Note 15: Income Taxes

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 the result of the following factors at the point we reduced the allowance, including primarily (i) our cumulative pretax 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.

In connection with our analysis of the total amounts of the valuation allowance to be reversed, we conducted an updated analysis of our deferred tax asset position as of April 30, 2011. As a result of this analysis, we determined that our total gross U.S. deferred tax assets at April 30, 2011, should be reduced by $8.7 million, with a corresponding decrease to the related valuation allowance. The adjustments to reduce our gross deferred tax balances were primarily related to unrealized gains on our investments, employee benefit plan arrangements and state income taxes. A summary of the valuation allowance by jurisdiction is as follows:

Jurisdiction	4/30/2011					4/28/2012
	Valuation					Valuation
(Amounts in thousands)	Allowance		Change			Allowance
U.S. federal	$	41,881	$	(39,767	)	$	2,114
U.S. state		12,597		(3,754	)		8,843
Foreign		2,544		(2,521	)		23
Total	$	57,022	$	(46,042	)	$	10,980

The remaining valuation allowance of $11.0 million primarily related to certain U.S. federal and state deferred tax assets. The U.S. federal deferred tax assets represent capital losses that we believe are more likely than not to expire before being utilized. The state deferred taxes are primarily related to state net operating losses.

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

(Amounts in thousands)	Amount		Expiration
U.S. federal capital loss	$	2,114		Fiscal 2013
Various U.S. state net operating losses		9,093		Fiscal 2013 - 2032
Foreign net operating losses		914		Fiscal 2029
Foreign capital losses		23		Indefinite

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

(Amounts in thousands)	4/28/2012			4/30/2011
Assets
Deferred and other compensation	$	15,728		$	15,172
Allowance for doubtful accounts		9,983			10,137
State income tax – net operating losses, credits and other		9,093			10,444
Pension		11,731			4,803
Warranty		5,684			5,211
Rent		3,821			3,595
Workers’ compensation		3,644			3,295
Foreign net operating loss		914			2,462
Capital loss carryover		3,202			1,943
Other		5,276			7,801
Valuation allowance		(10,980	)		(57,022	)
Total deferred tax assets		58,096			7,841
Liabilities
Property, plant and equipment		(5,366	)		(1,705	)
Other		—			(3,253	)
Total deferred tax liabilities		(5,366	)		(4,958	)
Net deferred tax assets	$	52,730		$	2,883

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

(% of pre-tax income)	4/28/2012			4/30/2011			4/24/2010
Statutory tax rate		35.0	%		35.0	%		35.0	%
Increase (reduction) in income taxes resulting from:
State income taxes, net of federal benefit		5.0			4.1			1.9
U.S. manufacturing benefit		(2.3	)		(1.9	)		(1.7	)
Change in valuation allowance		(69.1	)		13.5			(5.3	)
Change in value of life insurance contracts		—			(0.6	)		(1.5	)
Tax benefit associated with VIE acquisition		—			(17.6	)		—
Miscellaneous items		(1.6	)		0.6			(1.2	)
Effective tax rate		(33.0	)%		33.1	%		27.2	%

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 $6.3 million of the earnings. The potential deferred tax attributable to these earnings is not currently estimable.

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

(Amounts in thousands)	4/28/2012			4/30/2011			4/24/2010
Federal – current	$	14,392		$	5,935		$	11,059
– deferred		(38,396	)		—			—
State – current		3,663			930			920
– deferred		(1,843	)		700			(2,253	)
Foreign – current		2,040			1,848			2,451
– deferred		(1,907	)		(820	)		(440	)
Total income tax expense	$	(22,051	)	$	8,593		$	11,737

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

(Amounts in thousands)	4/28/2012		4/30/2011		4/24/2010
United States	$	60,538	$	21,331	$	36,233
Foreign		6,319		4,635		6,863
Total	$	66,857	$	25,966	$	43,096

As of April 28, 2012, we had a gross unrecognized tax benefit of $3.9 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)	4/28/2012			4/30/2011			4/24/2010
Balance at the beginning of the period	$	4,492		$	4,805		$	6,019
Additions:
Positions taken during the current year		147			100			211
Positions taken during the prior year		—			229			81
Reductions:
Positions taken during the current year		—			—			—
Positions taken during the prior year		(202	)		(359	)		(899	)
Decreases related to settlements with taxing authorities		(166	)		(202	)		(54	)
Reductions resulting from the lapse of the statute of limitations		(362	)		(81	)		(553	)
Balance at the end of the period	$	3,909		$	4,492		$	4,805

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 2012. We had approximately $0.6 million accrued for interest and penalties as of April 28, 2012, and $0.7 million accrued for interest and penalties as of April 30, 2011.

If recognized, $2.2 million of the total $3.9 million of unrecognized tax benefits would decrease our effective tax rate. It is reasonably possible that $0.3 million of this liability will be settled within the next 12 months. The remaining balance will be settled or released as tax audits are effectively settled or statutes of limitation expire.

Our U.S. federal income tax returns for fiscal years 2006 and subsequent are still subject to audit. In addition, we conduct business in various states. The major states in which we conduct business are subject to audit for fiscal years 2008 and subsequent.

Cash paid for taxes (net of refunds received) during the fiscal years ended April 28, 2012, April 30, 2011, and April 24, 2010, were $15.2 million, $9.1 million and $(0.2) million, respectively.