. INCOME TAXES

United States and foreign income before income taxes and minority interest were as follows:

	2019		2018
United States	$	7,059	$	8,679
Foreign		7,448		5,741
	$	14,507	$	14,420

The provision (benefit) for income taxes is comprised of the following:

	2019			2018
Currently payable:
Federal	$	248		$	234
State		261			135
Foreign		(3,644	)		1,400
		(3,135	)		1,769
Deferred:
Federal		920			5,529
State		(7	)		167
Foreign		5,933			(2,692	)
		6,846			3,004
	$	3,711		$	4,773

The components of the net deferred tax asset as of

June 30

are summarized in the table below.

	2019		2018
Deferred tax assets:
Retirement plans and employee benefits	$	7,732	$	6,910
Foreign tax credit carryforwards		6,296		6,866
Federal tax credits		1,057		774
State net operating loss and other state credit carryforwards		1,269		1,190
Inventory		757		1,259
Reserves		765		1,099
Foreign NOL carryforwards		775		2,940
Accruals		339		324
Right of use assets - leases		3,691		-
Other assets		656		403
		23,337		21,765
Deferred tax liabilities:
Property, plant and equipment		3,432		3,473
Intangibles		5,345		1,209
Long term lease obligations		3,617		-
Other liabilities		194		230
		12,588		4,912
Valuation allowance		-		-
Total net deferred tax assets	$	10,749	$	16,853

The Company maintains valuation allowances when it is more likely than

not

that all or a portion of a deferred tax asset will

not

be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, the Company takes into account such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. The Company has evaluated the likelihood of whether the net deferred tax assets would be realized and concluded that it is more likely than

not

that all of deferred tax assets would be realized. Management believes that it is more likely than

not

that the results of future operations will generate sufficient taxable income and foreign source income to realize all the deferred tax assets.

Following is a reconciliation of the applicable U.S. federal income taxes to the actual income taxes reflected in the statements of operations:

	2019			2018

U.S. federal income tax at 21% (27.56% in 2018)	$	3,046		$	3,974
Increases (reductions) in tax resulting from:
Foreign tax items		281			675
State taxes		209			272
Valuation allowance		-			(3,803	)
Change in prior year estimate		(50	)		(89	)
Research and development tax credits		(306	)		(162	)
Section 199 deduction		-			(114	)
Unrecognized tax benefits		158			(42	)
Stock compensation		(153	)		(114	)
Rate changes		15			3,786
Deferred tax basis adjustments		(111	)		431
Executive compensation		291			-
GILTI inclusion		284			-
FDII deduction		(74	)		-
Other, net		121			(41	)
	$	3,711		$	4,773

December 22, 2017,

the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the Internal Revenue Code. The Tax Act is generally applicable for tax years beginning after

December 31, 2017,

which is the Company’s fiscal year

2018.

However, several provisions of the Tax Act have differing effective dates, meaning these provisions did

not

impact the Company’s financial statements until fiscal year

2019.

The provisions impacting the Company’s fiscal year

2019

financial statements include the global intangible low taxed income (“GILTI”) and foreign-derived intangible income (“FDII”) deduction and limitations on the deductibility of executive compensation.

The Securities and Exchange Commission issued Staff Accounting Bulletin

118

to address uncertainty regarding the application of ASC

740

to the income tax effects of the Tax Act, signed into law on

December 22, 2017.

The bulletin provides a measurement period (

not

to exceed

one

year from the Tax Act enactment date) for companies to complete the accounting under ASC

740.

To the extent that a company’s accounting for certain income tax effects is incomplete, but is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate in the financial statements, it should continue to apply ASC

740

on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Tax Act results in comprehensive changes to tax reporting rules. The Company has thoroughly reviewed all provisions of the Tax Act to determine their applicability to both fiscal year

2019

and future years. The Company has prepared a complete analysis of all applicable provisions of the Tax Act and has appropriately reflected their impact in the financial statements as per current guidance. The accounting for those provisions of the Tax Act, which the Company is currently subject to, is disclosed below

Reduction in the Federal Corporate Income Tax Rate:

The Tax Act reduces the corporate tax rate from

35%

21%

for tax years beginning after

December 31, 2017.

