NOTE 9 - INCOME TAXES

On December 22, 2017, the Tax Reform Act was signed into law by President Trump. The Tax Reform Act significantly revised the U.S. corporate income tax regime by lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted.

The FASB Staff also provided additional guidance to address the accounting for the effects of the Tax Reform Act provisions related to the taxation of GILTI, noting that companies should make an accounting policy election to recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to include the tax expense in the year it is incurred. We have not completed our analysis of the effects of the GILTI provisions and will further consider the accounting policy election within the measurement period as provided for under SAB 118.

The Tax Reform Act also changed the individuals whose compensation is subject to a $1 million cap on deductibility under Section 162(m) and includes performance-based compensation such as stock options and stock appreciation rights in the calculation. The provision generally applies to taxable years beginning after December 31, 2017 and provides a transition for compensation paid pursuant to a written binding contract that is in effect on November 2, 2017. The Company will need to carefully review the terms of its compensation plans and agreements to assess whether such plans and agreements are considered to be written binding contracts in effect on November 2, 2017. Due to the complexity of applying this new provision and the limited time to consider tax reform, the Company has not yet completed its analysis of these new provisions and will finalize its analysis during the measurement period provided under SAB 118.

Income tax expense consists of the following:

	2017			2016			2015
Current:
Federal	$	20,102		$	28,765		$	29,638
Foreign		3,015			2,670			3,021
State		2,790			2,483			2,982
Deemed Repatriation		1,389			-			-
Deferred:
Federal		(1,302	)		(7,114	)		(6,815	)
Foreign		62			52			58
State		(384	)		106			(1,543	)
Federal Rate Change		(27,255	)		-			-
Total income tax provision	$	(1,583	)	$	26,962		$	27,341

The provision for income taxes differs from the amount computed by applying the Federal statutory rate of 35% to earnings before income tax expense due to the following:

	2017			2016			2015
Income tax at Federal statutory rate	$	30,971		$	29,027			30,471
State income taxes, net of Federal income taxes		708			1,510			556
Federal Rate Change		(27,255	)		-			-
Stock Options		(2,927	)		-			-
Deemed Repatriation		1,389			-			-
Domestic production activities deduction		(2,382	)		(3,299	)		(2,709	)
Other		(2,087	)		(276	)		(977	)
Total income tax provision	$	(1,583	)	$	26,962			27,341

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2017 and 2016 were as follows:

	2017		2016
Deferred tax assets:
Inventories	$	1,297	$	2,378
Restricted stock and stock options		3,248		5,100
Other		1,764		2,629
Total deferred tax assets		6,309		10,107
Deferred tax liabilities:
Amortization	$	31,311	$	56,111
Depreciation		22,172		27,435
Other		1,374		48
Total deferred tax liabilities		54,857		83,594
Net deferred tax liability	$	48,548	$	73,487

There is no valuation allowance for deferred tax assets at December 31, 2017 and 2016. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences. The amount of deferred tax asset realizable, however, could change if management’s estimate of future taxable income should change.

Provisions of ASC 740-10 clarify whether or not to recognize assets or liabilities for tax positions taken that may be challenged by a tax authority. A reconciliation of the beginning and ending amount of unrecognized tax benefits, which is included in other long-term obligations on the Company’s consolidated balance sheets, is as follows:

	2017			2016			2015
Balance at beginning of period	$	6,637		$	6,570		$	5,205
Increases for tax positions of prior years		393			332			943
Decreases for tax positions of prior years		(2,711	)		(406	)		(120	)
Increases for tax positions related to current year		462			141			542
Balance at end of period	$	4,781		$	6,637		$	6,570

All of the Company’s unrecognized tax benefits, if recognized in future periods, would impact the Company’s effective tax rate in such future periods.

The Company recognizes both interest and penalties as part of the income tax provision. During the years ended December 31, 2017, 2016 and 2015, the Company recognized approximately $94, $94 and $138 in interest and penalties, respectively. As of December 31, 2017 and 2016, accrued interest and penalties were $1,882 and $2,486, respectively.

The Company files income tax returns in the U.S. and in various states and foreign countries. In the major jurisdictions where the Company operates, it is generally no longer subject to income tax examinations by tax authorities for years before 2013. The Company does not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months.