Income Taxes

12 Months Ended

Apr. 30, 2020

Income Taxes

Income Taxes

10. Income Taxes

The following table presents the components of income before taxes for the years ended April 30, 2020, 2019 and 2018:

	Year Ended April 30,
	2020		2019		2018
	(in thousands)
United States	$	106,850	$	62,878	$	83,854
Foreign		(60,525)		7,163		—
Income before taxes	$	46,325	$	70,041	$	83,854

The following table presents the components of income tax expense for the years ended April 30, 2020, 2019 and 2018:

	Year Ended April 30,
	2020		2019		2018
	(in thousands)
Current
Federal	$	12,537	$	11,858	$	30,827
Foreign		1,624		13,739		—
State		7,857		5,929		6,409
Total current		22,018		31,526		37,236
Deferred
Federal		8,986		453		(14,796)
Foreign		(7,347)		(16,931)		—
State		(713)		(1,009)		(1,557)
Total deferred		926		(17,487)		(16,353)
Total provision for income taxes	$	22,944	$	14,039	$	20,883

The following table summarizes the significant differences between the U.S. federal statutory tax rate and the Company’s effective tax rate for financial statement for the years ended April 30, 2020, 2019 and 2018:

	Year Ended April 30,
	2020		2019		2018
	(in thousands)
Federal income taxes at statutory rate	$	9,747	$	14,715	$	25,492
State income taxes, net of federal income tax benefit		4,054		2,440		1,900
Impact of foreign rate differences		(2,861)		418		—
Impact of rate difference on impairment of goodwill		7,630		—		—
Net change in valuation allowance		9,070		664		151
Nondeductible meals & entertainment		592		635		822
Equity-based compensation		(1,196)		(53)		—
GILTI		704		241		—
Nondeductible transaction costs		90		529		2
Net deferred benefit due to Tax Cuts and Jobs Act		—		—		(6,763)
Intercompany interest expense		(5,361)		(5,255)		—
Other		475		(295)		(721)
Total provision for income taxes	$	22,944	$	14,039	$	20,883

The tax effects of temporary differences, which give rise to deferred income taxes as of April 30, 2020 and 2019 are as follows:

	April 30,
	2020		2019
Deferred income tax assets:	(in thousands)
Allowances on accounts and notes receivable	$	2,016	$	2,306
Accrued payroll and related costs		1,859		1,577
Insurance reserves		2,501		1,746
Inventory costs		2,630		2,066
Deferred compensation		7,426		6,854
Equity compensation		2,695		2,944
Derivative instrument		7,850		1,358
Acquisition related costs		1,311		1,779
Net operating loss carry-forwards		1,595		1,745
Disallowed interest expense		736		2,507
Investment in partnerships		16,535		4,676
Deferred rent		1,112		604
Noncompete agreements		120		133
Other deferred tax assets, net		1,424		1,394
Total deferred income tax assets		49,810		31,689
Less: Valuation allowance		(10,183)		(1,112)
Total deferred income tax assets, net of valuation allowance		39,627		30,577
Deferred income tax liabilities:
Amortization of intangible assets		(18,917)		(22,950)
Rebates		(400)		(72)
Depreciation		(21,508)		(10,495)
Deferred financing costs		(1,582)		(2,075)
Other deferred tax liabilities, net		(334)		(535)
Total deferred income tax liabilities		(42,741)		(36,127)
Deferred income tax liabilities, net	$	(3,114)	$	(5,550)

Tax Cuts and Job Act. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law. The Tax Act includes several provisions, including the lowering of the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. In connection with the Tax Act, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance to companies that have not completed their accounting for the income tax effects of the Tax Act. Under SAB 118, provisional amounts can be recorded to the extent a reasonable estimate can be made. Additional tax effects and adjustments to previously recorded provisional amounts can be recorded upon obtaining, preparing, or analyzing additional information (including computations) within one year from the enactment date of the Tax Act.

