Income Taxes

Earnings before income taxes consisted of the following:



(In thousands)	2015		2014		2013
U.S.	$	59,898	$	36,700	$	26,699
International	5,101		3,066		208
Earnings before income taxes	$	64,999	$	39,766	$	26,907

The components of income tax expense (benefit) for each of the last three fiscal years are as follows:



(In thousands)	2015			2014			2013
Current:
Federal	$	7,328		$	15,711		$	5,036
State and local	1,198			1,440			169
International	1,790			1,437			409
Total current	$	10,316		$	18,588		$	5,614
Deferred:
Federal	$	4,738		$	(4,549	)	$	2,680
State and local	(363		)	(378		)	1,015
International	(101		)	(353		)	(138		)
Total deferred	$	4,274		$	(5,280	)	$	3,557
Total non-current tax benefit	$	(107	)	$	(1,528	)	$	(1,375	)
Total income tax expense	$	14,483		$	11,780		$	7,796

Income tax payments, net of refunds were $11.3 million, $12.9 million and $7.7 million in fiscal 2015, 2014 and 2013, respectively.

The differences between the statutory federal income tax rates and consolidated effective tax rates are as follows:



	2015	2014	2013
Federal income tax expense at statutory rates	35.0%	35.0%	35.0%
State and local income taxes, net of federal tax benefit	1.2	0.9	0.9
Tax credits - research & development	(1.1)	(1.6)	(2.5)
Tax credits - 48C	(9.9)	—	—
Tax credits - other	(0.1)	(0.2)	(0.4)
Manufacturing deduction	(2.3)	(3.5)	(2.0)
Meals and entertainment	0.4	0.6	0.9
Permanent tax adjustment for officers compensation	0.1	0.1	—
Nondeductible acquisition costs	—	0.3	—
Tax-exempt interest	—	(0.2)	(0.4)
Tax reserve adjustments - statute expirations and benefits recognized	(0.2)	(2.2)	(3.0)
Change in valuation allowance	0.1	0.4	0.8
Other, net	(0.9)	—	—
Income tax expense	22.3%	29.6%	29.3%

The Company recognized approximately $6.4 million of tax benefit from an energy-efficiency investment credit under Section 48C of the U.S. Internal Revenue Code, upon successful start-up and commercial production of coatings on our new architectural glass coater. The tax credit was awarded in 2011 by the U.S. Internal Revenue Service (IRS) in cooperation with the Department of Energy as part of the American Reinvestment and Recovery Act to incent energy-efficient investments throughout the United States.

In fiscal 2015, 2014 and 2013, there were tax benefits associated with stock-based incentive plans of $3.3 million, $2.6 million and $0.4 million, respectively. These benefits impacted additional paid-in capital directly and were not reflected in the determination of income tax expense or benefit.

Deferred tax assets and deferred tax liabilities at February 28, 2015 and March 1, 2014 are as follows:



	2015						2014
(In thousands)	Current			Noncurrent			Current			Noncurrent
Accounts receivable	$	1,022		$	—		$	900		$	—
Accrued insurance	46			254			113			574
Other accruals	2,826			958			2,680			792
Deferred compensation	419			11,250			(1		)	9,323
Goodwill and other intangibles	21			(7,994		)	23			(8,624		)
Inventory	90			(585		)	720			(1,164		)
Depreciation	(853		)	(20,544		)	(853		)	(14,413		)
Liability for unrecognized tax benefits	—			2,784			—			2,781
Prepaid expenses	(731		)	864			(634		)	595
Net operating losses	—			3,084			—			3,566
Valuation allowance on net operating losses	(2,149		)	(442		)	(459		)	(2,312		)
Other	668			(281		)	225			315
Deferred tax assets (liabilities)	$	1,359		$	(10,652	)	$	2,714		$	(8,567	)

The Company has state net operating loss carryforwards with a tax effect of $3.6 million. A valuation allowance of $2.6 million has been established for these net operating loss carryforwards due to the uncertainty of the use of the tax benefits in future periods.

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, Canada, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years prior to fiscal 2012, or state and local income tax examinations for years prior to fiscal 2008. The Company is not currently under U.S. federal examination for years subsequent to fiscal year 2011, and there is very limited audit activity of the Company’s income tax returns in U.S. state jurisdictions or international jurisdictions.

The Company considers the earnings of its non-U.S. subsidiaries to be indefinitely invested outside of the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and specific plans for reinvestment of those subsidiary earnings. Should the Company decide to repatriate the foreign earnings, it would need to adjust the income tax provision in the period it was determined that the earnings will no longer be indefinitely invested outside the United States.

The total liability for unrecognized tax benefits for fiscal 2015, 2014 and 2013, respectively, is $5.0 million, $5.2 million and $6.8 million. Included in this total liability for each of fiscal 2015 and 2014 are $2.6 million and $3.3 million for fiscal 2013, of tax benefits that, if recognized, would decrease the effective tax rate. Also included in the balance of unrecognized tax benefits for fiscal 2015, 2014 and 2013 are $1.9 million, $1.8 million and $2.2 million of tax benefits that, if recognized, would result in adjustments to deferred taxes.

Penalties and interest related to unrecognized tax benefits are recorded in income tax expense, which is consistent with past practices. Related to the unrecognized tax benefits noted above, the Company reduced the accrual for penalties and interest by $0.3 million during fiscal 2015, resulting in a reserve for interest and penalties of $0.5 million at the end of fiscal 2015. During fiscal 2014, the Company reduced the accrual for penalties and interest by $0.5 million, resulting in a reserve for interest and penalties at the end of fiscal 2014 of $0.8 million. During fiscal 2013, the Company reduced the accrual for penalties and interest by $0.5 million, resulting in a reserve for interest and penalties at the end of fiscal 2013 of $1.3 million.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:



(In thousands)	2015			2014			2013
Gross unrecognized tax benefits at beginning of year	$	4,431		$	5,516		$	7,125
Gross increases in tax positions for prior years	261			44			236
Gross decreases in tax positions for prior years	(276		)	(616		)	(1,480		)
Gross increases based on tax positions related to the current year	508			326			621
Gross decreases based on tax positions related to the current year	(21		)	(40		)	(56		)
Settlements	(93		)	(84		)	(682		)
Statute of limitations expiration	(319		)	(809		)	(248		)
Unrecognized tax benefits acquired in connection with Alumicor	—			94			—
Gross unrecognized tax benefits at end of year	$	4,491		$	4,431		$	5,516

The total liability for unrecognized tax benefits is expected to decrease by approximately $0.7 million during fiscal 2016 due to audit settlements and lapsing of statutes.

In September 2013, the U.S. Department of the Treasury and the IRS issued final regulations addressing the acquisition, production and improvement of tangible property, and also proposed regulations addressing the disposition of property. These regulations replace previously issued temporary regulations and are effective for tax years beginning on or after January 1, 2014. The adoption of the new regulations did not have a material impact on the Company’s consolidated financial statements.