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Income Taxes | 12 Months Ended
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Oct. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Note 16. Income Taxes Income before (benefit) provision for income taxes is taxed in the following jurisdictions:
|  | Fiscal Year Ended |
|  | October 31, 2018 |  |  | October 31, 2017 |  |  | October 29, 2016 |
Domestic |  | $ | 5.2 |  |  | $ | 54.7 |  |  | $ | 43.2 |
Foreign |  |  | (3.0 | ) |  |  | (4.6 | ) |  |  | — |
Income before (benefit) provision for income taxes |  | $ | 2.2 |  |  | $ | 50.1 |  |  | $ | 43.2 |
(Benefit) provision for income taxes is summarized as follows:
|  | Fiscal Year Ended |
|  | October 31, 2018 |  |  | October 31, 2017 |  |  | October 29, 2016 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (6.8 | ) |  | $ | 12.1 |  |  | $ | 12.6 |
State |  |  | 0.1 |  |  |  | 3.7 |  |  |  | 4.1 |
Foreign |  |  | — |  |  |  | — |  |  |  | — |
Total Current |  | $ | (6.7 | ) |  | $ | 15.8 |  |  | $ | 16.7 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (6.4 | ) |  |  | 4.6 |  |  |  | (2.3 | )
State |  |  | 0.9 |  |  |  | (0.1 | ) |  |  | (1.4 | )
Foreign |  |  | 1.4 |  |  |  | (1.6 | ) |  |  | — |
Total Deferred |  |  | (4.1 | ) |  |  | 2.9 |  |  |  | (3.7 | )
(Benefit) provision for income taxes |  | $ | (10.8 | ) |  | $ | 18.7 |  |  | $ | 13.0 |
Income tax (benefit)/expense at the federal statutory rate is reconciled to the Company’s (benefit) provision for income taxes as follows:
|  | Fiscal Year Ended |
|  | October 31, 2018 |  |  | October 31, 2017 |  |  | October 29, 2016 |
Income tax expense at federal statutory rate |  | $ | 0.5 |  |  | $ | 17.5 |  |  | $ | 15.1 |
Taxes on foreign income which differ from the U.S. statutory rate |  |  | (0.3 | ) |  |  | 0.1 |  |  |  | — |
State expense |  |  | 0.5 |  |  |  | 2.3 |  |  |  | 1.6 |
Deferred tax adjustments |  |  | — |  |  |  | — |  |  |  | (1.5 | )
Manufacturing and research incentives |  |  | (2.7 | ) |  |  | (2.1 | ) |  |  | (3.0 | )
Nondeductible items |  |  | 0.7 |  |  |  | 0.9 |  |  |  | 1.0 |
Uncertain tax positions |  |  | (0.4 | ) |  |  | — |  |  |  | 0.5 |
Valuation allowance |  |  | 2.2 |  |  |  | — |  |  |  | — |
Remeasurement of deferred taxes - U.S. Tax Reform |  |  | (11.3 | ) |  |  | — |  |  |  | — |
Other items |  |  | — |  |  |  | — |  |  |  | (0.7 | )
(Benefit) provision for income taxes |  | $ | (10.8 | ) |  | $ | 18.7 |  |  | $ | 13.0 |
Tax benefit for fiscal year 2018 was favorably impacted by the decrease in the U.S. tax rate and revaluation of net deferred tax liabilities, both as a result of tax legislation in the United States. Tax benefit was also favorably impacted by tax incentives for U.S. manufacturing and research, some of which can be attributed to federal provision-to-return adjustment. Tax benefit was unfavorably impacted by the addition of a valuation allowance on the deferred tax assets in Brazil. Tax expense for fiscal year 2017 was favorably impacted by incentives for U.S. manufacturing and research and unfavorably impacted by nondeductible transaction costs related to business acquisitions and expenses related to the Company’s secondary stock offering. Tax expense for fiscal year 2016 was favorably impacted by incentives for U.S. manufacturing and research as well as adjustments to deferred income tax balances. The deferred income tax balance adjustments were not material to current or previously issued financial statements. No items included in Other items in the income tax reconciliation above are individually, or when appropriately aggregated, significant. On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed and enacted into law. