INCOME TAXES

12 Months Ended

Jan. 31, 2018

NOTE F — INCOME TAXES

The income tax provision is comprised of the following:

	Year Ended January 31,
	2018			2017			2016
	(In thousands)
Current
Federal		$	28,723		$	22,925		$	47,585
State and city			2,592			4,034			5,910
Foreign			12,532			6,150			7,768
			43,847			33,109			61,263
Deferred
Federal			4,084			(4,776)			3,458
State and city			1,285			(2,807)			535
Foreign			(1,291)			298			(456)
			4,078			(7,285)			3,537
Income tax expense		$	47,925		$	25,824		$	64,800
Income before income taxes
United States		$	93,691		$	55,363		$	149,578
Non-United States			16,358			22,399			29,555
		$	110,049		$	77,762		$	179,133

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the TCJA. The TCJA included a broad range of complex provisions impacting the taxation of multi-national companies including the Company. Specifically, the Company is impacted by the change in the U.S. Federal corporate income tax rate from 35% to 21% (effective January 1, 2018), the new regime for the taxation of overseas earnings, the one-time transition tax, taxation of certain performance-based compensation paid to the Company’s chief executive officer, chief financial officer and three other top executive officers that was previously deductible, full expensing of fixed assets and the deductibility of certain costs. Generally, accounting for the impacts of newly enacted tax legislation is required to be completed in the period of enactment. However, in response to the complexities and ambiguity surrounding the TCJA, the SEC released Staff Accounting Bulletin No. 118 (“SAB 118”) to provide companies with relief with respect to the initial accounting for the effects of the TCJA. SAB 118 allows companies to provide a provisional estimate of the impacts of the legislation. The Company will finalize accounting for the TCJA during the one-year measurement period, and any adjustments to the provisional amounts will be included in income tax expense or benefit in the appropriate period, and disclosed if material, in accordance with guidance provided by SAB 118. While the Company’s accounting for the TCJA is not complete, it has recognized a provisional charge (based on information available as of January 31, 2018) of $7.7 million primarily comprised of approximately $3.3 million related to the repatriation tax and approximately $4.4 million of tax expense related to revaluing U.S. deferred tax assets and liabilities using the new U.S. corporate tax rate of 21%. Other provisional impacts were primarily related to U.S. federal and state tax impact of the prorated reduced federal tax rate. This provisional estimate does not reflect the effects of any state tax law changes that may arise as a result of the federal tax changes.

The significant components of the Company’s net deferred tax asset at January 31, 2018 and 2017 are summarized as follows:

	2018			2017
	(In thousands)
Deferred Income Tax Assets:
Compensation		$	10,783		$	10,323
Straight-line lease			6,856			4,279
Provision for bad debts and sales allowances			17,819			11,919
Supplemental employee retirement plan			415			519
Inventory write-downs			—			10,163
Net operating loss			2,983			2,274
Other			212			2,343
Gross deferred income tax assets			39,068			41,820
Less valuation allowance			(1,648)			—
Net deferred income tax assets			37,420			41,820
Deferred income tax liabilities:
Depreciation and amortization			(16,234)			(14,724)
Intangibles			(22,804)			(21,347)
Prepaid expenses and other			(2,585)			(3,383)
Inventory			(246)			—
Other			—			(817)
Total deferred income tax liabilities			(41,869)			(40,271)
Net deferred tax assets (liabilities)		$	(4,449)		$	1,549

As of January 31, 2018 and 2017, deferred tax liabilities of $15.8 million and $13.8 million, respectively, relate to intangible assets in Switzerland. The remaining intangible assets relate primarily to the U.S.

The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the financial statements for the years ended January 31:

	2018		2017		2016
Provision for Federal income taxes at the statutory rate		33.8%		35.0%		35.0%
State and local income taxes, net of Federal tax benefit		0.5		1.0		2.4
Permanent differences resulting in Federal taxable income		8.8		9.6		3.6
Tax reform		7.5		—		—
Foreign tax rate differential		0.2		(1.7)		(1.4)
ASC 718 adoption		(1.2)		(3.8)		—
Foreign tax credit		(7.7)		(6.5)		(3.1)
Valuation allowance		1.5		—		—
Other, net		0.2		(0.4)		(0.3)
Actual provision for income taxes		43.6%		33.2%		36.2%

Valuation allowances represent deferred tax benefits where management is uncertain if the Company will have the ability to recognize those benefits in the future. As of January 2018, the company recorded a valuation allowance of $1.6 million against its deferred tax assets.

As of January 31, 2018, there were no undistributed earnings related to the Company’s foreign subsidiaries. The primary reason there were no undistributed earnings as of January 31, 2018 was a provision of the TCJA, specifically the Section 965 transition tax, which resulted in the Company taking a one-time charge relating to the earnings of its foreign subsidiaries. As a result, the earnings of the Company’s foreign subsidiaries are considered Previously Taxed Income (“PTI”) which can be distributed to the U.S. tax free. Although the PTI can be distributed back to the U.S. tax free, the Company has not changed its APB 23 assertion that these earnings are indefinitely reinvested.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits (excluding interest and penalties) is as follows:

	2018			2017			2016
Balance at February 1,		$	1,094		$	1,094		$	1,094
Additions based on tax positions related to the current year			—			—			—
Additions for tax positions of prior years			—			—			—
Reductions for tax positions of prior years			—			—			—
Settlements			—			—			—
Lapses of statutes of limitations			(1,012)			—			—
Balance at January 31,		$	82		$	1,094		$	1,094

The Company accounts for uncertain income tax positions in accordance with ASC 740 — Income Taxes. The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. As of January 31, 2018, there was a decrease in the unrecognized tax position reserve of $1.0 million for lapses in the statute of limitations in the uncertain income tax positions reserves.

The Company’s policy on classification is to include interest in interest and financing charges, net and penalties in selling, general and administrative expenses in the accompanying Consolidated Statements of Income and Comprehensive Income. The Company and certain of its subsidiaries are subject to U.S. Federal income tax as well as income tax of multiple state, local, and foreign jurisdictions. One of its foreign subsidiaries, T.R.B. International S.A., has a ruling with the Swiss government that taxes commercial foreign sourced income at an 11.6% rate. The ruling was extended to the year ending December 31, 2018.

Of the major jurisdictions, the Company and its subsidiaries are subject to examination in the United States and various foreign jurisdictions for fiscal year 2013 and forward. It is currently under audit examination by New Jersey and New York for fiscal year 2010 and forward. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits of $429,000 (inclusive of tax, interest and penalties) will not change during the next twelve months due to the applicable statutes of limitations.