INCOME TAXES

U.S. Federal Income Tax Reform

On December 22, 2017, the 2017 Tax Act was enacted in the U.S. This enactment resulted in a number of significant changes to U.S. federal income tax law for U.S. taxpayers. Changes in tax law are accounted for in the period of enactment. As such, the 2017 consolidated financial statements reflect the estimated immediate tax effect of the 2017 Tax Act. The 2017 Tax Act contains a number of key provisions, including, among other items:


•	The reduction of the statutory U.S. federal corporate income tax rate from 35.0% to 21.0% effective January 1, 2018;


•	A one-time transition tax via a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits (the "Transition Tax");


•	The introduction of a deduction for Foreign Derived Intangible Income ("FDII") for tax years beginning after December 31, 2017;


•	The introduction of a tax on global intangible low-taxed income ("GILTI") for tax years beginning after December 31, 2017;


•	A limitation on net interest expense deductions to 30% of adjusted taxable income for tax years beginning after December 31, 2017;


•	Broader limitations on the deductibility of compensation of certain highly compensated employees;


•	The ability to elect to accelerate tax depreciation on certain qualified assets;


•	The introduction of a territorial tax system providing a 100% dividends received deduction on certain qualified dividends from foreign subsidiaries for tax years beginning after December 31, 2017;


•	The introduction of the Base Erosion and Anti-Abuse Tax ("BEAT") for tax years beginning after December 31, 2017; and


•	Changes in the application of the U.S. foreign tax credit regulations for tax years beginning after December 31, 2017.

Additionally, on December 22, 2017, the SEC issued SAB 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. Specifically, SAB 118 provides a measurement period for companies to evaluate the impacts of the 2017 Tax Act on their financial statements. This measurement period begins in the reporting period that includes the enactment date and ends when an entity has obtained, prepared and analyzed the information that was needed in order to complete the accounting requirements, and cannot exceed one year. The Company has adopted the provisions of SAB 118 with respect to the impact of the 2017 Tax Act on its consolidated financial statements.

The Company has recorded an estimated net tax expense of $146.2 million as a result of the effects of the 2017 Tax Act. The tax effects recorded include:


•	Estimated tax expense of $94.8 million for the impact of the reduction in the U.S. statutory tax rate on the Company’s deferred tax assets and liabilities;


•	Estimated tax expense of $56.0 million for the Transition Tax; and


•	A tax benefit of $4.6 million resulting from the effect of the 21% statutory tax rate for the month of January 2018 on the Company’s annual statutory tax rate for the year ended January 31, 2018. Because the Company’s fiscal year ended on January 31, 2018, the Company’s statutory tax rate for fiscal 2017 is 33.8% rather than 35.0%.

Consistent with SAB 118, the Company calculated and recorded reasonable estimates for the impact of the Transition Tax and the remeasurement of its deferred tax assets and deferred tax liabilities, as set forth above. The Company also adopted the provisions of SAB 118 as it relates to the assertion of the indefinite reinvestment of foreign earnings and profits. The charges associated with the Transition Tax and the remeasurement of the Company's deferred tax assets and deferred tax liabilities, as a result of applying the 2017 Tax Act, represent provisional amounts for which the Company’s analysis is incomplete but a reasonable estimate could be determined and recorded during the fourth quarter of 2017. Further, the impact of the 2017 Tax Act on the Company's assertion to indefinitely reinvest foreign earnings is incomplete as the Company is analyzing the relevant provisions of the 2017 Tax Act and related accounting guidance. Therefore, a provisional estimate has not been recorded or disclosed as it relates to the potential tax consequences of an actual repatriation of unremitted foreign earnings. The Company expects to account for the tax on GILTI as a period cost and thus has not adjusted any of the deferred tax assets and liabilities of its foreign subsidiaries in connection with the 2017 Tax Act. While the Company's provisional estimate for GILTI in 2017 is zero, the Company continues to evaluate this position in accordance with SAB 118 as it awaits further regulatory and accounting guidance. As the Company refines its provisional estimate calculations, further analyzes provisions of the 2017 Tax Act and any subsequent guidance related thereto, these provisional estimates could be affected, which could have a material impact on the Company's future financial results. Additionally, further regulatory or GAAP accounting guidance regarding the 2017 Tax Act could also materially affect the Company's future financial results.

