Income Taxes

Our pre-tax income attributable to foreign operations were not material. The provision for income tax expense (benefit) consisted of the following:



	(In thousands) Years Ended December 31,
	2014			2013			2012
				As Restated			As Restated
Current tax expense (benefit)
Federal	$	5,258		$	(3,806	)	$	2,023
State	244			432			(295		)
	5,502			(3,374		)	1,728
Deferred tax expense (benefit)
Federal	1,186			1,173			5,516
State	(315		)	208			(743		)
	871			1,381			4,773
Income tax expense (benefit)	$	6,373		$	(1,993	)	$	6,501

Deferred tax (liabilities) assets were comprised of the following:



	(In thousands) December 31,
	2014			2013
				As Restated
Deferred tax assets:
Accrued expenses	$	1,669		$	428
Allowance for doubtful accounts	94			183
Contract overrun reserves	1,766			3,920
Deferred compensation	464			141
Employment-related accruals	5,375			2,982
Environmental reserves	778			778
Federal tax credit carryforwards	2,696			3,758
Inventory reserves	3,873			4,639
Investment in common stock	300			300
Pension obligation	3,959			2,297
State net operating loss carryforwards	1,065			995
State tax credit carryforwards	5,382			3,887
Stock-based compensation	2,082			1,444
Workers’ compensation	121			121
Other	1,072			1,355
Total gross deferred tax assets	30,696			27,228
Valuation allowance	(6,882		)	(4,650		)
Total gross deferred tax assets, net of valuation allowance	23,814			22,578
Deferred tax liabilities:
Depreciation	(12,485		)	(12,396		)
Goodwill	(12,105		)	(9,200		)
Intangibles	(51,755		)	(54,227		)
Prepaid insurance	(685		)	(666		)
Section 48(a) adjustment	(1,334		)	—
Unbilled receivables	(1,115		)	(1,409		)
Total gross deferred tax liabilities	(79,479		)	(77,898		)
Net deferred tax liabilities	$	(55,665	)	$	(55,320	)

We have federal tax credit carryforwards of approximately $2.7 million, which begin to expire in 2033. In addition, we have recorded benefits for those carryforwards expected to be utilized on tax returns filed in the future. Further, there was an approximate $1.0 million of federal tax credit carryforwards unrecognized as a result of the application of ASC Subtopic 740-10.

We have state tax credit carryforwards of approximately $8.3 million, which begin to expire in 2017, and state net operating losses of approximately $26.6 million, which begin to expire in 2015. We have recorded a full valuation allowance on these carryforwards as they are not expected to be realized. Further, there was an approximate $1.0 million of state tax credit carryforwards unrecognized as a result of the application of ASC Subtopic 740-10.

We have established a valuation allowance for items that are not expected to provide future tax benefits. We believe it is more likely than not that we will generate sufficient taxable income to realize the benefit of the remaining deferred tax assets.

The principal reasons for the variation between the expected and effective tax rates were as follows:



	Years Ended December 31,
	2014	2013	2012
		As Restated	As Restated
Statutory federal income tax rate	35.0%	35.0%	35.0%
State income taxes (net of federal benefit)	0.8	2.0	3.8
Benefit of qualified domestic production activities	(2.3)	(8.9)	(3.1)
(Benefit) expense of research and development tax credits	(7.3)	(48.9)	0.6
Increase in valuation allowance	—	0.9	0.2
Non deductible book expenses	0.9	1.8	0.4
Changes in deferred tax assets	—	(1.5)	0.3
Remeasurement of deferred taxes for changes in state tax law	(2.1)	—	(5.6)
Changes in tax reserves	(0.7)	(0.5)	(5.3)
Other	—	(1.1)	0.6
Effective income tax rate (benefit)	24.3%	(21.2)%	26.9%

The deduction for qualified domestic production activities is treated as a “special deduction” which has no effect on deferred tax assets and liabilities. Instead, the impact of this deduction is reported in our rate reconciliation.

We recorded an income tax expense of approximately $6.4 million (an effective tax rate of 24.3%) in 2014, compared to an income tax benefit of approximately $2.0 million (an effective tax benefit rate of 21.2%) in 2013. In December 2014, the federal research and development tax credit was retroactively extended from the beginning of 2014. We recognized total federal research and development tax credits of approximately $2.4 million in 2014.

The effective tax rate for 2013 included approximately $2.0 million of 2012 federal research and development tax credit benefits recognized in the first quarter of 2013 as a result of the American Taxpayer Relief Act (the “Act”) of 2012 passed in January 2013. The Act includes an extension of the federal research and development tax credit for the amounts paid or incurred after December 31, 2011 and before January 1, 2014. We recognized total federal research and development tax credit benefits of approximately $4.5 million in 2013.

We record interest and penalty charge, if any, related to uncertain tax positions as a component of tax expense. During the three years ended December 31, 2014, 2013 and 2012, we recognized approximately zero, zero and $(0.1) million, respectively, in interest benefit related to uncertain tax positions. We had approximately $0.1 million for payment of interest and penalties accrued for all three years ended December 31, 2014, 2013, and 2012.

Our total amount of unrecognized tax benefits was approximately $2.8 million, $2.3 million, and $1.4 million at December 31, 2014, 2013, and 2012 respectively. Approximately $1.9 million, if recognized, would affect the annual income tax rate. We do not reasonably expect significant increases or decreases to our unrecognized tax benefits in the next twelve months.

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:



	(In thousands) Years Ended December 31,
	2014			2013			2012
				As Restated			As Restated
Balance at January 1,	$	2,297		$	1,356		$	2,194
Additions based on tax positions related to the current year	668			668			214
Additions for tax positions for prior years	31			538			68
Reductions for tax positions for prior years	(22		)	—			(300		)
Reduction to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations	(171		)	(265		)	(820		)
Balance at December 31,	$	2,803		$	2,297		$	1,356

Federal income tax returns after 2010, California franchise (income) tax returns after 2009 and other state income tax returns after 2009 are subject to examination.