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INCOME TAXES | 12 Months Ended
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Jul. 31, 2014
INCOME TAXES | 12. INCOME TAXES The components of the provision (benefit) for income taxes from continuing operations are as follows:
Income Taxes: |  | 2014 |  |  | 2013 |  |  | 2012 |
Federal |  | $ | 83,374 |  |  | $ | 74,610 |  |  | $ | 52,665 |
State and local |  |  | (1,383) |  |  |  | 4,187 |  |  |  | 4,250 |
Total current expense (benefit) |  |  | 81,991 |  |  |  | 78,797 |  |  |  | 56,915 |
Federal |  |  | (3,805) |  |  |  | (7,712) |  |  |  | (2,888) |
State and local |  |  | (883) |  |  |  | (789) |  |  |  | (74) |
Total deferred expense (benefit) |  |  | (4,688) |  |  |  | (8,501) |  |  |  | (2,962) |
Total income tax expense |  | $ | 77,303 |  |  | $ | 70,296 |  |  | $ | 53,953 |
The differences between income taxes at the federal statutory rate and the actual income taxes are as follows:
|  | 2014 |  |  | 2013 |  |  | 2012 |
Provision at federal statutory rate |  | $ | 88,487 |  |  | $ | 77,691 |  |  | $ | 57,886 |
State and local income taxes, net of federal benefit |  |  | 3,748 |  |  |  | 2,815 |  |  |  | 846 |
Federal income tax credits and incentives |  |  | (772) |  |  |  | (2,468) |  |  |  | (831) |
Domestic production activities deduction |  |  | (7,947) |  |  |  | (7,303) |  |  |  | (5,145) |
Change in uncertain tax positions |  |  | (6,631) |  |  |  | (718) |  |  |  | 1,879 |
Executive compensation limitation |  |  | – |  |  |  | – |  |  |  | 38 |
Change in current tax payable and deferred tax liabilities |  |  | 125 |  |  |  | 13 |  |  |  | (1,018) |
Other permanent items |  |  | 293 |  |  |  | 266 |  |  |  | 298 |
Total income tax expense |  | $ | 77,303 |  |  | $ | 70,296 |  |  | $ | 53,953 |
A summary of deferred income taxes is as follows: |  | July 31, |
|  | 2014 |  |  | 2013 |
Current deferred tax asset (liability): |  |  |  |  |  |  |  |
Inventory basis |  | $ | (183) |  |  | $ | (314) |
Employee benefits |  |  | 2,543 |  |  |  | 2,215 |
Self-insurance reserves |  |  | 10,139 |  |  |  | 8,333 |
Accrued product warranties |  |  | 33,629 |  |  |  | 30,802 |
Accrued incentives |  |  | 3,553 |  |  |  | 2,672 |
Sales returns and allowances |  |  | 1,419 |  |  |  | 1,381 |
Accrued expenses |  |  | 1,523 |  |  |  | 2,145 |
Unrecognized tax benefits |  |  | 614 |  |  |  | 984 |
Other |  |  | (1,840) |  |  |  | (1,700) |
Total net current deferred tax asset |  | $ | 51,397 |  |  | $ | 46,518 |
Long-term deferred tax asset (liability): |  |  |  |  |  |  |  |
Property basis |  |  | (983) |  |  |  | (2,007) |
Investments |  |  | – |  |  |  | (121) |
Deferred compensation |  |  | 4,811 |  |  |  | 3,349 |
Tax credit carry forward |  |  | 790 |  |  |  | 547 |
Intangibles |  |  | (31,681) |  |  |  | (33,464) |
Unrecognized tax benefits |  |  | 7,675 |  |  |  | 13,136 |
Total net long-term deferred tax asset (liability) |  |  | (19,388) |  |  |  | (18,560) |
Net deferred tax asset |  | $ | 32,009 |  |  | $ | 27,958 |
As of July 31, 2014, the Company has $1,873 of state tax credit carry forwards that expire from fiscal 2022-2024 which the Company expects to realize prior to expiration. In addition, the Company has approximately $56,000 of gross state tax Net Operating Loss (“NOL”) carry forwards that expire from fiscal 2015-2034 that the Company does not expect to realize and therefore has been fully reserved. The deferred tax asset of $1,301 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 $13,679 for 2014, $21,765 for 2013, and $22,454 for 2012. Changes in the unrecognized tax benefit during fiscal year 2014, 2013 and 2012 were as follows:
|  | 2014 |  |  | 2013 |  |  | 2012 |
Beginning balance |  |  |  | $ | 32,733 |  |  |  |  | $ | 33,900 |  |  |  |  | $ | 32,174 |
