Income Taxes

The components of the (benefit) provision for income taxes are as follows:



	Year Ended
(In thousands)	August 25, 2012			August 27, 2011			August 28, 2010
Current
Federal	$	468		$	588		$	(7,694	)
State	(584		)	(564		)	(3,255		)
Total current tax provision (benefit)	(116		)	24			(10,949		)
Deferred
Federal	(33,218		)	62			1,260
State	(1,531		)	8			184
Total deferred tax (benefit) provision	(34,749		)	70			1,444
Total tax (benefit) provision	$	(34,865	)	$	94		$	(9,505	)

Current Tax (Benefit) Provision

The amount of current federal tax provision noted in the table above for Fiscal 2012 and 2011 represents primarily the estimated federal tax (benefit) payable for those fiscal years in addition to the tax effect of tax planning initiatives recorded during the year. Of the current federal benefit of $7.7 million for Fiscal 2010 reflected in the table above, $5.8 million relates to the carryback of our Fiscal 2009 losses and the remaining benefit relates to settlements of uncertain tax positions as a result of our federal audit. On November 6, 2009, the President of the United States signed into law the Worker, Homeownership, and Business Assistance Act of 2009, which expanded the NOL carryback period from two to five years, allowing us to carryback all Fiscal 2009 NOLs. As a result, we recorded a total tax benefit of $5.8 million in Fiscal 2010 related to the portion of the 2009 NOL that was previously not able to be carried back and reduced the associated valuation allowance.

The state benefit recorded in Fiscal 2012, Fiscal 2011 and Fiscal 2010 is primarily a result of tax planning initiatives recorded during those years.

Deferred Tax (Benefit) Provision

The deferred federal and state tax benefit recorded during Fiscal 2012 is associated with the reduction in valuation allowance on deferred tax assets. During the year, the Company made the determination that a full valuation on the deferred tax assets is no longer required as a result of our analysis that illustrates our ability to utilize the assets in the future. The deferred federal tax expense recorded during Fiscal 2010 is primarily the result of tax planning initiatives and changes in the valuation allowance recorded during that year.

The following is a reconciliation of the US statutory income tax rate to our effective tax rate:



	Year Ended
(A percentage)	August 25, 2012		August 27, 2011		August 28, 2010
US federal statutory rate	34.0	%	34.0	%	35.0	%
State taxes, net of federal benefit	2.5	%	2.1	%	4.2	%
Tax-free and dividend income	(9.7	)%	(8.4	)%	(136.5	)%
Income tax credits	(1.7	)%	(4.6	)%	—	%
Domestic production activities deduction	(1.1	)%	(1.3	)%	—	%
Other permanent items	4.8	%	(0.1	)%	187.2	%
Valuation allowance	(372.8	)%	(16.8	)%	(735.3	)%
Uncertain tax positions settlements and adjustments	(1.6	)%	(4.1	)%	(430.6	)%
Amended state returns	0.6	%	—	%	(193.4	)%
Other	—	%	—	%	(11.6	)%
Effective tax (benefit) provision rate	(345.0	)%	0.8	%	(1,281.0	)%

Significant items comprising our net deferred tax assets are as follows:



	August 25, 2012			August 27, 2011
(In thousands)	Total			Total
Current
Warranty reserves	$	2,759		$	2,588
Self-insurance reserve	1,556			1,204
Accrued vacation	1,595			1,625
Inventory	186			669
Deferred compensation	1,215			1,022
Miscellaneous reserves	1,142			1,349
Total current	8,453			8,457
Noncurrent
Postretirement health care benefits	16,508			15,087
Deferred compensation	12,416			13,493
Tax credits and NOL carryforwards	2,750			2,755
Unrecognized tax benefit	1,416			1,625
Depreciation	(2,037		)	(2,426		)
Other	1,036			908
Total noncurrent	32,089			31,442
Total gross deferred tax assets	40,542			39,899
Valuation allowance	(1,569		)	(39,250		)
Total deferred tax assets	$	38,973		$	649

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. ASC 740 requires that companies assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence, using a "more likely than not" standard. In making such assessments, significant weight is to be given to evidence that can be objectively verified. A company's current or previous losses are given more weight than its future outlook.