A blended rate is calculated for non-calendar year filers resulting in a

27.56%

federal tax rate for fiscal year

2018.

The change in tax rate required a revaluation of the end of year deferred assets and liabilities of the Company. This resulted in additional tax expense of

$3,786.

Deemed Repatriation Transition Tax

: The deemed repatriation transition tax is a tax on previously untaxed accumulated and current earnings and profits of certain foreign subsidiaries. To determine the amount of the transition tax, the Company calculated the amount of post-

1986

earnings and profits for all foreign subsidiaries as well as the amount of non-U.S. income taxes paid on such earnings. The Company calculated the amount of the transition tax and determined it to be

zero

based on overall net historical negative earnings and profits.

Executive Compensation Limitations:

The Tax Act substantially modifies the limitation on corporate deductibility of executive compensation under Section

162

(m) of the Code. Section

162

(m) limits the deduction for compensation paid by a publicly held corporation to certain of its executive employees to

$1,000

per year. The Tax Act has amended the definition of “covered employee” to correspond to the general SEC reporting requirements for named executive officers. These are the corporation’s principal executive officer, principal financial officer, and the next

three

highest-paid executive officers. Most significantly, the Tax Act has eliminated the exemptions for commissions and performance-based compensation.

Global Intangible Low Taxed Income (

“

GILTI

”

The Tax Act changed the foreign source income calculations and related foreign tax credit amounts. The GILTI requires

10%

domestic shareholders (U.S. Shareholders) of controlled foreign corporations (“CFC’s”) to include in gross income annually the U.S. Shareholders’ pro rata share of GILTI for the year.

Foreign Derived Intangible Income (

“

FDII

”

The Tax Act provides companies with this new permanent deduction. An incentive for C corporations to generate revenue from serving foreign markets, the provision applies a preferential tax rate to eligible income. The new tax law assumes a fixed rate of return on a corporation’s tangible assets. Any remaining income is deemed to be generated by intangible assets.

The Company has

not

provided additional U.S. income taxes on cumulative earnings of consolidated foreign subsidiaries that are considered to be reinvested indefinitely. The Company reaffirms its position that these earnings remain permanently invested, and has

plans to repatriate funds to the U.S. for the foreseeable future. These earnings relate to ongoing operations and were approximately

$6,208

June 30, 2019.

Such earnings could become taxable upon the sale or liquidation of these foreign subsidiaries or upon dividend repatriation. It is

not

practicable to estimate the amount of unrecognized withholding taxes and deferred tax liability on such earnings. The Company’s intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax effective through the utilization of foreign tax credits.

Annually, the Company files income tax returns in various taxing jurisdictions inside and outside the United States. In general, the tax years that remain subject to examination are

2015

through

2019

for the Company’s major operations in Italy, Belgium and Japan. The tax years open to examination in the U.S. are for years subsequent to fiscal

2015.

The Company has approximately

$938

of unrecognized tax benefits as of

June 30, 2019,

which, if recognized would impact the effective tax rate. During the fiscal year the amount of unrecognized tax benefits decreased primarily due to reserves which were released upon the conclusion of the fiscal year

2015

IRS income tax audit. During the next

twelve

months, the Company anticipates closure of the Wisconsin income tax audit for the periods from fiscal year

2010

through fiscal year

2013.

This could result in a significant change to the unrecognized tax benefits. The Company’s policy is to accrue interest and penalties related to unrecognized tax benefits in income tax expense.

Below is a reconciliation of beginning and ending amount of unrecognized tax benefits:

	June 30, 2019		June 30, 2018
Unrecognized tax benefits, beginning of year	$	816	$	827
Additions based on tax positions related to the prior year		31		-
Additions based on tax positions related to the current year		91		303
Reductions based on tax positions related to the prior year		-		(9	)
Subtractions due to statutes closing		-		(105	)
Settlements with taxing authorities		-		(200	)
Unrecognized tax benefits, end of year	$	938	$	816

Substantially all of the Company’s unrecognized tax benefits as of

June 30,

3019,

if recognized, would affect the effective tax rate. As of

June 30, 2019

and

2018,

the amounts accrued for interest and penalties totaled

$148

and

93,

respectively, and are

not

included in the reconciliation above.