Income Taxes

12 Months Ended

Apr. 25, 2020

Income before income taxes consists of the following:



	Fiscal Year Ended
	(52 weeks)		(52 weeks)		(52 weeks)
(Amounts in thousands)	4/25/20		4/27/19		4/28/18
United States	$	102,125	$	73,058	$	111,516
Foreign	13,048		22,269		17,374
Total	$	115,173	$	95,327	$	128,890

Income tax expense (benefit) consists of the following components:



	Fiscal Year Ended
	(52 weeks)			(52 weeks)			(52 weeks)
(Amounts in thousands)	4/25/20			4/27/19			4/28/18
Federal
Current	$	25,026		$	17,629		$	21,206
Deferred	1,440			(2,649		)	16,401
State
Current	7,901			6,199			4,886
Deferred	(1,409		)	(933		)	1,075
Foreign
Current	3,025			4,919			3,820
Deferred	206			21			(93		)
Total income tax expense	$	36,189		$	25,186		$	47,295

Our effective tax rate differs from the U.S. federal income tax rate for the following reasons:



	Fiscal Year Ended
	(52 weeks)		(52 weeks)		(52 weeks)
(% of income before income taxes)	4/25/20		4/27/19		4/28/18
Statutory tax rate	21.0	%	21.0	%	30.4	%
Increase (reduction) in income taxes resulting from:
Remeasurement of deferred taxes for changes in statutory U.S. tax rate	—	%	(0.2	)%	7.8	%
State income taxes, net of federal benefit	4.2	%	4.1	%	3.3	%
Tax effect of defined benefit pension plan termination	—	%	2.7	%	—	%
U.S. manufacturing benefit	—	%	—	%	(1.5	)%
Change in valuation allowance	0.7	%	0.6	%	(0.3	)%
U.S. research tax credits	(0.6	)%	(0.8	)%	(1.9	)%
Non-deductible asset impairment	4.9	%	—	%	—	%
Fair value adjustment of contingent liability	(1.4	)%	—	%	—	%
Tax on undistributed foreign earnings	1.1	%	—	%	—	%
Miscellaneous items	1.5	%	(1.0	)%	(1.1	)%
Effective tax rate	31.4	%	26.4	%	36.7	%

For our Canada, Mexico, and United Kingdom foreign operating units, we permanently reinvest the earnings and consequently do not record a deferred tax liability relative to the undistributed earnings. We have reinvested approximately $41.2 million of the earnings. After enactment of the Tax Cuts and Jobs Act in 2017, the potential deferred tax attributable to these earnings would be approximately $1.3 million, primarily related to foreign withholding taxes and state income taxes. The Company changed its permanent reinvestment position on undistributed earnings for its Thailand foreign operating units and provided for deferred tax attributable to those earnings of approximately $1.3 million in fiscal 2020.

The primary components of our deferred tax assets and (liabilities) were as follows:



(Amounts in thousands)	4/25/20			4/27/19
Assets
Leases	$	81,537		$	—
Deferred and other compensation	20,821			19,603
State income tax—net operating losses, credits and other	5,536			5,346
Warranty	5,797			5,707
Rent	—			2,714
Workers' compensation	2,567			2,525
Bad debt	2,061			—
Employee benefits	3,441			1,479
Federal net operating losses, credits	1,663			2,032
Pension	—			91
Other	2,354			2,250
Valuation allowance	(2,137		)	(2,312		)
Total deferred tax assets	123,640			39,435
Liabilities
Right of use lease assets	(77,479		)	—
Property, plant and equipment	(14,893		)	(10,523		)
Inventory	(827		)	(1,615		)
Goodwill and other intangibles	(8,286		)	(6,627		)
Tax on undistributed foreign earnings	(1,316		)	—
Net deferred tax assets	$	20,839		$	20,670

The deferred tax assets associated with loss carry forwards and the related expiration dates are as follows:

We evaluate our deferred taxes to determine if a valuation allowance is required. Accounting standards require that we assess whether a valuation allowance should be established based on the consideration of all available evidence using a "more likely than not" standard with significant weight being given to evidence that can be objectively verified.

