P. INCOME TAXES

Earnings from operations before income taxes consisted of the following:



	Years Ended January 31,
(in thousands)	2014		2013		2012
United States	$	65,164	$	510,853	$	448,780
Foreign	189,702		132,723		216,171
	$	254,866	$	643,576	$	664,951

The settlement of the Arbitration Award, as discussed in "Note K - Commitments and Contingencies", resulted in a significant change in the composition of geographical earnings from operations for the year ended January 31, 2014. This change resulted in a lower effective tax rate for the year ended January 31, 2014 because of lower tax rates on foreign earnings.

Components of the provision for income taxes were as follows:



	Years Ended January 31,
(in thousands)	2014			2013			2012
Current:
Federal	$	39,028		$	167,462		$	181,935
State	9,897			28,461			35,109
Foreign	52,427			50,778			59,485
	101,352			246,701			276,529
Deferred:
Federal	(28,640		)	378			(49,746		)
State	(2,265		)	223			(447		)
Foreign	3,050			(19,883		)	(575		)
	(27,855		)	(19,282		)	(50,768		)
	$	73,497		$	227,419		$	225,761

Reconciliations of the provision for income taxes at the statutory Federal income tax rate to the Company's effective income tax rate were as follows:



	Years Ended January 31,
	2014		2013		2012
Statutory Federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of Federal benefit	2.0		3.0		3.3
Foreign losses with no tax benefit	1.3		0.5		0.2
Undistributed foreign earnings	(7.8	)	(3.4	)	(4.0	)
Net change in uncertain tax positions	0.5		0.9		0.3
Domestic manufacturing deduction	(2.5	)	(1.4	)	(1.6	)
Other	0.3		0.7		0.8
	28.8	%	35.3	%	34.0	%

The Company has the intent to indefinitely reinvest any undistributed earnings of primarily all foreign subsidiaries. As of January 31, 2014 and 2013, the Company has not provided deferred taxes on approximately $542,000,000 and $474,000,000 of undistributed earnings. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. U.S. Federal income taxes of approximately $98,000,000 and $87,000,000 would be incurred if these earnings were distributed.

Deferred tax assets (liabilities) consisted of the following:



	January 31,
(in thousands)	2014			2013
Deferred tax assets:
Pension/postretirement benefits	$	106,585		$	131,974
Accrued expenses	38,141			28,637
Share-based compensation	22,719			25,252
Depreciation	52,530			49,159
Amortization	11,305			11,711
Foreign and state net operating losses	27,806			27,976
Sale-leaseback	47,900			57,955
Inventory	66,227			59,071
Financial hedging instruments	14,141			13,824
Unearned income	11,407			11,022
Other	37,052			31,308
	435,813			447,889
Valuation allowance	(17,693		)	(14,181		)
	418,120			433,708
Deferred tax liabilities:
Foreign tax credit	(40,246		)	(47,913		)
Net deferred tax asset	$	377,874		$	385,795

The Company has recorded a valuation allowance against certain deferred tax assets related to state and foreign net operating loss carryforwards where management has determined it is more likely than not that deferred tax assets will not be realized in the future. The overall valuation allowance relates to tax loss carryforwards and temporary differences for which no benefit is expected to be realized. Tax loss carryforwards of approximately $7,000,000 and $108,000,000 exist in certain state and foreign jurisdictions. Whereas some of these tax loss carryforwards do not have an expiration date, others expire at various times from 2014 through 2034.

The following table reconciles the unrecognized tax benefits:



							January 31,
(in thousands)	2014			2013			2012
Unrecognized tax benefits at beginning of year	$	28,217		$	25,509		$	32,273
Gross increases – tax positions in prior period	345			4,426			1,365
Gross decreases – tax positions in prior period	(391		)	(1,713		)	(6,480		)
Gross increases – tax positions in current period	115			156			312
Settlements	(284		)	—			(1,760		)
Lapse of statute of limitations	(376		)	(161		)	(201		)
Unrecognized tax benefits at end of year	$	27,626		$	28,217		$	25,509

Included in the balance of unrecognized tax benefits at January 31, 2014, 2013 and 2012 are $18,748,000, $17,564,000 and $12,998,000 of tax benefits that, if recognized, would affect the effective income tax rate.

The Company recognizes interest expense and penalties related to unrecognized tax benefits within the provision for income taxes. During the years ended January 31, 2014, 2013 and 2012, the Company recognized approximately $1,874,000, $650,000 and $3,924,000 of expense associated with interest and penalties. Accrued interest and penalties are included within accounts payable and accrued liabilities and other long-term liabilities, and were $9,752,000 and $7,878,000 at January 31, 2014 and 2013.

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. As a matter of course, various taxing authorities regularly audit the Company. The Company's tax filings are currently being examined by a number of tax authorities in various jurisdictions. Ongoing audits where subsidiaries have a material presence include New York City (tax years 2009–2010), as well as an audit that is being conducted by the Internal Revenue Service (tax years 2006–2009). Tax years from 2006–present are open to examination in U.S. Federal and various state, local and foreign jurisdictions. The Company believes that its tax positions comply with applicable tax laws and that it has adequately provided for these matters. However, the audits may result in proposed assessments where the ultimate resolution may result in the Company owing additional taxes. Management anticipates that it is reasonably possible that the total gross amount of unrecognized tax benefits will decrease by approximately $20,000,000 in the next 12 months, a portion of which may affect the effective tax rate; however, management does not currently anticipate a significant effect on net earnings. Future developments may result in a change in this assessment.