INCOME TAXES

12 Months Ended

Jan. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE H — INCOME TAXES

The income tax provision is comprised of the following:

	Year Ended January 31,
	2020		2019		2018
	(In thousands)
Current
Federal	$	22,471	$	23,463	$	28,723
State and city		4,856		5,907		2,592
Foreign		10,615		10,989		12,532
		37,942		40,359		43,847
Deferred
Federal		8,250		4,419		4,084
State and city		315		191		1,285
Foreign		(8,246)		794		(1,291)
		319		5,404		4,078
Income tax expense	$	38,261	$	45,763	$	47,925
Income before income taxes
United States	$	138,292	$	137,748	$	93,691
Non-United States		43,806		46,082		16,358
	$	182,098	$	183,830	$	110,049

During the fourth quarter of fiscal 2020, the United States Treasury issued final regulations related to certain aspects of the TCJA. The tax implications of the final regulations were not material to the Company’s consolidated financial statements as the majority of the TCJA tax implications was recorded in fiscal years prior to January 31, 2020.

Effective January 1, 2018, TCJA subjects a U.S. parent company to current tax on its GILTI. The Company has elected to account for any tax on GILTI in the period in which it was incurred. At January 31, 2020, the Company incurred a GILTI net tax impact of $0.1 million.  

The significant components of the Company’s net deferred tax asset at January 31, 2020 and 2019 are summarized as follows:

	2020		2019
	(In thousands)
Deferred income tax assets:
Compensation	$	8,379	$	10,605
Inventory		4,498		2,244
Straight-line lease		—		6,642
Provision for bad debts and sales allowances		34,197		33,221
Supplemental employee retirement plan		511		401
Net operating loss		4,877		3,362
Operating lease liability		67,044		—
Other		1,148		2,891
Gross deferred income tax assets		120,654		59,366
Less: valuation allowance		(4,929)		(2,303)
Net deferred income tax assets		115,725		57,063
Deferred income tax liabilities:
Depreciation and amortization		(33,539)		(25,617)
Intangibles		(13,602)		(21,742)
Operating lease asset		(55,801)		—
Prepaid expenses and other		(2,600)		(2,405)
Total deferred income tax liabilities		(105,542)		(49,764)
Net deferred tax assets	$	10,183	$	7,299

As of January 31, 2020 and 2019, deferred tax liabilities of $7.9 million and $15.1 million, respectively, relate to intangible assets in Switzerland. In May 2019, Switzerland approved the Federal Act on Tax Reform and Old-Age and Survivors Insurance Financing as adopted by its Federal Parliament last fall. The tax reform replaces certain preferential tax regimes and provides a broad reduction of the cantonal corporate tax rates. As a result of this Swiss tax reform, the Company recognized a $6.1 million tax benefit related to revaluing its Swiss deferred tax liabilities.  

The total undistributed earnings of the Company’s foreign subsidiaries are approximately $85.0 million for the fiscal year ended January 31, 2020. Those earnings are considered indefinitely reinvested. Even though the undistributed earnings can be distributed back generally without U.S. federal income tax as a result of the one-time transition tax under the TCJA regime, the Company will not change its indefinite reinvestment assertion with respect to those earnings. Upon distribution of those earnings in the form of dividends, the Company does not anticipate any material tax costs. As such, no deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of undistributed foreign earnings.

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:

	2020		2019		2018
Provision for Federal income taxes at the statutory rate	21.0	%	21.0	%	33.8	%
State and local income taxes, net of Federal tax benefit	1.9		2.4		0.5
Permanent differences resulting in Federal taxable income	5.9		6.6		8.8
Tax reform	—		—		7.5
Foreign tax rate differential	(3.8)		0.5		0.2
Share-based payments	(0.8)		(0.6)		(1.2)
Foreign tax credit	(3.5)		(5.5)		(7.7)
Valuation allowance	0.9		0.2		1.5
Other, net	(0.6)		0.3		0.2
Actual provision for income taxes	21.0	%	24.9	%	43.6	%

Our effective tax rate decreased 3.9% percent in fiscal 2020 compared to fiscal 2019. The decrease in the tax rate is primarily attributable to the Swiss tax reform that was enacted in May 2019. Our effective tax rate decreased 18.7% percent in fiscal 2019 as compared to fiscal 2018. This decrease in the tax rate was primarily due to the effects of the TCJA, which included the reduction in the statutory U.S. federal corporate income tax rate from 35% to 21% and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings.

Valuation allowances represent deferred tax benefits where management is uncertain if the Company will have the ability to recognize those benefits in the future. During the year ended January 31, 2020, the Company recorded an additional valuation allowance of $1.9 million against its deferred tax assets for its standalone state tax losses.

Unrecognized Tax Benefits

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

	2020		2019		2018
	(In thousands)
Balance at February 1,	$	—	$	82	$	1,094
Additions for tax positions of prior years		2,111		—		—
Lapses of statues of limitations		—		(82)		(1,012)
Balance at January 31,	$	2,111	$	—	$	82

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, 2020, there was an increase in the unrecognized tax position reserve of $2.1 million related to recent state and local tax return filings.

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 the income tax of multiple state, local, and foreign jurisdictions.

Of the major jurisdictions, the Company and its subsidiaries are subject to examination in the United States and various foreign jurisdictions for fiscal year 2014 and forward. The Company is currently under audit examination by New York, New Jersey and Canada for fiscal years 2014 through 2018. The Company believes that it is reasonably possible there will be no change to its unrecognized income tax position reserves during the next twelve months due to the applicable statues of limitations.