Entity information:
11.
INCOME TAXES
 
a.
Income Before Income Taxes
 
The consolidated income (loss) before income taxes for 2017, 2016 and 2015 consists of the following (in thousands):
 
 
 
2017
 
 
2016
 
 
2015
 
Domestic
 
$
121,897
 
 
$
185,042
 
 
$
163,325
 
Foreign
 
 
641
 
 
 
375
 
 
 
(14
)
Total income before income taxes
 
$
122,538
 
 
$
185,417
 
 
$
163,311
 
 
b.
Income Tax Expense
 
The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act contains numerous new and changed provisions related to the US federal taxation of domestic and foreign corporate operations. Although most of these provisions go into effect starting January 1, 2018 for calendar year corporate taxpayers, companies are still required to record the income tax accounting effects within the financial statements in the period of enactment. As such, the Company has included the estimated effects of remeasuring deferred taxes for the new US federal income tax rate of 21% going into effect in 2018, as well as assessed its ability to realize deferred income tax assets in the future under the new rules. At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances.
 
The Company remeasured certain deferred tax assets and liabilities based on the rates that are expected to be in effect at the time the tax deduction or taxable item will be reported in the Company’s tax return (i.e. when they are expected to reverse in the future), which is generally 21%. However, the Company is still analyzing certain aspects of the Act and refining calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement resulted in a decrease to our deferred tax balance of $19.7 million, which reduced the Company’s income tax expense for year ended December 31, 2017.
 
The Company assessed the impacts of the new provisions associated with the deductibility of executive compensation under Internal Revenue Code Section 162(m), and the associated “grandfathering” rules within the Act to provide taxpayers transition relief when applying the change in law. Starting with the 2018 tax year, the Act will no longer permit the exclusion of performance-based compensation, as well as CFO compensation, from the deduction limits set forth in Section 162(m). Within the Act are transition relief provisions for which the Company believes it would qualify when assessing the future deductibility of executive compensation. As such, we are currently recognizing a deferred income tax asset associated with the future tax deductions of equity-based compensation for the executives whose compensation falls under the new limitation rules in the amount of $3.1 million. The Company will monitor future guidance set forth by the Department of Treasury with regard to Section 162(m) provisions under the Act, and true up this estimate as appropriate within the one year measurement period required under Staff Accounting Bulletin No. 118 (SAB 118) issued by the SEC.
 
The consolidated income tax expense for 2017, 2016 and 2015 consists of the following components (in thousands):
 
 
 
2017
 
 
2016
 
 
2015
 
Current
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 
$
21,316
 
 
$
51,489
 
 
$
58,090
 
State
 
 
4,327
 
 
 
10,307
 
 
 
8,627
 
Foreign
 
 
155
 
 
 
144
 
 
 
54
 
 
 
$
25,798
 
 
$
61,940
 
 
$
66,771
 
Deferred
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 
$
(16,065
)
 
$
3,448
 
 
$
(7,930
)
State
 
 
1,459
 
 
 
686
 
 
 
288
 
Foreign
 
 
(76
)
 
 
(90
)
 
 
(107
)
 
 
$
(14,682
)
 
$
4,044
 
 
$
(7,749
)
Total consolidated expense
 
$
11,116
 
 
$
65,984
 
 
$
59,022
 
 
The following table provides a reconciliation of differences from the U.S. Federal statutory rate of 35% as follows (in thousands):
 
 
 
2017
 
 
2016
 
 
2015
 
Pretax book income
 
$
122,538
 
 
$
185,417
 
 
$
163,311
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal tax expense at 35% statutory rate
 
 
42,888
 
 
 
64,896
 
 
 
57,159
 
State and local income taxes (net of federal benefit)
 
 
5,047
 
 
 
7,145
 
 
 
6,190
 
Benefit of domestic production deduction
 
 
(3,450
)
 
 
(5,065
)
 
 
(5,255
)
Change in income tax reserves
 
 
(11,925
)
 
 
862
 
 
 
641
 
Remeasurement of deferred taxes
 
 
(19,796
)
 
 
-
 
 
 
-
 
Other
 
 
(1,648
)
 
 
(1,854
)
 
 
287
 
Total income tax expense
 
$
11,116
 
 
$
65,984
 
 
$
59,022
 
 
c.
Deferred Taxes
 
The Company’s deferred income taxes are primarily due to temporary differences between financial and income tax reporting for incentive compensation, depreciation of property, plant and equipment, amortization of intangibles, other accrued liabilities and net operating loss carryforwards (“NOLs”).
 
