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INCOME TAXES | 12 Months Ended
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Dec. 31, 2018
INCOME TAXES |
INCOME TAXES | NOTE 4—INCOME TAXES: The U.S. corporate statutory income tax rate is 21% effective for tax years beginning after December 31, 2017. As of December 31, 2018, the Company’s accounting for the tax effects of the 2017 Tax Cuts and Jobs Act is final in accordance with the SAB 118 guidance and there were no cumulative tax affects recorded in 2018. The domestic and foreign components of pretax income are as follows:
|  | 2018 |  | 2017 |  | 2016 |
Domestic |  | $ | 66,253 |  | $ | 76,042 |  | $ | 87,016 |
Foreign |  |  | 6,953 |  |  | 8,519 |  |  | 10,896 |
|  | $ | 73,206 |  | $ | 84,561 |  | $ | 97,912 |
The provision for income taxes is comprised of the following:
|  | 2018 |  | 2017 |  | 2016 |
Current: |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 12,414 |  | $ | 6,019 |  | $ | 28,484 |
Foreign |  |  | — |  |  | — |  |  | 86 |
State |  |  | 1,421 |  |  | 369 |  |  | 1,954 |
|  |  | 13,835 |  |  | 6,388 |  |  | 30,524 |
Deferred: |  |  |  |  |  |  |  |  |  |
Federal |  |  | (577) |  |  | (7,191) |  |  | (2,547) |
Foreign |  |  | 2,685 |  |  | 3,425 |  |  | 3,323 |
State |  |  | 458 |  |  | 1,285 |  |  | (707) |
|  |  | 2,566 |  |  | (2,481) |  |  | 69 |
|  | $ | 16,401 |  | $ | 3,907 |  | $ | 30,593 |
Significant components of the Company’s net deferred tax liability at year end were as follows:
|  | December 31, |
|  | 2018 |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |
Accrued customer promotions |  | $ | 913 |  | $ | 1,583 |
Deferred compensation |  |  | 15,872 |  |  | 15,403 |
Postretirement benefits |  |  | 3,119 |  |  | 3,352 |
Other accrued expenses |  |  | 4,520 |  |  | 4,200 |
Foreign subsidiary tax loss carry forward |  |  | 5,731 |  |  | 7,270 |
Outside basis difference in foreign subsidiary |  |  | 273 |  |  | — |
Unrealized capital losses |  |  | 472 |  |  | — |
Deductible state tax depreciation |  |  | 390 |  |  | — |
Tax credit carry forward |  |  | 2,989 |  |  | 3,435 |
|  |  | 34,279 |  |  | 35,243 |
Valuation allowance |  |  | (3,892) |  |  | (3,269) |
Total deferred tax assets |  | $ | 30,387 |  | $ | 31,974 |
Deferred tax liabilities: |  |  |  |  |  |  |
Depreciation |  | $ | 21,637 |  | $ | 18,791 |
Deductible goodwill and trademarks |  |  | 35,037 |  |  | 34,593 |
Accrued export company commissions |  |  | 4,211 |  |  | 4,189 |
Employee benefit plans |  |  | 3,539 |  |  | 4,662 |
Inventory reserves |  |  | 2,784 |  |  | 2,147 |
Prepaid insurance |  |  | 735 |  |  | 769 |
Other prepaid expenses |  |  | — |  |  | 1,196 |
Deferred foreign exchange gain |  |  | 577 |  |  | 405 |
Unrealized capital gain |  |  | — |  |  | 977 |
Deferred gain on sale of real estate |  |  | 5,286 |  |  | 5,278 |
Total deferred tax liabilities |  | $ | 73,806 |  | $ | 73,007 |
Net deferred tax liability |  | $ | 43,419 |  | $ | 41,033 |
At December 31, 2018, the Company has benefits related to state tax credit carry-forwards expiring by year as follows: $478 in 2019, $672 in 2020, $524 in 2021, $14 in 2028, $64 in 2029, $222 in 2030, $234 in 2031, $248 in 2032 and $236 in 2033. The Company expects that these state credit carry-forwards will be utilized before their expiration. At December 31, 2018, the tax benefits of the Company’s Canadian subsidiary tax loss carry-forwards expiring by year are as follows: $1,232 in 2029 and $612 in 2031. The tax benefits of the Company’s Mexican subsidiary tax loss carry forwards expiring by year are as follows: $236 in 2036. At December 31, 2018, the amounts of the Company’s Spanish subsidiary loss carry-forwards expiring by year are as follows: $288 in 2026, $61 in 2027, $183 in 2028, $104 in 2029, $316 in 2030, $421 in 2031, $317 in 2032, $128 in 2033, $443 in 2034, $560 in 2035 and $830 in 2036. 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:
|  | 2018 |  | 2017 |  | 2016 |
U.S. statutory rate |  | 21.0 | % | 35.0 | % | 35.0 | %
State income taxes, net |  | 0.5 |  | 1.6 |  | 1.0 |
Exempt municipal bond interest |  | (0.1) |  | (0.1) |  | (0.1) |
Foreign tax rates |  | 2.1 |  | 0.5 |  | (0.4) |
Qualified domestic production activities deduction |  | — |  | (0.8) |  | (2.7) |
Tax credits receivable |  | — |  | (1.4) |  | (0.5) |
Adjustment of deferred tax balances |  | 0.1 |  | (24.2) |  | (0.5) |
Reserve for uncertain tax benefits |  | (1.0) |  | (0.3) |  | — |
Worthless stock deduction |  | — |  | (3.8) |  | — |
Other, net |  | (0.2) |  | (1.9) |  | (0.6) |
Effective income tax rate |  | 22.4 | % | 4.6 | % | 31.2 | %
The Company’s 2017 effective tax rate reflects a deferred tax benefit of $20,318 resulting from the revaluation of its net deferred tax liability related to the reduction of the U.S. corporate income tax rate to 21% for tax years beginning after December 31, 2017 under the 2017 Tax Cuts and Jobs Act as required by accounting guidance. The 2017 Tax Cuts and Jobs 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, 2018 and 2017, the Company had unrecognized tax benefits of $3,339 and $4,342, respectively. Included in this balance is $1,765 and $2,475, respectively, of unrecognized tax benefits that, if recognized, would favorably affect the annual effective income tax rate. As of December 31, 2018 and 2017, $477 and $475, 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:
|  | 2018 |  | 2017 |  | 2016 |
Unrecognized tax benefits at January 1 |  | $ | 4,342 |  | $ | 4,746 |  | $ | 4,680 |
Increases in tax positions for the current year |  |  | 448 |  |  | 394 |  |  | 803 |
Reductions in tax positions for lapse of statute of limitations |  |  | (751) |  |  | (793) |  |  | (718) |
Reductions in tax positions relating to settlements with taxing authorities |  |  | — |  |  | — |  |  | (27) |
Increases (decreases) in prior period unrecognized tax benefits due to change in judgment |  |  | (700) |  |  | (5) |  |  | 8 |
Unrecognized tax benefits at December 31 |  | $ | 3,339 |  | $ | 4,342 |  | $ | 4,746 |
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 2015 through 2017. With few exceptions, the Company is no longer subject to examinations by tax authorities for the years 2014 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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