Income Taxes

12 Months Ended

Jan. 31, 2018



NOTE 10	INCOME TAXES

The reconciliation of income tax computed at the federal statutory rate to the Company's effective income tax rate was as follows:



	For the years ended January 31,
	2018		2017		2016
Tax at U.S. federal statutory rate	33.8	%	35.0	%	35.0	%
Impact of the Tax Cuts and Jobs Act	(0.1	)	—		—
State and local income taxes, net of U.S. federal tax benefit	1.6		0.7		(2.8	)
Tax credit for research activities	(1.8	)	(3.7	)	(24.2	)
Tax benefit on qualified production activities	(3.0	)	(2.8	)	(13.7	)
Tax benefit on insurance premiums	(1.3	)	(1.5	)	(10.3	)
Change in uncertain tax positions	0.1		(0.3	)	1.8
Foreign tax rate difference	—		(0.3	)	(2.9	)
Impact of settlement of stock-based awards	1.2		—		—
Other, net	—		0.4		(1.7	)
	30.5	%	27.5	%	(18.8	)%

The increase in the fiscal 2018 effective tax rate is primarily due to higher pre-tax income in the current year and recognition of discrete tax expense related to the Company's adoption of ASU 2016-09 in fiscal 2018 as further discussed in Note 1 Summary of Significant Accounting Policies. This ASU requires that the tax effects resulting from the settlement of stock-based awards be recognized as a discrete income tax expense or benefit in the income statement in the reporting period in which they occur. Additionally, the Tax Cuts and Jobs Act (TCJA), effective January 1, 2018, lowered the Company's federal statutory rate by 1.2 percentage points for the fiscal year. The TCJA reduces the federal statutory rate to 21% for fiscal 2019.

The TCJA imposes a one-time mandatory transition tax on accumulated foreign earnings, which resulted in a provisional amount of $265 for the Company. The Company re-measured its ending deferred tax assets and liabilities to reflect the realization at the new 21% corporate tax rate. The re-measurement resulted in a provisional $312 reduction to fiscal 2018 tax expense.

In addition, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the TCJA (“SAB 118”), which allows the Company to record provisional amounts during a measurement period not to extend beyond one year from the enactment date. Since the TCJA was passed late in the fourth quarter of fiscal 2018, ongoing guidance and accounting interpretation are expected over the next year, and significant data and analysis is required to finalize amounts recorded pursuant to the TCJA, the Company considers the accounting of the transition tax, deferred tax re-measurements, indefinite reinvestment assertion, and other items to be incomplete due to the forthcoming guidance and its ongoing analysis of final year-end data and tax positions. Also, the Company has not yet determined its policy election as to whether it will recognize deferred taxes for basis differences expected to reverse as Global Intangible Low Taxed Income (“GILTI”) or whether GILTI will be accounted for as a period cost if and when incurred. The Company expects to complete its analysis within the measurement period in accordance with SAB 118.

The Company's fiscal 2017 effective rate is lower than the federal statutory rate primarily due to a $779 tax benefit for qualified production activities and a $1,044 tax benefit from the R&D tax credit.

The negative fiscal 2016 effective rate is lower than the federal statutory rate primarily due to the combination of a significantly lower book income year-over-year, a $560 tax benefit for qualified production activities, and a $989 tax benefit from the R&D tax credit extension passed by Congress in fiscal 2016. The qualified production deduction is based on estimated taxable income. Taxable income is higher in comparison to pre-tax income for fiscal 2016 primarily due to $14,756 of goodwill and long-lived asset impairment losses recorded in net income which are not currently deductible but are amortizable for income tax purposes.

Significant components of the Company's income tax provision were as follows:



	For the years ended January 31,
	2018			2017		2016
Income tax provision:
Currently payable	$	18,754		$	7,354	$	5,272
Deferred expense (benefit)	(787		)	307		(6,039		)
Income tax expense (benefit)	$	17,967		$	7,661	$	(767	)

Deferred Tax Assets (Liabilities)

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. Significant components of the Company's deferred tax assets and liabilities were as follows:



	As of January 31,
	2018			2017
Deferred tax assets:
Accounts receivable	$	184		$	212
Inventories	664			978
Accrued vacation	647			887
Insurance obligations	137			383
Accrued benefit liabilities	—			41
Warranty obligations	262			565
Postretirement benefits	1,929			3,072
Uncertain tax positions	491			803
Share-based compensation	1,761			3,201
Other accrued liabilities	54			68
	6,129			10,210

Deferred tax (liabilities):
Depreciation and amortization	(6,082		)	(10,565		)
Other	(643		)	(1,048		)
	(6,725		)	(11,613		)
Net deferred tax (liability)	$	(596	)	$	(1,403	)

Uncertain Tax Positions

A summary of the activity related to the gross unrecognized tax benefits (excluding interest and penalties) is as follows:



	For the years ended January 31,
	2018			2017
Gross unrecognized tax benefits at beginning of year	$	2,110		$	2,327
Increases in tax positions related to the current year	426			279
Decreases in tax positions related to prior years	—			(193		)
Decreases as a result of lapses in applicable statutes of limitation	(320		)	(303		)
Gross unrecognized tax benefits at end of year	$	2,216		$	2,110

Fiscal year 2018 changes to uncertain tax positions related to prior years resulted from lapses of applicable statutes of limitations.

Fiscal year 2017 included a decrease to prior period tax positions primarily related to a favorable determination by a state tax authority impacting the Company’s estimated liability.

The total unrecognized tax benefits (including interest and penalty) that, if recognized, would affect the Company's effective tax rate were $2,143, $1,806, and $2,140 as of January 31, 2018, 2017, and 2016, respectively. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. At January 31, 2018, 2017, and 2016, accrued interest and penalties were $418, $500, and $672, respectively. The Company does not expect any significant change in the amount of unrecognized tax benefits in the next fiscal year.

Additional Tax Information

The Company files tax returns, including returns for its subsidiaries, with various federal, state, and local jurisdictions. Uncertain tax positions are related to tax years that remain subject to examination. As of January 31, 2018, federal tax returns filed in the U.S. for fiscal years ended January 31, 2015 through January 31, 2017 remain subject to examination by federal tax authorities. In state and local jurisdictions, tax returns for fiscal years ended January 31, 2012 through January 31, 2017 remain subject to examination by state and local tax authorities. International jurisdictions have open tax years varying by location beginning in fiscal 2013.

Pre-tax book income for the U.S. companies and the foreign subsidiaries was $58,757 and $229, respectively. As of January 31, 2018, the Company has recorded United States income taxes of $265 on $3,242 of undistributed earnings from its Canadian and

European subsidiaries. The Company plans to reinvest its foreign earnings internationally and as a result has not recorded additional income or withholding tax on undistributed foreign earnings. The Company will continue to assess if there is a need in the future to bring back a portion of the foreign cash which was subject to the transition tax.