Income Taxes

The Company records income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and attributable to operating loss and tax credit carryforwards, if any. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the change is enacted. During the fourth quarter of 2017, comprehensive federal tax legislation was enacted in the form of the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to reducing the corporate income tax rate from 35% to 21%, eliminating the corporate alternative minimum tax, repealing the domestic production activity deduction, and limiting the deductibility of certain executive compensation.

The SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”) in December 2017, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides that the measurement period for the tax effects of the Tax Act should not extend more than one year from the date the Tax Act was enacted. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but the company is able to determine a reasonable estimate, the company must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the Tax Act was enacted.

As a result of the reduction in the corporate income tax rate, the Company revalued its deferred tax assets at December 31, 2017 and recognized a non-cash provisional tax expense of approximately $6.5 million for the year ended December 31, 2017. The impact ultimately realized may differ from this provisional amount, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act, including analyzing planning opportunities with respect to tax accounting methods. The accounting for the income tax effects of the Tax Act is expected to be complete when the 2017 corporate income tax return is filed in 2018.

In accordance with ASC 740, we evaluate our deferred tax assets, including the benefit from NOLs and tax credit carryforwards, if any, to determine if a valuation allowance is required. Companies must assess, using significant judgments, whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. This assessment gives appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets and considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the length of statutory carryforward periods, our experience with operating losses and our experience of utilizing tax credit carryforwards and tax planning alternatives. Based upon a review of all available evidence, we believe our deferred tax assets were fully realizable in all periods presented.

At December 31, 2017, the Company’s total deferred tax assets were $22.9 million which is offset by $4.5 million of total deferred tax liabilities for a $18.4 million net deferred tax asset which is reported on the Company’s Consolidated Balance Sheets.

The tax effects of the significant temporary differences that comprise the deferred tax assets and liabilities are as follows:



	December 31,
(In thousands)	2017		2016
Deferred tax assets:
Warranty, insurance and other accruals	$	8,078	$	12,738
Equity-based compensation	3,250		5,482
Inventory	4,720		8,223
State taxes	160		219
Net operating loss carryforward	6,193		8,483
Deferred charges	506		1,812
Total deferred tax assets	$	22,907	$	36,957

Deferred tax liabilities:
Federal effect of state deferred taxes	$	1,777	$	3,879
Depreciation	2,382		1,947
Prepaid expenses	310		256
Total deferred tax liabilities	$	4,469	$	6,082

Net deferred tax asset	$	18,438	$	30,875

The provision from income taxes consists of the following:



	Year Ended December 31,
(In thousands)	2017		2016		2015
Current:
Federal	$	33,392	$	1,745	$	1,757
State	2,414		2,120		883
	$	35,806	$	3,865	$	2,640

	Year Ended December 31,
(In thousands)	2017		2016		2015
Deferred:
Federal	$	11,916	$	28,335	$	28,760
State	521		2,976		3,766
	$	12,437	$	31,311	$	32,526
Total	$	48,243	$	35,176	$	35,166

For 2017, 2016 and 2015, the Company’s effective tax rate was 40.09%, 38.32%, and 40.45%, respectively. The increase in the effective tax rate was attributable to the Company’s recognition of a non-cash provisional tax expense of approximately $6.5 million as a result of the re-measurement of our deferred tax assets in connection with the enactment of the Tax Act. Reconciliation of the differences between income taxes computed at the federal statutory tax rate and consolidated benefit from income taxes are as follows:



	Year Ended December 31,
(In thousands)	2017			2016			2015
Federal taxes at statutory rate	$	42,113		$	32,125		$	30,425
State and local taxes – net of federal tax benefit	3,420			3,652			2,820
Change in state NOL deferred asset – net of federal tax benefit	—			729			1,548
Deferred tax asset re-measurement as a result of Tax Act	6,520			—			—
Equity Compensation	(1,368		)	—			—
Manufacturing deduction	(3,262		)	(1,298		)	—
Other	820			(32		)	373
Total	$	48,243		$	35,176		$	35,166

The Company files income tax returns in the U.S. federal jurisdiction, and various states. The Company is no longer subject to U.S. federal, state or local examinations by tax authorities for years before 2012. The Company is audited from time to time, and if any adjustments are made, they would be either immaterial or reserved.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. At December 31, 2017, 2016 and 2015, we had no unrecognized tax benefits due to the lapse of the statute of limitations and completion of audits in prior years. We believe that our current income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change.

During 2016, the Company fully utilized its federal NOL carryforwards and federal credit carryforwards. The Company had $4.9 million of state NOL carryforwards, net of the federal benefit, at December 31, 2017. Our state NOLs may be carried forward from one to 15 years, depending on the tax jurisdiction, with $1.4 million expiring between 2022 and 2027 and $3.5 million expiring between 2028 and 2032, absent sufficient state taxable income.