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INCOME TAXES | 12 Months Ended
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Oct. 31, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES |
8 | INCOME TAXES
Earnings before income taxes were as follows (in thousands):
Fiscal Years Ended October 31 |  | 2018 |  | 2017 |  | 2016
Earnings before income taxes: |  |  |  |  |  |  |  |  |
U.S. |  | $ | 333,136 |  |  | $ | 307,136 |  |  | $ | 292,184 |
Foreign |  | 39,261 |  |  | 46,048 |  |  | 38,276 |
Total earnings before income taxes |  | $ | 372,397 |  |  | $ | 353,184 |  |  | $ | 330,460 |
A reconciliation of the statutory federal income tax rate to the company's consolidated effective tax rate is summarized as follows:
Fiscal Years Ended October 31 |  | 2018 |  | 2017 |  | 2016
Statutory federal income tax rate |  | 23.3 | % |  | 35.0 | % |  | 35.0 | %
Excess deduction for stock compensation |  | (3.5 | ) |  | (5.3 | ) |  | — |
Domestic manufacturer's deduction |  | (0.9 | ) |  | (1.2 | ) |  | (0.8 | )
State and local income taxes, net of federal benefit |  | 1.3 |  |  | 0.5 |  |  | 1.5 |
Foreign taxes |  | (0.5 | ) |  | (2.3 | ) |  | (1.8 | )
Federal research tax credit |  | (1.2 | ) |  | (1.5 | ) |  | (1.5 | )
Remeasurement of deferred tax assets and liabilities - Tax Act |  | 5.2 |  |  | — |  |  | — |
Deemed repatriation tax - Tax Act |  | 3.6 |  |  | — |  |  | — |
Other, net |  | (0.3 | ) |  | (1.0 | ) |  | (2.3 | )
Consolidated effective tax rate |  | 27.0 | % |  | 24.2 | % |  | 30.1 | %
On December 22, 2017, the U.S. enacted Public Law No. 115-97 ("Tax Act"), originally introduced as the Tax Cuts and Jobs Act, which significantly modified the Internal Revenue Code. The Tax Act reduced the U.S. federal corporate tax rate from 35.0 percent to 21.0 percent, created a territorial-type tax system with an exemption for foreign dividends, and imposed a one-time deemed repatriation tax on a U.S. company's historical undistributed earnings and profits of foreign affiliates. The tax rate change was effective January 1, 2018, which resulted in a blended statutory tax rate of 23.3 percent for the fiscal year ended October 31, 2018. Among other provisions, the Tax Act also increased expensing for certain business assets, created new taxes on certain foreign sourced earnings, adopted limitations on business interest expense deductions, repealed deductions for income attributable to domestic production activities, and added other anti-base erosion rules. The effective dates for the provisions set forth in the Tax Act vary as to when the provisions will apply to the company. In response to the Tax Act, the U.S. Securities and Exchange Commission ("SEC") provided guidance by issuing Staff Accounting Bulletin No. 118 ("SAB 118"), which has since been codified by the release of ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 allows companies to record provisional amounts during a measurement period with respect to the impacts of the Tax Act for which the accounting requirements under ASC Topic 740 are not complete, but a reasonable estimate has been determined. The measurement period under ASU 2018-05 ends when a company has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC Topic 740, but cannot exceed one year. As of October 31, 2018, the company has completed the accounting for the effects of the Tax Act. The company has estimated the impacts of the Tax Act on its annual effective tax rate and has recorded tax expense of $19.3 million for the remeasurement of deferred tax assets and liabilities and tax expense of $13.4 million for the deemed repatriation tax. While the company has recorded amounts in fiscal 2018 for the items expected to most significantly impact its Consolidated Financial Statements, many of the provisions of the Tax Act are not effective for the company until the fiscal year ending October 31, 2019. Accordingly, the company has not yet reached a final conclusion on the overall impacts of the Tax Act. The company expects to have future U.S. inclusions in taxable income related to the new Global Intangible Low-Taxed Income ("GILTI") tax created by the Tax Act. Under U.S. GAAP, the company is allowed to make an accounting policy election of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred (the “period cost method”) or (2) factoring such amounts into the company’s measurement of its deferred taxes (the “deferred method”). The company has elected the period cost method and therefore, has not made any adjustments related to potential GILTI tax within its fiscal 2018 Consolidated Financial Statements. Components of the provision for income taxes were as follows (in thousands):
Fiscal Years Ended October 31 |  | 2018 |  | 2017 |  | 2016
