Income Taxes

We are subject to U.S. Federal income tax as well as the income taxes of multiple state jurisdictions. As a result of the completion of examinations by the IRS on prior years and the expiration of statutes of limitations, fiscal years 2011, 2012 and 2013 are the remaining years open under statutes of limitations. Certain subsidiaries are also subject to income tax in several foreign jurisdictions which have open tax years varying by jurisdiction beginning in fiscal 2005.

On January 2, 2013, the President signed into law The American Taxpayer Relief Act of 2012 reinstating the federal research and development credit for the 2012 and 2013 calendar years. As a result of the retroactive extension, we recognized approximately $1,804 in tax benefits during fiscal year 2013.

Income tax expense consisted of the following:



	Year Ended
	April 26, 2014		April 27, 2013			April 28, 2012
Current:
Federal	$	11,342	$	9,517		$	2,266
State	1,454		2,219			577
Foreign	696		754			313
Deferred taxes	1,543		(4,340		)	(68		)
	$	15,035	$	8,150		$	3,088

A reconciliation of the provision for income taxes and the amount computed by applying the federal statutory rate to income before income taxes is as follows:



	Year Ended
	April 26, 2014			April 27, 2013			April 28, 2012
Computed income tax expense at federal statutory rate	$	13,035		$	10,825		$	4,052
State taxes, net of federal benefit	1,433			684			497
Research and development tax credit	(750		)	(1,804		)	(1,004		)
Meals and entertainment	344			308			375
Stock compensation	586			466			842
Dividends paid to retirement plan	(328		)	(616		)	(522		)
Domestic production activities deduction	(1,012		)	(976		)	(270		)
Change in foreign deferred rates	—			—			(249		)
Change in valuation allowances	2,301			—			(364		)
Other, net	(574		)	(737		)	(269		)
	$	15,035		$	8,150		$	3,088

We operated under a tax holiday in China which expired in fiscal 2012. As noted above, the expiration of this tax holiday caused a $249 decrease in our income tax expense in fiscal 2012.

The pretax income attributable to domestic and foreign operations was as follows:



	Year Ended
	April 26, 2014		April 27, 2013		April 28, 2012
Domestic	$	35,699	$	27,667	$	10,052
Foreign	1,542		3,262		1,525
Income before income taxes	$	37,241	$	30,929	$	11,577

The components of the net deferred tax asset were as follows:



	April 26, 2014			April 27, 2013
Deferred tax assets:
Warranty reserves	$	10,432		$	9,847
Vacation accrual	1,510			1,788
Net losses on equity investments	2,870			3,066
Deferred maintenance revenue	1,332			2,439
Reserves for excess and obsolete inventory	981			1,246
Equity compensation	899			1,049
Allowance for doubtful accounts	797			599
Inventory capitalization	306			600
Accrued compensation and benefits	1,397			1,077
Intangible assets	56			37
Net operating loss carry forwards	766			—
Other	585			440
	21,931			22,188
Valuation allowance on equity investments	(2,297		)	—
	19,634			22,188

Deferred tax liabilities:
Property and equipment	(6,232		)	(7,542		)
Prepaid expenses	(574		)	(662		)
Other	(162		)	(168		)
	(6,968		)	(8,372		)
	$	12,666		$	13,816

We review deferred tax assets, including net operating losses, and to the extent we believe the asset may not be realized, we recognize a valuation allowance. As of April 26, 2014 and April 27, 2013, we had recorded $2.3 million and $0 in valuation allowances, respectively. We believe our net deferred tax assets, with the exception of the deferred tax asset related to the valuation allowance noted above, will be fully realized based upon our estimates of the future taxable income. If our estimates of future taxable income are not met in future periods, an additional valuation allowance for some of these deferred tax assets may be required.

We have not recorded U.S. deferred income taxes on certain of our non-U.S. subsidiaries’ undistributed earnings, as such amounts are intended to be reinvested outside the United States indefinitely. However, should we change our business and tax strategies in the future and decide to repatriate a portion of these earnings to one of our U.S. subsidiaries, including cash maintained by these non-U.S. subsidiaries, additional U.S. tax liabilities would be incurred. It is not practical at this time to estimate the amount of additional U.S. tax liabilities we would incur.

We have income tax net operating loss carryforwards related to our international operations of approximately $2.3 million which all have an indefinite life.

The Company has recorded a deferred tax asset of $0.8 million reflecting the benefit of $2.3 million in loss carryforwards. As stated, such deferred tax assets have an indefinite life and do not expire. They are as follows by jurisdiction:



	April 26, 2014		April 27, 2013
Germany	$	75	$	—
Hong Kong	8		—
Belgium	683		—
	$	766	$	—

Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

The following table presents the classification of the net deferred tax assets on the accompanying consolidated balance sheets:



	April 26, 2014			April 27, 2013
Current assets	$	10,694		$	12,755
Current liabilities	(27		)	—
Non-current assets	2,000			1,061
Non-current liabilities	(1		)	—
	$	12,666		$	13,816

We account for uncertainties in tax positions under the provisions of ASC 740-10, Accounting for Uncertainty in Income Taxes, an Interpretation of SFAS No. 109. ASC 740-10 creates a single model to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. ASC 740-10 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The following table provides a reconciliation of changes in unrecognized tax benefits for fiscal years 2014, 2013 and 2012:



	Amount
Balance as of April 30, 2011:	$	527
Gross increases related to prior period tax positions	14
Gross decreases related to prior period tax positions	(178		)
Gross increases related to current period tax positions	86
Balance as of April 28, 2012:	$	449
Gross decreases related to prior period tax positions	(11		)
Gross increases related to current period tax positions	129
Lapse of statute of limitations	(188		)
Balance as of April 27, 2013:	$	379
Gross increases related to prior period tax positions	16
Gross increases related to current period tax positions	99
Balance as of April 26, 2014:	$	494

All of our unrecognized tax benefits would have an impact on the effective tax rate if recognized. We recognized an expense (benefit) of $20, $10 and $(1) in net interest and penalties during the years ended April 26, 2014, April 27, 2013 and April 28, 2012, respectively. Interest and penalties recognized are recorded in income taxes in our consolidated statements of operations. We had accrued $15 and $11 in net interest or penalties as of April 26, 2014 and April 27, 2013, respectively.