Entity information:
Income Taxes
Income before income taxes is as follows:
 
 
Years Ended March 31
 
 
2017
 
2016
 
2015
Current:
 
 
 
 
 
 
U.S.
 
$
(265,825
)
 
$
220,685

 
$
133,027

Non-U.S.
 
15,131

 
17,722

 
21,019

Income before income taxes
 
$
(250,694
)
 
$
238,407

 
$
154,046



Our income tax provision consists of:
 
 
Years Ended March 31
 
 
2017
 
2016
 
2015
Current:
 
 
 
 
 
 
Federal
 
$
34,811

 
$
78,116

 
$
61,202

State
 
5,724

 
8,377

 
4,866

Non-U.S.
 
5,769

 
5,179

 
9,052

Deferred:
 
 
 
 
 
 
Federal
 
(20,214
)
 
(2,248
)
 
150

State
 
(1,622
)
 
(308
)
 
410

Non-U.S.
 
(708
)
 
2,254

 
(1,162
)
Income tax provision
 
$
23,760

 
$
91,370

 
$
74,518


The items responsible for the differences between the federal statutory rate and our effective rate are as follows:
 
 
Years Ended March 31
 
 
2017
 
2016
 
2015
Statutory federal income tax rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of federal impact
 
(1.2
)%
 
3.2
 %
 
4.7
 %
Domestic manufacturing deduction
 
1.4
 %
 
(2.2
)%
 
(2.9
)%
Nondeductible transaction costs
 
(0.3
)%
 
0.5
 %
 
3.8
 %
Nondeductible goodwill impairment
 
(49.3
)%
 
—
 %
 
9.3
 %
Acquisition claim settlement gain
 
4.2
 %
 
—
 %
 
—
 %
Other
 
0.7
 %
 
1.8
 %
 
(1.5
)%
Income tax provision
 
(9.5
)%
 
38.3
 %
 
48.4
 %

Deferred income taxes arise because of differences in the timing of the recognition of income and expense items for financial statement reporting and income tax purposes. The net effect of these temporary differences between the carrying amounts of assets and liabilities are classified in the consolidated and combined financial statements of financial position as noncurrent assets or liabilities. As of March 31, 2017 and 2016, the components of deferred tax assets and liabilities were as follows:
 
 
March 31,
 
 
2017
 
2016
Deferred Tax Assets:
 
 
 
 
  Inventory
 
$
21,858

 
$
17,356

  Retirement benefits
 
21,684

 
25,996

  Accounts receivable
 
8,737

 
10,952

  Accruals for employee benefits
 
10,106

 
9,392

  Other reserves
 
12,662

 
8,373

  Loss and credit carryforwards
 
9,808

 
3,143

  Other
 
—

 
945

Total deferred tax assets
 
84,855

 
76,157

  Valuation allowance
 
(5,092
)
 
(3,234
)
Total net deferred assets
 
79,763

 
72,923

Deferred tax liabilities:
 
 
 
 
  Intangible assets
 
(203,896
)
 
(184,486
)
  Property, plant and equipment
 
(31,731
)
 
(24,394
)
  Other
 
(4,901
)
 
—

Total deferred tax liabilities
 
(240,528
)
 
(208,880
)
Net deferred income tax liabilities
 
$
(160,765
)
 
$
(135,957
)


We believe it is more likely than not that the recorded deferred tax benefits will be realized through the reduction of future taxable income. Our recorded valuation allowance of $5,092 at March 31, 2017 relates to certain tax credits, net operating losses and interest carryforwards that are not expected to be realized before their expiration. The valuation allowance increased during fiscal 2017 primarily due to additional state operating losses.

