14.

Income Taxes

The components of the income tax provision (benefit) are as follows:

	2015			2014			2013
Current:
Federal	$	7,972		$	4,168		$	759
State		1,533			596			50

Deferred:
Increase (decrease) in valuation allowance		(70	)		(974	)		136
Federal		1,520			221			1,970
State		480			1,297			176
Total	$	11,435		$	5,308		$	3,091

Excess tax benefits in the amount of $1,998, $300 and $313 were recognized as additional paid-in capital during fiscal 2015, 2014 and 2013, respectively, resulting from the exercise of stock options and the release of restricted shares.

A reconciliation of the statutory federal income tax rate and the effective income tax rate, as a percentage of income before income taxes, is as follows:

	2015			2014			2013
Statutory federal income tax rate		35.0	%		35.0	%		34.0	%
Adjustments to state net operating loss carryforwards		-			3.3			-
Change in income tax valuation allowance		(0.1	)		(3.7	)		1.7
Change in income tax reserves		0.1			(1.7	)		0.1
State income tax, net of federal benefit		4.4			4.9			3.7
Benefit of goodwill basis difference		(3.2	)		-			-
Other		(0.3	)		(1.5	)		(1.7	)
Effective income tax rate		35.9	%		36.3	%		37.8	%

The income tax effects of temporary differences and carryforwards, which give rise to significant portions of the deferred income tax assets and deferred income tax liabilities, are as follows:

	November 28, 2015		November 29, 2014
Deferred income tax assets:
Trade accounts receivable	$	506	$	483
Inventories		2,420		2,384
Notes receivable		1,795		1,599
Retirement benefits		6,992		6,093
State net operating loss carryforwards		927		1,141
Unrealized loss from affiliates		356		595
Lease termination accruals		219		167
Net deferred rents		2,674		2,251
Other		1,946		1,699
Gross deferred income tax assets		17,835		16,412
Valuation allowance		-		(70	)
Total deferred income tax assets		17,835		16,342

Deferred income tax liabilities:
Property and equipment		3,093		282
Intangible assets		860		-
Unrealized gains from affiliates		8		963
Prepaid expenses and other		403		128

Total deferred income tax liabilities		4,364		1,373

Net deferred income tax assets	$	13,471	$	14,969

At the beginning of fiscal 2014 we carried a valuation allowance of $1,044 which was primarily related to state net operating loss carryforwards for which it was considered to be more likely than not that they would not be utilized prior to their expiration. During fiscal 2014 we reduced our valuation allowance related to adjustments to state net operating loss carryforwards primarily due to state tax law changes resulting in a credit to income of $974, or $0.09 per basic and diluted share. The remaining balance in the valuation allowance at November 28, 2015 and November 29, 2014 was $0 and $70, respectively.

The following table represents a summary of the valuation allowances against deferred tax assets:

	2015			2014			2013

Balance, beginning of the year	$	70		$	1,044		$	908
Additions charged to expense					-			136
Deductions reducing expense		(70	)		(974	)		-
Balance, end of the year	$	-		$	70		$	1,044

We have state net operating loss carryforwards available to offset future taxable state income of $12,715, which expire in varying amounts between 2015 and 2030. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards.

Income taxes paid, net of refunds received, during 2015, 2014 and 2014 were $5,906, $2,367, and $2,723, respectively.

As of November 29, 2014, the gross amount of unrecognized tax benefits was approximately $1,236, exclusive of interest and penalties. Substantially all of this balance, along with additional amounts recognized during fiscal 2015, has been effectively settled as of November 28, 2015. We regularly evaluate, assess and adjust the related liabilities in light of changing facts and circumstances, which could cause the effective tax rate to fluctuate from period to period.

The following table summarizes the activity related to our gross unrecognized tax benefits:

	2015			2014			2013
Balance, beginning of the year	$	1,236		$	1,497		$	1,228
Gross increases		12			-			401
Gross decreases due to settlements		(1,236	)		(221	)		-
Gross decreases primarily due to the expiration of statutes		-			(40	)		(132	)

Balance, end of the year	$	12		$	1,236		$	1,497

We recognize interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal 2015, 2014, and 2013, we recognized $(144), $7, and $23 of interest expense recovery and $3, $10, and $31 of penalty recovery (expense), respectively, related to the unrecognized benefits noted above in our consolidated statements of income. At November 28, 2015 and November 29, 2014, the balance of accrued interest and penalties associated with unrecognized tax benefits was not material. At November 29, 2014, $1,370 was included in other accrued liabilities in our consolidated balance sheet representing the entire amount of our gross unrecognized tax benefits along with the accrued interest and penalties thereon. The balance at November 28, 2015 was not material.

Significant judgment is required in evaluating the Company's federal and state tax positions and in the determination of its tax provision. Despite our belief that the liability for unrecognized tax benefits is adequate, it is often difficult to predict the final outcome or the timing of the resolution of any particular tax matter. We may adjust these liabilities as relevant circumstances evolve, such as guidance from the relevant tax authority, or resolution of issues in the courts. These adjustments are recognized as a component of income tax expense in the period in which they are identified. The Company also cannot predict when or if any other future tax payments related to these tax positions may occur.

We remain subject to examination for tax years 2012 through 2014 for all of our major tax jurisdictions. The examination of our 2012 and 2013 federal tax returns was completed in 2015 and did not result in a significant adjustment to income tax expense.

The IRS released the final and re-proposed tangible property regulations in September of 2013. While the regulations are now final, they were effective for tax years beginning on or after January 1, 2014, which for the Company was fiscal 2015. We comply with the regulations and the related administrative procedures. The regulations did not have a significant impact on our financial statements.