Note G - Income Taxes

Income before income taxes was derived from the following sources:


	2015		2014		2013

United States	$	4,421	$	11,810	$	16,388
Foreign		7,285		9,600		15,406

	$	11,706	$	21,410	$	31,794

The components of income taxes for the year ended December 31 are as follows:


	2015			2014			2013
Current
Federal	$	2,679		$	4,718		$	6,308
Foreign		2,951			5,081			5,018
State and local		345			447			986

		5,975			10,246			12,312

Deferred
Federal		(611	)		(425	)		(1,081	)
Foreign		(309	)		(1,110	)		157
State and local		(24	)		(162	)		(181	)

		(944	)		(1,697	)		(1,105	)

Income taxes	$	5,031		$	8,549		$	11,207

The differences between the provision for income taxes at the U.S. federal statutory rate and the tax shown in the Statements of Consolidated Income for the year ended December 31 are summarized as follows:


	2015			2014			2013
U. S. federal statutory tax rate		35	%		35	%		35	%

Federal tax at statutory rate	$	4,097		$	7,494		$	11,128
State and local taxes, net of federal benefit		89			290			583
U.S. federal permanent items		251			208			124
Domestic production activities deduction		(321	)		(536	)		(372	)
Foreign earnings and related tax credits		700			700			701
Non-U.S. tax rate variances		(685	)		(1,313	)		(1,467	)
Unrecognized tax benefits		(768	)		186			(770	)
Valuation allowance		1,754			1,925			1,091
Tax credits		(212	)		(184	)		(453	)
Other, net		126			(221	)		642

	$	5,031		$	8,549		$	11,207

Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax basis of assets and liabilities and their carrying value for financial statement purposes. The tax effects of temporary differences that give rise to the Company’s deferred tax assets and liabilities at December 31 are as follows:


	2015			2014
Deferred tax assets:
Accrued compensation and benefits	$	1,199		$	1,358
Inventory valuation reserves		3,080			2,849
Allowance for doubtful accounts		335			316
Benefit plan reserves		10,878			11,331
Net operating loss carryforwards		3,851			2,751
Tax credit carryforwards		534			745
Other accrued expenses		2,350			2,226
Unrealized foreign exchange		3,179			1,805

Gross deferred tax assets		25,406			23,381
Valuation allowance		(5,209	)		(3,614	)

Net deferred tax assets		20,197			19,767


Deferred tax liabilities:
Depreciation and other basis differences		(5,841	)		(5,814	)
Intangibles		(2,959	)		(3,706	)
Undistributed foreign earnings		(1,094	)		(444	)
Other		(67	)		(65	)

Deferred tax liabilities		(9,961	)		(10,029	)

Net deferred tax assets	$	10,236		$	9,738


	2015			2014
Change in net deferred tax assets:
Deferred income tax benefit	$	944		$	1,697
Items of other comprehensive income (loss)		(464	)		3,109
Currency translation		18			140
Deferred tax balances from business acquisition		0			(2,025	)

Total change in net deferred tax assets	$	498		$	2,921

Deferred taxes are recorded at a rate at which such items are expected to reverse, based on currently enacted tax rates for temporary differences between the financial reporting and income tax basis of assets and liabilities and operating loss and tax credit carryforwards.

At December 31, 2015, the Company had $3.6 million of foreign net operating loss carryfowards of which $.5 million will expire between the years 2017 and 2025.

The Company assesses the available positive and negative evidence to determine if it is more likely than not sufficient future taxable income will be generated to utilize the existing deferred tax assets by jurisdiction. Based on this evaluation, the Company has established a valuation allowance of $5.2 million at December 31, 2015 in order to measure only the portion of the deferred tax asset that is more likely than not to be realized. The net increase in valuation allowance during the year was $1.6 million, of which $1.8 million impacts the income tax provision and ($.2) million is reflected through Other Comprehensive Income.

The Company has not established a deferred tax liability associated with approximately $130.6 million of its undistributed foreign earnings at December 31, 2015 as these earnings are considered to be permanently reinvested outside the U.S. These earnings would be taxable upon the sale or liquidation of these foreign subsidiaries, or upon the remittance of such earnings. While the measurement of the unrecognized U.S. income taxes with respect to these earnings is not practicable, foreign tax credits would be available to offset some or all of such earnings that would be remitted as dividends.

Income taxes paid net of refunds were approximately $12.3 million in 2015, $7.7 million in 2014 and $19.9 million in 2013.

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. As of December 31, 2015, with few exceptions, the Company is no longer subject to U.S. federal examinations by tax authorities for years before 2012 and state, local or foreign examinations by tax authorities for years before 2009.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, for the year ended December 31:


	2015			2014		2013
Balance at January 1	$	794		$	608	$	1,361
Additions for tax positions of prior years		0			186		0
Reductions for tax positions of prior years		(616	)		0		(588	)
Expiration of statutes of limitations		0			0		(165	)

Balance at December 31	$	178		$	794	$	608

The Company records accrued interest as well as penalties related to unrecognized tax benefits as part of the provision for income taxes. The Company recognized less than $.1 million, net of the amount lapsed through expiring statutes, during each of the years ended December 31, 2015, 2014 and 2013. During the year ended December 31, 2015, the Company reduced previously unrecognized tax benefits by $.6 million, primarily due to final resolution of an audit in the Asia Pacific region, the resolution of which resulted in a $.2 million reduction of unrecognized tax benefits from the amount that was previously accrued. The Company also recognized a related tax benefit during the year for the reduction of accrued interest and penalties of $.5 million and $.1 million, respectively. The Company had approximately less than $.1 million, $.6 million, and $.6 million accrued for the payment of interest for the years ended December 31, 2015, 2014 and 2013, respectively. The Company had approximately $0, $.3 million, and $.3 million accrued for the payment of penalties for the year ended December 31, 2015, 2014 and 2013, respectively. If recognized, approximately $.2 million, $.2 million, and $0 of unrecognized tax benefits would affect the tax rate for the year ended December 31, 2015, 2014 and 2013, respectively. The Company anticipates a decrease in its unrecognized tax benefits by approximately $.2 million within the next twelve months due to effective settlement.