Astronics Corporation 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

INCOME TAXES

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not expected to be realized. Investment tax credits are recognized on the flow through method.

The provision (benefit) for income taxes consists of the following:



(In thousands)	2015			2014			2013
Current
U.S. Federal	$	24,809		$	22,705		$	10,904
State	2,382			3,797			682
Foreign	137			1,112			81
Deferred
U.S. Federal	703			(3,035		)	181
State	(1,019		)	(655		)	(757		)
Foreign	64			(987		)	(146		)
	$	27,076		$	22,937		$	10,945

The effective tax rates differ from the statutory federal income tax rate as follows:



	2015		2014		2013
Statutory Federal Income Tax Rate	35.0	%	35.0	%	35.0	%
Permanent Items
Non-deductible Stock Compensation Expense	0.6	%	0.6	%	1.0	%
Domestic Production Activity Deduction	(2.9	)%	(2.6	)%	(3.0	)%
Non-deductible Acquisition Costs	—	%	—	%	1.0	%
Other	0.2	%	0.1	%	—	%
Foreign Tax Benefits	(1.1	)%	(1.7	)%	(0.3	)%
State Income Tax (Benefits), Net of Federal Income Tax Effect	0.9	%	2.6	%	(0.1	)%
Research and Development Tax Credits	(2.7	)%	(4.3	)%	(5.0	)%
Other	(1.2	)%	(0.7	)%	—	%
Effective Tax Rate	28.8	%	29.0	%	28.6	%

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.

No provision has been made for U.S. federal or foreign taxes on that portion of certain foreign subsidiaries’ undistributed earnings ($11.3 million at December 31, 2015) considered to be permanently reinvested. It is not practicable to determine the amount of tax that would be payable if these amounts were repatriated to the U.S.

Significant components of the Company’s deferred tax assets and liabilities as of December 31, are as follows:



(In thousands)	2015			2014
Deferred Tax Assets:
Goodwill and Intangible Assets	$	1,261		$	2,470
Asset Reserves	6,589			4,497
Deferred Compensation	7,986			8,895
Capital Lease Basis Difference	1,753			1,935
State Investment Tax Credit Carryforwards, Net of Federal Tax	533			1,028
Customer Advanced Payments and Deferred Revenue	1,722			1,795
State Net Operating Loss Carryforwards and Other	2,401			2,853
Total Gross Deferred Tax Assets	22,245			23,473
Valuation Allowance for State Deferred Tax Assets and Tax Credit Carryforwards, Net of Federal Tax	(2,640		)	(3,134		)
Deferred Tax Assets	19,605			20,339
Deferred Tax Liabilities:
Depreciation	12,561			8,586
Intangible Assets	19,254			23,693
Other	1,199			1,237
Deferred Tax Liabilities	33,014			33,516
Net Deferred Tax Liabilities	$	(13,409	)	$	(13,177	)

The net deferred tax assets and liabilities presented in the Consolidated Balance Sheets are as follows at December 31:



(In thousands)	2015			2014
Deferred Tax Asset — Current	$	—		$	7,762
Other Assets — Long-term	1,558			—
Deferred Tax Liabilities — Long-term	(14,967		)	(20,939		)
Net Deferred Tax Liabilities	$	(13,409	)	$	(13,177	)

At December 31, 2015, state tax credit carryforwards amounted to approximately $0.8 million. These state tax credit carryforwards will expire from 2016 through 2029. At December 31, 2015, state net operating loss carryforwards which the Company expects to utilize amounted to approximately $8.2 million and expire at various dates between 2032 and 2035.

Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in certain states in the future and utilize certain of the Company’s state operating loss carryforwards before they expire, the Company has recorded a valuation allowance accordingly. These state net operating loss carryforwards amount to approximately $31.4 million and expire at various dates from 2023 through 2035. The excess tax benefits associated with stock option exercises are recorded directly to shareholders’ equity only when realized and amounted to approximately $3.0 million, $5.3 million and $1.2 million for the years ended December 31, 2015, 2014, and 2013 respectively.

The Company has analyzed its filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. Should the Company need to accrue a liability for uncertain tax benefits, any interest associated with that liability would be recorded as interest expense. Penalties, if any, would be recorded as operating expenses. As of December 31, 2015, we no longer have any unrecognized tax benefits. Reserves for uncertain tax positions that had been recorded pursuant to ASC Topic 740-10 as of December 31, 2014 were reversed during the year-ended December 31, 2015. No additional reserves for uncertain income tax positions were deemed necessary for the year ended December 31, 2015. A reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties which are insignificant, is as follows:



(in thousands)	2015			2014			2013
Balance at Beginning of the Year	$	181		$	1,940		$	840
Increases (Decreases) as a Result of Tax Positions Taken in Prior Years	(181		)	(1,901		)	145
Increases as a Result of Tax Positions Taken in the Current Year	—			142			955
Balance at End of the Year	$	—		$	181		$	1,940

There are no penalties or interest liabilities accrued as of December 31, 2015 or 2014, nor are any penalties or interest costs included in expense for each of the years ended December 31, 2015, 2014 and 2013. The years under which we conducted our evaluation coincided with the tax years currently still subject to examination by major federal and state tax jurisdictions, those being 2012 through 2015 for federal purposes and 2011 through 2015 for state purposes.

Pretax income from the Company’s foreign subsidiaries amounted to $3.6 million, $4.3 million and $0.2 million for 2015, 2014 and 2013, respectively. The balance of pretax earnings for each of those years were domestic.

In January 2013, the American Taxpayer Relief Act of 2012 extended the research and development tax credits for the year ended December 31, 2012. As the new law was not enacted until 2013, the 2012 tax provision contains no estimated benefit for research and development tax credits. The Company recognized a total benefit of $1.1 million in 2013 related to the 2012 credit.