in which the related deferred tax assets will be recoverable. We determined it is not more-likely-than-not that our U.S. entities will generate sufficient taxable income to offset reversing deductible timing differences and to fully utilize carryforward tax attributes. Accordingly, we recorded a valuation allowance against those deferred tax assets for which realization does not meet the more-likely-than-not standard. Similarly, there is a valuation allowance on our state deferred tax assets due to the same uncertainties regarding future taxable U.S. income. We determine valuation allowances related to certain foreign deferred tax assets based on historical losses as well as future expectations in certain jurisdictions.

We have not provided for U.S. income taxes on the undistributed earnings of our foreign subsidiaries to the extent they are considered permanently re-invested outside the U.S. As of January 31, 2016, the cumulative amount of earnings upon which U.S. income taxes have not been provided is approximately $461,438. Determination of the amount of unrecognized deferred U.S. income tax liability on permanently re-invested earnings is not practicable. Where the earnings of our foreign subsidiaries are not treated as permanently reinvested, we have accrued for U.S. income taxes on those earnings in our tax provision.

On December 18, 2015, the President of the U.S. signed into law The Protecting Americans from Tax Hikes (PATH) Act of 2015 which permanently reinstated the research tax credit retroactive to January 1, 2015. As a result of the new legislation, the Company recognized a benefit in the fourth quarter of fiscal year 2016 related to one month of fiscal year 2015 and twelve months of fiscal year 2016.

We are subject to income taxes in the U.S. and in numerous foreign jurisdictions. In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. The statute of limitations for adjustments to our historic tax obligations will vary from jurisdiction to jurisdiction. In some cases it may be extended or be unlimited. Furthermore, net operating loss and tax credit carryforwards may be subject to adjustment after the expiration of the statute of limitations of the year such net operating losses and tax credits originated. Our larger jurisdictions generally provide for a statute of limitation from three to five years. For U.S. federal income tax purposes, the tax years which remain open for examination are fiscal years 2013 and forward, although net operating loss and credit carryforwards from all years are subject to examination and adjustment for three years following the year in which utilized. We are currently under examination in various jurisdictions. The examinations are in different stages and timing of their resolution is difficult to predict. The statute of limitations remains open for years on and after fiscal year 2012 in Ireland, fiscal year 2011 in Japan, fiscal year 2009 in India and fiscal year 2012 in Israel.

We have reserves for taxes to address potential exposures involving tax positions that are being challenged or that could be challenged by the tax authorities even though we believe the positions we have taken are appropriate. We believe our tax reserves are adequate to cover potential liabilities. We review the tax reserves as circumstances warrant and adjust the reserves as events occur that affect our potential liability for additional taxes. It is often difficult to predict the final outcome or timing of resolution of any particular tax matter. Various events, some of which cannot be predicted, such as clarification of tax law by administrative or judicial means, may occur and would require us to increase or decrease our reserves and effective tax rate. It is reasonably possible that existing unrecognized tax benefits may decrease from $0 to $3,000 due to settlements or expiration of the statute of limitations within the next twelve months. To the extent that uncertain tax positions resolve in our favor, it could have a positive impact on our effective tax rate. A portion of our reserves, which could settle or expire within the next twelve months, may result in deferred tax assets subject to a valuation allowance for which no benefit would be recognized. Income tax-related interest and penalties were an expense of $1,717 for the year ended January 31, 2016, an expense of $884 for the year ended January 31, 2015 and a benefit of $1,710 for the year ended January 31, 2014.

The below schedule shows the gross changes in unrecognized tax benefits associated with uncertain tax positions for the years ending January 31, 2016 and 2015:



Unrecognized tax benefits as of January 31, 2014	$	31,321
Gross increases—tax positions in prior period	7,022
Gross decreases—tax positions in prior period	(279		)
Gross increases—tax positions in current period	4,904
Settlements	(126		)
Lapse of statute of limitations	(2,709		)
Cumulative translation adjustment	(362		)
Unrecognized tax benefits as of January 31, 2015	$	39,771
Gross increases—tax positions in prior period	6,548
Gross decreases—tax positions in prior period	(1,702		)
Gross increases—tax positions in current period	6,509
Settlements	—
Lapse of statute of limitations	(1,125		)
Cumulative translation adjustment	(1,327		)
Unrecognized tax benefits as of January 31, 2016	$	48,674

The ending balances of unrecognized tax benefits represent the gross amount of exposure in individual jurisdictions and do not reflect any additional benefits expected to be realized if such positions were not sustained, such as the federal deduction that could be realized if an unrecognized state deduction was not sustained. The ending gross balances exclude accrued interest and penalties related to such positions of $9,817 as of January 31, 2016 and $8,366 as of January 31, 2015. We expect that $25,162 of our unrecognized tax benefits, if recognized, would favorably affect our effective tax rate.