Income Taxes

On December 22, 2017, the President of the United States (“U.S.”) signed into law the Tax Cuts and Jobs Act (the "Tax Reform Act"), which enacted significant changes to U.S. tax laws. Some of the provisions of the new tax law affecting corporations include, but are not limited to lowering the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, immediate expensing of certain qualified capital expenditures, implementing a territorial tax system and imposing a one-time transitional toll tax on deferred foreign earnings. In the fourth quarter 2017, the Company recorded the provisional tax effects, including a tax charge of $1,000 due to the remeasurement of deferred tax assets and liabilities and an estimated tax liability of $6,100 due to the transition toll tax on the deemed repatriation of deferred foreign earnings of non-U.S. operations. The Tax Reform Act was the main reason for the reduction of our effective tax rate for the year ended December 31, 2018.

On December 22, 2017, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin 118 (“SAB 118”). This guidance allowed registrants a “measurement period”, not to exceed one year from the date of enactment, to complete their accounting for the tax effects of the Tax Reform Act. SAB 118 further directed that during the measurement


Q.	Income Taxes (continued)

period, registrants who were able to make reasonable estimates for the tax effects of the Tax Reform Act should include those amounts in their financial statements as “provisional” amounts. Registrants were to reflect adjustments over subsequent periods as they were able to refine their estimates and complete their accounting for the tax effects of the Tax Reform Act. The provisional amounts computed by the Company were finalized when the U.S. corporate income tax return for 2017 was filed in September 2018. The change for the provisional amount to the final amount was immaterial.

Other provisions of the Tax Reform Act include a new minimum tax on certain foreign earnings (the Global Intangibles Low-taxed Income, or “GILTI”), a new tax on certain payments to foreign related parties (the Base Erosion Anti-Avoidance tax, or “BEAT”), a new incentive for Foreign-derived Intangibles Income (“FDII”), repealing the deduction for domestic production activities, changes to the limitation on the deductibility of certain executive compensation, and new limitations on the deductibility of interest expense. Generally, the tax effect of these other provisions began for the Company in the year ended December 31, 2018 with no material effect.

Income before income taxes was attributable to the following sources:



	Year Ended December 31,
	2018		2017			2016
United States	$	37,377	$	38,800		$	35,867
Canada	119		(806		)	1,377
Total	$	37,496	$	37,994		$	37,244

The provision for income taxes follows:



	Year Ended December 31,
	2018		2017			2016
Currently payable:
Federal	$	3,165	$	9,914		$	12,216
State	2,290		2,469			2,286
Canadian	50		(262		)	398
Total current	5,505		12,121			14,900
Deferred taxes	4,014		3,753			60
Total taxes on income	$	9,519	$	15,874		$	14,960

A reconciliation of the expected statutory U.S. federal rate to our actual effective income tax rate follows:



	Year Ended December 31,
	2018		2017		2016
Statutory U.S. federal tax rate	21.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	5.7		4.9		4.0
Effect of Canadian income taxes	.1		.3		(.2	)
Nondeductible expenses	2.1		2.2		2.2
ESOP dividend deduction	(.3	)	(.6	)	(.7	)
Uncertain tax adjustments and audit settlement	(3.8	)	(.2	)	.2
Income tax reform - deferred rate remeasurement	—		2.5		—
All other, net	.6		(2.3	)	(.3	)
Effective income tax rate	25.4	%	41.8	%	40.2	%


Q.	Income Taxes (continued)

Deferred income taxes reflect the tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is recorded when it is more-likely-than-not that an income tax benefit will not be realized.

Significant components of our noncurrent net deferred tax assets and liabilities at December 31, were as follows:



	December 31,
	2018		2017
Deferred tax assets:
Self-insurance accruals	$	17,579	$	14,186
Accrued compensated absences	1,565		1,747
Accrued expenses and other liabilities	742		798
Accrued stock compensation	1,772		1,571
Defined benefit pension plans	442		2,289
Foreign tax credit carryforward	2,117		605
Other future deductible amounts, net	3,271		3,661
	27,488		24,857
Less deferred tax asset valuation allowance	1,683		—
	25,805		24,857
Deferred tax liabilities:
Intangibles	1,178		969
Prepaid expenses	3,160		2,300
Property and equipment	20,894		16,773
	25,232		20,042
Net deferred tax assets--noncurrent	$	573	$	4,815

We treat all of our Canadian subsidiary earnings through December 31, 2018 as permanently reinvested and have not provided any U.S. federal or state tax thereon. As of December 31, 2018, approximately $28,856 of undistributed earnings attributable to our Canadian operations was considered to be indefinitely invested. Presently, our intention is to reinvest the earnings permanently.

If, in the future, these earnings are distributed to the U.S. in the form of dividends or otherwise, or if the Company determines such earnings will be remitted in the foreseeable future, the Company would be subject to Canadian withholding taxes. It is not practicable to estimate the amount of taxes that would be payable upon remittance of these earnings given the various tax planning alternatives that we could employ should we decide to repatriate those earnings.

As of December 31, 2018, we recorded a valuation allowance on foreign tax credit carryforwards that arose due to the transition toll tax on the deemed repatriation of deferred foreign earnings of non-U.S. operations due to the Tax Reform Act and the remaining carryforward credits that were generated in 2010. Management presently believes that it is more-likely-than-not that the deferred tax asset, related to the foreign tax credits that expire in 2020 and 2027, will not be fully realized. The criteria considered in making the determination included the ability to utilize tax-planning strategies, historical and projected operating results, and the period of time over which the foreign tax credit can be utilized.

The amount of income taxes that we pay is subject to audit by U.S. federal, state, local and Canadian tax authorities, which may result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. Uncertain tax positions are recognized only if they are more-likely-than-not to be upheld during examination based on their technical merits. The measurement of the uncertain tax position is based on the largest benefit amount that is more-likely-than-not (determined on a cumulative probability basis) to be realized upon settlement of the matter. If payment of these


Q.	Income Taxes (continued)

amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If the estimate of tax liabilities proves to be less than the ultimate settlement, a further charge to expense may result.

The balance of unrecognized benefits and the amount of related interest and penalties at December 31, were as follows:



	December 31,
	2018		2017
Unrecognized tax benefits	$	1,325	$	2,581
Portion, if recognized, would reduce tax expense and effective tax rate	599		1,948
Accrued interest on unrecognized tax benefits	35		128

We recognize interest accrued related to unrecognized tax benefits in income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense.

The Company is routinely under audit by U.S. federal, state, local and Canadian authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. During 2018, we decreased our unrecognized tax benefits by $1,500 as a result of the proposed settlement of the IRS audits of our 2015 and 2016 U.S. income tax returns. The audit was closed in the third quarter 2018. With the exception of U.S. state jurisdictions and Canada, the Company is no longer subject to examination by tax authorities for the years through 2016. As of December 31, 2018, we believe it is reasonably possible that the total amount of unrecognized tax benefits will not significantly increase or decrease.

The changes in our unrecognized tax benefits are summarized in the table below:



	Year Ended December 31,
	2018			2017			2016
Balance, beginning of year	$	2,581		$	2,532		$	2,557
Additions based on tax positions related to the current year	224			650			402
Additions for tax positions of prior years	20			(21		)	51
Reductions for tax positions of prior years	(1,500		)	—			(39		)
Lapses in statutes of limitations	—			(580		)	(439		)
Balance, end of year	$	1,325		$	2,581		$	2,532