INCOME TAXES

12 Months Ended

Jan. 31, 2025

INCOME TAXES

INCOME TAXES

NOTE 12 – INCOME TAXES

Income Tax Expense Reconciliations

The components of the amounts of income tax expense for Fiscal 2025, Fiscal 2024 and Fiscal 2023 are presented below:

	2025		2024		2023
Current:
Federal	$	18,033	$	10,870	$	12,776
State		5,056		1,835		1,012
Foreign		791		2,537		740
		23,880		15,242		14,528
Deferred:
Federal		1,015		(923)		(803)
State		367		301		23
Foreign		483		1,955		(2,452)
		1,865		1,333		(3,232)
Income tax expense	$	25,745	$	16,575	$	11,296

The amounts of interest and penalties related to income taxes that were incurred by the Company during Fiscal 2025, Fiscal 2024 and Fiscal 2023 were not material.

The Company’s income tax expense amounts differed from corresponding amounts computed by applying the federal corporate income tax rate of 21% to the consolidated amount of income before income taxes for Fiscal 2025, Fiscal 2024 and Fiscal 2023 as presented below:

	2025		2024		2023
Computed expected income tax expense	$	23,353	$	10,276	$	9,660
Difference resulting from:
State income taxes, net of federal tax effect		4,284		1,688		860
Unrecognized tax loss benefit		1,120		3,858		—
Executive compensation limitation		1,450		1,040		1,397
Adjustment to valuation for foreign NOLs		1,404		2,083		(2,574)
Meals and entertainment expense		860		626		83
Foreign tax rate differential		(793)		(2,294)		(441)
Net benefit related to Solar Tax Credit investments		(1,763)		(646)		—
Stock-based compensation windfall		(3,070)		—		—
Research and development tax credits adjustment		—		—		6,181
Recognition of research and development tax credit benefits		—		—		(3,430)
Other permanent differences and adjustments, net		(1,100)		(56)		(440)
Income tax expense	$	25,745	$	16,575	$	11,296

Net Operating Loss (“NOL”) Carryback    

In March 2020, the Coronavirus, Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The tax changes of the CARES Act included a temporary suspension of the limitations on the future utilization of certain NOLs and re-established a carryback period for certain losses to five years. The NOLs eligible for carryback under the CARES Act include the Company’s domestic NOL for Fiscal 2020, which was approximately $39.5 million. The Company made the appropriate filing during the year ended January 31, 2021 with the Internal Revenue Service (the “IRS”) requesting carryback refunds of income taxes paid for the years ended January 31, 2016 (“Fiscal 2016”) and 2015 (“Fiscal 2015”) in the total amount of approximately $12.7 million, which was recorded as income taxes receivable. At the instruction of the IRS, the Company filed amended income tax returns for Fiscal 2016 and Fiscal 2015 during Fiscal 2024; the IRS has not completed the examination and approval process for the Company’s amended tax returns and refund request.

Research and Development Tax Credit Adjustments

During Fiscal 2019, the Company completed a detailed review of the activities of its engineering staff on major EPC services projects in order to identify and quantify the amounts of research and development tax credits that may have been available to reduce prior year income taxes during the three-year period ended January 31, 2018. Based on the results of the study, management identified and estimated significant amounts of income tax benefits that were not previously recognized in the Company’s operating results for any prior year reporting period. The net amount of federal and state research and development tax credit benefit recognized in prior fiscal years was $16.2 million, against which the Company recorded a corresponding liability for uncertain income tax return positions in the amount of $5.0 million.

During the year ended January 31, 2021 (“Fiscal 2021”), the IRS concluded examinations of the Company’s consolidated federal income tax returns for the three years ending January 31, 2018, with its focus on the research and development tax credits included therein. The final revenue agents report disagreed with the Company’s treatment of a substantial amount of the costs that supported the Company’s claims. The Company submitted a formal protest of the findings of the IRS examiner and requested an appeal hearing. At the conclusion of the hearing, the Company accepted a settlement offer from the IRS. As a result, during Fiscal 2023, the Company made an unfavorable net adjustment to income tax expense in the approximate amount of $6.2 million; the accounting for this adjustment reduced the contra-asset balance by approximately $4.4 million.

The Company has also formally protested the conclusions reached by two states, where the Company filed tax returns reflecting the benefits of certain research and development credits, that the credits are not allowable.

Research and Development Tax Credits

During Fiscal 2022, in a manner similar to the process described above, the Company completed a detailed review of the activities of its engineering staff on major EPC services projects in order to identify and quantify the amounts of research and development tax credits that may have been available to reduce federal income taxes for Fiscal 2022 and Fiscal 2021. As a result, the Company filed amended federal income tax returns for those years including research and development tax credits in the total amount of $5.8 million, which was netted with a provision for uncertain tax return positions in the amount of $2.4 million, and recorded during Fiscal 2023. In May 2023, the Company received notification that its amended federal income tax returns for Fiscal 2021 and Fiscal 2022 were selected for examination. At January 31, 2025, the examination was progressing through the stages of documentation requests and review.

