N. INCOME TAXES

United States and foreign earnings before income taxes and minority interest were as follows (in thousands):

	2014		2013		2012

United States	$	1,107	$	3,935	$	43,335
Foreign		6,989		5,302		1,421

	$	8,096	$	9,237	$	44,756

The provision (benefit) for income taxes is comprised of the following (in thousands):

	2014			2013			2012
Currently payable:
Federal	$	651		$	1,745		$	7,310
State		104			(234	)		188
Foreign		2,837			2,788			2,831

		3,592			4,299			10,329
Deferred:
Federal		1,309			1,122			7,653
State		(95	)		439			662
Foreign		(580	)		(874	)		(829	)

		634			687			7,486
	$	4,226		$	4,986		$	17,815

The components of the net deferred tax asset as of June 30 are summarized in the table below (in thousands).

	2014			2013
Deferred tax assets:
Retirement plans and employee benefits	$	13,692		$	20,675
Foreign tax credit carryforwards		706			-
Federal tax credits		160			-
State net operating loss and other state credit carryforwards		348			91
Inventory		1,672			1,421
Reserves		2,578			2,388
Foreign NOL carryforwards		6,090			4,311
Accruals		681			822
Other assets		(54	)		98

		25,873			29,806
Deferred tax liabilities:
Property, plant and equipment		8,650			10,295
Intangibles		5,528			5,595
Other liabilities		711			439

		14,889			16,329

Valuation Allowance		(5,593	)		(3,724	)

Total net deferred tax assets	$	5,391		$	9,753

Note: $166,000 and $216,000 of this net deferred tax position is included in Accrued Liabilities at June 30, 2014 and 2013, respectively.

The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, the Company takes into account such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. During fiscal 2014, the Company continued to incur operating losses in certain foreign jurisdictions where the loss carryforward period is unlimited. The Company has evaluated the realizability of the net deferred tax assets related to these jurisdictions and concluded that based primarily upon continuing losses in these jurisdictions and failure to achieve targeted levels of improvement, a full valuation allowance continues to be necessary. Therefore, the Company recorded an additional valuation allowance of $1,869,000. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income and foreign source income to realize the remaining deferred tax assets.

Following is a reconciliation of the applicable U.S. federal income taxes to the actual income taxes reflected in the statements of operations (in thousands):

	2014			2013			2012

U.S. federal income tax at 35%	$	2,754		$	3,104		$	15,595
Increases (reductions) in tax resulting from:
Foreign tax items		(291	)		88			169
State taxes		228			296			797
Valuation allowance		1,551			1,216			1,060
Research & development tax credits		(267	)		(526	)		(215	)
Change in prior year estimate		139			309			96
Section 199 deduction		(109	)		(84	)		(908	)
Goodwill impairment		-			-			1,292
Unrecognized tax benefits		183			539			(217	)
Other, net		38			44			146
	$	4,226		$	4,986		$	17,815

The Company has not provided additional U.S. income taxes on cumulative earnings of consolidated foreign subsidiaries that are considered to be reinvested indefinitely. The Company reaffirms its position that these earnings remain permanently invested, and has no plans to repatriate funds to the U.S. for the foreseeable future. These earnings relate to ongoing operations and were approximately $2,700 000 at June 30, 2014. Such earnings could become taxable upon the sale or liquidation of these foreign subsidiaries or upon dividend repatriation. It is not practicable to estimate the amount of unrecognized withholding taxes and deferred tax liability on such earnings. The Company's intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax effective through the utilization of foreign tax credits.

Annually, we file income tax returns in various taxing jurisdictions inside and outside the United States. In general, the tax years that remain subject to examination are 2010 through 2014 for our major operations in Italy, Belgium and Japan. The tax years open to examination in the U.S. are for years subsequent to fiscal 2012.

The Company has approximately $1,603,000 of unrecognized tax benefits as of June 30, 2014, which, if recognized would impact the effective tax rate. During the fiscal year the amount of unrecognized tax benefits increased primarily due to the tax positions taken during the fiscal year partially offset by settlements with various taxing authorities. During the next twelve months, the Company believes it is reasonably possible that the amount of unrecognized tax benefits could be reduced by up to $800,000 as a result of the resolution of worldwide tax matters and the lapses of statutes of limitations. The Company's policy is to accrue interest and penalties related to unrecognized tax benefits in income tax expense.

Below is a reconciliation of beginning and ending amount of unrecognized tax benefits (in thousands):

	June30, 2014			June30, 2013
Unrecognized tax benefits, beginning of year	$	1,556		$	1,163
Additions based on tax positions related to the prior year		7			351
Additions based on tax positions related to the current year		173			361
Subtractions due to statutes closing		(1	)		(40	)
Settlements with taxing authorities		(132	)		(279	)
Unrecognized tax benefits, end of year	$	1,603		$	1,556

Substantially all of the Company's unrecognized tax benefits as of June 30, 2014, if recognized, would affect the effective tax rate. As of June 30, 2014 and 2013, the amounts accrued for interest and penalties totaled $309,000 and $296,000, respectively, and are not included in the reconciliation above.