As of April 30, 2018, the Company was still assessing the overall impact of the Tax Act on its financial statements and had not completed its accounting for the tax effects of the Tax Act. The Company reported provisional amounts reflecting reasonable estimates for the re-measurement of net deferred tax liabilities as of April 30, 2018 due to the reduction in the corporate rate. The Company recorded a provisional income tax benefit of $6.7 million for this re-measurement for the year ended April 30, 2018, which is included in provision for income taxes in the Consolidated Statements of Operations and Comprehensive Income (Loss). This represented a $1.1 million decrease from the provisional amount recorded during the nine months ended January 31, 2018.

During the year ended April 30, 2019, the Company completed its analysis to determine the effects of the Tax Act. As a result, the Company recorded a $0.1 million income tax benefit during the year ended April 30, 2019 related to tax adjustments made in accordance with SAB 118 with respect to the adjustment of its original provisional estimate of the impact of the Tax Act.

The Company is subject to provisions of the Tax Act related to current tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. The Company has elected to recognize the tax on GILTI as a period expense in the period the tax is incurred.

As of April 30, 2020, the Company’s assertion has not changed from the year ended April 30, 2019 and does not intend to permanently reinvest its accumulated earnings in its non-U.S. subsidiaries and will continue to periodically distribute the earnings on an as needed basis. The Company had no unremitted earnings in the current year. To the extent there are unremitted earnings in future years, the Company does not anticipate significant tax consequences as there is sufficient paid up capital in Canada to return the cash free of withholding taxes.

Effective tax rate. Income taxes for financial reporting purposes differ from the amount computed by applying the statutory federal rate primarily due to the effect of state income taxes, net of federal benefit, permanent differences, and other tax effects associated with the Company’s foreign operations.

NOLs. During recent tax years, the Company generated certain state net operating loss carry-forwards which are available for use against taxable income in each respective state. The Company had gross federal and state net operating losses available for carry-forward of $0.7 million and $27.4 million as of April 30, 2020, respectively, and $2.3 million and $23.1 million as of April 30, 2019, respectively, which expire beginning in 2023.

Valuation allowance. Deferred tax assets and liabilities are computed by applying the federal and state income tax rates in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carry-forwards. In assessing if the deferred tax assets will be realized, the Company considers whether it is more likely than not that some or all of these deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which these deductible temporary differences reverse. As of April 30, 2020, except as noted in the following paragraph, the Company believes that it is more likely than not that all of its deferred tax assets relating to separate company state return filings will be realized. The tax credits, carryforwards and net operating losses expire from 2021 to 2040.

Management makes an assessment to determine if its deferred tax assets are more likely than not to be realized. Valuation allowances are established if management believes that it is more likely than not the related tax benefits will not be realized. The valuation allowance as of April 30, 2020 and 2019 was $10.2 million and $1.1 million, respectively. During the year ended April 30, 2020, the Company recorded $7.6 million of valuation allowance related to a portion of the Titan outside basis difference that was created as a result of the impairment of goodwill recognized during the year ended April 30, 2020. The remaining valuation allowance as of April 30, 2020 and 2019 primarily relates to state net operating loss carry forwards.

Uncertain tax positions. The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. The Company’s policy for recording penalties and interest associated with uncertain tax positions is to record such items as a component of selling, general and administrative expense. The Company had no reserve for uncertain tax positions as of April 30, 2020 and 2019.

As of April 30, 2020, the tax years ended April 30, 2020, 2019, 2018 and 2017 remain subject to examination by the U.S. Internal Revenue Service. In states in which the Company conducts business, the statute of limitation periods for examination generally vary from three to four years. Net operating losses dating back to 2008 are still being carried forward and remain subject to examination by the taxing authorities. The Company regularly assesses the potential outcomes of future examinations to ensure the Company’s provision for income taxes is sufficient. The Company recognizes liabilities based on estimates of whether additional taxes will be due and believes that no liability for uncertain tax position is necessary as of April 30, 2020 and 2019.