Income Taxes

Our pre-tax income attributable to foreign operations were not material. The provision for income tax expense (benefit) consisted of the following:



	(In thousands) Years Ended December 31,
	2015			2014			2013
Current tax (benefit) expense
Federal	$	(1,511	)	$	5,258		$	(3,806	)
State	(418		)	244			432
	(1,929		)	5,502			(3,374		)
Deferred tax (benefit) expense
Federal	(29,475		)	1,186			1,173
State	(1,904		)	(315		)	208
	(31,379		)	871			1,381
Income tax (benefit) expense	$	(33,308	)	$	6,373		$	(1,993	)

The current income tax (benefit) expense excludes excess tax benefits recorded directly to additional paid-in-capital related to share-based compensation of approximately $0.6 million, $0.1 million, and $(0.3) million for the years ended December 31, 2015, 2014, and 2013, respectively.

Deferred tax (liabilities) assets were comprised of the following:



	(In thousands) December 31,
	2015			2014
Deferred tax assets:
Accrued expenses	$	1,363		$	1,669
Allowance for doubtful accounts	134			94
Contract overrun reserves	4,412			1,766
Deferred compensation	491			464
Employment-related accruals	2,463			5,375
Environmental reserves	772			778
Federal tax credit carryforwards	7,031			2,696
Inventory reserves	2,703			3,873
Investment in common stock	297			300
Pension obligation	3,299			3,959
State net operating loss carryforwards	1,402			1,065
State tax credit carryforwards	5,937			5,382
Stock-based compensation	2,165			2,082
Workers’ compensation	133			121
Other	1,595			1,072
Total gross deferred tax assets	34,197			30,696
Valuation allowance	(7,477		)	(6,882		)
Total gross deferred tax assets, net of valuation allowance	26,720			23,814
Deferred tax liabilities:
Depreciation	(11,802		)	(12,485		)
Goodwill	(2,035		)	(12,105		)
Intangibles	(37,891		)	(51,755		)
Prepaid insurance	(514		)	(685		)
Section 48(a) adjustment	(682		)	(1,334		)
Unbilled receivables	—			(1,115		)
Total gross deferred tax liabilities	(52,924		)	(79,479		)
Net deferred tax liabilities	$	(26,204	)	$	(55,665	)

We have elected to early adopt ASU 2015-17, prospectively, beginning with the annual period ended December 31, 2015, which requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The adoption of this new guidance had no impact on our results of operations or cash flows for 2015.

We have federal and state tax credit carryforwards of approximately $7.9 million and $10.0 million, respectively. A valuation allowance of approximately $9.1 million has been provided on state tax credit carryforwards that are not expected to be realized under ASC Subtopic 740-10. If not realized, the federal and state tax credit carryforwards will expire between 2017 and 2035.

We have net operating losses in Alabama and various other states of approximately $30.2 million. The state net operating loss carryforwards include approximately $27.1 million that is not expected to be realized under ASC Subtopic 740-10 and has been reduced by a valuation allowance. If not realized, the state net operating loss carryforards will begin to expire in 2016.

We have established a valuation allowance for items that are not expected to provide future tax benefits. We believe it is more likely than not that we will generate sufficient taxable income to realize the benefit of the remaining deferred tax assets.

The principal reasons for the variation between the statutory and effective tax rates were as follows:



	Years Ended December 31,
	2015	2014	2013
Statutory federal income tax (benefit) rate	(35.0)%	35.0%	35.0%
State income taxes (net of federal benefit)	(1.3)	0.9	2.0
Qualified domestic production activities	0.5	(2.3)	(8.9)
Research and development tax credits	(2.9)	(11.3)	(48.9)
Goodwill impairment	6.7	—	—
Increase in valuation allowance	0.6	8.5	0.9
Non deductible book expenses	0.2	0.9	1.8
Changes in deferred tax assets	0.1	(5.0)	(1.5)
Remeasurement of deferred taxes for changes in state tax law	—	(1.9)	—
Changes in tax reserves	0.1	(0.7)	(0.5)
Other	(0.2)	0.2	(1.1)
Effective income tax (benefit) rate	(31.2)%	24.3%	(21.2)%

We recorded a goodwill impairment charge related to the SS operating segment in 2015. A portion of this goodwill impairment charge was nondeductible for tax purposes and was a permanent impact to our income tax provision of approximately $7.2 million.

The deduction for qualified domestic production activities is treated as a “special deduction” which has no effect on deferred tax assets and liabilities. Instead, the impact of this deduction is reported in our rate reconciliation. No deduction for qualified domestic production has been recognized in 2015 due to a taxable loss. The loss has been carried back to 2014 and 2013, reducing the deduction for qualified domestic production in those years.

On December 18, 2015, the President of the United States signed into law the Protecting Americans from Tax Hikes Act (“PATH”). The PATH Act permanently extended the research and development credit. As a result, we recognized a benefit of approximately $2.6 million for the U.S. Federal R&D credit in 2015.

In December 2014, the federal research and development tax credit was retroactively extended from the beginning of 2014. We recognized total federal research and development tax credits of approximately $2.4 million in 2014. The effective tax rate for 2013 included approximately $2.0 million of 2012 federal research and development tax credit benefits recognized in the first quarter of 2013 as a result of the American Taxpayer Relief Act (the “Act”) of 2012 passed in January 2013. The Act includes an extension of the federal research and development tax credit for the amounts paid or incurred after December 31, 2011 and before January 1, 2014. We recognized total federal research and development tax credit benefits of approximately $4.5 million in 2013.

We record interest and penalty charge, if any, related to uncertain tax positions as a component of tax expense. We had approximately $0.1 million for payment of interest and penalties accrued for all three years ended December 31, 2015, 2014, and 2012.

Our total amount of unrecognized tax benefits was approximately $3.0 million, $2.8 million, and $2.3 million at December 31, 2015, 2014, and 2012 respectively. Approximately $2.1 million, if recognized, would affect the annual income tax rate. We do not reasonably expect significant increases or decreases to our unrecognized tax benefits in the next twelve months.

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:



	(In thousands) Years Ended December 31,
	2015			2014			2013
Balance at January 1,	$	2,803		$	2,297		$	1,356
Additions based on tax positions related to the current year	702			668			668
Additions for tax positions for prior years	—			31			538
Reductions for tax positions for prior years	(48		)	(22		)	—
Reduction to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations	(494		)	(171		)	(265		)
Balance at December 31,	$	2,963		$	2,803		$	2,297

Federal income tax returns after 2011, California franchise (income) tax returns after 2010 and other state income tax returns after 2010 are subject to examination.