Entity information:

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act significantly changed U.S. income tax law by, among other things, reducing the U.S. federal income tax rate from 35% to 21%, transitioning from a global tax system to a modified territorial tax system, eliminating the domestic manufacturing deduction, reduction in the dividend received deduction, and limiting the tax deductions for interest expense and certain executive compensation.

 

While our accounting for income taxes under the Act is not yet complete, we have made reasonable estimates of the provisions of the Act and recognized a $378 discrete net tax benefit in our 2017 financial statements arising from revaluing our net deferred tax liabilities to reflect the new tax rate. The final impact of the Act may differ from this estimate due to changes in interpretations of the Act, any legislative action to address questions that arise because of the Act, or any updates or changes to estimates the Company has utilized to calculate the impacts. We anticipate that these estimates will be finalized with the filing of the 2017 income tax return.

 

The provision for income taxes consists of the following:

 

   For the Years Ended December 31, 
   2017   2016 
Current:        
Federal  $(359)  $2,117 
State and local   193    572 
Total current   (166)   2,689 
Deferred   (292)   (531)
Provision (benefit) for income taxes  $(458)  $2,158 

 

A reconciliation of the U.S. federal statutory rate to the effective tax rate used in the provision for income taxes is as follows:

 

   2017  2016
   Amount   Percentage    Amount   Percentage
Federal income tax computed at the statutory rate   (274)   34.0 %     $1,917    34.0 % 
State and local tax, net   1    (0.1)%     320    5.7 %
U.S. domestic manufacturers’ deduction & other permanent differences   111    (13.8)%     113    2.0 % 
Changes for tax positions of prior years   118    (14.6)%     (202)   (3.5)%
Change in tax rates (a)   (378)   47.0 %      2    0.0 % 
Change in tax estimate   (36)   4.5 %     8    0.1 %
Provision (benefit) for income taxes   (458)   57.0 %     $2,158    38.3 % 

 

(a)Includes the estimated impact of the Act in 2017.

 

Deferred tax assets and liabilities are as follows:

 

   December 31, 
   2017   2016 
Deferred tax liabilities attributable to:          
Accumulated depreciation and amortization  $(1,784)  $(1,854)
Total net deferred tax liabilities   (1,784)   (1,854)
Deferred tax assets attributable to:          
Net operating losses   14    – 
Capital loss carry-forward & investment impairment   122    166 
Incentive compensation   255    126 
Inventory   335    331 
Allowances for doubtful accounts and discounts   161    39 
Other   57    – 
Total net deferred tax assets   944    662 
Net deferred tax liabilities  $(840)  $(1,192)

  

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

   2017   2016 
Balance at January 1  $63   $265 
Additions for tax positions of prior years   118    63 
Release for tax positions of prior years   –    (265)
Balance at December 31  $181   $63 

 

Lifeway is subject to U.S. federal income tax as well as income tax in multiple state and city jurisdictions. With limited exceptions, our calendar year 2014 and subsequent federal and state tax years remain open by statute. The amount of unrecognized tax benefits that, if recognized, would impact the annual effective tax rate was not significant as of December 31, 2017 and 2016.

 

The amount of interest and penalties recognized in the consolidated statements of income (loss) and comprehensive income (loss) was approximately $152 and $19 during 2017 and 2016, respectively. The amount of interest and penalties recognized in the consolidated balance sheets was approximately $171 and $19 at December 31, 2017 and 2016, respectively.