Income Taxes

9 Months Ended

Oct. 31, 2012

Income Taxes [Abstract]

Income Taxes

9. Income Taxes

Prepaid income taxes of $5,294,000 at October 31, 2012 consisted of approximately $3,916,000 of foreign taxes and $1,378,000 of domestic federal and state taxes. Current income taxes payable of $2,419,000 at January 31, 2012 consisted of approximately $1,641,000 of foreign taxes and $778,000 of domestic federal and state taxes.

The Company and its subsidiaries file consolidated and separate income tax returns in the United States federal jurisdiction and in foreign jurisdictions. The Company is subject to United States federal income tax examinations for all tax years beginning with its fiscal year ended January 31, 2009.

The Company is subject to examination by taxing authorities throughout the world, including foreign jurisdictions such as Australia, Canada, Colombia, Hungary, Peru, Russia, Singapore, and the United Kingdom. With few exceptions, the Company and its subsidiaries are no longer subject to foreign income tax examinations for tax years before 2004.

In July 2012, the Company reached a settlement with the Canadian Revenue Agency (“CRA”) and the Internal Revenue Service regarding its request for competent authority assistance for matters arising from an audit of the Company’s Canadian income tax returns for the years ended January 31, 2004, 2005 and 2006. The issues involved related to intercompany repair charges, management fees and the deductibility of depreciation charges and whether those deductions should be taken in Canada or in the United States. Pursuant to the settlement agreement, adjustments have been made to the Company’s Canadian and United States income tax returns for the years ended January 31, 2004 through January 31, 2012. These changes resulted in a net reduction to consolidated income tax expense of approximately $150,000, which amount is reflected in the Company’s benefit from income taxes for the nine months ended October 31, 2012.

As a result of the settlement, the Company has recognized the benefit of certain tax positions amounting to approximately $3.3 million and has reversed previous estimates of potential penalties and interest amounting to approximately $1.9 million.

The effective tax rate for the nine months ended October 31, 2012 was a benefit of approximately 34% due to the impact of the settlement discussed above. Without this effect, which amounted to approximately $5.3 million, the effective rate for the nine months ended October 31, 2012 was an expense of approximately 18%. For the nine months ended October 31, 2011, the effective tax rate was approximately 28%. These rates are less than the federal statutory rate of 34% primarily due to the effect of lower tax rates in certain foreign jurisdictions. The Company has determined that earnings from these jurisdictions have been permanently reinvested outside of the United States.