Income Taxes

Earnings before income taxes consisted of the following:



(In thousands)	2014		2013		2012
U.S.	$	36,700	$	26,699	$	3,406
International	3,066		208		190
Earnings before income taxes	$	39,766	$	26,907	$	3,596

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



(In thousands)	2014			2013			2012
Current:
Federal	$	15,711		$	5,036		$	2,208
State and local	1,440			169			554
International	1,437			409			615
Total current	$	18,588		$	5,614		$	3,377
Deferred:
Federal	$	(4,549	)	$	2,680		$	(600	)
State and local	(378		)	1,015			(401		)
International	(353		)	(138		)	(114		)
Total deferred	$	(5,280	)	$	3,557		$	(1,115	)
Total non-current tax benefit	$	(1,528	)	$	(1,375	)	$	(3,311	)
Total income tax expense (benefit)	$	11,780		$	7,796		$	(1,049	)

Income tax payments, net of refunds were $12.9 million in fiscal 2014 and were $7.7 million in fiscal 2013. 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:



	2014	2013	2012
Federal income tax expense at statutory rates	35.0%	35.0%	35.0%
State and local income taxes, net of federal tax benefit	0.9	0.9	(5.2)
Tax credits - research & development	(1.6)	(2.5)	(19.2)
Tax credits - other	(0.2)	(0.4)	(3.0)
Manufacturing deduction	(3.5)	(2.0)	(10.7)
Meals and entertainment	0.6	0.9	5.0
Permanent tax adjustment for officers compensation	0.1	—	3.0
Nondeductible acquisition costs	0.3	—	—
Tax-exempt interest	(0.2)	(0.4)	(3.0)
Tax reserve adjustments - statute expirations and benefits recognized	(2.2)	(3.0)	(42.2)
Change in valuation allowance	0.4	0.8	10.4
Other, net	—	—	1.1
Income tax expense (benefit)	29.6%	29.3%	(28.8)%

In fiscal 2014 and 2013, there were tax benefits associated with stock-based incentive plans of $2.6 million and $0.4 million, respectively. In fiscal 2012, there were tax deficiencies of $0.3 million 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 at March 1, 2014 and March 2, 2013 are as follows:



	2014						2013
(In thousands)	Current			Noncurrent			Current			Noncurrent
Accounts receivable	$	900		$	—		$	762		$	—
Accrued insurance	113			574			193			614
Other accruals	2,680			792			2,581			979
Deferred compensation	(1		)	9,323			37			8,481
Goodwill and other intangibles	23			(8,624		)	—			(4,710		)
Inventory	1,535			—			1,166			—
Depreciation	(853		)	(14,413		)	—			(15,912		)
Liability for unrecognized tax benefits	—			2,781			—			3,415
Prepaid expenses	(634		)	595			(494		)	534
Net operating losses	—			3,566			—			3,433
Valuation allowance on net operating losses	(459		)	(2,312		)	(2,117		)	(567		)
Other	225			315			90			253
Deferred tax assets (liabilities)	$	3,529		$	(7,403	)	$	2,218		$	(3,480	)

The Company has state net operating loss carryforwards with a tax effect of $3.6 million. A valuation allowance of $2.8 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, Canada, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years prior to fiscal 2011, 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 2010, 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 earnings 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 2014, 2013 and 2012, respectively, is $5.2 million, $6.8 million and $8.9 million. Included in this total liability at fiscal 2014, 2013 and 2012, respectively, are $2.6 million, $3.3 million and $5.1 million of tax benefits that, if recognized, would decrease the effective tax rate. Also included in the balance of unrecognized tax benefits for fiscal 2014, 2013 and 2012 are $1.8 million, $2.2 million and $2.0 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 2014, resulting in a reserve for interest and penalties of $0.8 million at the end of fiscal 2014. During fiscal 2013, the Company reduced the accrual for penalties and interest by $0.5 million, resulting in a reserve for interest and penalties at the end of fiscal 2013 of $1.3 million. 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.

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



(In thousands)	2014			2013			2012
Gross unrecognized tax benefits at beginning of year	$	5,516		$	7,125		$	10,676
Gross increases in tax positions for prior years	44			236			136
Gross decreases in tax positions for prior years	(616		)	(1,480		)	(462		)
Gross increases based on tax positions related to the current year	326			621			623
Gross decreases based on tax positions related to the current year	(40		)	(56		)	(78		)
Settlements	(84		)	(682		)	(1,200		)
Statute of limitations expiration	(809		)	(248		)	(2,570		)
Unrecognized tax benefits acquired in connection with Alumicor	94			—			—
Gross unrecognized tax benefits at end of year	$	4,431		$	5,516		$	7,125

The total liability for unrecognized tax benefits is expected to decrease by approximately $0.4 million during fiscal 2015 due to audit settlements and lapsing of statutes.

In September 2013, the U.S. Department of the Treasury and the IRS issued final regulations addressing the acquisition , production and improvement of tangible property, and also proposed regulations addressing the disposition of property. These regulations replace previously issued temporary regulations and are effective for tax years beginning January 1, 2014, with optional adoption permitted in 2013. The Company is in the process of analyzing the impact of these new regulations but does not believe they will have a material impact on the Company’s consolidated financial statements.