NOTE 17 - INCOME TAXES

Income from continuing operations before income taxes:


	2014		2013			2012
United States	$	84,801	$	88,405		$	73,811
International		28,425		(2,491	)		24,004

	$	113,226	$	85,914		$	97,815

Income tax expense from the Corporation’s continuing operations has been provided as follows:


	2014		2013		2012
Current:
Federal	$	26,018	$	6,007	$	6,793
International		8,027		839		8,767
State and local		6,044		1,620		9,666

		40,089		8,466		25,226
Deferred		22,615		27,530		15,391

	$	62,704	$	35,996	$	40,617

Reconciliation of the Corporation’s income tax expense from continuing operations from the U.S. statutory rate to the actual effective income tax rate is as follows:


	2014			2013			2012
Income tax expense at statutory rate	$	39,629		$	30,070		$	34,235
State and local income taxes, net of federal tax benefit		7,617			3,638			3,870
Corporate-owned life insurance		(1,625	)		(1,682	)		(726	)
International items, net of foreign tax credits		4,580			1,880			135
Accruals and settlements		793			233			4,031
Valuation allowance		12,606			2,209			(1,163	)
Other		(896	)		(352	)		235

Income tax at effective tax rate	$	62,704		$	35,996		$	40,617

During 2014, the Corporation recorded a valuation allowance against certain net operating loss and foreign tax credit carryforwards which the Corporation believes will expire unused. The valuation allowance was recorded in accordance with Internal Revenue Code section 382 and 383 due to the Merger as previously disclosed in Note 2.

During 2012, of the $27,154 goodwill impairment charge, $5,900 had no tax basis, and therefore, is permanently nondeductible. The effect of this is included in the “International items, net of foreign tax credits” line above.

Income taxes paid from continuing operations were $18,637 in 2014, $25,925 in 2013 and $30,420 in 2012.

Significant components of the Corporation’s deferred tax assets and liabilities are as follows:


	February 28, 2014			February 28, 2013
Deferred tax assets:
Employee benefit and incentive plans	$	59,225		$	63,889
Goodwill and other intangible assets		32,724			39,327
Reserves not currently deductible		25,189			21,798
Net operating loss carryforwards		24,067			26,255
Section 382 net operating loss carryforwards		22,179			16,641
Inventory costing		7,243			3,546
Foreign tax credit carryforwards		6,137			15,177
Accrued expenses deductible as paid		5,882			11,713
Deferred capital loss		2,985			4,309
Deferred revenue		2,154			2,439
Other (each less than 5 percent of total assets)		10,859			10,042

		198,644			215,136
Valuation allowance		(29,318	)		(16,713	)

Total deferred tax assets		169,326			198,423

Deferred tax liabilities:
Property, plant and equipment		53,837			47,744
Other		2,235			5,877

Total deferred tax liabilities		56,072			53,621

Net deferred tax assets	$	113,254		$	144,802

Net deferred tax assets are included on the Consolidated Statement of Financial Position in the following captions:


	February 28, 2014			February 28, 2013
Deferred and refundable income taxes (current)	$	43,589		$	54,351
Deferred and refundable income taxes (noncurrent)		70,261			91,401
Deferred income taxes and noncurrent income taxes payable		(596	)		(950	)

Net deferred tax assets	$	113,254		$	144,802

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases as well as from net operating loss and tax credit carryforwards, and are stated at tax rates expected to be in effect when taxes are actually paid or recovered. Deferred income tax assets represent amounts available to reduce income tax payments in future years.

The Corporation periodically reviews the need for valuation allowances against deferred tax assets and recognizes these deferred tax assets to the extent that realization is more likely than not. Based upon a review of earnings history and trends, forecasted earnings and the relevant expiration of carryforwards, the Corporation believes that the valuation allowances provided are appropriate. At February 28, 2014, the valuation allowance of $29,318 related principally to certain international and domestic net operating loss carryforwards, foreign tax credit carryforwards and deferred capital losses.

At February 28, 2014, the Corporation had deferred tax assets of approximately $4,256 for international net operating loss carryforwards, of which $3,622 have no expiration dates and $634 have expiration dates ranging from 2027 through 2031. In addition, the Corporation had deferred tax assets related to domestic net operating loss, state net operating loss and foreign tax credit (“FTC”) carryforwards of approximately $13,273, $6,538 and $6,137, respectively. The federal net operating loss carryforwards have expiration dates ranging from 2020 to 2028. The state net operating loss carryforwards have expiration dates ranging from 2015 to 2035. The FTC carryforward expires in 2022.

Deferred taxes have not been provided on approximately $22,065 of undistributed earnings of international subsidiaries since substantially all of these earnings are necessary to meet their business requirements. It is not practicable to calculate the deferred taxes associated with these earnings; however, foreign tax credits would be available to reduce federal income taxes in the event of distribution.

At February 28, 2014, the Corporation had unrecognized tax benefits of $19,011 that, if recognized, would have a favorable effect on the Corporation’s income tax expense of $16,255 compared to unrecognized tax benefits of $21,659 that, if recognized, would have a favorable effect on the Corporation’s income tax expense of $18,515 at February 28, 2013. It is reasonably possible that the Corporation’s unrecognized tax positions as of February 28, 2014 could decrease approximately $2,932 during 2015 due to anticipated settlements and resulting cash payments related to open years after 1998, which are currently under examination.

The following chart reconciles the Corporation’s total gross unrecognized tax benefits for the years ended February 28, 2014, February 28, 2013 and February 29, 2012:


	2014			2013			2012
Balance at beginning of year	$	21,659		$	30,360		$	43,323
Additions based on tax positions related to current year		—			—			270
Additions for tax positions of prior years		538			2,106			5,404
Reductions for tax positions of prior years		(2,459	)		(184	)		(8,959	)
Settlements		—			(9,122	)		(9,444	)
Statute lapse		(727	)		(1,501	)		(234	)

Balance at end of year	$	19,011		$	21,659		$	30,360

The Corporation recognizes interest and penalties accrued on unrecognized tax benefits and income taxes as a component of income tax expense. During the year ended February 28, 2014, the Corporation recognized a net expense of $41 for interest and penalties on unrecognized tax benefits and income taxes. As of February 28, 2014, the total amount of gross accrued interest and penalties related to unrecognized tax benefits and income taxes netted to a payable of $3,861. During the year ended February 28, 2013, the Corporation recognized a net expense of $432 for interest and penalties related to unrecognized tax benefits and refundable income taxes. As of February 28, 2013, the total amount of gross accrued interest and penalties related to unrecognized tax benefits and income taxes netted to a payable of $3,835.

The Corporation is subject to examination by the IRS for tax years 2010 to the present and various U.S. state and local jurisdictions for tax years 1998 to the present. The Corporation is also subject to tax examination in various international tax jurisdictions, including Canada, the United Kingdom, Australia, Italy, Mexico and New Zealand for tax years 2006 to the present.