NOTE 17 - INCOME TAXES

Income from continuing operations before income taxes:


	2016			2015			2014
United States	$	210,603		$	139,749		$	84,801
International		(19,614	)		(29,043	)		28,425

	$	190,989		$	110,706		$	113,226

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


	2016			2015			2014
Current:
Federal	$	43,800		$	61,049		$	26,018
International		(39	)		(58	)		8,027
State and local		449			5,965			6,044

		44,210			66,956			40,089
Deferred		16,937			(21,357	)		22,615

	$	61,147		$	45,599		$	62,704

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:


	2016			2015			2014
Income tax expense at statutory rate	$	66,846		$	38,747		$	39,629
State and local income taxes, net of federal tax benefit		3,715			3,085			7,617
Corporate-owned life insurance		(2,545	)		25,861			(1,625	)
International items, net of foreign tax credits		802			(12,258	)		4,580
Uncertain tax benefits and related items		(1,124	)		(1,853	)		793
Valuation allowance		(731	)		(4,244	)		12,606
Domestic production activities deduction		(4,690	)		(5,250	)		(3,815	)
Other		(1,126	)		1,511			2,919

Income tax at effective tax rate	$	61,147		$	45,599		$	62,704

The lower than statutory rate for the current fiscal year was due to the domestic production activities deduction, the tax treatment of corporate-owned life insurance, the benefit of dual consolidated losses of the Corporation’s branches, changes in uncertain tax benefits, and federal provision to return adjustments. This decrease was partially offset by losses in our foreign jurisdictions that have lower tax rates.

During 2015, the Corporation surrendered certain of its corporate-owned life insurance policies that resulted in an increase in income tax expense of $28,279 which is included in the “Corporate-owned life insurance” line above. This increase was partially offset by the benefit of dual consolidated losses of the Corporation’s branches totaling $13,268 which is included in the “International items, net of foreign tax credits” line. The net release of valuation allowances of $4,244 against certain net operating losses and foreign tax credit carryforwards further benefitted income tax expense.

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


	February 29, 2016			February 28, 2015
Deferred tax assets:
Employee benefit and incentive plans	$	51,159		$	60,082
Goodwill and other intangible assets		34,907			41,728
Net operating loss carryforwards		22,929			24,227
Net operating loss carryforwards limited by IRC section 382		21,765			24,319
Reserves not currently deductible		19,596			19,382
Accrued expenses deductible as paid		10,764			9,187
Inventory costing		7,556			9,531
Foreign tax credit carryforwards		1,718			1,227
Deferred revenue		1,413			1,871
Deferred capital loss		1,391			1,407
Other (each less than 5 percent of total assets)		9,458			8,369

		182,656			201,330
Valuation allowance		(25,764	)		(23,482	)

Total deferred tax assets		156,892			177,848
Deferred tax liabilities:
Property, plant and equipment		44,236			48,123
Unrealized Investment Gain		10,160			—
Other		4,654			3,169

Total deferred tax liabilities		59,050			51,292

Net deferred tax assets	$	97,842		$	126,556

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


	February 29, 2016			February 28, 2015
Deferred and refundable income taxes (current)	$	—		$	40,543
Deferred and refundable income taxes (noncurrent)		97,861			86,030
Deferred income taxes and noncurrent income taxes payable		(19	)		(17	)

Net deferred tax assets	$	97,842		$	126,556

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.

As discussed in Note 1, the Corporation recorded an adjustment to mark to market the value of one of its investments as of February 29, 2016. As a result, a decrease in the Corporation’s deferred tax assets in the amount of $12,725 was recognized in other comprehensive income for the fiscal year ended February 29, 2016.

In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”, which simplifies the presentation of deferred income taxes. This ASU requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. The Corporation early adopted ASU 2015-17 during the fourth quarter of 2016 on a prospective basis. Adoption of ASU 2015-17 resulted in a reclassification of the Corporation’s net current deferred tax asset to the net non-current deferred tax asset in the Corporation’s Consolidated Balance Sheet as of February 29, 2016. No prior periods were retrospectively adjusted.

Based upon a review of positive and negative evidence, the Corporation has recorded a valuation allowance of $25,764 and $23,482 as of February 29, 2016 and February 28, 2015, respectively. Of the change during the year, a decrease of $550 was reflected through the income tax provision and an increase of $2,832 was reflected though Other Comprehensive Income. Such valuation allowance relates principally to certain international and domestic net operating loss carryforwards, foreign tax credit carryforwards and international capital losses.

At February 29, 2016, the Corporation had deferred tax assets of approximately $5,525 for international net operating loss carryforwards, of which $5,171 have no expiration dates and $354 have expiration dates ranging from 2031 through 2036. 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 $12,470, $4,934 and $8,673, 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 2016 to 2036. The FTC carryforward has expiration dates ranging from 2019 to 2022.

Deferred taxes have not been provided on approximately $21,043 of undistributed earnings of international subsidiaries since such earnings are deemed to be permanently reinvested. 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 29, 2016, the Corporation had unrecognized tax benefits of $17,112 that, if recognized, would have a favorable effect on the Corporation’s income tax expense of $15,411 compared to unrecognized tax benefits of $20,814 that, if recognized, would have a favorable effect on the Corporation’s income tax expense of $18,597 at February 28, 2015. It is reasonably possible that the Corporation’s unrecognized tax positions as of February 29, 2016 could decrease approximately $1,404 during 2017 due to anticipated expiration of statute of limitations.

The following is a tabular reconciliation of the total amounts of the Corporation’s unrecognized tax benefits:


	2016			2015			2014
Balance at beginning of year	$	20,814		$	19,011		$	21,659
Additions for tax positions of prior years		2,413			3,527			538
Reductions for tax positions of prior years		(3,777	)		(1,440	)		(2,459	)
Settlements		—			(14	)		—
Statute lapse		(2,338	)		(270	)		(727	)

Balance at end of year	$	17,112		$	20,814		$	19,011

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 29, 2016, the Corporation recognized a net benefit of $1,053 for interest and penalties due to a reversal of accrued interest on unrecognized tax benefits and income taxes. This was primarily due to the release of unrecognized tax benefits due to the issuance of regulations that clarified the law and the expiration of a statute of limitations as discussed above. As of February 29, 2016, the total amount of gross accrued interest and penalties related to unrecognized tax benefits and income taxes netted to a payable of $1,526. During the year ended February 28, 2015, the Corporation recognized a net benefit of $1,281 for interest and penalties due to a reversal of accrued interest on unrecognized tax benefits and income taxes. As of February 28, 2015, the total amount of gross accrued interest and penalties related to unrecognized tax benefits and income taxes netted to a payable of $2,580.

With few exceptions, the Corporation is subject to examination in the U.S. and various state and local jurisdictions for tax years 2010 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 2011 to the present.

Income taxes paid from continuing operations were $44,688 in 2016, $59,758 in 2015, and $18,637 in 2014.