Income Taxes

Earnings from operations before income taxes consisted of the following:



	Years Ended January 31,
(in millions)	2018		2017		2016
United States	$	597.1	$	478.2	$	502.5
Foreign	163.4		198.4		207.4
	$	760.5	$	676.6	$	709.9

Components of the provision for income taxes were as follows:



	Years Ended January 31,
(in millions)	2018		2017		2016
Current:
Federal	$	227.9	$	125.5	$	175.8
State	16.7		15.4		22.3
Foreign	49.0		43.5		49.8
	293.6		184.4		247.9
Deferred:
Federal	94.1		36.7		(15.4		)
State	1.1		7.1		3.9
Foreign	1.6		2.3		9.6
	96.8		46.1		(1.9		)
	$	390.4	$	230.5	$	246.0

Reconciliations of the provision for income taxes at the statutory Federal income tax rate to the Company's effective income tax rate were as follows:



	Years Ended January 31,
	2018		2017		2016
Statutory Federal income tax rate	33.8	%	35.0	%	35.0	%
State income taxes, net of Federal benefit	1.5		2.2		2.4
Foreign losses with no tax benefit	0.2		0.2		—
Foreign tax rate differences	(1.4	)	(2.3	)	(2.5	)
Net change in uncertain tax positions	0.2		(0.7	)	0.5
Domestic manufacturing deduction	(1.8	)	(0.9	)	(1.3	)
2017 Tax Act	19.8		—		—
Other	(1.0	)	0.6		0.6
	51.3	%	34.1	%	34.7	%

Deferred tax assets (liabilities) consisted of the following:



	January 31,
(in millions)	2018			2017
Deferred tax assets:
Pension/postretirement benefits	$	81.2		$	124.7
Accrued expenses	22.9			36.1
Share-based compensation	7.2			17.3
Depreciation	0.6			6.5
Amortization	6.4			10.8
Foreign and state net operating losses	9.2			25.5
Sale-leaseback	17.2			25.8
Inventory	35.8			57.6
Financial hedging instruments	8.4			11.9
Unearned income	7.7			10.6
Other	25.1			23.0
	221.7			349.8
Valuation allowance	(9.6		)	(24.1		)
	212.1			325.7
Deferred tax liabilities:
Foreign tax credit	(24.9		)	(25.8		)
Net deferred tax asset	$	187.2		$	299.9

The Company has recorded a valuation allowance against certain deferred tax assets related to foreign net operating loss carryforwards where management has determined it is more likely than not that deferred tax assets will not be realized in the future. The overall valuation allowance relates to tax loss carryforwards and temporary differences for which no benefit is expected to be realized. Tax loss carryforwards of approximately $32.7 million exist in certain foreign jurisdictions. Whereas some of these tax loss carryforwards do not have an expiration date, others expire at various times from 2019 through 2025.

The following table reconciles the unrecognized tax benefits:



	Years ended January 31,
(in millions)	2018			2017			2016
Unrecognized tax benefits at beginning of year	$	7.2		$	14.0		$	12.1
Gross increases – tax positions in prior period	3.2			0.9			1.0
Gross decreases – tax positions in prior period	(0.9		)	(5.0		)	(0.4		)
Gross increases – tax positions in current period	0.6			0.3			1.4
Settlements	—			(3.0		)	—
Lapse of statute of limitations	—			—			(0.1		)
Unrecognized tax benefits at end of year	$	10.1		$	7.2		$	14.0

Included in the balance of unrecognized tax benefits at January 31, 2018, 2017 and 2016 are $1.1 million, $1.0 million and $9.1 million of tax benefits that, if recognized, would affect the effective income tax rate.

The Company recognizes interest expense and penalties related to unrecognized tax benefits within the provision for income taxes. The Company recognized expense of $2.0 million and $1.7 million for interest and penalties during 2017 and 2015, respectively. No expense for interest and penalties was recognized in 2016. Accrued interest and penalties are included within Accounts payable and accrued liabilities and Other long-term liabilities, and were $10.3 million and $8.3 million at January 31, 2018 and 2017, respectively.

The Company conducts business globally, and, as a result, is subject to taxation in the U.S. and various state and foreign jurisdictions. As a matter of course, tax authorities regularly audit the Company. The Company's tax filings are currently being examined by a number of tax authorities in several jurisdictions, both in the U.S. and in foreign jurisdictions. Ongoing audits where subsidiaries have a material presence include New York City (tax years 2011–2013) and New York State (tax years 2012–2014). Tax years from 2010–present are open to examination in the U.S. Federal jurisdiction and 2006–present are open in various state, local and foreign jurisdictions. As part of these audits, the Company engages in discussions with taxing authorities regarding tax positions. As of January 31, 2018, unrecognized tax benefits are not expected to change materially in the next 12 months. Future developments may result in a change in this assessment.