H.	Income Taxes

The effective tax rate for the first nine months of fiscal 2015 is 31.8%, which is lower than the prior year’s 66.6%. Both periods were impacted by non-deductible operating losses in a certain foreign jurisdiction that is subject to a full valuation allowance, which is the largest driver of the change in the effective rate compared to the prior year. The much lower fiscal 2015 rate also reflects a $7,100,000 increase in domestic earnings, offset by the Section 199 credit and benefits from the cumulative effect of the reinstatement of the federal research and development tax credit. The mix of tax preference items and foreign income and foreign income credits remained consistent with prior periods, resulting in a lower effective tax rate. During the second quarter of fiscal 2015 the Company also recognized previously unrecognized tax benefits due to the resolution of a state income tax audit. The fiscal 2014 rate reflects the impact of reduced domestic earnings base with constant foreign income and credits.

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. Due to recent operating losses in a certain foreign jurisdiction, the Company has evaluated the realizability of the net deferred tax assets related to this jurisdiction. This evaluation concluded that, based primarily upon recent losses in this jurisdiction and failure to achieve targeted levels of improvement, a full valuation allowance continues to be necessary.

The Company has not provided for 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. Such earnings could become taxable upon the sale or liquidation of these foreign subsidiaries or upon dividend repatriation.

Accounting policies for interim reporting require the Company to adjust its effective tax rate each quarter to be consistent with the estimated annual effective tax rate. Under this effective tax rate methodology, the Company applies an estimated annual income tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter. The impact of the Company’s operations in certain foreign locations is removed from the overall effective tax rate methodology and recorded directly based upon year-to-date results as these operations anticipate net operating losses for the year for which no tax benefit can be recognized.

The Company has approximately $835,000 of unrecognized tax benefits, including related interest and penalties, as of March 27, 2015, which, if recognized, would favorably impact the effective tax rate. There was no significant change in total unrecognized tax benefits due to the settlement of audits or expiration of statutes of limitations during the quarter ended March 27, 2015. It appears reasonably possible that the amount of unrecognized tax benefits could change in the next twelve months due to on-going audit activity.

Annually, the Company files income tax returns in various taxing jurisdictions inside and outside the United States. In general, the tax years that remain subject to examination are 2009 through 2014 for the major operations in Italy, Canada, Belgium, and Japan. The tax years open to examination in the U.S. are for years subsequent to fiscal 2011. During this quarter the company was notified by the state of Wisconsin of a tax examination covering open periods.