The evaluation of the amount of net deferred tax assets expected to be realized necessarily involves forecasting the amount of taxable income that will be generated in future years. We have forecasted future results using estimates management believes to be reasonable. We based these estimates on objective evidence such as expected trends resulting from certain leading economic indicators. Based upon our net deferred tax asset position at April 25, 2020, we estimate that about $65.5 million of future taxable income would need to be generated to fully recover our net deferred tax assets. The realization of deferred income tax assets is dependent on future events. Actual results inevitably will vary from management's forecasts which may be impacted by the COVID-19 pandemic, possibly resulting in a sustained economic downturn, or significantly extended economic recovery. Such variances could result in adjustments to the valuation allowance on deferred tax assets in future periods, and such adjustments could be material to the financial statements.

During fiscal 2020, we recorded a $0.2 million decrease in our valuation allowance for deferred tax assets that are now considered more likely than not to be realized. This determination was primarily due to state net operating losses and the limitations on the realization of deferred tax assets related to executive compensation.

A summary of the valuation allowance by jurisdiction is as follows:



(Amounts in thousands)	4/25/2020		4/27/19		Change
U.S. Federal	$	1,172	$	586	$	586
U.S. State	948		1,709		(761		)
Foreign	17		17		—
Total	$	2,137	$	2,312	$	(175	)

The remaining valuation allowance of $2.1 million primarily related to certain U.S. federal, state and foreign deferred tax assets. The U.S. federal deferred taxes are primarily due to limitations on the realization of deferred taxes related to executive compensation. The U.S. state deferred taxes are primarily related to state net operating losses.

As of April 25, 2020, we had a gross unrecognized tax benefit of $1.0 million related to uncertain tax positions in various jurisdictions. A reconciliation of the beginning and ending balance of these unrecognized tax benefits is as follows:



	Fiscal Year Ended
	(52 weeks)			(52 weeks)			(52 weeks)
(Amounts in thousands)	4/25/20			4/27/19			4/28/18
Balance at the beginning of the period	$	1,069		$	1,014		$	620
Additions:
Positions taken during the current year	174			187			464
Positions taken during the prior year	106			—			25
Reductions:
Positions taken during the prior year	—			(36		)	—
Decreases related to settlements with taxing authorities	(211		)	—			—
Reductions resulting from the lapse of the statute of limitations	(108		)	(96		)	(95		)
Balance at the end of the period	$	1,030		$	1,069		$	1,014

We recognize interest and penalties associated with uncertain tax positions in income tax expense. We had approximately $0.3 million accrued for interest and penalties as of both April 25, 2020, and April 27, 2019.

If recognized, $0.9 million of the total $1.0 million of unrecognized tax benefits would decrease our effective tax rate. We do not expect that the net liability for uncertain income tax positions will significantly change within the next 12 months. The remaining balance will be settled or released as tax audits are effectively settled, statutes of limitation expire, or other new information becomes available.

Our U.S. federal income tax returns for fiscal years 2017 and subsequent are still subject to audit. The audit of our U.S. federal income tax return for fiscal year 2016 was closed in fiscal 2020 with no material adjustments. In addition, we conduct business in various states. The major states in which we conduct business are subject to audit for fiscal years 2016 and subsequent. Our foreign operations are subject to audit for fiscal years 2011 and subsequent.

Cash paid for taxes (net of refunds received) during the fiscal years ended April 25, 2020, April 27, 2019, and April 28, 2018, was $24.7 million, $23.8 million, and $37.1 million, respectively.

(Amounts in thousands)

Expiration

Federal net operating losses

Fiscal 2034 - 2038

Various U.S. state net operating losses (excluding federal tax effect)

Fiscal 2020 - 2038

Foreign capital losses

Indefinite