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Companies are required to assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence, both positive and negative, using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified.
 
The Company assesses, on a quarterly basis, the realizability of its deferred tax assets by evaluating all available evidence, both positive and negative, including: (1) the cumulative results of operations in recent years, (2) the nature of recent losses, if applicable, (3) estimates of future taxable income, (4) the length of NOLs and (5) the uncertainty associated with a possible change in ownership, which imposes an annual limitation on the use of these carryforwards.
 
As of December 31, 2017 and 2016, the Company retained a valuation allowance of $1.2 million against deferred tax assets related to various state and local NOLs that are subject to restrictive rules for future utilization.
 
As of December 31, 2017, the Company had no U.S. federal tax NOLs. The Company had various multistate income tax NOLs aggregating approximately $53 million which will expire beginning in 2018, if unused.
 
The components of deferred tax assets and deferred tax liabilities as of December 31, 2017 and 2016 were as follows (in thousands):
 
 
 
2017
 
 
2016
 
Deferred tax assets
 
 
 
 
 
 
 
 
Tax credits and loss carryforwards
 
$
1,710
 
 
$
260
 
Accrued liabilities
 
 
6,629
 
 
 
9,852
 
Incentive compensation
 
 
13,867
 
 
 
21,206
 
Other
 
 
2,852
 
 
 
4,084
 
 
 
$
25,058
 
 
$
35,402
 
Deferred tax liabilities
 
 
 
 
 
 
 
 
Property, plant and equipment
 
$
(12,813
)
 
$
(5,823
)
Intangibles
 
 
(45,960
)
 
 
(5,299
)
Other
 
 
(2,003
)
 
 
(3,264
)
 
 
$
(60,776
)
 
$
(14,386
)
 
 
 
 
 
 
 
 
 
Net deferred tax asset before valuation allowances and reserves
 
$
(35,718
)
 
$
21,016
 
Valuation allowances
 
 
(1,237
)
 
 
(1,172
)
Net deferred tax asset or liability
 
$
(36,955
)
 
$
19,844
 
 
d.
Tax Reserves
 
The Company’s policy with respect to interest and penalties associated with reserves or allowances for uncertain tax positions is to classify such interest and penalties in Income Tax Expense on the Consolidated Statement of Operations. As of December 31, 2017 and 2016, the total amount of unrecognized income tax benefits was approximately $0.8 million and $12.7 million, respectively, all of which, if recognized, would impact the effective income tax rate of the Company. As of December 31, 2017 and 2016, the Company had recorded a total of $0.3 and $2.1 million, respectively of accrued interest and penalties related to uncertain tax positions. The year over year reduction in the accrual balances relates to the release of income tax reserves upon closing of the federal income tax audit for the 2014 tax year. The Company foresees no significant changes to the facts and circumstances underlying its reserves and allowances for uncertain income tax positions as reasonably possible during the next 12 months. As of December 31, 2017, the Company is subject to unexpired statutes of limitation for U.S. federal income taxes for the years 2015 and 2016. The Company is also subject to unexpired statutes of limitation for Indiana state income taxes for the years 2014 through 2016.
 
A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows (in thousands) and all balances as of December 31, 2017 were included in Deferred Income Taxes in the Company’s Consolidated Balance Sheet:
 
Balance at January 1, 2016
 
$
10,625
 
 
 
 
 
 
Decrease in prior year tax positions
 
 
-
 
 
 
 
 
 
Balance at December 31, 2016
 
$
10,625
 
 
 
 
 
 
Decrease in prior year tax positions
 
 
(10,130
)
 
 
 
 
 
Balance at December 31, 2017
 
$
495