•	In Fiscal 2009, we established a full valuation allowance on all deferred tax assets due to our three-year historical cumulative losses incurred combined with the uncertain market and economic conditions that reduced our ability to rely on our projections of any future taxable income.


•	In Fiscal 2011, we re-established deferred tax assets of $649,000, primarily due to taxable earnings achieved in Fiscal 2011 which increased the likelihood of realizing a portion of gross deferred tax assets in the future.

•

During the fourth quarter of Fiscal 2012, we evaluated the sustainability of our deferred tax assets which included the assessment of cumulative income or losses over recent prior periods. We determined that $39.0 million of our deferred tax assets were sustainable due to the fact that we are now in a three-year historical cumulative income position as opposed to a three-year historical loss position and have a positive future outlook. This resulted in a tax benefit through the reduction of our valuation allowance. At August 25, 2012, our deferred tax assets included $1.4 million of unused tax credits, which will expire in Fiscal 2014, and $1.4 million of state NOLs that will begin to expire in Fiscal 2013, if not otherwise used by us. A valuation allowance of $1.6 million has been maintained for these assets as it is unlikely that the $1.4 million of tax credits will be utilized before they expire and $200,000 of state NOLs are currently not available to be utilized due to a suspension put in place by that state. Based on ASC 740 guidelines, we determined a valuation allowance of $1.6 million was appropriate as of August 25, 2012.

Unrecognized Tax Benefits

Changes in the unrecognized tax benefits are as follows:



(In thousands)	Fiscal 2012			Fiscal 2011			Fiscal 2010
Unrecognized tax benefits - beginning balance	$	(5,387	)	$	(5,877	)	$	(9,012	)
Gross increases - tax positions in a prior period	—			—			(254		)
Gross decreases - tax positions in a prior period	599			490			2,900			(1)
Gross increases - current period tax positions	(440		)	—			(57		)
Settlements	—			—			546			(2)
Unrecognized tax benefits - ending balance	$	(5,228	)	$	(5,387	)	$	(5,877	)

Accrued interest and penalties (included in unrecognized tax benefits)	$	(2,180	)	$	(2,398	)	$	(2,509	)


⁽¹⁾	The $2.9 million decrease in unrecognized benefit reserves is primarily a reduction of reserves associated with positive settlements of uncertain tax positions related to the finalization of the IRS examination of our federal income tax returns for Fiscal 2006 through Fiscal 2008.


⁽²⁾	The $546,000 reduction in reserves is actual cash payments as a result of settlements of uncertain tax positions in various taxing jurisdictions.

If the remaining uncertain positions are ultimately favorably resolved, $3.3 million of unrecognized benefits could have a positive impact on our effective tax rate, as the Company has recorded deferred tax assets associated with these positions, and the valuation allowance associated with this liability has been eliminated. It is our policy to recognize interest and penalties accrued relative to unrecognized tax benefits into tax expense.

We file tax returns in the US federal jurisdiction, as well as various international and state jurisdictions. Our federal income tax return for Fiscal 2009, with source years 2004 and 2005 as a result of carryback claims, were under examination by the IRS and finalized during Fiscal 2011. This examination was concluded during the fourth quarter of Fiscal 2011, resulting with no changes being recommended by the IRS. Although certain years are no longer subject to examinations by the IRS and various state taxing authorities, NOL carryforwards generated in those years may still be adjusted upon examination by the IRS or state taxing authorities if they either have been or will be used in a future period. A number of years may elapse before an uncertain tax position is audited and finally resolved, and it is often very difficult to predict the outcome of such audits. Periodically, various state and local jurisdictions conduct audits, therefore, a variety of years are subject to state and local jurisdiction review.

We do not believe within the next twelve months there will be a significant change in the total amount of unrecognized tax benefits as of August 25, 2012.