

NOTE 9	INCOME TAXES

The reconciliation of income tax computed at the federal statutory rate to the Company's effective income tax rate was as follows:



	For the years ended January 31,
	2017		2016		2015
Tax at U.S. federal statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of U.S. federal tax benefit	0.7		(2.8	)	(0.3	)
Tax credit for research activities	(3.7	)	(24.2	)	(3.9	)
Tax benefit on qualified production activities	(2.8	)	(13.7	)	(3.6	)
Tax benefit on insurance premiums	(1.5	)	(10.3	)	(1.0	)
Change in uncertain tax positions	(0.3	)	1.8		—
Foreign tax rate difference	(0.3	)	(2.9	)	0.4
Other, net	0.4		(1.7	)	0.3
	27.5	%	(18.8	)%	26.9	%

The Company's fiscal 2017 effective rate is lower than the statutory rate primarily due to a $779 tax benefit for qualified production activities and a $1,044 tax benefit from the R&D tax credit.

The negative fiscal 2016 effective rate is lower than the statutory rate primarily due to the combination of a significantly lower book income year-over-year, a $560 tax benefit for qualified production activities, and a $989 tax benefit from the R&D tax credit extension passed by Congress in fiscal 2016. The qualified production deduction is based on estimated taxable income. Taxable income is higher in comparison to pre-tax income for fiscal 2016 primarily due to $14,756 of goodwill and long-lived asset impairment losses recorded in net income which are not currently deductible but are amortizable for income tax purposes.

The effective tax rate for fiscal 2015 was lower than the statutory rate primarily due to the recognition of a $776 R&D tax credit based upon a tax study undertaken for fiscal years 2011 through 2014. The Company also recorded a $963 discrete tax benefit in fiscal 2015 after reaching a favorable tax settlement with a state tax authority on a previously recorded uncertain tax position.

Significant components of the Company's income tax provision were as follows:



	For the years ended January 31,
	2017		2016			2015
Income taxes:
Currently payable	$	7,354	$	5,272		$	12,663
Deferred expense (benefit)	307		(6,039		)	(958		)
	$	7,661	$	(767	)	$	11,705

Deferred Tax Assets (Liabilities)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities were as follows:



	As of January 31,
	2017			2016			2015
Deferred tax assets:
Accounts receivable^(a)	$	212		$	355		$	194
Inventories^(a)	978			602			873
Accrued vacation^(a)	887			836			940
Insurance obligations^(a)	383			350			271
Accrued benefit liabilities^(a)	41			99			261
Warranty obligations^(a)	565			670			1,225
Postretirement benefits	3,072			2,797			4,243
Uncertain tax positions	803			896			1,002
Share-based compensation	3,201			3,613			4,410
Other accrued liabilities^(a)	68			198			194
	10,210			10,416			13,613

Deferred tax (liabilities):
Depreciation and amortization	(10,565		)	(9,886		)	(16,099		)
Other	(1,048		)	(667		)	(647		)
	(11,613		)	(10,553		)	(16,746		)
Net deferred tax (liability)	$	(1,403	)	$	(137	)	$	(3,133	)

^(a)As discussed below, under the prior accounting guidance these deferred tax assets were classified as current deferred tax assets. All other deferred tax assets and liabilities were classified as non-current.

As discussed in Note 1 Summary of Significant Accounting Policies, effective April 30, 2016, the Company early adopted Accounting Standards Update No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” on a prospective basis. This update eliminates the requirement to classify deferred tax assets and liabilities as current and noncurrent, and instead requires all deferred tax assets and liabilities to be classified as noncurrent. Since the guidance was adopted prospectively, the prior period Consolidated Balance Sheets were not updated; however, the prior years in the table above were updated to disclose deferred tax assets separately from deferred tax liabilities and no longer classifies the deferred tax assets/(liabilities) as current and noncurrent.

Uncertain Tax Positions

A summary of the activity related to the gross unrecognized tax benefits (excluding interest and penalties) is as follows:



	For the years ended January 31,
	2017			2016			2015
Gross unrecognized tax benefits at beginning of year	$	2,327		$	2,307		$	4,660
Increases in tax positions related to the current year	279			395			909
Decreases in tax positions related to prior years	(193		)	—			—
Decreases as a result of lapses in applicable statutes of limitation	(303		)	(375		)	(393		)
Tax settlement with tax authorities	—			—			(2,869		)
Gross unrecognized tax benefits at end of year	$	2,110		$	2,327		$	2,307

Fiscal year 2017 changes to uncertain tax positions related to prior years resulted from lapses of applicable statutes of limitation and a decrease to prior period tax positions primarily related to a favorable determination by a state tax authority impacting the Company’s estimated liability. The fiscal year 2015 included a favorable settlement reached with a state tax authority.

The total unrecognized tax benefits (including interest and penalty) that, if recognized, would affect the Company's effective tax rate were $1,806, $2,140, and $2,256 as of January 31, 2017, 2016, and 2015, respectively. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. At January 31, 2017, 2016, and 2015, accrued interest and penalties were $500, $672, and $952, respectively. The Company does not expect any significant change in the amount of unrecognized tax benefits in the next fiscal year.

Additional Tax Information

The Company files tax returns, including returns for its subsidiaries, with various federal, state, and local jurisdictions. Uncertain tax positions are related to tax years that remain subject to examination. As of January 31, 2017, federal tax returns filed in the U.S. for fiscal years ended January 31, 2014 through January 31, 2016 remain subject to examination by federal tax authorities. In state and local jurisdictions, tax returns for fiscal years ended January 31, 2011 through January 31, 2016 remain subject to examination by state and local tax authorities. International jurisdictions have open tax years varying by location beginning in fiscal 2012.

Pre-tax book income for the U.S. companies and the foreign subsidiaries was $27,015 and $838, respectively. As of January 31, 2017, undistributed earnings of $2,510 of the Canadian and European subsidiaries and were considered to have been reinvested indefinitely and, accordingly, the Company has not provided United States income taxes on such earnings. This estimated tax liability upon repatriation would be approximately $293 net of foreign tax credits.