Income Taxes

Comprehensive tax legislation enacted through the Tax Act on December 22, 2017, significantly modified U.S. corporate income tax law. In addition to the law's corporate income tax rate reduction, several other provisions are pertinent to the Company's financial statements and related disclosures for the year ended April 30, 2018 or will have an impact on taxes in future years.

The Company recognized the income tax effects of the 2017 Tax Act in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”) which provides SEC guidance on the application of ASC 740, Income Taxes, in the reporting period in which the 2017 Tax Act was signed into law. Accordingly, the Company’s financial statements as of January 31, 2018 reflected provisional amounts for those impacts for which the accounting under ASC 740 was incomplete, but a reasonable estimate could be determined. For items under the Tax act for which no reasonable estimate could be determined at the time, the Company continued to apply the tax law in effect prior to the enactment of the Tax Act. As of April 30, 2018, the Company is still in the process of completing the accounting for the impact of the Tax Act.

We recorded a provisional expense of $1.6 million related to the re-valuation of U.S. deferred taxes as of January 31, 2018. During the three months ending April 30, 2018, we have further refined the calculation of the impact to reflect actual full-year activity and adjusted the provisional expense to $1.0 million. The Company may further adjust these amounts in future periods if our interpretation of the Tax Act changes or as additional guidance from the U.S. Treasury becomes available.

We had not recorded an estimate of the impact of the Tax Act on the existing deferred tax assets related to executive compensation as of January 31, 2018 as no reasonable estimate could be made at the time. During the three months ending April 30, 2018, we have determined that a reasonable estimate of the impact is a reduction in deferred tax asset and a related expense of $0.1 million. This estimate is provisional and the Company may further adjust these amounts in future periods if our interpretation of the Tax Act changes or as additional guidance from the U.S. Treasury becomes available.

Income tax expense was comprised of the following:



	FISCAL YEARS ENDED APRIL 30
(in thousands)	2018			2017		2016

CURRENT EXPENSE
Federal	$	8,668		$	23,638	$	18,239
State	1,290			4,189		3,195
Foreign	257			—		—
Total current expense	10,215			27,827		21,434

DEFERRED EXPENSE
Federal	17,833			8,607		10,179
State	3,642			1,292		1,450
Foreign	(71		)	—		—
Total deferred expense	21,404			9,899		11,629
Total expense	31,619			37,726		33,063
Other comprehensive income (loss)	50			4,391		(4,110		)
Total comprehensive income tax expense	$	31,669		$	42,117	$	28,953

The Company's effective income tax rate varied from the federal statutory rate as follows:



	FISCAL YEARS ENDED APRIL 30
	2018		2017		2016
Federal statutory rate	30.4	%	35.0	%	35.0	%
Effect of:
Federal income tax credits	(0.5	)%	(0.2	)%	—	%
Acquisition and integration costs	1.2		—		—
Stock compensation	(2.4	)	(1.3	)	—
Meals and entertainment	0.3		0.3		0.3
Effect of Tax Act	1.2		—		—
Domestic production deduction	(0.8	)	(2.2	)	(2.5	)
Other	0.4		(0.3	)	(0.1	)
Total	(0.6	)%	(3.7	)%	(2.3	)%

Effective federal income tax rate	29.8	%	31.3	%	32.7	%
State income taxes, net of federal tax effect	3.6		3.3		3.3
Effective income tax rate	33.4	%	34.6	%	36.0	%

Note that the Company's federal statutory rate for 2018 is calculated by using a blended rate comprising of the pre-Tax Act 35% federal statutory rate from May 1, 2017 through December 31, 2017 and 21% for the period from January 1, 2018 through April 30, 2018.

Due to the adoption of ASU 2016-09 in fiscal year 2017, excess tax benefits of stock compensation were recorded in tax expense while in previous years excess benefits were recorded in additional paid-in-capital and therefore, did not impact the effective tax rate.

The significant components of deferred tax assets and liabilities were as follows:



	APRIL 30
(in thousands)	2018			2017
Deferred tax assets:
Pension benefits	$	—		$	8,852
Accounts receivable	4,772			6,938
Product liability	2,180			1,272
Employee benefits	6,513			7,914
State tax credit carryforwards	3,937			4,083
Other	2,865			862
Gross deferred tax assets, before valuation allowance	20,267			29,921
Valuation allowance	(2,467		)	(2,446		)
Gross deferred tax assets, after valuation allowance	17,800			27,475

Deferred tax liabilities:
Pension benefits	1,035			—
Inventory	240			297
Depreciation	21,076			9,131
Intangibles	65,294			—
Other	986			—
	88,631			9,428

Net deferred tax (liability) asset	$	(70,831	)	$	18,047

We have not recorded deferred income taxes applicable to undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations. Undistributed earnings that are indefinitely reinvested in foreign operations are not significant as of April 30, 2018.

The Company has recorded a valuation allowance related to deferred tax assets for certain state investment tax credit (ITC) carryforwards. Deferred tax assets are reduced by a valuation allowance when, after considering all positive and negative evidence, it is determined that it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In fiscal 2018, the Company reassessed the valuation allowance related to ITCs and released $21 thousand of the valuation allowance recorded in fiscal 2016.

The gross amount of state tax credit carryforwards related to state ITCs as of April 30, 2018 and 2017 was $5.2 million and $6.1 million. These credits expire in various years beginning in fiscal 2020. Net of the federal impact and related valuation allowance, the Company recorded $1.5 million and $1.6 million of deferred tax assets related to these credits, as of April 30, 2018 and 2017. The Company accounts for ITCs under the deferral method, under which the tax benefit from the ITC is deferred and amortized into income tax expense over the book life of the related property. As of April 30, 2018 and 2017, a deferred credit balance of $1.3 million and $1.5 million, respectively, is included in other liabilities on the balance sheet.