NOTE 11

Income Taxes

The Corporation had no federal and state income tax benefit for the years ended May 31, 2014 and 2013.

The difference between the Corporation’s statutory federal income tax rate of 34 percent in fiscal 2014 and 2013, and the effective income tax rate is due primarily to state income taxes and changes in deferred tax assets valuation allowance and are as follows:


	Year ended May 31,
	2014			2013
	(Dollars in thousands)
Income taxes at statutory federal rate	$	(4,034	)	$	(3,574	)
State income taxes		23			93
State net operating loss		(480	)		(605	)
New Energy Efficient Home Credit		(137	)		(91	)
Increase in deferred tax assets valuation allowance		4,561			4,189
Other, net		67			(12	)

Income tax benefit	$	—		$	—

Effective tax rate		0	%		0	%

Components of the net deferred tax assets include:


	May 31,
	2014			2013
	(Dollars in thousands)
Current deferred tax assets
Accrued marketing programs	$	169		$	55
Accrued warranty expense		1,464			1,466
Accrued workers’ compensation		650			638
Accrued vacation		329			319
Other		223			143

Gross current deferred tax assets		2,835			2,621

Noncurrent deferred tax assets
Liability for certain post-retirement benefits		2,061			2,252
Accrued warranty expense		792			876
Federal net operating loss carryforward		30,488			26,616
Federal tax credit carryforward		1,345			1,205
State net operating loss carryforward		7,860			7,380
Depreciation		854			735
Other		(32	)		(43	)

Gross noncurrent deferred tax assets		43,368			39,021

Total gross deferred tax assets		46,203			41,642
Valuation allowance		(46,203	)		(41,642	)

Net deferred tax assets	$	—		$	—

At May 31, 2014, the Corporation had gross federal net operating loss carryforwards of approximately $90 million and gross state net operating loss carryforwards of approximately $102 million. The federal net operating loss and tax credit carryforwards have a life expectancy between sixteen and twenty years. The state net operating loss carryforwards have a life expectancy, depending on the state where a loss was incurred, between five and twenty years. If the Corporation, after considering future negative and positive evidence regarding the realization of deferred tax assets, determines that a lesser valuation allowance is warranted, it would record a reduction to income tax expense and the valuation allowance in the period of determination.

Income tax returns are filed in the U.S. federal jurisdiction and in several state jurisdictions. For the majority of taxing jurisdictions the Corporation is no longer subject to examination by taxing authorities for years before 2010. The Corporation did not incur any interest or penalties related to income tax matters in fiscal years 2014 and 2013.

The Corporation has no unrecognized tax benefits in its financial statements during fiscal years 2014 and 2013, and does not expect any significant changes related to unrecognized tax benefits in the twelve months following May 31, 2014.