Entity information:
INCOME TAXES

The components of income before income taxes and noncontrolling interests are as follows (in thousands):
 
Year ended October 31,
 
2017
 
2016
 
2015
Domestic

$264,420

 

$227,927

 

$206,612

Foreign
33,540

 
29,123

 
18,352

Income before taxes and noncontrolling interests

$297,960

 

$257,050

 

$224,964



The components of the provision for income taxes on income before income taxes and noncontrolling interests are as follows (in thousands):
 
Year ended October 31,
 
2017
 
2016
 
2015
Current:
 
 
 
 
 
Federal

$85,047

 

$75,261

 

$65,857

State
6,820

 
7,463

 
8,559

Foreign
9,529

 
7,370

 
4,064

 
101,396

 
90,094


78,480

Deferred:


 


 


Federal
(9,661
)
 
(5,979
)
 
(4,459
)
State
(499
)
 
(2,587
)
 
(1,907
)
Foreign
(936
)
 
(628
)
 
(714
)
 
(11,096
)
 
(9,194
)
 
(7,080
)
Total income tax expense

$90,300

 

$80,900



$71,400



A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:
 
Year ended October 31,
 
2017
 
2016
 
2015
Federal statutory income tax rate
35.0
%
 
35.0
%
 
35.0
%
State taxes, net of federal income tax benefit
1.9
%
 
1.7
%
 
2.4
%
Research and development tax credits
(1.8
%)
 
(2.7
%)
 
(1.9
%)
Tax-exempt (gains) losses on corporate-owned life insurance policies
(1.8
%)
 
(.1
%)
 
.1
%
Domestic production activities tax deduction
(1.1
%)
 
(1.3
%)
 
(1.2
%)
Tax benefit related to stock option exercises (ASU 2016-09 adoption)
(1.0
%)
 
—
%
 
—
%
Noncontrolling interests’ share of income
(.7
%)
 
(.7
%)
 
(1.3
%)
Foreign tax differential, where permanently reinvested outside of the U.S.
(.4
%)
 
(.8
%)
 
(.8
%)
Other, net
.2
%
 
.4
%
 
(.6
%)
Effective tax rate
30.3
%
 
31.5
%

31.7
%
    
The Company’s effective tax rate in fiscal 2017 decreased to 30.3% from 31.5% in fiscal 2016. The decrease principally reflects the favorable impact of higher tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the LCP and a $3.1 million discrete income tax benefit related to stock option exercises resulting from the adoption of ASU 2016-09 in the first quarter of fiscal 2017 (see Note 1, Summary of Significant Accounting Policies - New Accounting Pronouncements). These decreases were partially offset by the benefit recognized in fiscal 2016 from the retroactive and permanent extension of the U.S. federal R&D tax credit that resulted in the recognition of additional income tax credits for qualified R&D activities related to the last ten months of fiscal 2015 and a less favorable benefit in fiscal 2017 from the foreign tax rate differential associated with the undistributed earnings of a fiscal 2015 acquisition.
 
The Company's effective tax rate in fiscal 2016 decreased to 31.5% from 31.7% in fiscal 2015. The decrease principally reflects the benefits recognized in fiscal 2016 of a larger income tax credit for qualified R&D activities resulting from the retroactive and permanent extension of the U.S. federal R&D tax credit in December 2015 and a lower effective state tax rate driven by certain apportionment updates recognized upon the amendment of certain prior year tax returns in fiscal 2016. These decreases were partially offset by the benefits recognized in fiscal 2015 from a prior year tax return amendment for additional foreign tax credits related to R&D activities at one of our foreign subsidiaries and higher net income attributable to noncontrolling interests in subsidiaries structured as partnerships.

The Company files income tax returns in the U.S. federal jurisdiction and in multiple state jurisdictions.  The Company is also subject to income taxes in certain jurisdictions outside the U.S., none of which are individually material to the accompanying consolidated financial statements.  Generally, the Company is no longer subject to U.S. federal, state or foreign examinations by tax authorities for years prior to fiscal 2013.

The Company has not made a provision for U.S. income taxes on the undistributed
earnings of a fiscal 2015 foreign acquisition as such earnings are considered permanently
reinvested outside of the U.S. The amount of undistributed earnings is not material to the
Company's consolidated financial statements.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  The Company believes that it is more likely than not that it will generate sufficient future taxable income to utilize all of its deferred tax assets and has therefore not recorded a valuation allowance on any such asset. 
 
    
Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
 
As of October 31,
 
2017
 
2016
Deferred tax assets:
 
 
 
Deferred compensation liability

$47,093

 

$36,134

Inventories
31,797

 
27,969

Share-based compensation
12,984

 
11,338

Bonus accrual
4,956

 
4,744

Vacation accrual
2,112

 
2,127

Customer rebates accrual
1,864

 
1,917

Deferred revenue
730

 
1,365

R&D related carryforward
645

 
2,057

Other
8,585

 
8,489

Total deferred tax assets
110,766

 
96,140

 
 
 
 
Deferred tax liabilities:
 
 
 
Goodwill and other intangible assets
(160,158
)
 
(150,185
)
Property, plant and equipment
(7,887
)
 
(8,291
)
Other
(1,747
)
 
(2,156
)
Total deferred tax liabilities
(169,792
)
 
(160,632
)
Net deferred tax liability

($59,026
)
 

($64,492
)

    
The net deferred tax liability is classified in the Company’s Consolidated Balance Sheets as follows (in thousands) in accordance with ASU 2015-17, which the Company adopted in the fourth quarter of fiscal 2017 on a retrospective basis (see Note 1, Summary of Significant Accounting Policies - New Accounting Pronouncements):
 
As of October 31,
 
2017
 
2016
Long-term liability

($59,026
)
 

($64,899
)
Long-term asset
—

 
407

Net deferred tax liability

($59,026
)
 

($64,492
)

    
    
As of October 31, 2017 and 2016, the Company’s liability for gross unrecognized tax benefits related to uncertain tax positions was $2.0 million and $1.6 million, respectively, of which $1.3 million and $1.0 million, respectively, would decrease the Company’s income tax expense and effective income tax rate if the tax benefits were recognized. A reconciliation of the activity related to the liability for gross unrecognized tax benefits during fiscal 2017 and 2016 is as follows (in thousands):
 
Year ended October 31,
 
2017
 
2016
Balances as of beginning of year

$1,602

 

$787

Increases related to current year tax positions
596

 
524

Increases related to prior year tax positions
—

 
521

Decreases related to prior year tax positions
(24
)
 
(14
)
Lapses of statutes of limitations
(134
)
 
(216
)
Balances as of end of year

$2,040

 

$1,602