Note F – Income Taxes

The components of income before income taxes are:

	2016		2015		2014
United States	$	33,101	$	35,391	$	49,692
Foreign countries		3,381		1,875		4,042
Total	$	36,482	$	37,266	$	53,734

The components of income tax expense are:

	2016			2015			2014
Current expense:
Federal	$	6,960		$	11,465		$	16,638
Foreign		547			292			946
State and local		581			963			1,376
		8,088			12,720			18,960
Deferred expense (benefit):
Federal		3,429			(443	)		(1,181	)
Foreign		(184	)		(112	)		(114	)
State and local		266			(8	)		(72	)
		3,511			(563	)		(1,367	)
Income tax expense	$	11,599		$	12,157		$	17,593

The reconciliation between income tax expense and the amount computed by applying the statutory federal income tax rate of

35%

to income before income taxes is:

	2016			2015			2014
Income taxes at statutory rate	$	12,769		$	13,043		$	18,807
State and local income taxes, net of federal tax benefit		576			680			674
Research and development tax credits		(371	)		(380	)		(371	)
Domestic production activities deduction		(822	)		(964	)		(1,324	)
Lower foreign taxes differential		(820	)		(476	)		(583	)
Uncertain tax positions		(93	)		26			53
Valuation allowance		-			(59	)		174
Other		360			287			163
Income tax expense	$	11,599		$	12,157		$	17,593

The Company made income tax payments of

$7.8

million,

$13.5

million, and

$19.4

million in

2016,

2015,

and

2014,

respectively.

Deferred income tax assets and liabilities consist of:

	2016			2015			2014
Deferred tax assets:
Inventories	$	721		$	1,664		$	1,030
Accrued liabilities		3,139			2,450			2,538
Postretirement health benefits obligation		7,449			7,547			7,602
Pension		-			3,443			1,649
Deferred revenue		-			-			1,267
Other		879			292			550
Total deferred tax assets		12,188			15,396			14,636
Valuation allowance		(277	)		(277	)		(336	)
Net deferred tax assets		11,911			15,119			14,300
Deferred tax liabilities:
Depreciation and amortization		(16,119	)		(18,059	)		(17,711	)
Pension		(3,017	)		-			-
Total deferred tax liabilities		(19,136	)		(18,059	)		(17,711	)
Net deferred tax liabilities	$	(7,225	)	$	(2,940	)	$	(3,411	)

The Company has a valuation allowance of

$277,000

as of

December

31,

2016

and

2015

against certain of its deferred tax assets. ASC

740

requires that a valuation allowance be recorded against deferred tax assets when it is more likely than not that some or all of a Company’s deferred tax assets will not be realized based on available positive and negative evidence.

Total unrecognized tax benefits were

$492,000

and

$567,000

December

31,

2016

and

2015,

respectively. The total amount of unrecognized tax benefits that, if ultimately recognized, would reduce the Company’s annual effective tax rate were

$397,000

and

$447,000

December

31,

2016

and

2015,

respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2016			2015			2014
Balance at beginning of year	$	567		$	576		$	516
Additions based on tax positions related to the current year		101			113			158
Reductions due to lapse of applicable statute of limitations		(108	)		(101	)		(98	)
Settlements		(68	)		(21	)		-
Balance at end of year	$	492		$	567		$	576

The Company is subject to income taxes in the U.S. federal and various state, local and foreign jurisdictions. Income tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the years before

2012.

The Company has

$56,000

of unrecognized tax benefits recorded for periods for which the relevant statutes of limitations expire in the next

months.

The Company is currently under examination by the Internal Revenue Service for its tax year ending

December

31,

2013.

Any adjustment from this examination is not expected to have a material impact on the consolidated financial position or results of operations of the Company. Management anticipates this examination will be resolved within the next

six

months.

The Company has state tax credit carryforwards of

$518,000

and

$533,000

as of

December

31,

2016

and

2015,

respectively, set to expire between

2019

and

2026.

The Company has foreign net operating losses of

$222,000

of which the majority have no expiration.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense for all periods presented. The Company accrued approximately

$98,000,

$116,000

and

$99,000

for the payment of interest and penalties at

December

31,

2016,

2015

and

2014,

respectively.

The Company did not provide taxes with respect to

$23.9

million of undistributed foreign earnings at

December

31,

2016,

since the earnings are considered by the Company to be permanently reinvested. In an unanticipated future event where these earnings are distributed or deemed distributed in a taxable transaction, the Company

may

be subject to United States income tax and foreign withholding taxes, the net tax liability of which is estimated to be

$1.9

million.