Ascent Industries Co. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2019

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows at the respective year ends:



(in thousands)	2019			2018
Deferred income tax assets:
Sale leaseback deferred gain	$	—		$	1,311
Inventory valuation reserves	199			174
Inventory capitalization	1,696			1,501
Accrued bonus	497			911
State net operating loss carryforwards	1,835			1,934
Federal net operating loss carryforwards	139			—
Equity security mark to market	217			622
Straight line lease	—			231
Lease liabilities	8,945			150
Interest limitation carryforwards	754			—
Other	445			453
Total deferred income tax assets	14,727			7,287
Valuation allowance	(1,700		)	(1,766		)
Total net deferred income tax assets	13,027			5,521
Deferred income tax liabilities:
Tax over book depreciation and amortization	4,859			5,121
Prepaid expenses	296			377
Lease assets	8,537			92
Interest rate swap	77			104
Other	48			80
Total deferred income tax liabilities	13,817			5,774
Deferred income taxes	$	(790	)	$	(253	)

Significant components of the provision for income taxes from continuing operations are as follows:



(in thousands)	2019			2018			2017
Current:
Federal	$	(10	)	$	3,469		$	1,067
State	57			290			107
Total current	47			3,759			1,174
Deferred:
Federal	(833		)	(108		)	(1,043		)
State	59			(275		)	6
Total deferred	(774		)	(383		)	(1,037		)
Total	$	(727	)	$	3,376		$	137

The reconciliation of income tax computed at the U. S. federal statutory tax rates to income tax expense is:



(in thousands)	2019					2018					2017
(in thousands)	Amount			%		Amount			%		Amount			%
Tax at U.S. statutory rates	$	(790	)	21.0	%	$	3,459		21.0	%	$	503		34.0	%
State income taxes, net of federal tax benefit	165			(4.4	)%	269			1.6	%	66			4.4	%
State valuation allowance	(60		)	1.6	%	(315		)	(1.9	)%	8			0.6	%
Manufacturing exemption	—			—	%	—			—	%	(117		)	(7.9	)%
Stock option compensation	(155		)	4.1	%	(39		)	(0.2	)%	—			—	%
Executive compensation limitation	57			(1.5	)%	—			—	%	—			—	%
Other nondeductible expenses	64			(1.7	)%	—			—	%	—			—	%
Rate change effects	—			—	%	—			—	%	(381		)	(25.8	)%
Other, net	(8		)	0.2	%	2			—	%	58			4.0	%
Total	$	(727	)	19.3	%	$	3,376		20.5	%	$	137		9.3	%

Income tax payments of $1.2 million, $2.4 million and $2.6 million were made in 2019, 2018 and 2017, respectively. The Company has US Federal net operating loss carryforwards of $0.7 million and interest limitation carryforwards of $3.5 million at the end of fiscal year 2019. Such items are not subject to expiration. The Company also had state net operating loss carryforwards at the end of fiscal years 2019 and 2018 of $43.6 million and $46.5 million, respectively. The majority of these losses will expire between the years of 2020 and 2037, while various losses are not subject to expiration. A valuation allowance has been set up against $40.3 million of these state net operating loss carryforwards because it is not more likely than not that the losses will be realized in the foreseeable future. The portion of the valuation allowance for the state net operating loss carryforwards was $1.7 million at December 31, 2019 and December 31, 2018 respectively. In addition, $47,504 and $76,747 valuation allowance was established at December 31, 2019 and 2018 respectively, for other deferred tax assets. This resulted in a valuation allowance decrease of $66,744.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company is no longer subject to U.S. federal examinations for years before 2014 or state income tax examinations for years before 2014.

The Company had no uncertain tax position activity during 2019 or 2018. The Company's continuing practice is to recognize interest and/or penalties related to income tax matters in the provision for income taxes. The Company had no accruals for uncertain tax positions including interest and penalties at the end of 2019.