NOTE 14 – INCOME TAXES

The components of the Company’s income tax expense related to continuing operations for the years ended January 31, 2014, 2013 and 2012 are presented below:


	2014		2013			2012
Current:
Federal	$	20,765,000	$	11,555,000		$	3,771,000
State		3,525,000		2,224,000			836,000

		24,290,000		13,779,000			4,607,000

Deferred:
Federal		1,419,000		(207,000	)		41,000
State		282,000		68,000			(92,000	)

		1,701,000		(139,000	)		(51,000	)

Income tax expense	$	25,991,000	$	13,640,000		$	4,556,000

The actual income tax expense amounts for the years ended January 31, 2014, 2013 and 2012 differed from the expected tax amounts computed by applying the U.S. federal corporate income tax rate of 35% for the year ended January 31, 2014 and 2013, and 34% for the year ended January 31, 2012, to income from continuing operations before income taxes as presented below:


	2014			2013			2012
Computed “expected” income tax	$	24,267,000		$	12,510,000		$	4,068,000
Increase (decrease) resulting from:
State income taxes, net		2,574,000			1,459,000			460,000
Permanent differences		(1,105,000	)		(730,000	)		(138,000	)
Federal income tax true-up and other adjustments		255,000			401,000			166,000

Income tax expense	$	25,991,000		$	13,640,000		$	4,556,000

For the year ended January 31, 2014, the favorable tax effects of permanent differences related primarily to the domestic manufacturing deduction, the deconsolidation of the VIEs and the exclusion of the noncontrolling interests of the Company’s partner in the income of the joint ventures for income tax reporting purposes. For the years ended January 31, 2013 and 2012, the favorable tax effects of permanent differences related primarily to the tax benefit of the domestic manufacturing deduction.

As of January 31, 2014 and 2013, the amounts presented in the consolidated balance sheets for accrued expenses included accrued income taxes of approximately $303,000 and $1,362,000, respectively. The Company’s consolidated balance sheet as of January 31, 2014 included net deferred tax liabilities in the amount of approximately $114,000. The consolidated balance sheet as of January 31, 2013 included net deferred tax assets in the amount of approximately $1,639,000.

The Company’s ability to realize its deferred tax assets depends primarily upon the generation of sufficient future taxable income to allow for the utilization of the Company’s deductible temporary differences and tax planning strategies. If such estimates and assumptions change in the future, the Company may be required to record additional valuation allowances against some or all of the deferred tax assets resulting in additional income tax expense in the consolidated statement of operations. At this time, based substantially on the strong earnings performance of the Company’s power industry services business segment, management believes that it is more likely than not that the Company will realize a benefit for its deferred tax assets.

The tax effects of temporary differences that gave rise to deferred tax assets and liabilities as of January 31, 2014 and 2013 are presented below:


	2014			2013
Assets:
Purchased intangibles	$	1,255,000		$	1,407,000
Stock options		1,623,000			1,675,000
Accrued liabilities		514,000			855,000
Moxie Project net operating losses		—			432,000
Other		50,000			144,000

		3,442,000			4,513,000

Liabilities:
Purchased intangibles		(2,563,000	)		(2,258,000	)
Property and equipment		(612,000	)		(581,000	)
Long-term contracts		(313,000	)		—
Other		(68,000	)		(35,000	)

		(3,556,000	)		(2,874,000	)

Net deferred tax (liabilities) assets	$	(114,000	)	$	1,639,000

The Company is subject to income taxes in the United States of America and in various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to federal, state and local income tax examinations by tax authorities for its fiscal years ended on or before January 31, 2010. During the current year, an audit of the income tax returns filed in Florida by Vitarich Laboratories, Inc. (“VLI,” see Note 19), a wholly owned subsidiary of Argan, for the income tax years ended January 31, 2010, 2011 and 2012 was completed. There were no material changes to its income tax liability resulting from the outcome of this audit.

Income tax penalties recorded during the years ended January 31, 2014, 2013 and 2012, and included in the corresponding amounts of selling, general and administrative expenses, were not material. Interest amounts related to late income tax payments recorded during the years ended January 31, 2014, 2013 and 2012, and included in the corresponding amounts of income tax expense, were not material.