INCOME TAXES

12 Months Ended

Jul. 31, 2015

INCOME TAXES

12.   INCOME TAXES
The components of the provision (benefit) for income taxes from continuing operations are as follows:
	July 31,
Income Taxes:	2015		2014		2013
Federal	$	98,504	$	83,374	$	74,610
State and local		1,222		(1,383)		4,187
Total current expense		99,726		81,991		78,797
Federal		(7,785)		(3,805)		(7,712)
State and local		(1,055)		(883)		(789)
Total deferred (benefit)		(8,840)		(4,688)		(8,501)
Total income tax expense	$	90,886	$	77,303	$	70,296
The differences between income taxes at the federal statutory rate and the actual income taxes are as follows:
	July 31,
	2015		2014		2013
Provision at federal statutory rate	$	102,513	$	88,487	$	77,691
State and local income taxes, net of federal benefit		5,144		3,748		2,815
Federal income tax credits and incentives		(2,207)		(772)		(2,468)
Domestic production activities deduction		(9,519)		(7,947)		(7,303)
Change in uncertain tax positions		(5,650)		(6,631)		(718)
Change in current tax payable and deferred tax liabilities		218		125		13
Other permanent items		387		293		266
Total income tax expense	$	90,886	$	77,303	$	70,296

A summary of deferred income taxes is as follows:
	July 31,
	2015		2014
Current deferred income tax asset (liability):
Inventory basis	$	467	$	(183)
Employee benefits		3,625		2,543
Self-insurance reserves		10,411		10,139
Accrued product warranties		39,486		33,629
Accrued incentives		3,959		3,553
Sales returns and allowances		1,520		1,419
Accrued expenses		2,067		1,523
Unrecognized tax benefits		367		614
Other		(2,038)		(1,840)
Total net current deferred income tax asset	$	59,864		51,397
Long-term deferred income tax asset (liability):
Property, plant and equipment		(707)		(983)
Deferred compensation		6,367		4,811
Tax credit carry forward		110		790
Intangibles		(30,246)		(31,681)
Unrecognized tax benefits		3,913		7,675
Total net long-term deferred income tax (liability)		(20,563)		(19,388)
Net deferred tax asset	$	39,301	$	32,009

As of July 31, 2015, the Company has $167 of state tax credit carry forwards that expire from fiscal 2022-2025 of which the Company expects to realize prior to expiration. In addition, the Company has approximately $57,400 of gross state tax Net Operating Loss (“NOL”) carry forwards that expire from fiscal 2016-2035 that the Company does not expect to realize and therefore has been fully reserved. The deferred tax asset of $1,595 associated with the state tax NOL carry forwards and the related equal and offsetting valuation allowance are not reflected in the table above.

Unrecognized Tax Benefits:

The benefits of tax positions reflected on income tax returns but whose outcome remains uncertain are only recognized for financial accounting purposes if they meet minimum recognition thresholds. The total amount of unrecognized tax benefits that, if recognized, would have impacted the Company’s effective tax rate were $8,764 for 2015, $13,679 for 2014 and $21,765 for 2013.

Changes in the unrecognized tax benefit during fiscal year 2015, 2014 and 2013 were as follows:

	2015			2014			2013
Beginning balance		$	20,813		$	32,733		$	33,900
Tax positions related to prior years:
Additions			126			9			436
Reductions			(7,695)			(9,281)			(113)
Tax positions related to current year:
Additions			2,858			3,804			5,348
Settlements			(1,898)			(5,002)			(5,593)
Lapses in statute of limitations			(1,048)			(1,450)			(1,245)
Ending balance		$	13,156		$	20,813		$	32,733

The reductions to the tax positions related to prior years of $9,281 in fiscal year 2014 includes $1,378 of uncertain tax positions that were eliminated as a result of the sale of the bus business. See Note 3 to the Consolidated Financial Statements for further information.

It is the Company’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in income tax expense. Interest and penalties related to unrecognized tax benefits are not included in the schedule above. The total amount of liabilities accrued for interest and penalties related to unrecognized tax benefits as of July 31, 2015, 2014 and 2013 were $1,895, $5,200 and $11,671 respectively. The total amount of interest and penalties expense (benefit) recognized in the Consolidated Statements of Income and Comprehensive Income for the fiscal years ended July 31, 2015, 2014 and 2013 were $(2,552), $(3,418) and $(932) respectively.

The total unrecognized tax benefits above, along with the related accrued interest and penalties, are reported within the liability section of the Consolidated Balance Sheets. A portion of the unrecognized tax benefits is classified as short-term and is included in the “Income and other taxes” line of the Consolidated Balance Sheets, while the remainder is classified as a long-term liability.

The components of total unrecognized tax benefits are summarized as follows:

	July 31,
	2015			2014			2013
Unrecognized tax benefits		$	13,156		$	20,813		$	32,733
Reduction to unrecognized tax benefits for tax credit carry forward			(2,109)			(657)			(440)
Accrued interest and penalties			1,895			5,200			11,671
Total unrecognized tax benefits		$	12,942		$	25,356		$	43,964
Short-term, included in “Income and other taxes”		$	997		$	1,667		$	2,745
Long-term			11,945			23,689			41,219
Total unrecognized tax benefits		$	12,942		$	25,356		$	43,964

The Company anticipates a decrease of approximately $3,520 in unrecognized tax benefits, $920 in interest and $17 in penalties during fiscal 2016 from expected settlements or payments of uncertain tax positions and lapses of the applicable statutes of limitations. Actual results may differ from these estimates.

Generally, fiscal years 2012, 2013 and 2014 remain open for federal income tax purposes and fiscal years 2011, 2012, 2013 and 2014 remain open for state and Canadian income tax purposes. The Company and its subsidiaries file a consolidated U.S. federal income tax return and multiple state income tax returns. During fiscal 2015, the Company finalized its Illinois income tax audit for fiscal years July 31, 2011 and 2012. There were no tax assessments related to the completion of the Illinois audit. The Company is currently disputing the audit results by the state of Indiana for tax years ended July 31, 2008, 2009 and 2010. The Company believes it has adequately reserved for its exposure to additional payments for uncertain tax positions related to its Indiana income tax returns in its liability for unrecognized tax benefits.