Income Taxes

12 Months Ended

Jan. 31, 2012

Income Taxes [Abstract]

Income Taxes

11. Income Taxes

	Years Ended January 31,
	2012			2011			2010
	(in thousands)
Income (loss) before income taxes is attributable to the following jurisdictions:
Domestic	$	14,875		$	(522	)	$	(3,342	)
Foreign		19,455			7,316			3,981
Total	$	34,330		$	6,794		$	639
The components of income tax expense (benefit) were as follows:
Current:
Domestic	$	4,090		$	(171	)	$	(821	)
Foreign		6,204			2,466			1,060
		10,294			2,295			239
Deferred:
Domestic		1,042			(183	)		74
Foreign		(1,327	)		(47	)		(194	)
		(285	)		(230	)		(120	)
Income tax expense	$	10,009		$	2,065		$	119

The following is a reconciliation of expected to actual income tax expense:

	Years Ended January 31,
	2012			2011			2010
	(in thousands)
Federal income tax expense at 35% in 2012, 34% in 2011 and 2010	$	12,016		$	2,310		$	217
Changes in tax rates		(7	)		131			69
Permanent differences		347			(300	)		(14	)
Foreign effective tax rate differential		(2,574	)		(1,149	)		(565	)
Potential tax, penalties and interest resulting from uncertain tax positions		529			279			270
Undistributed earnings of foreign affiliates		(435	)		646			174
Foreign withholding taxes		268			122			—
Other		(135	)		26			(32	)
	$	10,009		$	2,065		$	119

The components of the Company’s deferred taxes consisted of the following as of:

	As of January 31,
	2012			2011
	(in thousands)
Deferred tax assets:
Net operating losses	$	146		$	1,424
Tax credit carry forwards		803			2,937
Stock option book expense		2,533			2,589
Allowance for doubtful accounts		1,645			900
Allowance for inventory obsolescence		192			188
Accruals not yet deductible for tax purposes		1,115			413
Other		1,531			389
Gross deferred tax assets		7,965			8,840
Valuation allowance		—			—
Deferred tax assets		7,965			8,840
Deferred tax liabilities:
Undistributed earnings of controlled foreign corporations not permanently reinvested		—			(2,877	)
Fixed assets		(3,617	)		(2,949	)
Non-deductible intangible assets		(774	)		(921	)
Foreign branch taxes		(1,575	)		(73	)
Deferred tax liabilities		(5,966	)		(6,820	)
Effect of uncertain tax positions		—			(1,425	)
Total deferred tax assets, net	$	1,999		$	595

In the year ended January 31, 2012 the tax deduction related to stock-based compensation awards exceeded the cumulative book expense related to these awards. The associated excess tax benefit amounted to approximately $778,000 and was recognized as additional paid in capital. During the year ended January 31, 2010, certain stock based compensation agreements were settled or expired such that the book expense related to these agreements exceeded the tax deduction received by the Company. Accordingly, the deferred tax asset related to these items was reduced by approximately $346,000, which reduced additional paid-in capital.

At January 31, 2012 the Company has foreign withholding tax carry forwards of $803,000, which amounts can be carried forward through 2022. The Company’s Canadian income tax returns for the years ended January 31, 2004, 2005 and 2006 have been examined by Canadian tax authorities. Assessments for those years and for the effect of certain matters in subsequent years totaling approximately $8,300,000 have been issued. The issues involved relate primarily to the deductibility of depreciation charges and whether those deductions should be taken in Canada or in the United States. Accordingly, the Company has filed requests for competent authority assistance with the Canadian Revenue Agency (“CRA”) and with the Internal Revenue Service (“IRS”) seeking to avoid potential double taxation. In addition, the Company has filed a protest with the CRA and the Province of Alberta. In connection with this protest the Company was required to make prepayments of approximately $3,519,000 against the assessment. These items are contemplated in the Company’s tax liability for uncertain tax positions.

As of January 31, 2012 and 2011, the Company had unrecognized tax benefits amounting to approximately $5,435,000 and $4,906,000, respectively, attributable to uncertain tax positions. The Company recognizes interest and penalties related to income tax matters as a component of income tax expense. The unrecognized tax benefits attributable to uncertain tax positions include accrued interest and penalties of $2,135,000 and $1,556,000 as of January 31, 2012 and January 31, 2011, respectively. Included in income tax expense for the year ended January 31, 2012 is expense of $578,000 related to potential penalties and interest. Included in income tax expense for the year ended January 31, 2011 is expense of $256,000 related to potential penalties and interest. Included in income tax expense for the year ended January 31, 2010 is a benefit of $262,000 from the reduction in the estimated penalties and interest attributable to uncertain tax positions.

The Company expects its request for competent authority assistance to be granted and accordingly for the Canadian tax examination to be resolved during the year ending January 31, 2013. The resolution of these matters could result in the recognition of certain previously unrecognized tax benefits. The Company estimates the amount of such tax benefits to be approximately $5,000,000.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding potential penalties and interest, is as follows:

	Years Ended January 31,
	2012			2011			2010
	(in thousands)
Unrecognized tax benefits as beginning of year	$	(3,350	)	$	(3,327	)	$	(2,795	)
Increases (decreases) as a result of tax positions taken in prior years		50			(23	)		(532	)
Increases as a result of tax positions taken in current year		—			—			—
Settlements		—			—			—
Lapse of statute of limitations		—			—			—
Unrecognized tax benefits as of end of year	$	(3,300	)	$	(3,350	)	$	(3,327	)

Recognition of the unrecognized tax benefits of $3,300,000 would have an effect on the effective tax rate.

The Company files U.S. federal income tax returns as well as separate returns for its foreign subsidiaries within their local jurisdictions. The Company’s U.S. federal tax returns are subject to examination by the IRS for fiscal years ended January 31, 2009 through 2011. However, the years ended January 31, 2004 through January 31, 2008 remain open as they relate to matters that are the subject of the Company’s request for competent authority assistance from the IRS. The Company’s tax returns may also be subject to examination by state and local revenue authorities for fiscal years ended January 31, 2007 through 2011.

The Company’s Canadian income tax returns for the years ended January 31, 2004 through January 31, 2011 remain open to the examination due to the Company’s pending request for competent authority assistance from CRA and the related projects filed with CRA and the Province of Alberta.

The Company’s tax returns in other foreign jurisdictions are generally subject to examination for the years ended January 31, 2006 through January 31, 2011.