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the corporate tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities and implementing a territorial tax system. As a fiscal year taxpayer, the Company’s federal statutory tax rate reduction is effective January 1, 2018; therefore, the Company’s fiscal year 2018 estimated annual effective tax rate reflects the benefit from the reduced U.S. federal rate of 23.3%. A number of other provisions will not impact the Company until fiscal year 2019, such as elimination of the domestic manufacturing deduction and U.S. taxation of foreign earnings. U.S. GAAP requires the impact of tax legislation be recognized in the period in which the law was enacted. In accordance with SEC Staff Accounting Bulletin No. 118, the Company recorded the estimated income tax impact of the Tax Reform Act during the first quarter and updated the estimate each quarter thereafter. For the fiscal year ended October 31, 2018, the Company recorded a cumulative tax benefit of $11.3 million due to the remeasurement of net deferred tax liabilities. Although the $11.3 million tax benefit represents what the Company believes is a reasonable estimate of the income tax effects of the Tax Reform Act on its consolidated financial statements as of October 31, 2018, it is a provisional amount and will be impacted by the Company’s ongoing analysis of the legislation. Any adjustments to these provisional amounts will be reported as a component of income tax expense (benefit) in the reporting period in which any such adjustments are determined, which will be no later than the first quarter of fiscal year 2019. Because of the complexity of the new Global Intangible Low-Taxed Income (GILTI) tax rules, the Company continues to evaluate this provision of the Tax Reform Act and the application of ASC740, Income Taxes. Under U.S. GAAP, the Company is allowed to make an accounting policy choice 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's selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing its global income to determine whether it expects to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Whether the Company expects to have future U.S. inclusions in taxable income related to GILTI depends on not only the Company's current structure and estimated future results of global operations but also its intent and ability to modify its structure. The Company is currently in the process of analyzing its structure and, as a result, is not yet able to reasonably estimate the effect of this provision of the Tax Reform Act. Therefore, the Company has not made any adjustments related to potential GILTI tax in its financial statements and has not made a policy decision regarding whether to use the period cost method or the deferred method. Temporary differences and carryforwards that give rise to deferred tax assets and liabilities include the following items:
|  | Fiscal Year Ended |
|  | October 31, 2018 |  |  | October 31, 2017 |
Deferred tax assets: |  |  |  |  |  |  |  |
Product warranty |  | $ | 7.9 |  |  | $ | 15.8 |
Inventory |  |  | 6.7 |  |  |  | 7.7 |
Deferred employee benefits |  |  | 1.7 |  |  |  | 13.8 |
Net operating loss and credit carryforwards |  |  | 13.6 |  |  |  | 6.2 |
Other reserves and allowances |  |  | 2.5 |  |  |  | 3.4 |
Gross deferred tax assets |  |  | 32.4 |  |  |  | 46.9 |
Less valuation allowance |  |  | (2.3 | ) |  |  | (0.1 | )
Deferred tax assets |  |  | 30.1 |  |  |  | 46.8 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Intangible assets |  |  | (28.4 | ) |  |  | (45.9 | )
Property, plant and equipment |  |  | (20.6 | ) |  |  | (20.6 | )
Other |  |  | (0.9 | ) |  |  | (1.3 | )
Deferred tax liabilities |  |  | (49.9 | ) |  |  | (67.8 | )
Net deferred tax liability |  | $ | (19.8 | ) |  | $ | (21.0 | )
The net deferred tax assets/ (liabilities) recorded in the consolidated balance sheet are as follows:
|  | Fiscal Year Ended |
|  | October 31, 2018 |  |  | October 31, 2017 |
Noncurrent deferred tax asset |  | $ | 0.1 |  |  | $ | 1.5 |
Noncurrent deferred tax liability |  |  | (19.9 | ) |  |  | (22.5 | )
Net deferred tax liability |  | $ | (19.8 | ) |  | $ | (21.0 | )
