Income Taxes

The Company is subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and recording the related deferred tax assets and liabilities.

Details of earnings before income taxes are as follows:



	2017		2016		2015
	(In thousands)
Domestic	$	52,745	$	47,407	$	39,447
Foreign	2,088		2,437		1,705
Total	$	54,833	$	49,844	$	41,152

The provision (benefit) for income taxes is as follows:



	2017			2016			2015
	(In thousands)
Current:
Federal	$	20,553		$	14,435		$	15,324
State	2,933			1,275			2,227
Foreign	876			1,129			686
Deferred:
Federal	(3,051		)	922			(2,568		)
State	(915		)	151			(353		)
Foreign	(134		)	(363		)	(102		)
Total	$	20,262		$	17,549		$	15,214

The provision for income tax from operations differs from the amount that would be provided by applying the statutory U.S. corporate income tax rate in each year due to the following items:



	2017			2016			2015
	(In thousands)
Provision at statutory rate	$	19,192		$	17,445		$	14,403
State income taxes, net of federal tax benefit	1,292			923			1,242
Valuation allowance	564			—			—
Foreign - tax rate differential and other	29			(87		)	(13		)
Domestic production activities deduction	(721		)	(560		)	(521		)
Federal and state credits	(542		)	—			—
Other	448			(172		)	103
Actual provision	$	20,262		$	17,549		$	15,214

The components of deferred income taxes as of December 31 are as follows:



	2017			2016
	(In thousands)
Deferred tax assets:
Reserve for receivables and inventories	$	2,405		$	2,931
Accrued compensation	861			1,131
Payables	886			1,107
Non-pension postretirement benefits	1,561			2,344
Net operating loss and credit carryforwards	364			968
Accrued pension benefits	1,071			413
Accrued employee benefits	3,219			4,103
Deferred revenue	1,504			—
Other	450			487
Total gross deferred tax assets	12,321			13,484
Less: valuation allowance	(373		)	—
Total net deferred tax assets	11,948			13,484

Deferred tax liabilities:
Depreciation	3,778			5,126
Amortization	8,266			8,992
Prepaids	482			567
Total deferred tax liabilities	12,526			14,685
Net deferred tax liabilities	$	(578	)	$	(1,201	)

At December 31, 2017 and 2016, the Company had federal and state net operating loss carryforwards of $0.4 million and $1.6 million, respectively. The Company's U.S. federal and state net operating loss carryforwards expire between 2029 and 2033.

At December 31, 2017 and 2016, the Company had federal general business credit carryforwards of $0.2 million. The Company’s U.S. federal tax credit carryforwards expire in 2033.

The Company’s federal and state net operating loss and federal and state credit carryforwards are limited on an annual basis to $1.2 million under Internal Revenue Code Section 382 and Section 383. The federal net operating loss carryforwards must be fully utilized prior to the utilization of the federal credit carryforwards.

During 2017, the Company recorded a valuation allowance of $0.6 million against a deferred tax asset related to an equity investment. As a result of the 2017 tax law change (discussed later in the footnote), the valuation allowance was adjusted to $0.4 million as of December 31, 2017.

The Company considers the earnings in our non-U.S. subsidiaries to be indefinitely reinvested, and accordingly, recorded no deferred income taxes for potential withholding amounts in certain foreign countries.

Changes in the Company's gross liability for unrecognized tax benefits, excluding interest and penalties, were as follows:



	2017			2016
	(In thousands)
Balance at beginning of year	$	814		$	533
Increases in unrecognized tax benefits as a result of positions taken during the prior period	6			88
Increases in unrecognized tax benefits as a result of positions taken during the current period	230			247
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations	(52		)	(54		)
Balance at end of year	$	998		$	814

The Company does not expect a significant increase or decrease to the total amount of unrecognized tax benefits during the fiscal year ending December 31, 2018. To the extent these unrecognized tax benefits are ultimately recognized, they will impact the effective tax rate.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years prior to 2014, and, with few exceptions, state and local income tax examinations by tax authorities for years prior to 2013. The Company's policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. Accrued interest was less than $0.1 million at December 31, 2017 and 2016, respectively, and there were no penalties accrued in either year.

On December 22, 2017, the President signed H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) (previously known as “The Tax Cuts and Jobs Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affected 2017, including, but not limited to (i) reducing the future U.S. federal corporate tax rate from 35% to 21%; (ii) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; and (iii) bonus depreciation that will allow for full expensing of qualified property.

The Tax Act also established new tax laws that will affect 2018, including, but not limited to (i) reduction of the U.S. federal corporate tax rate; (ii) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (iii) a new provision designed to tax global intangible low-taxed income (“GILTI”); (iv) the repeal of the domestic production activity deductions; (v) limitations on the deductibility of certain executive compensation; (vi) limitations on the use of foreign tax credits to reduce the U.S. income tax liability; and (vii) a new provision that allows a domestic corporation an immediate deduction for a portion of its foreign derived intangible income (“FDII”).

The Securities and Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASU 2016-16 "Income Taxes (Topic 740)". In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASU 2016-16 is complete. To the extent that a company’s accounting for a certain income tax effect of the Tax Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASU 2016-16 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Company's accounting for the certain elements of the Tax Act is incomplete. However, reasonable estimates of the effect were able to be made and, therefore, provisional estimates were recorded for these items. In connection with the initial analysis of the impact of the Tax Act, the Company recorded an immaterial discrete adjustment in the period ending December 31, 2017. This provisional estimate consisted of a net tax expense of $0.8 million for the one-time transition tax and a net tax benefit of $0.8 million related to the revaluation of deferred tax assets and liabilities, caused by the new lower corporate tax rate. To determine the transition tax, the Company determined the amount of post-1986 accumulated earnings and profits of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. While a reasonable estimate of the transition tax was able to be made, the Company continues to gather additional information to more precisely compute the final amount. Likewise, while a reasonable estimate on the impact of the reduction to the corporate tax rate was able to be made, it may be affected by other analysis related to the Tax Act, including, but not limited to, the state tax effect of adjustments made to federal temporary differences.