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, 2016

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)	2016			2015
Deferred tax assets:
Sale leaseback deferred gain	$	2,387		$	—
Inventory valuation reserves	379			699
Allowance for doubtful accounts	29			61
Inventory capitalization	1,781			1,692
Environmental reserves	199			175
Interest rate swap	15			41
Warranty accrual	62			88
Deferred compensation	61			64
Accrued bonus	337			338
Accrued expenses	78			1,403
State net operating loss carryforwards	1,725			1,616
Other	389			423
Total deferred tax assets	7,442			6,600
Valuation allowance	(1,790		)	(1,694		)
Total net deferred tax assets	5,652			4,906
Deferred tax liabilities:
Tax over book depreciation and amortization	6,947			7,609
Prepaid expenses	211			312
Other	103			2
Total deferred tax liabilities	7,261			7,923
Net deferred tax liabilities	$	(1,609	)	$	(3,017	)

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



(Amounts in thousands)	2016			2015			2014
Current:
Federal	$	(981	)	$	1,414		$	3,933
State	191			235			656
Total current	(790		)	1,649			4,589
Deferred:
Federal	(1,329		)	(48		)	964
State	(79		)	198			(167		)
Total deferred	(1,408		)	150			797
Total	$	(2,198	)	$	1,799		$	5,386

Tax benefit from discontinued operations amounted to $51,000, $651,000 and $3,807,000 for the fiscal years ended 2016, 2015 and 2014, respectively.

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



(Amounts in thousands)	2016					2015					2014
(Amounts in thousands)	Amount			%		Amount			%		Amount			%
Tax at U.S. statutory rates	$	(3,125	)	34.0	%	$	(2,881	)	34.0	%	$	6,302		35.0	%
State income taxes, net of federal tax benefit	(49		)	0.5	%	285			(3.4	)%	324			1.8	%
State valuation allowance	96			(1.0	)%	94			(1.1	)%	—			—	%
Life insurance cash surrender value	504			(5.5	)%	—			—	%	—			—	%
Earn-out adjustments	—			—	%	(857		)	10.1	%	(1,217		)	(6.8	)%
Manufacturing exemption	—			—	%	(188		)	2.2	%	(458		)	(2.5	)%
Stock option compensation	46			(0.5	)%	95			(1.1	)%	91			0.5	%
Uncertain tax positions	—			—	%	(139		)	1.6	%	139			0.8	%
Goodwill impairment	—			—	%	5,405			(63.8	)%	—			—	%
Other, net	330			(3.6	)%	(15		)	0.2	%	205			1.1	%
Total	$	(2,198	)	23.9	%	$	1,799		(21.3	)%	$	5,386		29.9	%

Income tax payments of approximately $992,000, $2,251,000 and $2,091,000 were made in 2016, 2015 and 2014, respectively. The Company had state net operating loss carryforwards at the end of fiscal years 2016 and 2015 of approximately $49,677,000 and $47,042,000, respectively. These losses will expire between the years of 2017 and 2036. A valuation allowance has been set up against $49,545,000 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 $1,725,000 and $1,616,000 at December 31, 2016 and December 31, 2015, respectively. In addition, a $65,000 valuation allowance was established at December 31, 2016 for other deferred tax assets. This resulted in a valuation allowance increase of $96,000 all related to continuing 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 2014 or state income tax examinations for years before 2012. 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 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		—			—			—
	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 31, 2016		$	—		$	—		$	—

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 2016.