Income Tax Disclosure

12 Months Ended

Mar. 31, 2015

6. Income Taxes

The Company files a consolidated federal and various state income tax returns. The provision for income taxes is as follows:

		2015		2014		2013
		(In thousands)
Current:
Federal	$	4,380	$	7,238	$	21,356
State		453		123		3,629
		4,833		7,361		24,985
Deferred:
Federal		(925)		(3,231)		(2,770)
State		313		(567)		(180)
		(612)		(3,798)		(2,950)
Total income taxes	$	4,221	$	3,563	$	22,035


A reconciliation of the expected U.S. statutory rate to the effective rate follows:

	2015		2014		2013
Computed (expected tax rate)	35.0	%	35.0	%	35.0	%
State income taxes (net of federal tax benefit)	2.9		3.4		3.8
State tax credits	(8.7)		(1.6)		(0.8)
Federal credits	(2.4)		(3.6)		(0.2)
Manufacturer’s deduction	(5.0)		(4.6)		(3.4)
(Reversal of) addition to uncertain tax positions	(1.0)		(0.8)		0.2
State VDA/Nexus Changes	-		(1.7)		-
Other permanent differences not deductible	0.7		0.5		0.1
Change in valuation allowance	9.9		(2.1)		-
Tax effect of pension contribution	-		0.4		-
Other	(1.5)		(4.4)		-
Effective income tax rate	29.9	%	20.5	%	34.7	%

The effective tax rate was 29.9% in 2015, 20.5% in 2014 and 34.7% in 2013. Of the 9.4 percentage point increase in the effective tax rate for the year, the major contributors to this increase are the following items, 1) the establishment of a valuation allowance related to the New York State investment tax credit, 2) with lower pre-tax earnings, the permanent items have a larger impact on the effective rate, and 3) less federal credits generated in the current year compared to the prior year. The impact of these increases was partially offset by the manufacturer’s deduction being a higher percentage of current year earnings than the prior year.

The following is a summary of the significant components of the Company's deferred income tax assets and liabilities as of March 31:

		2015		2014
		(In thousands)
Deferred income tax assets:
Future tax credits	$	4,021	$	3,042
Inventory valuation		2,348		3,353
Employee benefits		3,009		2,884
Insurance		816		1,244
Other comprehensive loss		20,335		7,194
Interest		46		138
Deferred gain on sale/leaseback		-		26
Prepaid revenue		701		1,118
Other		1,364		859
Pension		1,372		-
Severance		256		87
		34,268		19,945

Deferred income tax liabilities:
Property basis and depreciation difference		9,129		10,757
481(a) adjustment		1,281		-
Earnings from equity investment		245		-
Pension		-		725
		10,655		11,482
Valuation allowance - non-current		1,787		390
Net deferred income tax asset	$	21,826	$	8,073

Net current deferred income tax assets of $7.0 million and $8.4 million as of March 31, 2015 and 2014, respectively, are recognized in the Consolidated Balance Sheets. Also recognized are net non-current deferred income tax assets of $14.8 million as of March 31, 2015 and net non-current deferred income tax liabilities of $0.3 million as of March 31, 2014.

The Company has State tax credit carryforwards amounting to $1.3 million (California, net of Federal impact), $0.8 million (New York, net of Federal impact), and $1.8 million (Wisconsin, net of Federal impact), which are available to reduce future taxes payable in each respective state through 2030 (Wisconsin), through 2030 (New York), and through 2025 (California). The Company has performed the required assessment regarding the realization of deferred tax assets and at March 31, 2015, the Company has recorded a valuation allowance amounting to $1.8 million, which relates primarily to tax credit carryforwards which management has concluded it is more likely than not they will not be realized in the ordinary course of operations. Although realization is not assured, management has concluded that it is more likely than not that the deferred tax assets for which a valuation allowance was determined to be unnecessary will be realized in the ordinary course of operations. The amount of net deferred tax assets considered realizable, however, could be reduced if actual future income or income taxes rates are lower than estimated or if there are differences in the timing or amount of future reversals of existing taxable or deductible temporary differences.

Current rules on the accounting for uncertainty on income taxes prescribe a minimum recognition threshold for a tax position taken or expected to be taken in a tax return that is required to be met before being recognized in the financial statements. Those rules also provide guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company classifies the liability for uncertain tax positions in other accrued expenses or other long-term liabilities depending on their expected settlement. The change in the liability for the years ended March 31, 2015 and 2014 consists of the following:

		2015		2014
		(In thousands)
Beginning balance	$	2,273	$	2,470

Tax positions related to current year:
Additions		13		46

Tax positions related to prior years:
Reductions		(1,822)		(181)
Lapses in statues of limitations		-		(62)
Balance as of March 31,	$	464	$	2,273

Included in the balances at March 31, 2015 and 2014 are none and $1.9 million, respectively, of tax positions that are highly certain but for which there is uncertainty about the timing. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of these positions would not impact the annual effective tax rate but would accelerate the payment of cash to the tax authority to an earlier period.

The Company recognizes interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable settlements within income tax expense. During the years ended March 31, 2015 and 2014, the Company recognized approximately $0.1 million decrease and none, respectively, in interest and penalties. As of March 31, 2015 and 2014, the Company had approximately $0.1 million and $0.2 million, respectively, of interest and penalties accrued associated with unrecognized tax benefits.

Although management believes that an adequate provision has been made for uncertain tax positions, there is the possibility that the ultimate resolution could have an adverse effect on the earnings of the Company. Conversely, if resolved favorably in the future, the related provisions would be reduced, thus having a positive impact on earnings. It is anticipated that audit settlements will be reached during 2016 with federal and state taxing authorities that could have an impact on earnings. Due to the uncertainty of amounts and in accordance with its accounting policies, the Company has not recorded any potential impact of these settlements.

The federal income tax returns for years after March 31, 2011 are subject to examination.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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