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

Jan. 03, 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)	2014			2013
Deferred tax assets:
Inventory valuation reserves	$	303		$	794
Allowance for doubtful accounts	85			100
Inventory capitalization	1,504			3,089
Environmental reserves	206			224
Interest rate swap	41			128
Back charge accrual	23			203
Deferred compensation	93			97
Accrued bonus	739			—
Facility closing reserves	568			—
State net operating loss carryforwards	206			142
Other	370			253
Total deferred tax assets	4,138			5,030
Deferred tax liabilities:
Tax over book depreciation and amortization	6,804			8,021
Prepaid expenses	825			749
Other	26			57
Total deferred tax liabilities	7,655			8,827
Net deferred tax liabilities	$	(3,517	)	$	(3,797	)

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



(Amounts in thousands)	2014			2013			2012
Current:
Federal	$	3,933		$	2,192		$	1,493
State	656			344			236
Total current	4,589			2,536			1,729
Deferred:
Federal	964			(1,113		)	250
State	(167		)	(213		)	(85		)
Total deferred	797			(1,326		)	165
Total	$	5,386		$	1,210		$	1,894

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



(Amounts in thousands)	2014					2013					2012
(Amounts in thousands)	Amount			%		Amount			%		Amount			%
Tax at U.S. statutory rates	$	6,302		35.0	%	$	1,397		34.0	%	$	1,998		34.0	%
State income taxes, net of federal tax benefit	324			1.8	%	74			1.8	%	106			1.8	%
Palmer earn-out adjustment	(1,217		)	(6.8	)%	—			—	%	—			—	%
Bargain gain on CRI acquisition	—			—	%	(366		)	(8.9	)%	—			—	%
Manufacturing exemption	(458		)	(2.5	)%	(138		)	(3.4	)%	(180		)	(3.1	)%
Stock issuance costs	—			—	%	101			2.5	%	—			—	%
Stock option compensation	91			0.5	%	85			2.1	%	38			0.6	%
Uncertain tax positions	139			0.8	%	—			—	%	—			—	%
Other, net	205			1.1	%	57			1.4	%	(68		)	(1.1	)%
Total	$	5,386		29.9	%	$	1,210		29.5	%	$	1,894		32.2	%

Income tax payments of approximately $2,091,000, $2,445,000 and $1,991,000 were made in 2014, 2013 and 2012, respectively. The Company had state net operating loss carryforwards at the end of fiscal years 2014 and 2013 of approximately $50,774,000 and $45,503,000, respectively. These losses will expire between the years of 2017 and 2034. A valuation allowance has been set up against $45,965,000 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 valuation allowance for the net operating loss carryforwards was $1,570,000 at January 3, 2015, an increase of $178,000 from the prior year.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state jurisdictions. The federal statute of limitations is closed for tax years prior to 2012. The Company's 2012 and 2013 federal income tax returns are currently being examined by the Internal Revenue Service.

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 29, 2012		—	—	—
	Increases related to prior year tax positions	—	—	—
	Decreases related to prior year tax positions	—	—	—
	Increases related to current year tax position	—	—	—
	Settlements during period	—	—	—
	Lapse of statute of limitations	—	—	—
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

As of January 3, 2015, the Company's liability for unrecognized tax benefits was $1,504,000. 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 2013. Interest and penalties increased income tax expense by $73,000 for the year ended January 3, 2015. The Company expects a decrease of $1,504,000 for unrecognized tax benefits over the next twelve months.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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