INCOME TAXES

12 Months Ended

Dec. 31, 2018

13. INCOME TAXES

On December 22, 2017, the TCJA was enacted. The TCJA made broad and complex changes to the U.S. tax code including, among other things, (1) reducing the U.S. federal corporate tax rate, and (2) requiring a one-time transition tax on certain unremitted earnings of foreign subsidiaries. The TCJA reduced the U.S. federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018.

The impact of the lower U.S. federal tax rate in 2018 reduced the Company’s 2018 tax provision by $3.2 million. The Company estimated the one-time transition tax by analyzing the current earnings and profits of its foreign subsidiaries and concluded the transition tax is not a material component of its 2018 tax provision.

In 2017, the Company remeasured its deferred tax balances to reflect the new lower federal tax rate, which resulted in a one-time adjustment that reduced its 2017 tax provision by $1.5 million.

The provision for income taxes included the following components for the years ended December 31, 2018 and 2017:

	2018		2017
	(Dollars in thousands)
Current:
Federal	$	3,358	$	3,904
State		1,048		499
Foreign		749		633
Total		5,155		5,036
Deferred		643		2,187
Total provision	$	5,798	$	7,223

The differences between the U.S. federal statutory income tax rate and the Company’s effective tax rate were as follows for the years ended December 31, 2018 and 2017:

	2018			2017
U.S. federal statutory income tax rate		21.0	%		35.0	%
State income taxes, net of federal tax benefit		3.6			2.9
Non-taxable municipal bond interest		(0.5	)		(0.9	)
Foreign income tax rate differences		0.8			0.1
Impact of tax rate change on deferred taxes		-			(5.8	)
Share-based compensation		(2.5	)		0.3
Other		0.1			(1.4	)
Effective tax rate		22.5	%		30.2	%

The foreign component of pretax net earnings was $262,000 and $1.9 million for 2018 and 2017, respectively.

The components of deferred taxes at December 31, 2018, and 2017 were as follows:

	2018			2017
	(Dollars in thousands)
Deferred income tax assets:
Accounts receivable reserves	$	192		$	199
Pension liability		6,122			7,307
Accrued liabilities		1,779			1,975
Carryfoward losses		637			250
Foreign currency losses on intercompany loans		81			(46	)
		8,811			9,685
Deferred income tax liabilities:
Inventory and related reserves		(2,832	)		(2,989	)
Cash value of life insurance		(382	)		(337	)
Property, plant and equipment		(1,145	)		(1,373	)
Intangible assets		(6,702	)		(6,125	)
Prepaid expenses and other assets		(197	)		(180	)
		(11,258	)		(11,004	)
Net deferred income tax liabilities	$	(2,447	)	$	(1,319	)

The net deferred tax liabilities are classified in the Consolidated Balance Sheets as follows:

	2018			2017
	(Dollars in thousands)
Non-current deferred income tax benefits	$	1,277		$	750
Non-current deferred income tax liabilities		(3,724	)		(2,069	)
Net deferred income tax liabilities	$	(2,447	)	$	(1,319	)

Uncertain Tax Positions

The Company accounts for its uncertain tax positions in accordance with ASC 740,

Income Taxes

(“ASC 740”)

ASC 740 provides that the tax effects from an uncertain tax position can be recognized in the Company’s consolidated financial statements only if the position is more likely than not of being sustained on audit, based on the technical merits of the position.

The following table summarizes the activity related to the Company’s unrecognized tax benefits:

	2018			2017
	(Dollars in thousands)
Unrecognized tax benefits balance at January 1,	$	412		$	275
Increases related to current year tax positions		399			144
Decreases due to settlements of tax positions		-			(7	)
Decreases due to lapsing of statute of limitations		(39	)		-
Unrecognized tax benefits balance at December 31,	$	772		$	412

The unrecognized tax benefits at December 31, 2018 and 2017, include $255,000 and $72,000, respectively, of interest related to such positions. The unrecognized tax benefits, if ultimately recognized, would reduce the Company’s annual effective tax rate. The liabilities for potential interest are included in the Consolidated Balance Sheets at December 31, 2018 and 2017.

The Company files a U.S. federal income tax return, various U.S. state income tax returns and several foreign returns. In general, the 2015 through 2018 tax years remain subject to examination by those taxing authorities.