Income Taxes



(In thousands)	2015			2014			2013
Components of income before income taxes*
U.S. income	$	60,753		$	58,209		$	48,621
Non-U.S. income	50,273			68,986			71,512
Income before income taxes	$	111,026		$	127,195		$	120,133
Provision for income taxes*
Current
Federal	$	21,253		$	23,659		$	18,656
State	2,389			1,349			1,492
Non-U.S.	22,979			21,101			18,453
Total current provision	46,621			46,109			38,601
Deferred
Federal	3,813			(3,650		)	(3,582		)
State	(213		)	317			(483		)
Non-U.S.	(5,814		)	(1,732		)	609
Total deferred provision	(2,214		)	(5,065		)	(3,456		)
Provision for income taxes	$	44,407		$	41,044		$	35,145

*The components of income before income taxes and the provision for income taxes relate to continuing operations.

MSA’s European reorganization continued during 2015. The reorganization is designed to drive optimal performance by aligning certain strategic planning and decision making into a single location enabled by a common IT platform. During 2015, the Company incurred $7.7 million of charges associated with exit taxes related to our European reorganization.

Included in discontinued operations is tax expense of $0.6 million in 2015, $0.6 million in 2014 and $1.4 million in 2013.

Cash flows from operations in the Consolidated Statement of Cash Flows include a deferred income tax provision (benefit) from discontinued operations of $0.5 million, $(0.3) million and $0.2 million in 2015, 2014 and 2013, respectively.

Reconciliation of the U.S. federal income tax rates for continuing operations to our effective tax rate:



	2015		2014		2013
U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes—U.S.	1.3		0.8		0.6
Taxes on non-U.S. income	(2.1	)	(2.2	)	(4.5	)
Taxes on non-U.S. income - European reorganization	6.9		—		—
Research and development credit	(1.1	)	(0.7	)	(1.5	)
Manufacturing deduction credit	(1.6	)	(1.0	)	(1.1	)
Valuation allowances	1.7		(0.6	)	0.5
Other	(0.1	)	1.0		0.3
Effective income tax rate	40.0	%	32.3	%	29.3	%

Components of deferred tax assets and liabilities:



	December 31,
(In thousands)	2015			2014
Deferred tax assets
Book expenses capitalized for tax	$	5,476		$	6,336
Post-retirement benefits	17,838			23,335
Inventory reserves	2,487			3,147
Vacation allowances	816			932
Net operating losses and tax credit carryforwards	7,394			7,479
Post employment benefits	3,488			2,382
Foreign tax credit carryforwards	8,266			11,231
Stock options	10,587			10,157
Product Liability	6,253			3,918
Basis of capital assets	912			1,009
Warranties	3,666			3,210
Reserve for doubtful accounts	2,320			1,948
Accrued payroll	4,172			4,319
Other	7,782			5,801
Total deferred tax assets	81,457			85,204
Valuation allowances	(5,153		)	(3,763		)
Net deferred tax assets	76,304			81,441
Deferred tax liabilities
Property, plant and equipment	(10,938		)	(9,269		)
Pension	(18,947		)	(22,195		)
Intangibles	(43,789		)	(30,180		)
Other	(1,047		)	(2,053		)
Total deferred tax liabilities	(74,721		)	(63,697		)
Net deferred taxes	$	1,583		$	17,744

At December 31, 2015, we had net operating loss carryforwards of approximately $45.0 million, all of which are in non-U.S. tax jurisdictions. Net operating loss carryforwards without a valuation allowance of $0.1 million will expire in 2020. The remainder either have a valuation allowance or may be carried forward for a period of at least six years. The change in valuation allowance for the year of $1.4 million is primarily due to our inability to recognize deferred tax assets on certain foreign entities that continue to generate losses.

No deferred U.S. income taxes have been provided on undistributed earnings of non-U.S. subsidiaries, which amounted to $408.5 million as of December 31, 2015. These earnings are considered to be reinvested for an indefinite period of time. Because we currently do not have any plans to repatriate these funds, we cannot determine the impact of local taxes, withholding taxes and foreign tax credits associated with the future repatriation of such earnings and, therefore, cannot reasonably estimate the associated tax liability. In cases where we intend to repatriate a portion of the undistributed earnings of our foreign subsidiaries, we provide U.S. income taxes on such earnings.

A reconciliation of the change in the tax liability for unrecognized tax benefits for the years ended December 31, 2015 and 2014 is as follows:



(In thousands)	2015			2014
Beginning balance	$	9,857		$	5,888
Adjustments for tax positions related to the current year	8,203			4,072
Adjustments for tax positions related to prior years	(4,887		)	3
Statute expiration	(103		)	(106		)
Ending balance	$	13,070		$	9,857

The total amount of unrecognized tax benefits, if recognized, would reduce our future effective tax rate. We have recognized tax benefits associated with these liabilities in the amount of $2.1 million and $5.2 million at December 31, 2015 and 2014, respectively.

We recognize interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. Our liability for accrued interest and penalties related to uncertain tax positions was $0.8 million at December 31, 2014. During 2015, we increased interest related to uncertain tax positions by $0.1 million. Our liability for accrued interest and penalties related to uncertain tax positions was $0.9 million at December 31, 2015.

We file a U.S. federal income tax return along with various state and foreign income tax returns. Examinations of our U.S. federal returns have been completed through 2010, with the 2011 tax year closed by statute. Various state and foreign income tax returns may be subject to tax audits for periods after 2009.