Income Taxes

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



	(In thousands) Years Ended December 31,
	2017			2016		2015
Current tax expense (benefit)
Federal	$	2,387		$	5,953	$	(1,511	)
State	525			2,982		(418		)
	2,912			8,935		(1,929		)
Deferred tax (benefit) expense
Federal	(15,515		)	3,876		(28,011		)
State	135			41		(1,771		)
	(15,380		)	3,917		(29,782		)
Income tax (benefit) expense	$	(12,468	)	$	12,852	$	(31,711	)

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “2017 Tax Act”) which, among a broad range of tax reform measures, reduced the U.S. corporate tax rate from 35.0% to 21.0% effective January 1, 2018. The reduction in the corporate tax rate required the federal portion of our deferred tax assets and liabilities at December 31, 2017 to be re-measured at the enacted tax rate expected to apply when the temporary differences are to be realized or settled using 21.0%. As a result, we recorded a provisional deferred income tax benefit of $13.0 million related to the re-measurement for the year ended December 31, 2017. SEC Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (“SAB 118”), allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Since the 2017 Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected over the next 12 months, we consider the accounting of the deferred tax re-measurement and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions. We expect to complete our analysis within the measurement period in accordance with SAB 118.

ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), became effective beginning January 1, 2017 and required all the tax effects related to share-based payments be recorded through the income statement. We recognized net income tax benefits from deductions of share-based payments in excess of compensation cost recognized for financial reporting purposes of $0.6 million for the year ended December 31, 2017. Prior to January 1, 2017, the current income tax expense (benefit) excluded net (tax shortfalls) excess tax benefits which were previously recorded directly to additional paid-in-capital in the amounts of $(0.1) million, and $0.6 million for the years ended December 31, 2016 and 2015, respectively.

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



	(In thousands) December 31,
	2017			2016
Deferred tax assets:
Accrued expenses	$	313		$	760
Allowance for doubtful accounts	208			184
Contract overrun reserves	294			1,776
Deferred compensation	177			507
Employment-related accruals	2,091			2,888
Environmental reserves	501			769
Federal tax credit carryforwards	5,613			4,234
Inventory reserves	1,315			2,313
Pension obligation	2,398			4,002
State net operating loss carryforwards	86			63
State tax credit carryforwards	9,051			6,585
Stock-based compensation	1,480			1,950
Workers’ compensation	75			122
Other	1,492			2,098
Total gross deferred tax assets	25,094			28,251
Valuation allowance	(9,013		)	(6,607		)
Total gross deferred tax assets, net of valuation allowance	16,081			21,644
Deferred tax liabilities:
Depreciation	(7,976		)	(13,167		)
Goodwill	(2,902		)	(3,909		)
Intangibles	(20,611		)	(35,071		)
Prepaid insurance	(312		)	(626		)
Unbilled receivables	—			(2		)
Total gross deferred tax liabilities	(31,801		)	(52,775		)
Net deferred tax liabilities	$	(15,720	)	$	(31,131	)

We have net operating losses in various states of $1.8 million as of December 31, 2017. 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 2030.

We have federal and state tax credit carryforwards of $6.6 million and $12.8 million, respectively, as of December 31, 2017. A valuation allowance of $11.3 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 2018 and 2037.

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,
	2017	2016	2015
Statutory federal income tax (benefit) rate	35.0%	35.0%	(35.0)%
State income taxes (net of federal benefit)	2.5	5.7	(1.2)
Qualified domestic production activities	(2.6)	(2.0)	0.5
Stock-based compensation expense	(8.2)	—	—
Research and development tax credits	(50.6)	(8.6)	(2.9)
Other tax credits	(7.5)	—	—
Goodwill impairment	—	—	8.1
Changes in valuation allowance	10.6	0.9	0.6
Non-deductible book expenses	1.1	0.2	0.2
Changes in deferred tax assets	15.4	1.5	0.1
Re-measurement of deferred taxes for 2017 Tax Act	(171.3)	—	—
Changes in tax reserves	11.4	—	0.1
Other	0.4	1.0	(0.2)
Effective income tax (benefit) rate	(163.8)%	33.7%	(29.7)%

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. As part of the 2017 Tax Act, the qualified domestic production deduction is repealed for tax years beginning after December 31, 2017.

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.

Our total amount of unrecognized tax benefits was $5.3 million, $3.0 million, and $3.0 million at December 31, 2017, 2016, and 2015, 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 charges as of December 31, 2017, 2016, and 2015 were not significant. If recognized, $3.4 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,
	2017			2016			2015
Balance at January 1,	$	3,036		$	2,963		$	2,803
Additions for tax positions related to the current year	422			476			702
Additions for tax positions related to prior years	1,953			385			—
Reductions for tax positions related to prior years	(99		)	(567		)	(48		)
Reductions for lapse of statute of limitations	(41		)	(221		)	(494		)
Balance at December 31,	$	5,271		$	3,036		$	2,963

We file U.S. Federal and state income tax returns. During the fourth quarter of 2017, the Internal Revenue Service (“IRS”) completed the audit of tax years 2013, 2014, and 2015. Consequently, Federal income tax returns after 2015 are subject to examination. California franchise (income) tax returns after 2012 and other state income tax returns after 2012 are subject to examination. While we are no longer subject to examination prior to those periods, carryforwards generated prior to those periods may still be adjusted upon examination by the IRS or state taxing authority if they either have been or will be used in a subsequent period. We believe we have adequately accrued for tax deficiencies or reductions in tax benefits, if any, that could result from the examination and all open audit years.