INCOME TAXES

12 Months Ended

Dec. 31, 2019

Income Before Income Taxes

The consolidated income before income taxes for 2019, 2018, and 2017 consists of the following (in thousands):



	Years Ended December 31,
	2019		2018		2017
Domestic	$	116,886	$	94,978	$	121,897
Foreign	845		1,026		641
Total income before income taxes	$	117,731	$	96,004	$	122,538

Income Tax Expense

The Tax Cuts and Jobs Act of 2017 (“the Act”) was enacted on December 22, 2017, and, among other changes, reduced the federal statutory tax rate from 35.0% to 21.0%. In accordance with U.S. GAAP for income taxes, as well as SEC Staff Accounting Bulletin No. 118 (“SAB 118”), the Company made reasonable estimates of the impact of the Act and recorded these estimates in its results for the year ended December 31, 2017. SAB 118 allowed for a measurement period of up to one year, from the date of enactment, to complete the Company’s accounting for the impact of the Act. During the provisional period prescribed by SAB 118, the Company reversed $1.3 million of deferred tax assets with regards to incentive compensation for executives whose compensation is subject to the updated Internal Revenue Code Section 162(m) limitation amounts.

The Act also included a provision that functions as a global minimum tax referred to as Global Intangible Low-taxed Income (“GILTI”) that applies to certain income generated by Controlled Foreign Corporations (“CFC”). U.S. shareholders are required to include on a current basis the aggregate amount of certain income generated by its CFC, regardless of repatriation. For the years ended December 31, 2019 and 2018, the Company calculated the tax but the impact on the financial statements is not material.

The consolidated income tax expense for 2019, 2018 and 2017 consists of the following components (in thousands):



	Years Ended December 31,
	2019		2018			2017
Current
Federal	$	18,167	$	22,120		$	21,316
State	6,233		7,271			4,327
Foreign	336		168			155
	24,736		29,559			25,798
Deferred
Federal	2,760		(1,613		)	(16,065		)
State	620		(1,312		)	1,459
Foreign	40		(51		)	(76		)
	3,420		(2,976		)	(14,682		)
Total consolidated expense	$	28,156	$	26,583		$	11,116

The following table provides a reconciliation of differences from the U.S. Federal statutory rates as follows (in thousands):



	Years Ended December 31,
	2019			2018			2017
Pretax book income	$	117,731		$	96,004		$	122,538

Federal tax expense at applicable statutory rate	24,723			20,161			42,888
State and local income taxes (net of federal benefit)	5,513			4,737			5,047
Benefit of domestic production deduction	—			—			(3,450		)
Change in income tax reserves	—			—			(11,925		)
Tax credits	(3,301		)	—			—
Remeasurement of deferred taxes	—			(421		)	(19,796		)
Nondeductible officer compensation	—			1,152			—
Compensation expense	1,317			(1,009		)	(1,943		)
Other	(96		)	1,963			295
Total income tax expense	$	28,156		$	26,583		$	11,116

Deferred Taxes

The Company’s deferred income taxes are primarily due to temporary differences between financial and income tax reporting for incentive compensation, depreciation of property, plant and equipment, amortization of intangibles, and other accrued liabilities.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Companies are required to assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence, both positive and negative, using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified.

The Company assesses, on a quarterly basis, the realizability of its deferred tax assets by evaluating all available evidence, both positive and negative, including: (1) the cumulative results of operations in recent years, (2) the nature of recent losses, if applicable, (3) estimates of future taxable income, (4) the length of net operating loss carryforwards (“NOLs”) and (5) the uncertainty associated with a possible change in ownership, which imposes an annual limitation on the use of these carryforwards.

As of December 31, 2019 and 2018, the Company retained a valuation allowance of $0.8 million and $0.8 million, respectively, against deferred tax assets related to various state and local NOLs that are subject to restrictive rules for future utilization.

As of December 31, 2019 and 2018, the Company had no U.S. federal tax NOLs. The Company had various multi-state income tax NOLs aggregating approximately $46.4 million which will expire between 2020 and 2030, if unused.

The components of deferred tax assets and deferred tax liabilities as of December 31, 2019 and 2018 were as follows (in thousands):



	December 31,
	2019			2018
Deferred tax assets
Tax credits and loss carryforwards	$	672		$	657
Accrued liabilities	7,489			7,285
Incentive compensation	14,420			12,132
Other	5,423			6,747
	28,004			26,821
Deferred tax liabilities
Property, plant and equipment	(17,899		)	(14,695		)
Intangibles	(44,477		)	(42,343		)
Other	(2,379		)	(3,841		)
	(64,755		)	(60,879		)
Net deferred tax liability before valuation allowances and reserves	(36,751		)	(34,058		)
Valuation allowances	(825		)	(847		)
Net deferred tax liability	$	(37,576	)	$	(34,905	)

Tax Reserves

The Company’s policy with respect to interest and penalties associated with reserves or allowances for uncertain tax positions is to classify such interest and penalties in Income tax expense on the Consolidated Statements of Operations. As of December 31, 2019 and 2018, the total amount of unrecognized income tax benefits, including interest and penalties, was approximately $2.1 million and $1.8 million, respectively, all of which, if recognized, would impact the effective income tax rate of the Company. As of December 31, 2019 and 2018, the Company had recorded a total of $0.7 million and $0.6 million, respectively, of accrued interest and penalties related to uncertain tax positions. The Company expects no significant changes to the facts and circumstances underlying its reserves and allowances for uncertain income tax positions as reasonably possible during the next 12 months. As of December 31, 2019, the Company is subject to unexpired statutes of limitation for U.S. federal income taxes for the years 2016 through 2018. The Company is also subject to unexpired statutes of limitation for Indiana state income taxes for the years 2016 through 2018.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, was as follows (in thousands) and all balances as of December 31, 2019 were included in either Other noncurrent liabilities or Deferred income taxes in the Company’s Consolidated Balance Sheets:



	Unrecognized Tax Benefits
Balance at January 1, 2018	$	495
Increase in prior year tax positions	682
Balance at December 31, 2018	1,177
Increase in prior year tax positions	245
Balance at December 31, 2019	$	1,422