INCOME TAXES

12 Months Ended

Dec. 31, 2020

INCOME TAXES

INCOME TAXES

NOTE 4—INCOME TAXES:

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

	2020		2019		2018
Domestic	$	69,211	$	74,978	$	66,253
Foreign		7,051		10,426		6,953
	$	76,262	$	85,404	$	73,206

The provision for income taxes is comprised of the following:

	2020		2019		2018
Current:
Federal	$	14,831	$	15,133	$	12,414
Foreign		1,029		—		—
State		1,763		2,942		1,421
		17,623		18,075		13,835
Deferred:
Federal		(1,006)		(543)		(577)
Foreign		1,316		2,422		2,685
State		(645)		611		458
		(335)		2,490		2,566
	$	17,288	$	20,565	$	16,401

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

	December 31,
	2020		2019
Deferred tax assets:
Accrued customer promotions	$	1,506	$	198
Deferred compensation		18,501		19,432
Postretirement benefits		3,355		3,439
Other accrued expenses		3,078		3,979
Foreign subsidiary tax loss carry forward		4,508		4,584
Outside basis difference in foreign subsidiary		365		365
Deductible state tax depreciation		471		512
Tax credit carry forward		3,288		3,059
		35,072		35,568
Valuation allowances		(5,593)		(4,985)
Total deferred tax assets	$	29,479	$	30,583
Deferred tax liabilities:
Depreciation	$	22,192	$	23,375
Deductible goodwill and trademarks		37,348		36,591
Accrued export company commissions		4,508		4,367
Employee benefit plans		1,767		2,700
Inventory reserves		1,994		2,526
Prepaid insurance		569		710
Unrealized capital gains		2,515		1,362
Deferred foreign exchange gain		179		260
Deferred gain on sale of real estate		5,269		5,298
Total deferred tax liabilities	$	76,341	$	77,189
Net deferred tax liability	$	46,862	$	46,606

At December 31, 2020, the Company has benefits related to state tax credit carry-forwards expiring by year as follows: $495 in 2020, $771 in 2021, $221 in 2023, $253 in 2024, $50 in 2028, $131 in 2029, $213 in 2030, $225 in 2031, $238 in 2032, $211 in 2033 and $234 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. Such valuation allowances were $837 and $770 at December 31, 2020 and 2019, respectively.

At December 31, 2020, the amounts of the Company’s Spanish subsidiary loss carry-forwards expiring by year are as follows: $306 in 2026, $65 in 2027, $194 in 2028, $111 in 2029, $335 in 2030, $447 in 2031, $337 in 2032, $136 in 2033, $470 in 2034, $594 in 2035, $863 in 2036, $440 in 2037 and $210 in 2038. 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:

	2020		2019		2018
U.S. statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net	2.1		2.2		2.2
Exempt municipal bond interest	—		(0.1)		(0.1)
Foreign income tax rates	1.0		(0.1)		0.5
Income tax credits and adjustments	(1.4)		0.5		—
Adjustment of deferred tax balances	(0.2)		—		0.1
Reserve for uncertain tax benefits	(0.8)		0.4		(1.0)
Other, net	1.0		0.2		(0.3)
Effective income tax rate	22.7	%	24.1	%	22.4	%

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, 2020 and 2019, the Company had unrecognized tax benefits of $3,011 and $3,678, respectively. Included in this balance is $1,468 and $2,012, respectively, of unrecognized tax benefits that, if recognized, would favorably affect the annual effective income tax rate. As of December 31, 2020 and 2019, $340 and $562, 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:

	2020		2019		2018
Unrecognized tax benefits at January 1	$	3,678	$	3,339	$	4,342
Increases in tax positions for the current year		377		1,164		448
Reductions in tax positions for lapse of statute of limitations		(501)		(576)		(751)
Reductions in tax positions for settlements and payments		(308)		(249)		—
Increases (decreases) in prior period unrecognized tax benefits due to change in judgment		(235)		—		(700)
Unrecognized tax benefits at December 31	$	3,011	$	3,678	$	3,339

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, primarily Canada and Mexico. The Company generally remains subject to examination by U.S. federal, state and foreign tax authorities for the years 2017 through 2019. With few exceptions, the Company is no longer subject to examinations by tax authorities for the years 2016 and prior.