INCOME TAX
The provision for income taxes consists of the following (in thousands):
|
| | | | | | | | | | | | |
| | | | | | |
| | 2016 |
| | 2015 |
| | 2014 |
|
Current: | | | | | | |
Federal | | $ | 5,021 |
| | $ | 7,014 |
| | $ | 6,657 |
|
State | | 1,322 |
| | 1,289 |
| | 1,783 |
|
Foreign | | 236 |
| | 431 |
| | 788 |
|
Total current | | 6,579 |
| | 8,734 |
| | 9,228 |
|
| | | | | | |
Deferred: | | | | | | |
Federal | | (1,190 | ) | | (1,920 | ) | | (1,297 | ) |
State | | (221 | ) | | (367 | ) | | (39 | ) |
Foreign | | 1,365 |
| | (884 | ) | | (252 | ) |
Total deferred | | (46 | ) | | (3,171 | ) | | (1,588 | ) |
Total provision for income taxes | | $ | 6,533 |
| | $ | 5,563 |
| | $ | 7,640 |
|
| | | | | | |
The components of income before income taxes were as follows (in thousands):
|
| | | | | | | | | | | | |
| | | | | | |
| | 2016 | | 2015 | | 2014 |
United States | | $ | 9,597 |
| | $ | 18,855 |
| | $ | 20,564 |
|
Foreign | | (2,849 | ) | | 1,475 |
| | 3,564 |
|
Total | | $ | 6,748 |
| | $ | 20,330 |
| | $ | 24,128 |
|
| | | | | | |
A reconciliation between the amount of reported income tax provision and the amount computed at the statutory Federal income tax rate for the years ended December 31, 2016, 2015 and 2014 follows:
|
| | | | | | | | | |
| | | | | | |
| | 2016 | | 2015 | | 2014 |
Statutory Federal rate | | 35.0 | % | | 35.0 | % | | 35.0 | % |
State income taxes (net of Federal income tax benefit) | | 10.0 | % | | 2.5 | % | | 4.7 | % |
Effect of rates different than statutory | | (5.0 | )% | | (4.3 | )% | | (5.5 | )% |
Valuation allowance | | 41.1 | % | | (0.8 | )% | | 0.7 | % |
Tax benefit relating to U.S. manufacturer's deduction | | (10.8 | )% | | (3.2 | )% | | (2.6 | )% |
Research and development credit | | (11.7 | )% | | (3.2 | )% | | (3.0 | )% |
Meals and Entertainment | | 3.7 | % | | 1.2 | % | | 1.3 | % |
Goodwill impairment | | 39.5 | % | | — | % | | — | % |
Prior period adjustment | | (5.1 | )% | | (0.7 | )% | | (1.1 | )% |
Other | | 0.9 | % | | 0.9 | % | | 2.2 | % |
| | 97.6 | % | | 27.4 | % | | 31.7 | % |
| | | | | | |
The types of temporary differences and their related tax effects that give rise to deferred tax assets and liabilities at December 31, 2016 and 2015 are as follows (in thousands):
|
| | | | | | | |
| | | |
| 2016 | | 2015 |
Deferred tax liabilities: | | | |
Basis difference in property and equipment | $ | 8,201 |
| | $ | 9,871 |
|
Basis difference in intangibles | 2,283 |
| | 1,476 |
|
Other | 787 |
| | 567 |
|
Gross deferred tax liabilities | 11,271 |
| | 11,914 |
|
| | | |
Deferred tax assets: | | | |
Accrued liabilities and reserves not currently deductible | 1,116 |
| | 764 |
|
Inventory basis difference | 6,320 |
| | 5,428 |
|
Non-qualified stock options | 779 |
| | 1,100 |
|
Loss carry forwards | 9,458 |
| | 8,463 |
|
Valuation allowance on net operating loss carry forwards | (7,316 | ) | | (4,301 | ) |
Other | 28 |
| | 17 |
|
Gross deferred tax assets | 10,385 |
| | 11,471 |
|
Net deferred tax liabilities | $ | 886 |
| | $ | 443 |
|
| | | |
At December 31, 2016, net operating loss carry forwards of our foreign and domestic subsidiaries in their federal, state, and local jurisdictions totaled $32.6 million, some of which begin to expire in 2020. For accounting purposes, the estimated tax effect of these net operating loss carry forwards results in a deferred tax asset. The deferred tax asset was $9.5 million as of December 31, 2016 and $8.5 million as of December 31, 2015. Valuation allowances for net operating loss carry forwards have been established in the amount of $7.3 million and $4.3 million at December 31, 2016 and 2015, respectively. The increase in the valuation allowance was primarily due to the establishment of valuation allowances, as a result of cumulative losses experienced, at our subsidiaries in Japan, China and Spain. If we recorded the net operating loss carry forwards and associated valuation allowance based on the amount expected to be ultimately utilized, we would reduce the deferred tax asset and associated valuation allowance by $2.6 million. As part of a previous business combination, $3.4 million of our valuation allowance was established through goodwill.
During the year ended December 31, 2016, the changes in our deferred tax assets and liabilities were primarily the result of book-to-tax differences for non-deductible accrued liabilities and allowances, depreciation of property and equipment, and net operating losses in certain subsidiaries. Deferred taxes have not been provided on the unremitted earnings of subsidiaries because such earnings are intended to be indefinitely reinvested or can be recovered in a tax-free manner.
At December 31, 2016, we had an aggregate of approximately $36.9 million of unremitted earnings of foreign subsidiaries that have been, or are intended to be, indefinitely reinvested for continued use in foreign operations. If the total undistributed earnings of foreign subsidiaries were remitted, a significant amount of additional tax would be offset by the allowable foreign tax credits. It is not practical for us to determine the additional tax of remitting these earnings.
As of December 31, 2016, management determined there were no unrecognized tax benefits that require recognition in the consolidated financial statements. Our policy is to recognize interest and penalties accrued on unrecognized tax benefits as part of interest and other expense.
We file income tax returns in the United States, various states, and foreign jurisdictions. Our U.S. federal return for the years ended December 31, 2016, 2015, 2014 and 2013 are open to examination. Our state and foreign income tax returns are generally open for examination for a period of three to five years after the filing of the return. Currently, we are not under audit in our federal or foreign jurisdictions. We do not expect that the net amount of tax liability for unrecognized tax benefits will change in the next twelve months.