Income Taxes

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



	(In thousands) Years Ended December 31,
	2016		2015			2014
Current tax expense (benefit)
Federal	$	5,953	$	(1,511	)	$	5,258
State	2,982		(418		)	244
	8,935		(1,929		)	5,502
Deferred tax expense (benefit)
Federal	3,876		(28,011		)	1,186
State	41		(1,771		)	(315		)
	3,917		(29,782		)	871
Income tax expense (benefit)	$	12,852	$	(31,711	)	$	6,373

The current income tax expense (benefit) excludes net (tax shortfalls) excess tax benefits recorded directly to additional paid-in-capital related to share-based compensation of $(0.1) million, $0.6 million, and $0.1 million for the years ended December 31, 2016, 2015, and 2014, respectively.

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



	(In thousands) December 31,
	2016			2015
Deferred tax assets:
Accrued expenses	$	760		$	1,363
Allowance for doubtful accounts	184			134
Contract overrun reserves	1,776			4,412
Deferred compensation	507			491
Employment-related accruals	2,888			2,463
Environmental reserves	769			772
Federal tax credit carryforwards	4,234			7,031
Inventory reserves	2,313			2,703
Investment in common stock	—			297
Pension obligation	4,002			3,299
State net operating loss carryforwards	63			1,402
State tax credit carryforwards	6,585			5,937
Stock-based compensation	1,950			2,165
Workers’ compensation	122			133
Other	2,098			1,595
Total gross deferred tax assets	28,251			34,197
Valuation allowance	(6,607		)	(7,477		)
Total gross deferred tax assets, net of valuation allowance	21,644			26,720
Deferred tax liabilities:
Depreciation	(13,167		)	(11,802		)
Goodwill	(3,909		)	(3,632		)
Intangibles	(35,071		)	(37,891		)
Prepaid insurance	(626		)	(514		)
Section 481(a) adjustment	—			(682		)
Unbilled receivables	(2		)	—
Total gross deferred tax liabilities	(52,775		)	(54,521		)
Net deferred tax liabilities	$	(31,131	)	$	(27,801	)

We elected to early adopt ASU 2015-17, prospectively, beginning with the annual period ended December 31, 2015, which required 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 net operating losses in various states of $1.7 million as of December 31, 2016. The state net operating loss carryforwards include $1.3 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 carryforwards will begin to expire in 2032.

We have federal and state tax credit carryforwards of $4.9 million and $11.1 million, respectively, as of December 31, 2016. A valuation allowance of $10.1 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 2030.

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,
	2016	2015	2014
Statutory federal income tax (benefit) rate	35.0%	(35.0)%	35.0%
State income taxes (net of federal benefit)	5.7	(1.2)	0.9
Qualified domestic production activities	(2.0)	0.5	(2.3)
Research and development tax credits	(8.6)	(2.9)	(11.3)
Goodwill impairment	—	8.1	—
Changes in valuation allowance	0.9	0.6	8.5
Non-deductible book expenses	0.2	0.2	0.9
Changes in deferred tax assets	1.5	0.1	(5.0)
Remeasurement of deferred taxes for changes in state tax law	—	—	(1.9)
Changes in tax reserves	—	0.1	(0.7)
Other	1.0	(0.2)	0.2
Effective income tax (benefit) rate	33.7%	(29.7)%	24.3%

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.

We recorded a goodwill impairment charge related to the Structural Systems 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 $8.7 million.

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 recorded a benefit of $2.2 million and $2.6 million for the U.S. Federal R&D credit in 2016 and 2015, respectively. In December 2014, the federal research and development tax credit was retroactively extended from the beginning of 2014. We recorded total federal research and development tax credits of $2.4 million in 2014.

Our total amount of unrecognized tax benefits was $3.0 million, $3.0 million, and $2.8 million at December 31, 2016, 2015, and 2014, respectively. We record interest and penalty charge, if any, related to uncertain tax positions as a component of tax expense and unrecognized tax benefits. The amounts accrued for interest and penalty charge as of December 31, 2016, 2015, and 2014 were not significant. If recognized, $2.0 million would affect the effective 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,
	2016			2015			2014
Balance at January 1,	$	2,963		$	2,803		$	2,297
Additions for tax positions related to the current year	476			702			668
Additions for tax positions related to prior years	385			—			31
Reductions for tax positions related to prior years	(567		)	(48		)	(22		)
Reductions for lapse of statute of limitations	(221		)	(494		)	(171		)
Balance at December 31,	$	3,036		$	2,963		$	2,803

We file U.S. Federal and state income tax returns. Federal income tax returns after 2012, California franchise (income) tax returns after 2011 and other state income tax returns after 2011 are subject to examination. We are no longer subject to examination prior to those periods, although carryforwards generated prior to those periods may still be adjusted upon examination by the Internal Revenue Service (“IRS”) or state taxing authority if they either have been or will be used in a subsequent period. During 2016, the IRS commenced an audit of our 2014 and 2015 tax years. Although the outcome of tax examinations cannot be predicted with certainty, we believe we have adequately accrued for tax deficiencies or reductions in tax benefits, if any, that could result from the examination as well as all open audit years.