Note 13. Income Taxes

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



	Year Ended
	May 2, 2015		April 26, 2014		April 27, 2013
Domestic	$	29,194	$	35,699	$	27,667
Foreign	2,489		1,542		3,262
Income before income taxes	$	31,683	$	37,241	$	30,929

Income tax expense consisted of the following:



	Year Ended
	May 2, 2015			April 26, 2014			April 27, 2013
Current:
Federal	$	6,657		$	11,342		$	9,517
State	1,150			1,454			2,219
Foreign	848			696			754
Deferred:
Federal	1,906			1,241			(3,114		)
State	307			667			(1,090		)
Foreign	(67		)	(365		)	(136		)
	$	10,801		$	15,035		$	8,150

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
	May 2, 2015			April 26, 2014			April 27, 2013
Computed income tax expense (benefit) at federal, state and local jurisdiction statutory rates	$	11,089		$	13,035		$	10,825
State taxes, net federal benefit	1,016			1,433			684
Research and development tax credit	(1,292		)	(750		)	(1,804		)
Meals and entertainment	369			344			308
Stock compensation	566			586			466
Dividends paid to retirement plan	(352		)	(328		)	(616		)
Domestic production activities deduction	(529		)	(1,012		)	(976		)
Change in valuation allowances	(2,295		)	2,301			—
Change in uncertain tax positions	2,357			111			(70		)
Other, net	(128		)	(685		)	(667		)
	$	10,801		$	15,035		$	8,150

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



	May 2, 2015			April 26, 2014
Deferred tax assets:
Warranty reserves	$	10,038		$	10,432
Vacation accrual	1,808			1,510
Net losses on equity investments	—			2,870
Deferred maintenance revenue	745			1,332
Reserves for excess and obsolete inventory	939			981
Equity compensation	828			899
Allowance for doubtful accounts	613			797
Inventory capitalization	531			306
Accrued compensation and benefits	1,124			1,397
Intangible assets	—			56
Unrealized loss on foreign currency exchange	554			206
Net operating loss carry forwards	791			766
Other	344			379
	18,315			21,931
Valuation allowance on equity investments	(52		)	(2,297		)
	18,263			19,634

Deferred tax liabilities:
Property and equipment	(7,249		)	(6,232		)
Prepaid expenses	(577		)	(574		)
Other	(34		)	(162		)
	(7,860		)	(6,968		)
	$	10,403		$	12,666

The classification of net deferred tax assets in the accompanying consolidated balance sheets is:



	May 2, 2015			April 26, 2014
Current assets	$	10,640		$	10,694
Current liabilities	—			(27		)
Non-current assets	702			2,000
Non-current liabilities	(939		)	(1		)
	$	10,403		$	12,666

The changes in the amounts recorded for uncertain tax positions are:



	May 2, 2015			April 26, 2014		April 27, 2013
Balance at beginning of year	$	494		$	379	$	449
Gross increases related to prior period tax positions	6			16		—
Gross decreases related to prior period tax positions	—			—		(11		)
Gross increases related to current period tax positions	2,496			99		129
Lapse of statute of limitations	(105		)	—		(188		)
Balance at end of year	$	2,891		$	494	$	379

All of our unrecognized tax benefits would have an impact on the effective tax rate if recognized. It is reasonably possible that the amount of unrecognized tax benefits could change due to one or more of the following events in the next 12 months: expiring statutes, audit activity, tax payments, or competent authority proceedings. We are not able to reasonably estimate the amount or the future periods in which changes in unrecognized tax benefits may be resolved; however, we do not anticipate any significant changes within the next 12 months. Interest and penalties incurred associated with uncertain tax positions are included in other (expense) income.

Our fiscal 2014 financial results included a deferred asset tax valuation allowance of $2,297 for a one-time valuation allowance. The corresponding deferred tax asset was related to potential capital losses from an investment in an affiliate ("affiliate") that is a United States entity. During the fourth quarter of fiscal 2014, we were notified that the affiliate had sold off a significant portion of its operations for a substantial loss. This loss puts us in doubt of any financial recovery of our investment in affiliate. Although the full capital loss of the affiliate has not yet been triggered under the Code, we have concluded that it would be more likely than not a capital loss if the affiliate goes out of business or we abandon the partnership. A tax court case solidified capital loss treatment versus ordinary gain treatment in abandonments. The Tax Court's decision in Pilgrim's Pride Corporation v. Commissioner and Code Sections 165 and 1234A state that loss deductions related to worthless security abandonments would be treated as a capital loss versus an ordinary loss.

In fiscal 2015, the Tax Court's decision in Pilgrim's Pride Corporation v. Commissioner was overturned by the federal Fifth Circuit Court of Appeals. Hence, we abandoned our partnership interest and will record an ordinary loss on our 2015 federal tax return, thereby moving the asset and valuation allowance into our current tax provision and recording a current deduction. Because our position has a chance of being disallowed, we believe we cannot reach the more-likely-than not conclusion that this ordinary loss will be realized. Therefore, we have maintained an uncertain tax provision reserve. We will continue to evaluate the facts and circumstances of this case and adjust our reserve accordingly.

Additional tax information:

In the normal course of business, income tax authorities in various income tax jurisdictions both within the United States and internationally conduct routine audits of our income tax returns filed in prior years. Income tax years are open for the United States jurisdiction for fiscal years 2012, 2013 and 2014. International jurisdictions have open tax years varying by location beginning in fiscal 2005.

We have no deferred tax liability recognized relating to our investment in foreign subsidiaries where the earnings have been indefinitely reinvested. If circumstances change and it becomes apparent that some or all of the undistributed untaxed earnings of a subsidiary will be remitted to the United States, we will accrue a tax expense at the time of the remittance. We have approximately $10,437 of untaxed earnings which have indefinitely been reinvested. Determination of the amount of any unrecognized deferred income tax liability on these is not practicable.

We have income tax net operating loss carryforwards related to our international operations of approximately $2,386 and a $791 deferred tax asset. These loss carryforwards do not expire; therefore, the deferred tax asset has an indefinite life. 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.

We recognized an expense of $14, $20 and $10 in net interest and penalties during the years ended May 2, 2015, April 26, 2014 and April 27, 2013, respectively. Interest and penalties recognized are recorded in income taxes in our consolidated statements of operations. We had accrued $16 and $15 in net interest or penalties as of May 2, 2015 and April 26, 2014, respectively.