As of each balance sheet date, management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. In fiscal year 2018, the Company recorded a valuation allowance against its net deferred tax asset in Brazil as the Company does not expect to utilize them. As a result, the Company recognized $2.2 million of tax expense in fiscal year 2018. As of October 31, 2018, and October 31, 2017, the Company has a valuation allowance of $2.3 million and $0.1 million, respectively. The Company will continue to evaluate its valuation allowance requirements in light of changing facts and circumstances and may adjust its deferred tax valuation allowances accordingly. It is reasonably possible that the Company will either add to or reverse a portion of its existing deferred tax asset valuation allowance in the future. Such changes in the deferred tax asset valuation allowances could have a material effect on operating results. At October 31, 2018, the Company has net operating loss carryforwards for U.S. federal income tax purposes of $36.8 million, some of which are subject to annual limitations and begin to expire in 2029. The Company has state net operating loss carryforwards of $20.2 million, which begin to expire in 2027. The Company also has net operating loss carryforwards generated in Canada of $0.6 million, which are offset by a valuation allowance because the losses are projected to expire prior to being utilized. In addition, the Company has net operating loss carryforwards of $4.1 million generated in Brazil, which are offset by a valuation allowance because the Company does not expect to utilize them. The Company has general business tax and AMT credit carryforwards for federal income tax purposes of $1.9 million. The Company also has state credit carryforwards of $1.3 million. The Company, or one of its subsidiaries, files income tax returns in the U.S, Canada, Brazil, Singapore and various state jurisdictions. With few exceptions, fiscal years 2015, 2016 and 2017 remain open to tax examination by Brazilian, Canadian and U.S. federal and state tax authorities. The Company regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves. As of October 31, 2018, the company believes that it is more likely than not that the tax positions it has taken will be sustained upon the resolution of its audits resulting in no material impact on its consolidated financial position and the results of operations and cash flows. However, the final determination with respect to any tax audits, and any related litigation, could be materially different from the company’s estimates and/or from its historical income tax provisions and accruals and could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties, and/or interest assessments. During fiscal years 2018, 2017 and 2016, the Company recognized in the consolidated statement of income $(0.1) million, $0.0 million, and $0.2 million, respectively, for interest and penalties related to uncertain tax liabilities, which the Company recognizes as a part of its (benefit) provision for income taxes. As of October 31, 2018, and October 31, 2017, the Company has accrued interest and penalties of $0.1 million and $0.2 million, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits are as follows:
|  | Fiscal Year Ended |
|  | October 31, 2018 |  |  | October 31, 2017 |  |  | October 29, 2016 |
Balance at beginning of year |  | $ | 2.6 |  |  | $ | 2.7 |  |  | $ | 4.2 |
Additions (reductions) for tax positions in prior year |  |  | 0.3 |  |  |  | 0.1 |  |  |  | (1.5 | )
Additions for tax positions in current year |  |  | 0.3 |  |  |  | 0.1 |  |  |  | 0.2 |
Cash settlements with taxing authorities |  |  | (0.2 | ) |  |  | — |  |  |  | — |
Statute of limitations |  |  | (0.9 | ) |  |  | (0.3 | ) |  |  | (0.2 | )
Balance at end of year |  | $ | 2.1 |  |  | $ | 2.6 |  |  | $ | 2.7 |
If recognized, $2.2 million, $2.9 million, and $2.9 million of the Company’s unrecognized tax benefits as of October 31, 2018, October 31, 2017 and October 29, 2016 respectively, would affect the Company’s effective income tax rate. A portion of the unrecognized tax benefits relate to state tax issues of acquired companies for which the Company will be indemnified by the seller. As such, an offsetting asset in the amount of $0.9 million is included in other long-term assets. During the next twelve months, it is reasonably possible that federal and state tax resolutions could reduce unrecognized tax benefits and income tax expense by up to $0.2 million, either because the Company’s tax positions are sustained on audit or settled, or the applicable statute of limitations closes.

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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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