Tax positions related to prior years: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Additions |  |  |  |  | 9 |  |  |  |  |  | 436 |  |  |  |  |  | 562 |
Reductions |  |  |  |  | (9,281) |  |  |  |  |  | (113) |  |  |  |  |  | (284) |
Tax positions related to current year: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Additions |  |  |  |  | 3,804 |  |  |  |  |  | 5,348 |  |  |  |  |  | 3,995 |
Settlements |  |  |  |  | (5,002) |  |  |  |  |  | (5,593) |  |  |  |  |  | (1,364) |
Lapses in statute of limitations |  |  |  |  | (1,450) |  |  |  |  |  | (1,245) |  |  |  |  |  | (1,183) |
Ending balance |  |  |  | $ | 20,813 |  |  |  |  | $ | 32,733 |  |  |  |  | $ | 33,900 |
The reductions to the tax positions related to prior years of $9,281 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, 2014, July 31, 2013, and July 31, 2012 were $5,200, $11,671, and $13,265, 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, 2014, July 31, 2013, and July 31, 2012 were $(3,418), $(932) and $503, 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, |
|  | 2014 |  |  | 2013 |  |  | 2012 |
Unrecognized tax benefits |  |  |  | $ | 20,813 |  |  |  |  | $ | 32,733 |  |  |  |  | $ | 33,900 |
Reduction to unrecognized tax benefits for tax credit carry forward |  |  |  |  | (657) |  |  |  |  |  | (440) |  |  |  |  |  | – |
Accrued interest and penalties |  |  |  |  | 5,200 |  |  |  |  |  | 11,671 |  |  |  |  |  | 13,265 |
Total unrecognized tax benefits |  |  |  | $ | 25,356 |  |  |  |  | $ | 43,964 |  |  |  |  | $ | 47,165 |
Short-term, included in “Income and other taxes” |  |  |  | $ | 1,667 |  |  |  |  | $ | 2,745 |  |  |  |  | $ | 2,649 |
Long-term unrecognized tax benefits |  |  |  |  | 23,689 |  |  |  |  |  | 41,219 |  |  |  |  |  | 44,516 |
Total unrecognized tax benefits |  |  |  | $ | 25,356 |  |  |  |  | $ | 43,964 |  |  |  |  | $ | 47,165 |
The Company anticipates a decrease of approximately $2,560 in unrecognized tax benefits, $381 in interest and $4 in penalties during fiscal 2015 from expected settlements or payments of uncertain tax positions and lapses of the applicable statutes of limitations. In addition, the Company is currently in the process of pursuing a variety of settlement alternatives with taxing authorities. It is reasonably possible that some of these settlements could be finalized in the next 12 months. If these settlements are finalized within the next 12 months, the gross unrecognized tax benefits may decrease between $100 and $3,100 and related accrued interest and penalties may decrease between $150 and $2,500. It is reasonably possible that some of these settlements will result in cash payments by the Company. Actual results may differ materially from these estimates. Generally, fiscal years 2012 and 2013 remain open for federal income tax purposes and fiscal years 2011, 2012 and 2013 remain open for state and foreign 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 year 2014, the Company finalized its IRS audit for fiscal year 2011 and finalized its California audit for fiscal years 2007 and 2008. There were no tax assessments related to the completion of the IRS audit and the Company paid approximately $1,900 to finalize the state of California audit. The Company is currently being audited by the state of Indiana for tax years ended July 31, 2008, 2009 and 2010, the state of Illinois for tax years ended July 31, 2011 and 2012 and by the state of Oregon for tax years ended July 31, 2011, 2012 and 2013. The Company believes it has adequately reserved for its exposure to additional payments for uncertain tax positions related to its Indiana, Illinois and Oregon income tax returns in its liability for unrecognized tax benefits.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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