Income Taxes

Earnings before income taxes consisted of the following:



(In thousands)	2018			2017			2016
U.S.	$	111,980		$	123,229		$	100,859
International	(2,100		)	(424		)	(3,535		)
Earnings before income taxes	$	109,880		$	122,805		$	97,324

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



(In thousands)	2018			2017			2016
Current
Federal	$	22,074		$	35,610		$	35,888
State and local	3,106			2,929			2,866
International	1,578			(147		)	(636		)
Total current	26,758			38,392			38,118
Deferred
Federal	4,049			(945		)	(5,403		)
State and local	351			(78		)	(512		)
International	(1,205		)	(42		)	(224		)
Total deferred	3,195			(1,065		)	(6,139		)
Total non-current tax (benefit) expense	439			(312		)	3
Total income tax expense	$	30,392		$	37,015		$	31,982

Income tax payments, net of refunds, were $25.7 million, $47.8 million and $25.9 million in fiscal 2018, 2017 and 2016, respectively.

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



	2018		2017		2016
Federal income tax expense at statutory rate	32.7	%	35.0	%	35.0	%
Tax rate change revaluation	(3.7	)	—		—
Manufacturing deduction	(2.2	)	(3.3	)	(3.4	)
State and local income taxes, net of federal tax benefit	1.8		1.6		1.6
Foreign tax rate differential	(0.7	)	(1.6	)	—
Tax credits - research & development	(0.9	)	(0.7	)	(0.8	)
Other, net	0.7		(0.9	)	0.5
Income tax expense	27.7	%	30.1	%	32.9	%

The estimated effective tax rate for fiscal 2018 declined 2.4 percentage points from fiscal 2017 primarily due to the U.S. Tax Cuts and Jobs Act ("the Act"), which was enacted in December 2017. Among other things, the Act reduces the U.S. federal corporate tax rate from 35 percent to 21 percent beginning January 1, 2018, resulting in a blended tax rate for our fiscal 2018. It also requires the revaluation of deferred taxes, which generated a tax benefit in the quarter of $4.1 million.

Also in December 2017, the SEC issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for tax effects of the Act. SAB 118 provides a measurement period that should not extend beyond one year from the enactment date of the Act for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Act. The FASB provided additional guidance to address the accounting for the effects of the provisions related to the taxation of Global Intangible Low-Taxed Income, or GILTI, noting that companies should make an accounting policy election to recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to include the tax expense in the year it is incurred. We have not completed our analysis of the effects of the GILTI provisions and will further consider the accounting policy election within the measurement period as provided for under SEC Staff Accounting Bulletin 118.

In fiscal 2017, we recorded a net tax benefit of $1.9 million on a distribution from our Brazilian operation.

Deferred tax assets and deferred tax liabilities at March 3, 2018 and March 4, 2017 were:



(In thousands)	2018			2017
Other accruals	3,428			4,254
Deferred compensation	8,926			15,189
Goodwill and other intangibles	(4,655		)	(7,601		)
Depreciation	(19,523		)	(18,714		)
Liability for unrecognized tax benefits	2,850			2,623
Net operating losses and tax credits	6,272			5,790
Valuation allowance on net operating losses	(4,296		)	(2,352		)
Unearned income	2,628			—
Other	1,067			811
Deferred tax (liabilities) assets	$	(3,303	)	$	—

The Company has U.S. federal tax credits as well as state net operating loss carryforwards with a tax effect of $6.3 million. A valuation allowance of $4.3 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 2015, or state and local income tax examinations for years prior to fiscal 2010. The Company is not currently under U.S. federal examination for years subsequent to fiscal 2014, 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 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 U.S.

If we were to prevail on all unrecognized tax benefits recorded, $2.4 million, $2.1 million and $2.7 million for fiscal 2018, 2017 and 2016, respectively, would benefit the effective tax rate. Also included in the balance of unrecognized tax benefits for fiscal 2018, 2017 and 2016, are $2.3 million, $2.0 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. For fiscal 2018, we accrued penalties and interest related to unrecognized tax benefits of $0.4 million. For fiscal 2017 and 2016, the accrual was $0.4 million and $0.5 million, respectively.

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



(In thousands)	2018			2017			2016
Gross unrecognized tax benefits at beginning of year	$	4,075		$	4,512		$	4,491
Gross increases in tax positions for prior years	614			54			60
Gross decreases in tax positions for prior years	(122		)	(233		)	(158		)
Gross increases based on tax positions related to the current year	639			508			526
Gross decreases based on tax positions related to the current year	—			—			(33		)
Settlements	—			(23		)	—
Statute of limitations expiration	(519		)	(743		)	(374		)
Revaluation impact	18			—			—
Gross unrecognized tax benefits at end of year	$	4,705		$	4,075		$	4,512

The total liability for unrecognized tax benefits is expected to decrease by approximately $0.5 million during fiscal 2019 due to lapsing of statutes.