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INCOME TAXES | 12 Months Ended
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Dec. 31, 2017
INCOME TAXES |
INCOME TAXES | NOTE 4—INCOME TAXES: On December 22, 2017, the President of the United States signed into law the U.S. Tax Cuts and Jobs Act (Tax Reform Act). The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a toll tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The Company is required to record the effects of a change in tax law in the period of enactment which is 2017. The provision for income tax and effective tax rate include a $20,318 favorable adjustment related to the remeasurement of its U.S. deferred tax assets and liabilities at the rate expected to be in effect when the temporary differences are realized or settled (remeasured at 21% versus 35%). The other key provision analyzed was the enactment of a one-time toll charge resulting from the mandatory deemed repatriation of undistributed foreign earnings and profits. There was no impact in 2017 from the deemed repatriation provision as the Company determined that there were no net undistributed foreign earnings and profits subject to the toll charge. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company believes it has obtained and analyzed all reasonably available information necessary to record the effects of the change in tax law and considers its accounting for the effects of the 2017 Tax Reform Act to be provisional as of December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional regulatory guidance that may be issued by the Internal Revenue Service, and actions the Company may take as a result of the Tax Reform Act. The domestic and foreign components of pretax income are as follows:
|  | 2017 |  | 2016 |  | 2015 |
Domestic |  | $ | 76,042 |  | $ | 87,016 |  | $ | 82,276 |
Foreign |  |  | 8,519 |  |  | 10,896 |  |  | 10,302 |
|  | $ | 84,561 |  | $ | 97,912 |  | $ | 92,578 |
The provision for income taxes is comprised of the following:
|  | 2017 |  | 2016 |  | 2015 |
Current: |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 6,019 |  | $ | 28,484 |  | $ | 26,259 |
Foreign |  |  | — |  |  | 86 |  |  | (596) |
State |  |  | 369 |  |  | 1,954 |  |  | 785 |
|  |  | 6,388 |  |  | 30,524 |  |  | 26,448 |
Deferred: |  |  |  |  |  |  |  |  |  |
Federal |  |  | (7,191) |  |  | (2,547) |  |  | (1,189) |
Foreign |  |  | 3,425 |  |  | 3,323 |  |  | 2,106 |
State |  |  | 1,285 |  |  | (707) |  |  | (914) |
|  |  | (2,481) |  |  | 69 |  |  | 3 |
|  | $ | 3,907 |  | $ | 30,593 |  | $ | 26,451 |
Significant components of the Company’s net deferred tax liability at year end were as follows:
|  | December 31, |
|  | 2017 |  | 2016 |
Deferred tax assets: |  |  |  |  |  |  |
Accrued customer promotions |  | $ | 1,583 |  | $ | 3,194 |
Deferred compensation |  |  | 15,403 |  |  | 26,509 |
Postretirement benefits |  |  | 3,352 |  |  | 4,732 |
Other accrued expenses |  |  | 4,200 |  |  | 6,543 |
Foreign subsidiary tax loss carry forward |  |  | 7,270 |  |  | 8,452 |
Tax credit carry forward |  |  | 3,435 |  |  | 2,514 |
|  |  | 35,243 |  |  | 51,944 |
Valuation allowance |  |  | (3,269) |  |  | (2,317) |
Total deferred tax assets |  | $ | 31,974 |  | $ | 49,627 |
Deferred tax liabilities: |  |  |  |  |  |  |
Depreciation |  | $ | 18,791 |  | $ | 28,049 |
Deductible goodwill and trademarks |  |  | 34,593 |  |  | 45,733 |
Accrued export company commissions |  |  | 4,189 |  |  | 6,044 |
Employee benefit plans |  |  | 4,662 |  |  | 928 |
Inventory reserves |  |  | 2,147 |  |  | 3,529 |
Prepaid insurance |  |  | 769 |  |  | 1,015 |
Other prepaid expenses |  |  | 1,196 |  |  | — |
Deferred foreign exchange gain |  |  | 405 |  |  | 436 |
Unrealized capital gain |  |  | 977 |  |  | 733 |
Deferred gain on sale of real estate |  |  | 5,278 |  |  | 8,093 |
Total deferred tax liabilities |  | $ | 73,007 |  | $ | 94,560 |
Net deferred tax liability |  | $ | 41,033 |  | $ | 44,933 |
