Income Taxes

The income tax expense (benefit) for the last three years is reconciled to the statutory federal income tax rate using the liability method as follows (in thousands):



	Year ended January 31,
	2014			2013			2012
Statutory	$	(929	)	$	(1,373	)	$	(4,674	)
State taxes (net of federal tax)	(47		)	(124		)	(799		)
Change in valuation allowance	(253		)	1,480			6,043
State rate adjustment	82			49			(288		)
Change in unrecognized tax benefits	(32		)	(246		)	(164		)
Other	176			5			(63		)
	$	(1,003	)	$	(209	)	$	55

Significant components of the expense (benefit) for income taxes (in thousands) attributed to continuing operations are as follows:



	Year ended January 31,
	2014			2013			2012
Current
Federal	$	1		$	—		$	—
State	(24		)	(275		)	(173		)
	(23		)	(275		)	(173		)
Deferred
Federal	(753		)	(1,192		)	(4,581		)
State	23			(223		)	(1,235		)
	(730		)	(1,415		)	(5,816		)
Change in Valuation Allowance	(250		)	1,481			6,044
	(980		)	66			228
	$	(1,003	)	$	(209	)	$	55

Deferred tax assets and liabilities (in thousands) are comprised of the following:



	Year ended January 31,
	2014			2013
Deferred tax assets
Accrued vacation and sick leave	$	913		$	830
Retirement plans	8,960			10,343
Insurance reserves	956			1,193
Warranty	481			451
Net operating loss carryforwards	12,494			12,072
Intangibles	207			272
Inventory	1,590			723
Other	907			1,250
	$	26,508		$	27,134
Deferred tax liabilities
Tax in excess of book depreciation	$	(1,407	)	$	(1,540	)
Other	(76		)	(81		)
	$	(1,483	)	$	(1,621	)
Valuation allowance	(24,210		)	(24,601		)
Net deferred tax asset	$	815		$	912
Reported as:
Current deferred tax assets	$	203		$	—
Current deferred tax liabilities	$	—		$	(572	)
Long-term deferred tax assets	611			1,484

The following table summarizes the activity related to our gross unrecognized tax benefits from February 1, 2012 to January 31, 2014 (in thousands):



	January 31,
	2014			2013
Balances as of February 1,	$	106		$	271
Increases related to prior year tax positions	—			56
Decreases related to prior year tax positions	(9		)	—
Increases related to current year tax positions	5			8
Decreases relating to settlements with taxing authorities	(19		)	—
Decreases related to lapsing of statute of limitations	(31		)	(229		)
Balance as of January 31,	$	52		$	106

At January 31, 2014, the Company’s unrecognized tax benefits associated with uncertain tax positions were $52,000, of which $34,000 if recognized, would favorably affect the effective tax rate.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense which is consistent with the recognition of the items in prior reporting. The Company had recorded a liability for interest and penalties related to unrecognized tax benefits of $16,000 at January 31, 2014, and $36,000 at January 31, 2013. The Company closed its IRS examination for its tax return for the year ended January 31, 2011 with no changes. The years ended January 31, 2010, January 31, 2012 through January 31, 2014 remain open for examination by the IRS. The fiscal years ended January 31, 2010 through January 31, 2014 remain open for examination by state tax authorities. The Company is not currently under state examination.

During 2014 and 2013, the Company completed Texas income tax examinations of the tax years ending January 31, 2008 and 2009, respectively. The examination did not materially impact the Consolidated Statements of Operations.

The specific timing of when the resolution of each tax position will be reached is uncertain. As of January 31, 2014, it is reasonably possible that unrecognized tax benefits will decrease by $26,000 within the next 12 months due to the expiration of the statute of limitations.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. A valuation allowance was recorded against the majority of the net deferred tax assets totaling $24,210,000 and $24,601,000 at January 31, 2014 and 2013, respectively. At January 31, 2014, the Company had net operating loss carryforwards for federal and state income tax purposes, expiring at various dates through 2033. Federal net operating losses that can potentially be carried forward totaled approximately $24,546,000 at January 31, 2014. State net operating losses that can potentially be carried forward totaled approximately $51,082,000 at January 31, 2014.