Income Taxes

6 Months Ended

Jul. 31, 2011

Income Taxes [Abstract]

INCOME TAXES

4. INCOME TAXES

The effective income tax rate for the three months ended July 31, 2011 was 31.2% versus 34.0% in the prior year. The decline is primarily due to the reversal of a valuation allowance against certain deferred tax assets where management has determined it is more likely than not that the deferred tax assets will be realized in the future. The effective income tax rate for the six months ended July 31, 2011 was 33.4% versus 32.5% in the prior year. In the six months ended July 31, 2010, the Company recorded a net income tax benefit of $3,096,000 primarily due to a change in the tax status of certain subsidiaries associated with the acquisition in 2009 of additional equity interests in diamond sourcing and polishing operations.

During the six months ended July 31, 2011, the change in the gross amount of unrecognized tax benefits and accrued interest and penalties was not significant.

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. As a matter of course, various taxing authorities regularly audit the Company. The Company’s tax filings are currently being examined by tax authorities in jurisdictions where its subsidiaries have a material presence, including New York state tax years 2004-2007, New York City tax years 2006-2008, New Jersey tax years 2006-2009 and by the Internal Revenue Service tax years 2006-2009. Tax years from 2004-present are open to examination in U.S. Federal and various state, local and foreign jurisdictions. The Company believes that its tax positions comply with applicable tax laws and that it has adequately provided for these matters. However, the audits may result in proposed assessments where the ultimate resolution may result in the Company owing additional taxes. Management anticipates that it is reasonably possible that the total gross amount of unrecognized tax benefits will decrease by approximately $20,000,000 in the next 12 months, a portion of which may affect the effective tax rate; however, management does not currently anticipate a significant affect on net earnings. Future developments may result in a change in this assessment.