7. Income Taxes

The components of the net deferred tax liability are as follows:

	May 31, 2012			May 26, 2011
	(in thousands)
Current deferred income tax assets:
Accrued employee benefits	$	811		$	617
Other		1,986			1,895
Net current deferred tax assets	$	2,797		$	2,512

Noncurrent deferred income tax (liabilities) assets:
Depreciation and amortization	$	(58,100	)	$	(56,221	)
Accrued employee benefits		12,607			10,813
Other		1,121			1,283
Net noncurrent deferred tax liabilities	$	(44,372	)	$	(44,125	)

Income tax expense consists of the following:

	Year Ended
	May 31, 2012			May 26, 2011			May 27, 2010
	(in thousands)
Current:
Federal	$	10,617		$	3,407		$	86
State		3,082			(58	)		1,373
Deferred:
Federal		1,325			3,264			6,982
State		(319	)		1,642			657
	$	14,705		$	8,255		$	9,098

A reconciliation of the statutory federal tax rate to the effective tax rate follows:

	Year Ended
	May 31, 2012			May 26, 2011			May 27, 2010
Statutory federal tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit		4.8			4.8			5.2
Unrecognized tax benefits and related interest		(1.1	)		-			(4.2	)
Other		0.6			(2.0	)		0.1
		39.3	%		37.8	%		36.1	%

Net income taxes paid (refunds received) in fiscal 2012, 2011, and 2010 totaled $14,496,000, $(1,330,000), and $9,883,000, respectively.

A reconciliation of the beginning and ending gross amounts of unrecognized tax benefit are as follows:

	Year Ended
	May 31, 2012			May 26, 2011			May 27, 2010
	(in thousands)
Balance at beginning of year	$	2,543		$	2,623		$	4,118
Increases due to:
Tax positions taken in prior years		1,535			-			-
Tax positions taken in current year		-			-			-
Decreases due to:
Tax positions taken in prior years		-			(66	)		(1,437	)
Settlements with taxing authorities		(2,301	)		-			-
Lapse of applicable statute of limitations		(163	)		(14	)		(58	)
Balance at end of year	$	1,614		$	2,543		$	2,623

The Company’s total unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate were $52,000, $157,000, and $166,000 as of May 31, 2012, May 26, 2011, and May 27, 2010, respectively. At May 31, 2012, the Company had accrued interest and penalties of $355,000 and no penalties, respectively, compared to accrued interest and penalties of $369,000 and $436,000, respectively, at May 26, 2011. The company classifies interest and penalties relating to income taxes as income tax expense. For the year ended May 31, 2012, $44,000 of interest and $(436,000) of penalties were recognized in the statement of earnings compared to $(39,000) of interest and no penalties for the year ended May 26, 2011 and $(344,000) of interest and $436,000 of penalties for the year ended May 27, 2010.

At May 26, 2012, examination of the Company’s consolidated federal income tax returns by the Internal Revenue Service (“IRS”) was substantially completed for the years 2009 and 2010. Certain issues relating to this examination are likely to be appealed. With certain exceptions, the Company’s state income tax returns are no longer subject to examination for the fiscal years 2007 and prior. At this time, the Company does not expect the results from any income tax audit or appeal to have a significant impact on the Company’s financial statements.

The Company does not expect its unrecognized tax benefits to change significantly over the next twelve months.