INCOME TAXES

In determining the quarterly provision for income taxes for

the

first

quarter of fiscal

2018,

the Company calculated income tax expense based on actual quarterly results and related income and statutory tax rates, adjusted for discrete items recorded during the period.

The Company recorded income tax expense (benefit) of

$0.6

million and $(

1.1

) million for the

first

three

months of fiscal

2018

and

2017,

respectively. The Company

’

s effective tax rate decreased to (

32%

) from

28%

for the same period in the prior year. In the current fiscal quarter the Company did

not

benefit from its net operating losses. This is due to a valuation allowance recorded against U.S. deferred tax assets as of

January 31, 2017

and foreign losses sustained in a low tax jurisdiction. In determining the quarterly provision for income taxes for the

first

quarter of fiscal

2017,

the Company calculated income tax expense based on the estimated annual tax rate for the year, adjusted for discrete items recorded during the period.

The gross amount of unrecognized tax benefits was

$1.8

million at

April 30, 2017,

including interest and penalties. As a result of adoption of ASU

2013

11,

the Company reduced its unrecognized tax benefits by

$1.0

million with an accompanying reduction of deferred tax assets by

$1.0

million. The entire amount of unrecognized tax benefits, if recognized, will impact the Company

’s effective tax rate. This liability is classified as long-term unless the liability is expected to conclude within

twelve

months of the reporting date. In the next

twelve

months, due to a favorable tax decision an estimated

$0.1

million of gross unrecognized tax benefits will be recognized.

The Company

’s policy is to recognize interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. As of

April 30, 2017,

the Company has accrued approximately

$0.3

million of interest and penalty expense relating to unrecognized tax benefits.

The Company files U.S. federal, state, and foreign tax returns that are subject to audit by various tax authorities. The Company is currently under audit in:

●

India for fiscal years ended

March

31,

2010,

2013,

2014

and

2016

●

Iowa for fiscal year ended

January 31, 2014

●

China

for calendar years

2013,

2014,

2015

and

2016

During the

first

quarter of fiscal

2018,

the Company closed the following audit with

adjustment:

●

India for fiscal years ended

March

31,

2015