Income Taxes

Earnings before income taxes consisted of the following:



(In thousands)	2016			2015		2014
U.S.	$	100,859		$	59,898	$	36,700
International	(3,535		)	5,101		3,066
Earnings before income taxes	$	97,324		$	64,999	$	39,766

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



(In thousands)	2016			2015			2014
Current:
Federal	$	35,888		$	7,328		$	15,711
State and local	2,866			1,198			1,440
International	(636		)	1,790			1,437
Total current	$	38,118		$	10,316		$	18,588
Deferred:
Federal	$	(5,403	)	$	4,738		$	(4,549	)
State and local	(512		)	(363		)	(378		)
International	(224		)	(101		)	(353		)
Total deferred	$	(6,139	)	$	4,274		$	(5,280	)
Total non-current tax benefit	$	3		$	(107	)	$	(1,528	)
Total income tax expense	$	31,982		$	14,483		$	11,780

Income tax payments, net of refunds were $25.9 million, $11.3 million and $12.9 million in fiscal 2016, 2015 and 2014, respectively.

The following table provides a reconciliation of the statutory federal income tax rate to our consolidated effective tax rates:



	2016	2015	2014
Federal income tax expense at statutory rate	35.0%	35.0%	35.0%
Manufacturing deduction	(3.4)	(2.3)	(3.5)
State and local income taxes, net of federal tax benefit	1.6	1.2	0.9
Tax credits - research & development	(0.8)	(1.1)	(1.6)
Tax credits - 48C	—	(9.9)	—
Nondeductible acquisition costs	—	—	0.3
Tax reserve adjustments - statute expirations and benefits recognized	—	(0.2)	(2.2)
Change in valuation allowance	—	0.1	0.4
Other, net	0.5	(0.5)	0.3
Income tax expense	32.9%	22.3%	29.6%

In fiscal 2015, the Company recognized approximately $6.4 million of tax benefit from an energy-efficient 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 U.S.

In fiscal 2016, 2015 and 2014, tax benefits associated with stock-based incentive plans were $3.9 million, $3.3 million and $2.6 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 27, 2016 and February 28, 2015 are as follows:



	2016						2015
(In thousands)	Current			Noncurrent			Current			Noncurrent
Accounts receivable	$	825		$	—		$	1,022		$	—
Other accruals	2,968			1,281			2,872			1,212
Deferred compensation	554			12,594			419			11,250
Goodwill and other intangibles	18			(7,615		)	21			(7,994		)
Depreciation	—			(17,354		)	(853		)	(20,544		)
Liability for unrecognized tax benefits	—			2,797			—			2,784
Net operating losses	—			2,945			—			3,084
Valuation allowance on net operating losses	(2,194		)	(306		)	(2,149		)	(442		)
Other	(351		)	686			27			(2		)
Deferred tax assets (liabilities)	$	1,820		$	(4,972	)	$	1,359		$	(10,652	)

The Company has net operating loss carryforwards in certain U.S. state jurisdictions with a tax effect of $3.5 million. A valuation allowance of $2.5 million has been established for these net operating loss carryforwards due to the uncertainty of our ability to use 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 2013, or state and local income tax examinations for years prior to fiscal 2009. The Company is not currently under U.S. federal examination for years subsequent to fiscal 2012, 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 U.S. 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 during which it was determined that the earnings will no longer be indefinitely invested outside the U.S.

If we were to prevail on all unrecognized tax benefits recorded, $2.7 million for fiscal 2016 and $2.6 million for each of fiscal 2015 and fiscal 2014 would benefit the effective tax rate. Also included in the balance of unrecognized tax benefits for fiscal 2016, 2015 and 2014, are $1.8 million, $1.9 million and $1.8 million, respectively, 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. During fiscal 2016, our accrual of $0.5 million for penalties and interest related to unrecognized tax benefits was consistent with the prior year. During fiscal 2015 and 2014, respectively, we reduced our accrual for penalties and interest by $0.3 million and $0.5 million, resulting in reserve balances of $0.5 million and $0.8 million at the end of fiscal 2015 and fiscal 2014, respectively.

The following table provides a reconciliation of the total amounts of gross unrecognized tax benefits:



(In thousands)	2016			2015			2014
Gross unrecognized tax benefits at beginning of year	$	4,491		$	4,431		$	5,516
Gross increases in tax positions for prior years	60			261			44
Gross decreases in tax positions for prior years	(158		)	(276		)	(616		)
Gross increases based on tax positions related to the current year	526			508			326
Gross decreases based on tax positions related to the current year	(33		)	(21		)	(40		)
Settlements	—			(93		)	(84		)
Statute of limitations expiration	(374		)	(319		)	(809		)
Unrecognized tax benefits acquired	—			—			94
Gross unrecognized tax benefits at end of year	$	4,512		$	4,491		$	4,431

The total liability for unrecognized tax benefits is expected to decrease by approximately $0.9 million during fiscal 2017 due to audit settlements and lapsing of statutes.