Note 19: Income Taxes

Income before income taxes for continuing operations consists of the following (for the fiscal years ended):

(Amounts in thousands)	4/26/2014		4/27/2013		4/28/2012
United States	$	82,705	$	63,193	$	52,631
Foreign		8,854		7,492		6,319
Total	$	91,559	$	70,685	$	58,950

Income tax expense (benefit) applicable to continuing operations consists of the following components (for the fiscal years ended):

(Amounts in thousands)	4/26/2014			4/27/2013		4/28/2012
Federal:
– current	$	24,695		$	17,049	$	11,830
– deferred		1,495			1,341		(38,597	)
State:
– current		5,345			2,746		3,446
– deferred		( 2,082	)		464		(1,864	)
Foreign:
– current		1,375			739		2,040
– deferred		555			1,181		(1,907	)
Total income tax expense (benefit)	$	31,383		$	23,520	$	(25,052	)

Our effective tax rate differs from the U.S. federal income tax rate for the following reasons:

(% of pre-tax income)	4/26/2014			4/27/2013			4/28/2012
Statutory tax rate		35.0	%		35.0	%		35.0	%
Increase (reduction) in income taxes resulting from:
State income taxes, net of federal benefit		3.1			3.0			5.0
U.S. manufacturing benefit		(1.0	)		(2.0	)		(2.3	)
Change in valuation allowance		(1.2	)		(0.3	)		(78.3	)
Gain on sale of marketable securities		—			(1.6	)		—
Miscellaneous items		(1.6	)		(0.8	)		(1.9	)
Effective tax rate		34.3	%		33.3	%		(42.5	%)

For our Asian operating units, we continue to permanently reinvest the earnings and consequently do not record a deferred tax liability relative to the undistributed earnings. We have reinvested approximately $8.5 million of the earnings. The potential deferred tax attributable to these earnings would be approximately $2.1 million.

The primary components of our deferred tax assets and (liabilities) were as follows:

(Amounts in thousands)	4/26/2014			4/27/2013
Assets
Deferred and other compensation	$	19,774		$	19,510
Allowance for doubtful accounts		5,456			9,567
State income tax – net operating losses, credits and other		6,440			6,542
Pension		2,097			4,632
Warranty		6,247			5,937
Rent		4,824			4,697
Workers’ compensation		4,068			3,804
Foreign net operating loss		—			759

Other		6,598			5,128
Valuation allowance		(4,700	)		(6,619	)
Total deferred tax assets		50,804			53,957
Liabilities
Property, plant and equipment		(3,337	)		(2,745	)
Net deferred tax assets	$	47,467		$	51,212

The deferred tax assets associated with loss carry forwards and the related expiration dates are as follows:

(Amounts in thousands)	Amount		Expiration
Various U.S. state net operating losses (excluding federal tax effect)	$	9,215	Fiscal 2015 – 2033
Foreign capital losses		20	Indefinite

We evaluate our deferred taxes to determine if a valuation allowance is required. Accounting standards require that we assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified.

During fiscal 2012 we concluded that certain valuation allowances totaling $46.2 million associated with certain U.S. federal, state and Canadian deferred tax assets should be reversed because we believed that it had become more likely than not that the value of those deferred tax assets would be realized. The reduction in the valuation allowance was primarily the result of the following factors at the point we reduced the allowance: (i) our cumulative three-year pre-tax income position, (ii) our most recent operating results, which had exceeded both our operating plan and prior year results, and (iii) our then-current forecasts, all of which caused us to temper our concerns at that time regarding the economic environment.

The evaluation of the amount of net deferred tax assets expected to be realized necessarily involves forecasting the amount of taxable income that will be generated in future years. We have forecasted future results using estimates management believes to be reasonable, which are based on objective evidence such as expected trends resulting from certain leading economic indicators. Based upon our net deferred tax asset position at April 26, 2014, we estimate that about $122 million of future taxable income would need to be generated to fully recover our net deferred tax assets. The realization of deferred income tax assets is dependent on future events. Actual results inevitably will vary from management’s forecasts. Such variances could result in adjustments to the valuation allowance on deferred tax assets in future periods, and such adjustments could be material to the financial statements.

During fiscal 2014, we recorded a $1.9 million decrease in our valuation allowance for deferred tax assets that are now considered more likely than not to be realized. This determination was primarily the result of our assessment of our cumulative pre-tax income in certain jurisdictions. A summary of the valuation allowance by jurisdiction is as follows:

Jurisdiction (Amounts in thousands)	4/27/2013 Valuation Allowance		Change			4/26/2014 Valuation Allowance
U.S. state		6,464		(1,784	)		4,680
Foreign		155		(135	)		20
Total	$	6,619	$	(1,919	)	$	4,700

The remaining valuation allowance of $4.7 million primarily related to certain U.S. state and foreign deferred tax assets. The U.S. state deferred taxes are primarily related to state net operating losses.

As of April 26, 2014, we had a gross unrecognized tax benefit of $3.0 million related to uncertain tax positions in various jurisdictions. A reconciliation of the beginning and ending balance of these unrecognized tax benefits is as follows:

(Amounts in thousands)	4/26/2014			4/27/2013			4/28/2012
Balance at the beginning of the period	$	3,248		$	3,909		$	4,492
Additions:
Positions taken during the current year		88			338			147
Positions taken during the prior year		—			—			—
Reductions:
Positions taken during the current year		—			—			—
Positions taken during the prior year		(99	)		(28	)		(202	)
Decreases related to settlements with taxing authorities		(98	)		—			(166	)
Reductions resulting from the lapse of the statute of limitations		(167	)		(971	)		(362	)
Balance at the end of the period	$	2,972		$	3,248		$	3,909

We recognize interest and penalties associated with uncertain tax positions in income tax expense. Accrued interest and penalties decreased by $0.1 million during fiscal 2014. We had approximately $0.3 million accrued for interest and penalties as of April 26, 2014, and $0.4 million accrued for interest and penalties as of April 27, 2013.

If recognized, $0.6 million of the total $3.0 million of unrecognized tax benefits would decrease our effective tax rate. We do not expect any adjustments within the next 12 months. The remaining balance will be settled or released as tax audits are effectively settled, statutes of limitation expire or other new information becomes available.

Our U.S. federal income tax returns for fiscal years 2011 and subsequent are still subject to audit. Our fiscal year 2012 U.S. federal tax return was recently selected for audit. In addition, we conduct business in various states. The major states in which we conduct business are subject to audit for fiscal years 2010 and subsequent. Our businesses in Canada and Thailand are subject to audit for fiscal years 2004 and subsequent, and in Mexico, calendar years 2008 and subsequent.

Cash paid for taxes (net of refunds received) during the fiscal years ended April 26, 2014, April 27, 2013, and April 28, 2012, were $25.0 million, $20.5 million and $15.2 million, respectively.