10.

INCOME TAXES

Our effective tax rate for the first three months of fiscal 2017 was 38% in comparison to 31% for the same period in fiscal 2016. The increase in the effective income tax rate was primarily due to a shift in taxable income and loss among the various geographic regions. We recorded income tax expense during the first three months of fiscal 2017 of $543,000 compared to $1.7 million for the same period in fiscal 2016. This reduction was primarily a result of a decrease in income period-over-period. We have not provided any U.S. income taxes on the undistributed earnings of our wholly-owned foreign subsidiaries based upon our determination that such earnings will be indefinitely reinvested. In the event these earnings are later distributed to our U.S. operations, such distributions would likely result in additional U.S. tax that may be offset, at least in part, by associated foreign tax credits.

Our unrecognized tax benefits were $1.2 million as of January 31, 2017 and $1.1 million as of October 31, 2016, and in each case included accrued interest.

We recognize accrued interest and penalties related to unrecognized tax benefits as components of income tax expense. As of January 31, 2017, the gross amount of interest accrued, reported in Accrued expenses and other, was approximately $57,000, which did not include the federal tax benefit of interest deductions.

We file U.S. federal and state income tax returns, as well as tax returns in several foreign jurisdictions. The statutes of limitations with respect to unrecognized tax benefits will expire between July 2017 and July 2019.