Current provision: |  |  |  |  |  |  |  |  |
Federal |  | $ | 64,375 |  |  | $ | 83,091 |  |  | $ | 77,685 |
State |  | 6,192 |  |  | 3,036 |  |  | 6,929 |
Foreign |  | 7,087 |  |  | 8,166 |  |  | 6,295 |
Total current provision |  | $ | 77,654 |  |  | $ | 94,293 |  |  | $ | 90,909 |
Deferred provision (benefit): |  |  |  |  |  |  |  |  |
Federal |  | $ | 22,074 |  |  | $ | (8,774 | ) |  | $ | 7,283 |
State |  | 308 |  |  | (101 | ) |  | 297 |
Foreign |  | 422 |  |  | 49 |  |  | 977 |
Total deferred provision (benefit) |  | 22,804 |  |  | (8,826 | ) |  | 8,557 |
Total provision for income taxes |  | $ | 100,458 |  |  | $ | 85,467 |  |  | $ | 99,466 |
The tax effects of temporary differences that give rise to deferred income tax assets, net, are presented below (in thousands):
October 31 |  | 2018 |  | 2017
Deferred income tax assets: |  |  |  |  |  |
Compensation and benefits |  | $ | 24,315 |  |  | $ | 38,753 |
Warranty and insurance |  | 19,037 |  |  | 23,993 |
Advertising and sales allowance |  | 7,650 |  |  | 10,428 |
Other |  | 7,789 |  |  | 12,234 |
Valuation allowance |  | (1,178 | ) |  | (1,951 | )
Total deferred income tax assets |  | $ | 57,613 |  |  | $ | 83,457 |
Deferred income tax liabilities: |  |  |  |
Depreciation |  | $ | (12,381 | ) |  | $ | (13,259 | )
Amortization |  | (8,377 | ) |  | (7,841 | )
Total deferred income tax liabilities |  | (20,758 | ) |  | (21,100 | )
Deferred income tax assets, net |  | $ | 36,855 |  |  | $ | 62,357 |
The valuation allowance as of October 31, 2018 and 2017 principally applies to capital loss carryforwards, foreign net operating loss carryforwards that are expected to expire prior to utilization, and state credit carryforwards. As of October 31, 2018, the company had net operating loss carryforwards of approximately $6.0 million in foreign jurisdictions, which are comprised of $4.9 million that do not expire and $1.1 million that expire between fiscal 2019 and fiscal 2027. As a result of the Tax Act, the company has provided for U.S. income taxes on deemed repatriated earnings related to non-U.S. subsidiaries as of October 31, 2018. Notwithstanding the deemed repatriation under the Tax Act and other previously taxed income, the company considers that $42.5 million of undistributed earnings of its foreign operations are intended to be indefinitely reinvested. Should these earnings be distributed in the future in the form of dividends or otherwise, the company may be subject to foreign withholding taxes, state income taxes, and/or additional federal taxes for currency fluctuations. As of October 31, 2018, the unrecognized deferred tax liabilities for temporary differences related to the company’s investment in non-U.S. subsidiaries, and any withholding, state, or additional federal taxes upon any future repatriation, are not material and have not been recorded. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Unrecognized tax benefits as of October 31, 2017 |  | $ | 3,113 |
Increase as a result of tax positions taken during a prior period |  | 332 |
Increase as a result of tax positions taken during the current period |  | 965 |
Decrease relating to settlements with taxing authorities |  | (1,557 | )
Reductions as a result of statute of limitations lapses |  | (508 | )
Unrecognized tax benefits as of October 31, 2018 |  | $ | 2,345 |
The company recognizes interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. In addition to the liability of $2.3 million for unrecognized tax benefits as of October 31, 2018, the company had an amount of approximately $0.4 million of accrued interest and penalties. Included in the balance of unrecognized tax benefits as of October 31, 2018 are potential benefits of $2.2 million that, if recognized, would affect the effective tax rate from continuing operations. The company and its wholly owned subsidiaries file income tax returns in the U.S. federal jurisdiction, and numerous state and foreign jurisdictions. With few exceptions, the company is no longer subject to U.S. federal, state and local, and foreign income tax examinations by tax authorities for taxable years before fiscal 2014. The Internal Revenue Service is completing an audit of fiscal 2014 through fiscal 2017, with no material adjustments to tax expense or unrecognized tax benefits expected. The company is also under audit in a few state jurisdictions and expects various statutes of limitation to expire during the next 12 months. Due to the uncertain response of taxing authorities, a range of outcomes cannot be reasonably estimated at this time.

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- 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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