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, 2015

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:



(Amounts in thousands)	2015			2014
Deferred tax assets:
Inventory valuation reserves	$	699		$	303
Allowance for doubtful accounts	61			85
Inventory capitalization	1,692			1,504
Environmental reserves	175			206
Interest rate swap	41			41
Warranty accrual	88			23
Deferred compensation	64			93
Accrued bonus	338			739
Accrued expenses	1,403			568
State net operating loss carryforwards	1,616			1,776
Other	423			371
Total deferred tax assets	6,600			5,709
Valuation allowance	(1,694		)	(1,570		)
Total net deferred tax assets	4,906			4,139
Deferred tax liabilities:
Tax over book depreciation and amortization	7,609			6,804
Prepaid expenses	312			825
Other	2			26
Total deferred tax liabilities	7,923			7,655
Net deferred tax liabilities	$	(3,017	)	$	(3,516	)

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



(Amounts in thousands)	2015			2014			2013
Current:
Federal	$	1,414		$	3,933		$	2,192
State	235			656			344
Total current	1,649			4,589			2,536
Deferred:
Federal	(48		)	964			(1,113		)
State	198			(167		)	(213		)
Total deferred	150			797			(1,326		)
Total	$	1,799		$	5,386		$	1,210

Tax benefit from discontinued operations amounted to $651,000, $3,807,000 and $812,000 for the fiscal years ended 2015, 2014 and 2013, respectively.

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



(Amounts in thousands)	2015					2014					2013
(Amounts in thousands)	Amount			%		Amount			%		Amount			%
Tax at U.S. statutory rates	$	(2,881	)	34.0	%	$	6,302		35.0	%	$	1,397		34.0	%
State income taxes, net of federal tax benefit	285			(3.4	)%	324			1.8	%	74			1.8	%
State valuation allowance	94			(1.1	)%	—			—	%	—			—	%
Earn-out adjustments	(857		)	10.1	%	(1,217		)	(6.8	)%	—			—	%
Bargain gain on CRI acquisition	—			—	%	—			—	%	(366		)	(8.9	)%
Manufacturing exemption	(188		)	2.2	%	(458		)	(2.5	)%	(138		)	(3.4	)%
Stock issuance costs	—			—	%	—			—	%	101			2.5	%
Stock option compensation	95			(1.1	)%	91			0.5	%	85			2.1	%
Uncertain tax positions	(139		)	1.6	%	139			0.8	%	—			—	%
Goodwill impairment	5,405			(63.8	)%	—			—	%	—			—	%
Other, net	(15		)	0.2	%	205			1.1	%	57			1.4	%
Total	$	1,799		(21.2	)%	$	5,386		29.9	%	$	1,210		29.5	%

Income tax payments of approximately $2,251,000, $2,091,000 and $2,445,000 were made in 2015, 2014 and 2013, respectively. The Company had state net operating loss carryforwards at the end of fiscal years 2015 and 2014 of approximately $47,042,000 and $50,774,000, respectively. These losses will expire between the years of 2016 and 2035. A valuation allowance has been set up against $47,042,000 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 net operating loss carryforwards was $1,616,000 and $1,570,000 at December 31, 2015 and January 3, 2015, respectively. In addition, a $78,000 valuation allowance was established at December 31, 2015 for other deferred tax assets. This resulted in a valuation allowance increase of $124,000; $94,000 related to continuing operations and $30,000 related to discontinued operations.

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 2013 or state income tax examinations for years before 2011. The Company completed its 2012 and 2013 federal income tax return examination by the Internal Revenue Service during the second quarter of 2015.

Provided below is a roll forward of the Company's uncertain tax positions.



(Amounts in thousands)		Unrecognized Tax Benefit			Interest and Penalties			Total
(Amounts in thousands)		Unrecognized Tax Benefit			Interest and Penalties			Total
Balance at December 28, 2013		$	—		$	—		$	—
	Increases related to prior year tax positions	1,431			73			1,504
	Decreases related to prior year tax positions	—			—			—
	Increases related to current year tax position	—			—			—
	Settlements during period	—			—			—
	Lapse of statute of limitations	—			—			—
Balance at January 3, 2015		1,431			73			1,504
	Increases related to prior year tax positions	—			—			—
	Decreases related to prior year tax positions	(1,431		)	(73		)	(1,504		)
	Increases related to current year tax position	—			—			—
	Settlements during period	—			—			—
	Lapse of statute of limitations	—			—			—
Balance at December 31, 2015		$	—		$	—		$	—

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 2015.