Included in the net deferred tax liability are federal, foreign and state net operating loss and credit carryovers, $9,746 of which expires in years ending from March 31, 2017 through March 31, 2037 and $62 that may be carried over indefinitely. The carryforwards presented above are net of any applicable uncertain tax positions.
We have provided for U.S. deferred income taxes in the amount of $8,856 on undistributed earnings not considered indefinitely reinvested. Additionally, we have undistributed earnings of $26,667 generated from certain foreign subsidiaries for which no deferred tax liability has been recorded, as we intend to indefinitely reinvest these earnings. These undistributed earnings may become taxable in the United States upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary. Determination of the amount of any unrecognized deferred income tax liability on the temporary difference for these indefinitely reinvested undistributed earnings is not practicable.
Income tax paid, net of refunds, totaled $72,344 in fiscal 2017, and $93,038 in fiscal 2016.
At March 31, 2017, and 2016, unrecognized tax benefits that have not been recorded in the financial statements amounted to $33,466 and $36,194, respectively, of which $26,911 and $29,884, respectively, would affect the effective tax rate. The remaining balance is related to deferred tax items which only impact the timing of tax payments. Although the timing and outcome of audit settlements are uncertain, it is reasonably possible that a $2,650 reduction of the uncertain tax benefits will occur in the next 12 months. The settlement of these unrecognized tax benefits could result in earnings from $0 to $1,756.
We have classified uncertain tax positions as non-current income tax liabilities unless expected to be paid within one year. A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:
 
 
Year ended March 31, 2017
 
Year ended March 31, 2016
 
Year ended March 31, 2015
Unrecognized Tax Benefits—beginning of period
 
$
30,643

 
$
27,334

 
$
23,237

Gross increases—tax positions in prior periods
 
—

 
15,461

 
2,275

Gross decreases—tax positions in prior periods
 
(2,186
)
 
—

 
(283
)
Gross increases—current-period tax positions
 
1,726

 
2,776

 
2,262

Settlements
 
(2,172
)
 
(14,210
)
 
(52
)
Lapse of statute of limitations
 
(860
)
 
(718
)
 
(105
)
Unrecognized Tax Benefits—end of period
 
$
27,151

 
$
30,643

 
$
27,334


We report income tax-related interest income within the income tax provision. Penalties and tax-related interest expense are also reported as a component of the income tax provision. As of March 31, 2017 and 2016, $3,885 and $3,046 of income tax-related interest and $2,429 and $2,505 of penalties were included in accrued income taxes, respectively. Our current tax provision included $1,319 of expense related to interest and penalties.
We entered into a Tax Matters Agreement with Orbital ATK that governs the respective rights, responsibilities and obligations of Vista Outdoor and Orbital ATK after the Spin-Off with respect to tax liabilities and benefits, tax attributes, tax contests and other tax sharing regarding U.S. federal, state, local and foreign income taxes, other tax matters and related tax returns. We have joint and several liability with Orbital ATK to the IRS for the consolidated U.S. federal income taxes of the Orbital ATK consolidated group relating to the taxable periods in which we were part of that group. However, the Tax Matters Agreement specifies the portion, if any, of this tax liability for which we bear responsibility, and Orbital ATK agrees to indemnify us against any amounts for which we are not responsible. The Tax Matters Agreement also provides special rules for allocating tax liabilities in the event that the Spin-Off is determined not to be tax-free. Though valid as between the parties, the Tax Matters Agreement is not binding on the IRS.
Prior to the Spin-Off, Orbital ATK or one of its subsidiaries filed income tax returns in the U.S. federal and various U.S. state jurisdictions that included Vista Outdoor. In addition, certain of our subsidiaries filed income tax returns in foreign jurisdictions. After the Spin-Off we file income tax returns in the U.S. federal, foreign and various U.S. state jurisdictions. With a few exceptions, Orbital ATK and its subsidiaries and Vista Outdoor are no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities prior to 2010. The IRS has completed the audits of Orbital ATK through fiscal 2014 and is currently auditing Orbital ATK's tax return for fiscal 2015. The IRS is also currently auditing our tax return that begins after the Spin-Off and ends on March 31, 2015. We believe appropriate provisions for all outstanding issues relating to our portion of these returns have been made for all remaining open years in all jurisdictions.