Unrecognized Income Tax Benefits

Changes in the balances of the contra-asset established for uncertain income tax positions during Fiscal 2025, Fiscal 2024 and Fiscal 2023 are presented below:

	2025		2024		2023
Unrecognized income tax benefits, beginning of fiscal year	$	2,553	$	2,882	$	4,937
Increases related to prior period income tax positions		—		78		—
Increases related to current period income tax positions		—		—		2,359
Expirations of statutes of limitations		—		(407)		—
Settlements		—		—		(4,414)
Unrecognized income tax benefits, end of fiscal year	$	2,553	$	2,553	$	2,882

Gross unrecognized income tax benefits totaled $2.6 million for the fiscal year ended January 31, 2025, all of which would affect the Company’s effective income tax rate favorably if recognized. The Company does not expect its unrecognized income tax benefits to change significantly within the next 12 months.

Recognition of Foreign NOL Income Tax Benefits

As of January 31, 2025, the Company has deferred tax assets in a total amount of approximately $13.7 million related to NOLs of its foreign subsidiaries, primarily the operation of APC UK. Prior to Fiscal 2023, the Company had reserved a portion of the deferred tax assets related to these NOLs. During Fiscal 2023, the Company reversed a portion of the corresponding allowance in the amount of $2.6 million. However, the unexpected difficulties with an APC UK overseas construction project and the loss that was incurred by APC UK related to it caused management to increase the allowance

by $2.1 million in Fiscal 2024. During Fiscal 2025, the valuation allowance was increased by $1.4 million related to additional operating losses incurred by APC UK during the fiscal year. As of January 31, 2025, the deferred tax assets associated with NOLs of APC UK are fully offset by a valuation allowance.

Income Tax Refunds

As of January 31, 2025 and 2024, the balances of other current assets in the consolidated balance sheet included income tax refunds receivable related accrued interest, and prepaid income taxes in the total amounts of approximately $30.8 million and $18.3 million, respectively. The income tax refunds receivable include the amount expected to be received from the IRS upon its review and approval of the Company’s NOL carryback refund request and the completion of its examination of the amended tax returns for Fiscal 2022 and Fiscal 2021 as described above.

Deferred Taxes

The tax effects of temporary differences that are reflected in deferred taxes as of January 31, 2025 and 2024 included the following:

	2025		2024
Assets:
Net operating loss carryforwards	$	19,635	$	19,772
Research and development costs deferral		2,785		1,622
Stock awards		1,546		2,726
Lease liabilities		1,437		1,383
Accrued expenses		1,152		1,955
Other		139		148
		26,694		27,606
Liabilities:
Intangibles		(3,882)		(3,819)
Right-of-use assets		(1,433)		(1,378)
Property and equipment		(1,336)		(893)
Construction contracts		(914)		(839)
Other		(385)		(619)
		(7,950)		(7,548)
Valuation allowances		(18,192)		(17,799)
Deferred tax assets, net	$	552	$	2,259

The Company acquired unused NOLs for federal income tax reporting purposes from TRC that are subject to limitations imposed by Section 382 of the Internal Revenue Code of 1986, as amended. These losses are subject to annual limits that reduce the aggregate amount of NOLs available to the Company in the future to approximately $5.5 million. These NOLs are available to offset future taxable income and, if not utilized, begin expiring during 2032. The NOL carryforwards related to APC UK do not expire. The Company also has certain NOLs that will be available to the Company for state income tax reporting purposes that are substantially similar to the federal NOLs.

The Company’s ability to realize deferred tax assets, including those related to the NOLs discussed above, depends primarily upon the generation of sufficient future taxable income to allow for the Company’s use of temporarily deferred deductions 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 its deferred tax assets resulting in additional income tax expense in the future. At this time, based substantially on the strong earnings performance of the Company’s power industry services reporting segment, management believes that it is more likely than not that the Company will realize the benefit of significantly all of its deferred tax assets, net of valuation allowances.

Income Tax Returns

The Company is subject to federal and state income taxes in the U.S., and income taxes in Ireland and the U.K. Tax treatments within each jurisdiction are subject to the interpretation of the related tax laws and regulations which require significant judgments to apply. The Company is no longer subject to income tax examinations by authorities for its fiscal

years ended on or before January 31, 2021, except for several notable exceptions including Ireland, the U.K. and several states where the open periods are one year longer.

Solar Energy Projects

During Fiscal 2025 and Fiscal 2024, the Company made cash investments of approximately $16.3 million and $5.1 million in STC investments. As of January 31, 2025, the Company had $11.5 million of remaining cash investment commitments related to its STC investments, which are expected to be paid in Fiscal 2026. At January 31, 2025 and 2024, the investment account balances were $4.6 million and $2.1 million, respectively, which are included in other assets in the consolidated balance sheets. These investments are expected to provide positive overall returns over their expected lives.

The Company made STC investments that qualify for PAM in Fiscal 2025 and Fiscal 2024. For the Company’s STC investments that qualify for PAM, the Company recognized $24.2 million and $8.1 million of income tax credits and other income tax benefits in Fiscal 2025 and Fiscal 2024, respectively. The Company recorded amortization related to these STC investments of $22.3 million and $7.4 million during Fiscal 2025 and Fiscal 2024, respectively. The amount of non-income tax related activity and other returns related to the STC investments that qualify for PAM were not material for Fiscal 2025 and Fiscal 2024.

For the Company’s STC investments that do not qualify for PAM, no income tax credits were recognized in Fiscal 2025, Fiscal 2024 and Fiscal 2023. For Fiscal 2025 and 2024, the Company’s share of activity from these STC investments was not material. For Fiscal 2023, the Company recorded its share of income in the amount of $1.1 million for these STC investments.