Income Taxes

12 Months Ended

Jan. 31, 2019



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,
	2019		2018		2017
Tax at U.S. federal statutory rate	21.0	%	33.8	%	35.0	%
Impact of the Tax Cuts and Jobs Act	—		(0.1	)	—
State and local income taxes, net of U.S. federal tax benefit	1.7		1.6		0.7
Tax credit for research activities	(2.3	)	(1.8	)	(3.7	)
Tax benefit on qualified production activities	—		(3.0	)	(2.8	)
Tax benefit from foreign-derived intangible income	(0.8	)	—		—
Tax benefit on insurance premiums	(0.8	)	(1.3	)	(1.5	)
Change in uncertain tax positions	—		0.1		(0.3	)
Foreign tax rate difference	0.1		—		(0.3	)
Impact of settlement of stock-based awards	(2.4	)	1.2		—
Other, net	(0.8	)	—		0.4
Effective Tax Rate	15.7	%	30.5	%	27.5	%

The TCJA was enacted on December 22, 2017, and reduced the U.S. federal statutory tax rate to 21 percent effective January 1, 2018. In addition, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), Income Tax Accounting Implications of the TCJA, which allows the Company to record provisional amounts during a measurement period not to extend beyond one year from the enactment date. The Company completed its accounting for the transition tax during this measurement period in fiscal 2019 and has also determined that it will elect to recognize Global Intangible Low Taxed Income as a period cost if, and when, incurred.

The decrease in the effective tax rate for fiscal 2019 is primarily due to the decrease in the federal statutory tax rate pursuant to the TCJA and the recognition of net favorable discrete items. Excluding these net favorable discrete items, the Company's effective tax rate decreased approximately 10 percentage points resulting in tax savings of $6,218 in fiscal year 2019. Including these net favorable discrete items, the Company's effective tax rate decreased approximately 15 percentage points resulting in tax savings of $9,112 in fiscal year 2019.

The increase in the fiscal 2018 effective tax rate compared to fiscal 2017 is primarily due to higher pre-tax income in fiscal 2018, net discrete tax items from the settlement of stock-based awards, and the TCJA.

The expense (benefit) for income taxes consists of:



	For the years ended January 31, 2019
	2019			2018			2017
Current expense (benefit):
Federal	$	6,910		$	17,057		$	6,375
State	1,099			1,549			591
Foreign	735			148			388
	8,744			18,754			7,354
Deferred expense (benefit):
Federal	1,018			(613		)	330
State	73			(13		)	14
Foreign	(138		)	(161		)	(37		)
	953			(787		)	307
Income tax expense	$	9,697		$	17,967		$	7,661

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,
	2019			2018
Deferred tax assets:
Accounts receivable	$	147		$	184
Inventories	1,110			664
Accrued vacation	695			647
Insurance obligations	187			137
Warranty obligations	200			262
Postretirement benefits	1,800			1,929
Uncertain tax positions	487			491
Share-based compensation	1,834			1,761
Other accrued liabilities	913			54
	7,373			6,129

Deferred tax (liabilities):
Depreciation and amortization	(8,498		)	(6,082		)
Other	(518		)	(643		)
	(9,016		)	(6,725		)
Net deferred tax (liability)	$	(1,643	)	$	(596	)

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,
	2019			2018			2017
Gross unrecognized tax benefits at beginning of year	$	2,216		$	2,110		$	2,327
Increases in tax positions related to the current year	415			426			279
Decreases in tax positions related to prior years	—			—			(193		)
Decreases as a result of lapses in applicable statutes of limitation	(403		)	(320		)	(303		)
Gross unrecognized tax benefits at end of year	$	2,228		$	2,216		$	2,110

Fiscal year 2019 and 2018 changes to uncertain tax positions related to prior years resulted from lapses of applicable statutes of limitations.

The total unrecognized tax benefits (including interest and penalty) that, if recognized, would affect the Company's effective tax rate were $2,183, $2,143, and $1,806 as of January 31, 2019, 2018, and 2017, respectively. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. At January 31, 2019, 2018 and 2017, accrued interest and penalties were $442, $418, and $500, 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, 2019, federal tax returns filed in the U.S. for fiscal years ended January 31, 2016 through January 31, 2018 remain subject to examination by federal tax authorities. In state and local jurisdictions, tax returns for fiscal years ended January 31, 2013 through January 31, 2018 remain subject to examination by state and local tax authorities. International jurisdictions have open tax years varying by location beginning in fiscal 2014.

Pre-tax book income for the U.S. companies and the foreign subsidiaries was $59,774 and $1,796, respectively. As of January 31, 2019, the Company has no deferred tax liability recognized relating to the Company’s investment in foreign subsidiaries where the earnings have been indefinitely reinvested. The TCJA generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, and as a result, the accumulated undistributed earnings would only be subject to other taxes, such as withholding

taxes and state income taxes, on distribution of such earnings. No additional withholding or income taxes has been provided for any remaining undistributed foreign earnings not subject to the one-time deemed repatriation tax, as it is the Company’s intention for these amounts to continue to be indefinitely reinvested in foreign operations.