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INCOME TAXES

12 Months Ended

Dec. 31, 2020

13. INCOME TAXES

The provision for income taxes included the following components for the years ended December 31, 2020 and 2019:


	2020		2019

	(Dollars in thousands)
Current:
Federal	$	(1,954)	$	4,784
State		(154)		1,510
Foreign		784		777
Total		(1,324)		7,071
Deferred		2,755		(869)
Total provision	$	1,431	$	6,202

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, 2020 and 2019:


	2020		2019
U.S. federal statutory income tax rate	21.0	%	21.0	%
State income taxes, net of federal tax benefit	1.8		4.3
Non-taxable municipal bond interest	1.3		(0.4)
Net Operating Loss Carryback Under the CARES Act	10.4		—
Foreign income tax rate differences	(24.3)		—
Reversal of deferred tax assets on foreign net operating losses	(28.4)		—
Tax settlements	—		(1.2)
Share-based compensation	(1.0)		0.2
Other	(1.1)		(1.0)
Effective tax rate	(20.3)	%	22.9	%

The foreign component of pretax net earnings was a loss of $5,552,000 and a loss of $2,127,000 for 2020 and 2019, respectively.

In response to the global impacts of COVID-19 on U.S. companies and citizens, the U.S. government enacted the CARES Act on March 27, 2020. The CARES Act included several tax relief options for companies, including a five-year net operating loss carryback. The Company will carry back its 2020 net operating loss to 2015, when the statutory federal tax rate was 35%.

The Company's foreign subsidiaries, Florsheim Australia and Florsheim Europe, had net operating losses this year, and the Company determined it was more likely than not that current year tax benefits would not be realized, and recorded no current year tax provision for these entities, causing the majority of the negative foreign income tax rate differences noted above.

The Company determined it is more likely than not that $2.0 million of deferred tax assets related to foreign tax carryforwards will not be realized, and reversed them in 2020.

The components of deferred taxes at December 31, 2020, and 2019 were as follows:


	2020		2019

	(Dollars in thousands)
Deferred income tax assets:
Accounts receivable reserves	$	269	$	197
Pension liability		8,842		7,274
Accrued liabilities		1,720		1,794
Operating lease liabilities		2,716		4,475
Carryfoward losses		—		1,727
Foreign currency losses on intercompany loans		58		39
		13,605		15,506
Deferred income tax liabilities:
Inventory and related reserves		(3,149)		(2,795)
Cash value of life insurance		(485)		(431)
Property, plant and equipment		(1,285)		(1,195)
Intangible assets		(7,913)		(7,482)
Operating lease right-of-use assets		(2,087)		(3,960)
Prepaid expenses and other assets		(365)		(241)
		(15,284)		(16,104)
Net deferred income tax liabilities	$	(1,679)	$	(598)

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


	2020		2019

	(Dollars in thousands)
Non-current deferred income tax benefits	$	1,235	$	2,487
Non-current deferred income tax liabilities		(2,914)		(3,085)
Net deferred income tax liabilities	$	(1,679)	$	(598)

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:


	2020		2019

	(Dollars in thousands)
Unrecognized tax benefits balance at January 1,	$	636	$	772
Increases related to current year tax positions		257		190
Decreases due to settlements of tax positions		—		(275)
Decreases due to lapsing of statute of limitations		(60)		(51)
Unrecognized tax benefits balance at December 31,	$	833	$	636

The unrecognized tax benefits at December 31, 2020 and 2019, include $155,000 and $115,000, 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, 2020 and 2019.

The Company files a U.S. federal income tax return, various U.S. state income tax returns and several foreign returns. In general, the 2017 through 2020 tax years remain subject to examination by those taxing authorities.

- 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.

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