INCOME TAXES

12 Months Ended

Dec. 31, 2019

INCOME TAXES

INCOME TAXES

NOTE 4—INCOME TAXES:

The domestic and foreign components of pretax income are as follows:

	2019		2018		2017
Domestic	$	74,978	$	66,253	$	76,042
Foreign		10,426		6,953		8,519
	$	85,404	$	73,206	$	84,561

The provision for income taxes is comprised of the following:

	2019		2018		2017
Current:
Federal	$	15,133	$	12,414	$	6,019
State		2,942		1,421		369
		18,075		13,835		6,388
Deferred:
Federal		(543)		(577)		(7,191)
Foreign		2,422		2,685		3,425
State		611		458		1,285
		2,490		2,566		(2,481)
	$	20,565	$	16,401	$	3,907

Significant components of the Company’s net deferred tax liability at year end were as follows:

	December 31,
	2019		2018
Deferred tax assets:
Accrued customer promotions	$	198	$	913
Deferred compensation		19,432		15,872
Postretirement benefits		3,439		3,119
Other accrued expenses		3,979		4,520
Foreign subsidiary tax loss carry forward		4,584		5,731
Outside basis difference in foreign subsidiary		365		273
Unrealized capital losses		—		472
Deductible state tax depreciation		512		390
Tax credit carry forward		3,059		2,989
		35,568		34,279
Valuation allowance		(4,985)		(3,892)
Total deferred tax assets	$	30,583	$	30,387
Deferred tax liabilities:
Depreciation	$	23,375	$	21,637
Deductible goodwill and trademarks		36,591		35,037
Accrued export company commissions		4,367		4,211
Employee benefit plans		2,700		3,539
Inventory reserves		2,526		2,784
Prepaid insurance		710		735
Unrealized capital gains		1,362		—
Deferred foreign exchange gain		260		577
Deferred gain on sale of real estate		5,298		5,286
Total deferred tax liabilities	$	77,189	$	73,806
Net deferred tax liability	$	46,606	$	43,419

At December 31, 2019, the Company has benefits related to state tax credit carry-forwards expiring by year as follows: $23 in 2019, $672 in 2020, $784 in 2021, $50 in 2028, $131 in 2029, $213 in 2030, $225 in 2031, $238 in 2032, $211 in 2033 and $205 in 2034. The Company expects that not all the credits will be utilized before their expiration and has provided a valuation allowance for the expired amounts.

At December 31, 2019, the tax benefits of the Company’s Canadian subsidiary tax loss carry-forwards expiring by year are as follows: $617 in 2031.

At December 31, 2018, the amounts of the Company’s Spanish subsidiary loss carry-forwards expiring by year are as follows: $282 in 2026, $60 in 2027, $179 in 2028, $102 in 2029, $310 in 2030, $412 in 2031, $311 in 2032, $125 in 2033, $434 in 2034, $548 in 2035, $797 in 2036 and $407 in 2037. A full valuation allowance has been provided for these Spanish loss carry-forwards as the Company expects that the losses will not be utilized before their expiration.

The effective income tax rate differs from the statutory rate as follows:

	2019		2018		2017
U.S. statutory rate	21.0	%	21.0	%	35.0	%
State income taxes, net	0.5		0.5		1.6
Exempt municipal bond interest	(0.1)		(0.1)		(0.1)
Foreign tax rates	1.4		2.1		0.5
Qualified domestic production activities deduction	—		—		(0.8)
Tax credits receivable	0.5		—		(1.4)
Adjustment of deferred tax balances	0.2		0.1		(24.2)
Reserve for uncertain tax benefits	0.4		(1.0)		(0.3)
Worthless stock deduction	—		—		(3.8)
Other, net	0.2		(0.2)		(1.9)
Effective income tax rate	24.1	%	22.4	%	4.6	%

The Company’s 2017 effective tax rate reflects a deferred tax benefit of $20,318 resulting from the revaluation of its net deferred tax liability related to the reduction of the U.S. corporate income tax rate to 21% for tax years beginning after December 31, 2017 under the 2017 Tax Cuts and Jobs Act as required by accounting guidance.

The 2017 Tax Cuts and Jobs Act changed the United States approach to the taxation of foreign earnings to a territorial system by providing a one hundred percent dividends received deduction for certain qualified dividends received from foreign subsidiaries. This provision of the Act significantly impacts the accounting for the undistributed earnings of foreign subsidiaries and as a result the Company intends to distribute the earnings of its foreign subsidiaries. The costs associated with a future distribution are not material to the Company’s financial statements. After carefully considering these facts, the Company has determined that effective December 31, 2017, it will not be asserting permanent reinvestment of its foreign subsidiaries earnings.

At December 31, 2019 and 2018, the Company had unrecognized tax benefits of $3,678 and $3,339, respectively. Included in this balance is $2,012 and $1,765, respectively, of unrecognized tax benefits that, if recognized, would favorably affect the annual effective income tax rate. As of December 31, 2019 and 2018, $562 and $477, respectively, of interest and penalties were included in the liability for uncertain tax positions.

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:

	2019		2018		2017
Unrecognized tax benefits at January 1	$	3,339	$	4,342	$	4,746
Increases in tax positions for the current year		1,164		448		394
Reductions in tax positions for lapse of statute of limitations		(576)		(751)		(793)
Reductions in tax positions for settlements and payments		(249)		—		—
Increases (decreases) in prior period unrecognized tax benefits due to change in judgment		—		(700)		(5)
Unrecognized tax benefits at December 31	$	3,678	$	3,339	$	4,342

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes on the Consolidated Statements of Earnings and Retained Earnings.

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. The Company generally remains subject to examination by U.S. federal and state and foreign tax authorities for the years 2016 through 2018. With few exceptions, the Company is no longer subject to examinations by tax authorities for the years 2015 and prior.