Income Taxes

On December 22, 2017, the 2017 Tax Act was signed into law. The 2017 Tax Act includes a broad range of tax reform provisions affecting businesses, including lower corporate tax rates, changes in business deductions, and international tax provisions. In response to the 2017 Tax Act, the U.S. Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. SAB 118 provides that the measurement period is complete when a company’s accounting is complete and that the measurement period shall not extend beyond one year from the enactment date. SAB 118 provides guidance for registrants under three scenarios: (i) measurement of certain income tax effects is complete, (ii) measurement of certain income tax effects can be reasonably estimated, and (iii) measurement of certain income tax effects cannot be reasonably estimated.

As of April 30, 2019, the Company considers the accounting under SAB 118 for the impacts of the 2017 Tax Act to be complete. We have recorded adjustments to income tax expense to account for the one-time transition tax on deferred foreign income, change in valuation of deferred tax assets associated with tax law changes, and foreign tax credits related to the transition tax.

In accordance with ASC 740, ”Income Taxes”, which requires deferred taxes to be re-measured in the year of an income tax rate change, the Company recorded a deferred income tax expense of $75,000 for the year ended April 30, 2019 as a result of applying a lower weighted average state income tax rate to the Company’s net deferred tax assets.

The Company finalized the accounting policy decision with respect to the new Global Intangible Low-Taxed Income (“GILTI”) tax rules and has concluded that GILTI will be treated as a periodic charge in the year in which it arises. Therefore, the Company will not record deferred taxes for the basis differential attributable to GILTI inclusions in U.S. taxable income. The Company has included $265,000 of tax expense related to GILTI for the year ended April 30, 2019.

Income tax expense consisted of the following:



$ in thousands	2019			2018
Current tax expense (benefit):
Federal	$	(571	)	$	1,719
State and local	(75		)	311
Foreign	1,065			1,414
Total current tax expense	419			3,444
Deferred tax expense (benefit):
Federal	30			442
State and local	59			33
Foreign	(62		)	242
Total deferred tax expense (benefit)	27			717
Net income tax expense	$	446		$	4,161

The reasons for the differences between the above net income tax expense and the amounts computed by applying the statutory federal income tax rate to earnings before income taxes are as follows:



$ in thousands	2019			2018
Income tax expense at statutory rate	$	547		$	2,864
State and local taxes, net of federal income tax benefit (expense)	(29		)	162
Tax credits (state, net of federal benefit)	(546		)	(370		)
Effects of differing US and foreign tax rates	190			(97		)
Rate reduction impact on deferred tax assets	75			680
Federal and state transition tax on unrepatriated foreign earnings	—			649
Effects of stock options exercised	(49		)	—
Effect of prior year true ups	(105		)	—
Impact of foreign subsidiary income to parent	317			—
Increase (decrease) in valuation allowance	7			175
Other items, net	39			98
Net income tax expense	$	446		$	4,161

Significant items comprising deferred tax assets and liabilities as of April 30 were as follows:



$ in thousands	2019			2018
Deferred tax assets:
Accrued employee benefit expenses	$	466		$	418
Allowance for doubtful accounts	28			41
Deferred compensation	922			1,205
Tax credits (state, net of federal benefits)	434			221
Foreign tax credit carryforwards	638			—
Unrecognized actuarial loss, defined benefit plans	1,772			1,825
Inventory reserves	290			378
Net operating loss carryforwards	257			261
Revenue recognition change (See Note 2)	(31		)	—
LIFO change (See Note 3)	(156		)	(162		)
Other	183			79
Total deferred tax assets	4,803			4,266
Deferred tax liabilities:
Book basis in excess of tax basis of property, plant and equipment	(850		)	(1,043		)
Prepaid pension	(1,218		)	(1,093		)
Total deferred tax liabilities	(2,068		)	(2,136		)
Less: valuation allowance	(906		)	(261		)
Net deferred tax assets	$	1,829		$	1,869
Deferred tax assets classified in the balance sheet:
Non-current	1,829			1,869
Net deferred tax assets	$	1,829		$	1,869

Unremitted earnings of subsidiaries outside the United States are considered to be reinvested indefinitely at April 30, 2019. It is not practicable to determine the deferred tax liability for temporary differences related to those unremitted earnings. At April 30, 2019, the Company had deferred tax assets related to the state net operating loss carryforwards in the amount of $26,000 expiring at various times and state tax credit carryforwards in the amount of $207,000, net of federal benefit, expiring beginning in 2020. Due to the current expiration schedule of the state credits, a valuation allowance in the amount of $37,000 has been recorded to reflect the potential expiration of these credits in future years. At April 30, 2019, the Company had federal research and development tax credit carryforwards in the amount of $228,000 expiring beginning in 2039. At April 30, 2019, the Company had foreign tax credit carryforwards in the amount of $638,321 that are subject to a full valuation allowance. At April 30, 2019, the Company had $1,126,000 gross net operating losses in jurisdictions outside of the United States, of which $501,000 is set to expire in years 2020 to 2023. After a review of the expiration schedule of the net operating loss carryforwards and future taxable income required to utilize such carryforwards before their expiration, the Company recorded an additional valuation allowance of $7,000 at April 30, 2019. The Company files federal, state and local tax returns with statutes of limitation generally ranging from 3 to 4 years. The Company is generally no longer subject to federal tax examinations for years prior to fiscal year 2015 or state and local tax examinations for years prior to fiscal year 2014. Tax returns filed by the Company’s significant foreign subsidiaries are generally subject to statutes of limitations of 3 to 7 years and are generally no longer subject to examination for years prior to fiscal year 2013. The Company has no unrecognized tax benefits.