Note 10 – Income Taxes
The components of income tax expense/(benefit) related to pre-tax income for the years ended December 31, 2016, 2015, and 2014 are as follows:
| (Thousands of dollars) | 2016 | 2015 | 2014 | |||||||||
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Federal |
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Current |
$ | 2,789 | 1,508 | 9,959 | ||||||||
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Deferred |
(380 | ) | (590 | ) | (961 | ) | ||||||
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| 2,409 | 918 | 8,998 | ||||||||||
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State |
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Current |
762 | 510 | 887 | |||||||||
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Deferred |
104 | (328 | ) | (292 | ) | |||||||
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| 866 | 182 | 595 | ||||||||||
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Total income tax expense |
$ | 3,275 | 1,100 | 9,593 | ||||||||
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The following table provides a reconciliation of the Company’s income tax expense at the statutory U.S. federal rate of 35 percent to the actual income tax expense for the years ended December 31, 2016, 2015, and 2014.
| (Thousands of dollars) | 2016 | 2015 | 2014 | |||||||||
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U.S. federal income tax using statutory tax rate |
$ | 4,382 | 1,260 | 10,239 | ||||||||
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State tax, net of federal tax benefit |
564 | 121 | 1,130 | |||||||||
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Permanent differences |
(363 | ) | (89 | ) | (1,000 | ) | ||||||
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Tax effects resulting from: |
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Rate difference on timber gains |
(1,308 | ) | (192 | ) | — | |||||||
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Reversal of uncertain state income tax position |
— | — | (776 | ) | ||||||||
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Income tax provision as reported |
$ | 3,275 | 1,100 | 9,593 | ||||||||
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The effective income tax rate in 2016 and 2015 benefitted from the passage in December 2015 of federal legislation which reduced the maximum income tax rate to 23.8 percent for the tax year 2016 on capital gains for timber held by the Company for longer than 15 years and harvested within the year. Income tax benefits of $192,000 were recognized in 2015 due to the change in income tax rate applied to the amount of temporary differences expected to be realized in timber gains during 2016.
The Company’s deferred tax assets and deferred tax liabilities at December 31, 2016 and 2015 consisted of the following:
| (Thousands of dollars) | 2016 | 2015 | ||||||
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Deferred tax assets |
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Investment in real estate held for development and sale |
$ | 17,627 | 17,564 | |||||
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Postretirement and other employee benefits |
20,047 | 21,725 | ||||||
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Other deferred tax assets |
1,630 | 1,861 | ||||||
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Total deferred tax assets |
39,304 | 41,150 | ||||||
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| (Thousands of dollars) | 2016 | 2015 | ||||||
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Deferred tax liabilities |
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Timber and timberlands |
(29,645 | ) | (27,950 | ) | ||||
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Property, plant, and equipment |
(9,289 | ) | (11,370 | ) | ||||
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Other deferred tax liabilities |
(219 | ) | (224 | ) | ||||
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Total deferred tax liabilities |
(39,153 | ) | (39,544 | ) | ||||
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Net deferred tax assets |
$ | 151 | 1,606 | |||||
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The deferred tax assets and liabilities are classified in the accompanying consolidated balance sheets as follows:
| (Thousands of dollars) | 2016 | 2015 | ||||||
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Current tax assets |
$ | 1,895 | 2,131 | |||||
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Long-term tax liabilities |
(1,744 | ) | (525 | ) | ||||
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Net deferred tax assets |
$ | 151 | 1,606 | |||||
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In assessing the realizability of deferred tax assets, Deltic’s management considers whether it is more-likely-than-not that some portion or all of the Company’s total deferred tax assets will not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the temporary differences are anticipated to reverse, management believes it is more-likely-than-not that the Company will realize the benefits of its deferred tax assets at December 31, 2016, as reductions of future taxable income or by utilizing available tax planning strategies. However, the amount of the net deferred tax assets considered realizable could be adjusted in the future if estimates of taxable income are revised. Any liabilities established for unrecognized tax benefits may not be combined with deferred tax assets or liabilities, except when offset by net operating losses. There were no unrecognized tax benefits at December 31, 2016 or 2015.
The Company is no longer subject to federal and state income tax examination by tax authorities for years before 2013.