Income Taxes

Earnings (loss) from continuing operations before income taxes consisted of the following:



(In thousands)	2013		2012		2011
U.S.	$	26,366	$	3,458	$	(19,997	)
International	208		190		(836		)
Earnings (loss) from continuing operations before income taxes	$	26,574	$	3,648	$	(20,833	)

The components of income tax expense (benefit) for continuing operations for each of the last three fiscal years are as follows:



(In thousands)	2013			2012			2011
Current:
Federal	$	5,036		$	2,208		$	(7,760	)
State and local	169			554			183
International	409			615			(172		)
Total current for continuing operations	$	5,614		$	3,377		$	(7,749	)
Deferred:
Federal	$	2,680		$	(600	)	$	790
State and local	1,015			(401		)	(1,015		)
International	(138		)	(114		)	18
Total deferred for continuing operations	$	3,557		$	(1,115	)	$	(207	)
Total non-current tax (benefit) expense	$	(1,375	)	$	(3,311	)	$	1,280
Total income tax expense (benefit)	$	7,796		$	(1,049	)	$	(6,676	)

Income tax payments, net of refunds were $7.7 million in fiscal 2013 and were $1.7 million in fiscal 2011. Income tax refunds, net of payments were $7.5 million in fiscal 2012.

The differences between the statutory federal income tax rates and consolidated effective tax rates are as follows:



	2013	2012	2011
Federal income tax expense (benefit) at statutory rates	35.0%	35.0%	(35.0)%
State and local income taxes, net of federal tax benefit	0.9	(5.2)	(2.7)
Tax credits - research & development	(2.5)	(19.2)	(4.0)
Tax credits - other	(0.4)	(3.0)	(0.3)
Manufacturing deduction	(2.0)	(10.7)	1.7
Meals and entertainment	0.9	5.0	0.6
Permanent tax adjustment for officers compensation	—	3.0	0.5
Nondeductible acquisition costs	—	—	1.0
Tax-exempt interest	(0.4)	(3.0)	(0.9)
Tax reserve adjustments - statute expirations and benefits recognized	(3.0)	(42.2)	5.6
Change in valuation allowance	0.8	10.4	0.5
Other, net	—	1.1	1.0
Income tax expense (benefit), continuing operations	29.3%	(28.8)%	(32.0)%

In fiscal 2013, there were tax benefits associated with stock-based incentive plans of $0.4 million. In fiscal 2012 and 2011, there were tax deficiencies of $0.3 million and $0.2 million, respectively, associated with the stock-based incentive plans. These benefits and deficiencies impacted additional paid-in capital directly and were not reflected in the determination of income tax expense or benefit.

Deferred tax assets and deferred tax liabilities for continuing operations at March 2, 2013 and March 3, 2012 are as follows:



	2013						2012
(In thousands)	Current			Noncurrent			Current			Noncurrent
Accounts receivable	$	762		$	—		$	994		$	—
Accrued insurance	193			614			114			787
Other accruals	2,581			979			2,346			1,133
Deferred compensation	37			8,481			242			9,601
Restructuring reserve	64			175			290			189
Goodwill and other intangibles	—			(4,710		)	53			(3,523		)
Inventory	1,166			—			1,023			—
Depreciation	—			(15,912		)	—			(16,441		)
Liability for unrecognized tax benefits	—			3,415			—			3,774
Prepaid expenses	(494		)	534			(442		)	516
Net operating losses	—			3,433			—			3,019
Valuation allowance on net operating losses	(2,117		)	(567		)	(404		)	(1,365		)
Other	26			78			78			63
Deferred tax assets (liabilities)	$	2,218		$	(3,480	)	$	4,294		$	(2,247	)

The Company has state net operating loss carryforwards with a tax effect of $3.4 million. A valuation allowance of $2.7 million has been established for these net operating loss carryforwards due to the uncertainty of the use of the tax benefits in future periods.

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years prior to fiscal 2009, or state and local income tax examinations for years prior to fiscal 2005. The Company is not currently under U.S. federal examination for years subsequent to fiscal year 2008, and there is very limited audit activity of the Company’s income tax returns in U.S. state jurisdictions or international jurisdictions.

The Company considers the earning of its non-U.S. subsidiaries to be indefinitely invested outside of the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and specific plans for reinvestment of those subsidiary earnings. Should the Company decide to repatriate the foreign earnings, it would need to adjust the income tax provision in the period it was determined that the earnings will no longer be indefinitely invested outside the United States.

The total liability for unrecognized tax benefits for fiscal 2013, 2012 and 2011, respectively, is $6.8 million, $8.9 million and $13.8 million. Included in this total liability at fiscal 2013, 2012 and 2011, respectively, are $3.3 million, $5.1 million and $7.6 million of tax benefits that, if recognized, would decrease the effective tax rate for continuing operations. Also included in the balance of unrecognized tax benefits for fiscal 2013, 2012 and 2011 are $2.2 million, $2.0 million and $3.1 million of tax benefits that, if recognized, would result in adjustments to deferred taxes.

Penalties and interest related to unrecognized tax benefits are recorded in income tax expense, which is consistent with past practices. Related to the unrecognized tax benefits noted above, the Company reduced the accrual for penalties and interest by $0.5 million during fiscal 2013, resulting in a reserve for interest and penalties of $1.3 million at the end of fiscal 2013. During fiscal 2012, the Company reduced the accrual for penalties and interest by $1.4 million, resulting in a reserve for interest and penalties at the end of fiscal 2012 of $1.8 million. During fiscal 2011, the Company reduced the accrual for penalties and interest by $0.2 million, resulting in a reserve for interest and penalties at the end of fiscal 2011 of $3.2 million.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:



(In thousands)	2013			2012			2011
Gross unrecognized tax benefits at beginning of year	$	7,125		$	10,676		$	12,666
Gross increases in tax positions for prior years	236			136			1,084
Gross decreases in tax positions for prior years	(1,480		)	(462		)	(3,197		)
Gross increases based on tax positions related to the current year	621			623			663
Gross decreases based on tax positions related to the current year	(56		)	(78		)	(92		)
Settlements	(682		)	(1,200		)	(1,382		)
Statute of limitations expiration	(248		)	(2,570		)	(127		)
Unrecognized tax benefits acquired in connection with GlassecViracon	—			—			1,061
Gross unrecognized tax benefits at end of year	$	5,516		$	7,125		$	10,676

The total liability for unrecognized tax benefits is expected to decrease by approximately $1.0 million during fiscal 2014 due to audit settlements and lapsing of statutes.