Income Taxes

12 Months Ended

Oct. 31, 2020

On March 27, 2020, the CARES Act was enacted. The CARES Act contains several income tax provisions, as well as other measures, that are intended to assist businesses impacted by the economic effects of the COVID-19 pandemic. The most significant provisions of the CARES Act that materially affect our accounting for income taxes include, but are not limited to, a five-year carry-back allowance for taxable net operating losses generated in tax years 2018 through 2020, our fiscal years 2019 through 2021, and a technical correction to the Tax Cut and Jobs Act, enacted on December 22, 2017, that provides a two-year carry-back allowance for our taxable net operating loss generated in fiscal year 2018.

Our fiscal 2020 financial statements were materially affected by the changes enacted by the CARES Act. U.S. GAAP requires that the effects from changes in tax laws be recognized in the period in which the new law is enacted, which for the CARES Act was our second quarter of fiscal 2020. As a result of the applicable accounting guidance and the provisions within the CARES Act, our income tax provision for fiscal 2020 reflects the carry-back of taxable net operating losses generated during periods in which the statutory federal income tax rate was 21.0% to periods in which the statutory federal income tax rate was 35.0%. Due to the difference in statutory rates, during fiscal 2020 we recorded a $50.4 million discrete income tax benefit related to the carry-back provisions. Because the net operating losses were carried back to years in which we initially reduced our taxable income using the Domestic Production Activities Deduction, we recorded a partially offsetting $11.3 million discrete income tax expense during fiscal 2020 to account for the reduced taxable income.

On December 22, 2017, during our fiscal 2018, the Tax Cuts and Jobs Act of 2017 ("the TCJA") was enacted, which reduced the corporate income tax rate from 35.0% to 21.0%. Section 15 of the Internal Revenue Code stipulated that our fiscal 2018 was subject to a blended statutory tax rate of 23.3%, which was based on a calculation of the number of days during fiscal 2018 that were subject to a 35.0% statutory rate and the number of days during fiscal 2018 that were subject to a 21.0% statutory rate. Fiscal years 2020 and 2019 were each subject to a 21.0% statutory rate for the entire year. When the TCJA was enacted during fiscal 2018, we were required by U.S. GAAP to remeasure our deferred tax assets and liabilities using the enacted tax rate expected to apply when the temporary differences from which the deferred taxes arose were expected to be settled. This revaluation of our deferred taxes resulted in a $37.5 million discrete income tax benefit.

Our effective tax rates for fiscal 2020, 2019 and 2018 were 273.3%, 16.5% and (101.0)%, respectively. Excluding the effects of discrete items, the Company's effective tax rates for fiscal 2020, 2019 and 2018 would have been approximately 21.3%, 23.6% and 33.0%, respectively. During the periods presented, income tax expense (benefit) consisted of the following:


	Years Ended October 31,
	2020		2019		2018
	(In thousands)
Current expense (benefit):
Federal	$	(114,734)	$	(735)	$	(600)
State	2,609		(51)		(1,169)
	(112,125)		(786)		(1,769)
Deferred expense (benefit):
Federal	71,214		13,966		(28,845)
State	(489)		2,753		2,146
Change in valuation allowance	(3,185)		(5,380)		(2,406)
	67,540		11,339		(29,105)
Income tax expense (benefit)	$	(44,585)	$	10,553	$	(30,874)

Significant components of the Company’s deferred tax assets and liabilities are outlined below.


	October 31,
	2020		2019
	(In thousands)
Deferred tax liabilities:
Property, plant and equipment	$	167,257	$	148,505
Prepaid and other assets	2,299		1,911
Total deferred tax liabilities	169,556		150,416
Deferred tax assets:
Accrued expenses and accounts receivable	8,311		8,172
Inventory	1,441		1,155
Compensation on restricted stock	4,543		7,528
State income tax credits	8,576		9,333
Federal credits	3,184		600
Other	1,004		672
Valuation allowance	(2,452)		(5,637)
Net operating loss	3,277		54,461
Total deferred tax assets	27,884		76,284
Net deferred tax liabilities	$	141,672	$	74,132

The increase in the Company's deferred tax liability is primarily attributable to the carry-back provisions within the CARES Act, as well as Company's decision to take bonus depreciation on qualifying assets placed in service during fiscal 2020.

Included in the deferred tax assets are North Carolina Investing in Business Property Credit and North Carolina Jobs Credits totaling $1.3 million, as well as Georgia Job Tax Credits totaling $2.3 million. The North Carolina Investing in Business Property Credit provides a 7% investment tax credit for property located in a North Carolina development area, the North Carolina Creating Jobs Credit provides a tax credit for increased employment in North Carolina, and the Georgia Job Tax Credit provides a tax credit for creation and retention of qualifying jobs in Georgia. It is management’s opinion that the majority of the North Carolina and Georgia income tax credits will not be utilized before they expire, and a $2.5 million valuation allowance has been recorded as of October 31, 2020. The North Carolina credits began to expire during fiscal 2018, and the remaining credits expire between fiscal years 2021 and 2023.

At the end of each reporting period, the Company evaluates all available information at that time to determine if it is more likely than not that some or all of these credits will be utilized. As of October 31, 2020, 2019, and 2018, the Company

determined that a total of $1.1 million, $1.8 million, and $0.7 million, respectively, would be recovered. Accordingly, those amounts were released from the valuation allowance and benefited deferred tax expense in the respective periods.

The differences between the consolidated effective income tax rate and the federal statutory rate effective during the applicable year presented are as follows:


	Years Ended October 31,
	2020		2019		2018
	(In thousands)
Income taxes at statutory rate	$	(3,425)	$	13,408	$	7,132
Discrete benefit resulting from CARES Act	(39,086)		—		—
Discrete benefit resulting from TCJA	—		—		(37,505)
State income taxes	1,188		1,189		1,014
State income tax credits	(3,926)		(2,139)		(804)
Expiration of state income tax credits	4,858		4,121		4,117
Federal income tax credits	(1,904)		(474)		(460)
Excess tax benefits	(1,284)		(1,388)		(1,638)
Nondeductible expenses	2,303		1,786		1,890
Change in valuation allowance	(3,185)		(5,380)		(5,297)
Other	(124)		(570)		677
Income tax expense (benefit)	$	(44,585)	$	10,553	$	(30,874)

As of October 31, 2020, the Company had $2.4 million of unrecognized tax benefits, as compared to no unrecognized tax benefits as of October 31, 2019. If recognized, the $2.4 million would reduce the Company's effective tax rate. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. As of October 31, 2020, of the Company's recorded liability, $1.1 million relates to interest and penalties.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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