At December 31, 2017, the Company has benefits related to state tax credit carry-forwards expiring by year as follows: $104 in 2018, $853 in 2019, $674 in 2020 $609 in 2021, $220 in 2029, $222 in 2030, $234 in 2031 and $231 in 2032. The Company expects that these state credit carry-forwards will be utilized before their expiration. At December 31, 2017, the tax benefits of the Company’s Canadian subsidiary tax loss carry-forwards expiring by year are as follows: $3,075 in 2029 and $665 in 2031. The tax benefits of the Company’s Mexican subsidiary tax loss carry forwards expiring by year are as follows: $492 in 2036. At December 31, 2017, the Company also had $288 in foreign tax credit carry-forwards. The Company expects that these carry-forwards will be realized before their expiration. At December 31, 2017, the amounts of the Company’s Spanish subsidiary loss carry-forwards expiring by year are as follows: $301 in 2026, $64 in 2027, $192 in 2028, $109 in 2029, $331 in 2030, $441 in 2031, $332 in 2032, $134 in 2033, $464 in 2034 and $670 in 2035. A full valuation allowance has been provided for these Spanish loss carry-forwards as the Company expects that the losses will not be utilized before their expiration. The effective income tax rate differs from the statutory rate as follows:
|  | 2017 |  | 2016 |  | 2015 |
U.S. statutory rate |  | 35.0 | % | 35.0 | % | 35.0 | %
State income taxes, net |  | 1.6 |  | 1.0 |  | 1.1 |
Exempt municipal bond interest |  | (0.1) |  | (0.1) |  | (0.1) |
Foreign tax rates |  | 0.5 |  | (0.4) |  | (1.3) |
Qualified domestic production activities deduction |  | (0.8) |  | (2.7) |  | (2.6) |
Tax credits receivable |  | (1.4) |  | (0.5) |  | (1.2) |
Adjustment of deferred tax balances |  | (24.2) |  | (0.5) |  | 0.2 |
Reserve for uncertain tax benefits |  | (0.3) |  | — |  | (2.1) |
Worthless stock deduction |  | (3.8) |  | — |  | — |
Other, net |  | (1.9) |  | (0.6) |  | (0.4) |
Effective income tax rate |  | 4.6 | % | 31.2 | % | 28.6 | %
The 2017 Tax Reform Act changes the United States approach to the taxation of foreign earnings to a territorial system by providing a one hundred percent dividends received deduction for certain qualified dividends received from foreign subsidiaries. This provision of the Act significantly impacts the accounting for the undistributed earnings of foreign subsidiaries and as a result the Company intends to distribute the earnings of its foreign subsidiaries. The costs associated with a future distribution are not material to the Company’s financial statements. After carefully considering these facts, the Company has determined that it will not be asserting permanent reinvestment of its foreign subsidiaries earnings as of December 31, 2017. At December 31, 2017 and 2016, the Company had unrecognized tax benefits of $4,342 and $4,746, respectively. Included in this balance is $2,475 and $2,761, respectively, of unrecognized tax benefits that, if recognized, would favorably affect the annual effective income tax rate. As of December 31, 2017 and 2016, $475 and $439, respectively, of interest and penalties were included in the liability for uncertain tax positions. A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:
|  | 2017 |  | 2016 |  | 2015 |
Unrecognized tax benefits at January 1 |  | $ | 4,746 |  | $ | 4,680 |  | $ | 6,993 |
Increases in tax positions for the current year |  |  | 394 |  |  | 803 |  |  | 812 |
Reductions in tax positions for lapse of statute of limitations |  |  | (793) |  |  | (718) |  |  | (865) |
Reductions in tax positions relating to settlements with taxing authorities |  |  | — |  |  | (27) |  |  | (772) |
Increases (decreases) in prior period unrecognized tax benefits |  |  | (5) |  |  | 8 |  |  | (1,488) |
Unrecognized tax benefits at December 31 |  | $ | 4,342 |  | $ | 4,746 |  | $ | 4,680 |
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes on the Consolidated Statements of Earnings and Retained Earnings. The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. The Company remains subject to examination by U.S. federal and state and foreign tax authorities for the years 2014 through 2016. With few exceptions, the Company is no longer subject to examinations by tax authorities for the years 2013 and prior.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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