INCOME TAXES
The provision (benefit) for income taxes on income (loss) from continuing operations consists of the following:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Current | | | | | |
Federal | $ | 278 |
| | $ | (396 | ) | | $ | 277 |
|
State | (950 | ) | | 34 |
| | (261 | ) |
Total current | (672 | ) | | (362 | ) | | 16 |
|
| | | | | |
Deferred | | | | | |
Federal | 7,535 |
| | (3,003 | ) | | (641 | ) |
State | 646 |
| | (257 | ) | | (89 | ) |
Total deferred | 8,181 |
| | (3,260 | ) | | (730 | ) |
Income tax provision (benefit) | $ | 7,509 |
| | $ | (3,622 | ) | | $ | (714 | ) |
Differences between the provision (benefit) for income taxes and the amount computed by applying the statutory federal income tax rate to income (loss) from continuing operations before taxes are summarized as follows:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Federal statutory rate | 35 | % | | 35 | % | | 35 | % |
Statutory rate applied to income (loss) from continuing operations before taxes | $ | (635 | ) | | $ | (3,090 | ) | | $ | (1,047 | ) |
Plus state income taxes, net of federal tax effect | (198 | ) | | (145 | ) | | (227 | ) |
Total statutory provision (benefit) | (833 | ) | | (3,235 | ) | | (1,274 | ) |
Effect of differences: | | | | | |
Nondeductible meals and entertainment | 161 |
| | 148 |
| | 147 |
|
Federal tax credits | (200 | ) | | (395 | ) | | (441 | ) |
Reserve for uncertain tax positions | 8 |
| | 31 |
| | 35 |
|
Goodwill | — |
| | (13 | ) | | (124 | ) |
Change in valuation allowance | 6,470 |
| | 106 |
| | 977 |
|
Tax reform | 1,749 |
| | — |
| | — |
|
Stock-based compensation | 146 |
| | — |
| | — |
|
Other items | 8 |
| | (264 | ) | | (34 | ) |
Income tax provision (benefit) | $ | 7,509 |
| | $ | (3,622 | ) | | $ | (714 | ) |
On December 22, 2017, the President signed the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act, among other things, lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. Consequently, the Company wrote down its net deferred tax assets as of December 30, 2017 by $8,169 to reflect the estimated impact of the Tax Act. This amount included a charge of $1,749 related to the re-measurement of certain net deferred tax assets using the lower U.S. corporate income tax rate and a charge of $6,420 to increase the valuation allowance related to the net deferred tax asset. The majority of the increase in the valuation allowance is related to the revised treatment of net operating losses under the Tax Act.
While the Company has substantially completed its provisional analysis of the income tax effects of the Tax Act and recorded a reasonable estimate of such effects, the charge related to the Tax Act may differ, possibly materially, due to, among other things, further refinement of its calculations, changes in interpretations and assumptions that the Company has made or additional guidance that may be issued related to the Tax Act. The Company will complete its analysis over a one-year measurement period from the enactment date, and any adjustments during this measurement period will be included in income from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined.
In 2016, the Company increased valuation allowances by $106 related to state income tax loss carryforwards and state income tax credit carryforwards to reflect the estimated amount of deferred tax assets that may not be realized during the carryforward periods.
In 2015, the Company increased valuation allowances by $977 related to state income tax loss carryforwards and state income tax credit carryforwards to reflect the estimated amount of deferred tax assets that may not be realized during the carryforward periods.
Income tax payments, net of (income tax refunds) received for continuing and discontinued operations were $44 in 2017, $(190) in 2016 and $48 in 2015.
Significant components of the Company's deferred tax assets and liabilities are as follows:
|
| | | | | | | |
| 2017 | | 2016 |
Deferred tax assets: | | | |
Inventories | $ | 3,146 |
| | $ | 4,057 |
|
Retirement benefits | 2,200 |
| | 3,387 |
|
State net operating losses | 4,196 |
| | 3,672 |
|
Federal net operating losses | 3,204 |
| | 5,930 |
|
State tax credit carryforwards | 1,963 |
| | 1,728 |
|
Federal tax credit carryforwards | 3,365 |
| | 3,361 |
|
Allowances for bad debts, claims and discounts | 2,373 |
| | 3,442 |
|
Other | 3,649 |
| | 5,001 |
|
Total deferred tax assets | 24,096 |
| | 30,578 |
|
Valuation allowance | (12,994 | ) | | (5,400 | ) |
Net deferred tax assets | 11,102 |
| | 25,178 |
|
| | | |
Deferred tax liabilities: | | | |
Property, plant and equipment | 12,207 |
| | 17,568 |
|
Total deferred tax liabilities | 12,207 |
| | 17,568 |
|
| | | |
Net deferred tax asset (liability) | $ | (1,105 | ) | | $ | 7,610 |
|
At December 30, 2017, $3,204 of deferred tax assets related to approximately $15,328 of federal net operating loss carryforwards and $4,196 of deferred tax assets related to approximately $78,399 of state net operating loss carryforwards. In addition, $3,365 of federal tax credit carryforwards and $1,963 of state tax credit carryforwards were available to the Company. The federal net operating loss carryforwards and the federal tax credit carryforwards will expire between 2029 and 2036. The state net operating loss carryforwards and the state tax credit carryforwards will expire between 2018 and 2037. A valuation allowance of $12,994 is recorded to reflect the estimated amount of deferred tax assets that may not be realized during the carryforward periods. At December 30, 2017, the Company is in a net deferred tax liability position of $1,105 which is included in other liabilities in the Company's Consolidated Balance Sheets. The net deferred tax asset in 2016 was included in other assets in the Company's Consolidated Balance Sheets.
Tax Uncertainties
The Company accounts for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions. Unrecognized tax benefits were $414 and $406 at December 30, 2017 and December 31, 2016, respectively. Such benefits, if recognized, would affect the Company's effective tax rate. There were no significant interest or penalties accrued as of December 30, 2017 and December 31, 2016.
The following is a summary of the change in the Company's unrecognized tax benefits:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Balance at beginning of year | $ | 406 |
| | $ | 375 |
| | $ | 400 |
|
Additions based on tax positions taken during a current period | 8 |
| | 31 |
| | 35 |
|
Reductions related to settlement of tax matters | — |
| | — |
| | (60 | ) |
Balance at end of year | $ | 414 |
| | $ | 406 |
| | $ | 375 |
|
The Company and its subsidiaries are subject to United States federal income taxes, as well as income taxes in a number of state jurisdictions. The tax years subsequent to 2013 remain open to examination for federal income taxes. The majority of state jurisdictions remain open for tax years subsequent to 2013. A few state jurisdictions remain open to examination for tax years subsequent to 2012.