Note G - Income Taxes

Income before income taxes was derived from the following sources:

 

 

The components of income taxes for the year ended December 31 are as follows:

 

 

The differences between the provision for income taxes at the U.S. federal statutory rate and the tax shown in the Statements of Consolidated Income for the year ended December 31 are summarized as follows:

 

 

Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax basis of assets and liabilities and their carrying value for financial statement purposes.  The tax effects of temporary differences that give rise to the Company’s deferred tax assets and liabilities at December 31 are as follows:

 

 

 

Deferred taxes are recorded at a rate at which such items are expected to reverse, based on currently enacted tax rates for temporary differences between the financial reporting and income tax basis of assets and liabilities and operating loss and tax credit carryforwards.

At December 31, 2016, the Company had $10.8 million of foreign net operating loss carryforwards of which $10.0 million will have an indefinite carryforward and $.8 million will expire between the years 2024 and 2026.  At December 31, 2016, the Company had $.2 million of tax benefits related to state net operating losses which will expire in 2036.

The Company assesses the available positive and negative evidence to determine if it is more likely than not sufficient future taxable income will be generated to utilize the existing deferred tax assets by jurisdiction.  Based on this evaluation, the Company has established a valuation allowance of $3.8 million at December 31, 2016 in order to measure only the portion of the deferred tax asset that is more likely than not to be realized.  The net decrease in valuation allowance during the year was $1.4 million, all of which impacts the income tax provision. 

The Company has not established a deferred tax liability associated with approximately $88.5 million of its undistributed foreign earnings at December 31, 2016 as these earnings are considered to be permanently reinvested outside the U.S.  These earnings would be taxable upon the sale or liquidation of these foreign subsidiaries, or upon the remittance of such earnings.  While the measurement of the unrecognized U.S. income taxes with respect to these earnings is not practicable, foreign tax credits would be available to offset some or all of such earnings that would be remitted as dividends.

Income taxes paid net of refunds were approximately $6.9 million in 2016, $12.3 million in 2015 and $7.7 million in 2014.

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions.  As of December 31, 2016, with few exceptions, the Company is no longer subject to U.S. federal examinations by tax authorities for years before 2013 and state, local or foreign examinations by tax authorities for years before 2010.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, for the year ended December 31:

 

 

The Company records accrued interest as well as penalties related to unrecognized tax benefits as part of the provision for income taxes.  The Company recognized less than $.1 million, net of the amount reversed due to expiring statutes, during each of the years ended December 31, 2016, 2015 and 2014.  During the year ended December 31, 2016, the Company reduced previously unrecognized tax benefits by $.2 million, primarily due to expiration of statutes of limitations.  The Company had approximately $0, less than $.1 million, and $.6 million accrued for the payment of interest for the years ended December 31, 2016, 2015 and 2014, respectively.  The Company had approximately $0, $.2 million, and $.2 million accrued for the payment of penalties for the years ended December 31, 2016, 2015 and 2014, respectively.  If recognized, approximately $0, $.2 million and $.2 million of unrecognized tax benefits would affect the tax rate for the year ended December 31, 2016, 2015 and 2014, respectively.  The Company does not anticipate a change in the unrecognized tax benefits within the next twelve months.