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INCOME TAXES | 12 Months Ended
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Dec. 31, 2017
INCOME TAXES |
INCOME TAXES | NOTE E – INCOME TAXES On December 22, 2017, H.R. 1/Public Law 115-97 which includes tax legislation titled Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. Effective January 1, 2018, the Tax Reform Act reduces the U.S. federal corporate tax rate from 35% to 21%. As a result of the Tax Reform Act, the Company recorded a provisional reduction of net deferred income tax liabilities of approximately $24.5 million at December 31, 2017, pursuant to the provisions of Accounting Standards Codification 740, Income Taxes, (“ASC 740”), which requires the impact of tax law changes to be recognized in the period in which the legislation is enacted. In addition to the provisional effect on net deferred tax liabilities, the Company recorded a provisional reduction in current income tax expense of approximately $1.3 million, as a result of the Tax Reform Act, to reflect the Company’s use of a fiscal year rather than a calendar year for U.S. income tax filing. Due to the fact that the Company’s current fiscal tax year includes the effective date of the rate change under the Tax Reform Act, taxes are required to be calculated by applying a blended rate to the taxable income for the current taxable year ending February 28, 2018. The blended rate is calculated based on the ratio of days in the fiscal year prior to and after the effective date of the rate change. In computing total tax expense for 2017, a 35% federal statutory rate was applied to the two months ended February 28, 2017, and a blended rate of 32.74% was applied to the ten months ended December 31, 2017. The Tax Reform Act makes many other changes in the tax law applicable to corporations, including changes in the tax treatment of foreign earnings. The foreign earnings of the Company are immaterial to the Company’s consolidated financial results, and the changes made to the treatment of foreign earnings by the Tax Reform Act are not expected to have a material impact on the Company’s consolidated financial statements. However, at this time, complete guidance is not available on the application of significant portions of the Tax Reform Act relating to foreign earnings and operations, and most state taxing authorities have not provided any guidance. Therefore, the Company has not completed its final analysis of the impact of the Tax Reform Act on its income tax accounting and expense. The Company will continue to evaluate the guidance made available on the Tax Reform Act and make adjustments, as necessary, to its income tax provision relating to state and foreign operations. If the impact of any change in estimates made as of December 31, 2017 related to income tax expense for state and foreign operations is material, appropriate disclosure will be made. At December 31, 2017, the Company has not fully completed its accounting for the tax effect of the enactment of the Tax Reform Act; however, a reasonable estimate of its effects on the Company’s income taxes has been recognized, as described within this Note. The provisional amounts recorded in the consolidated financial statements as of and for the year ended December 31, 2017 reflect a reasonable estimate of the effects of the tax law change. The application of ASC 740 will also affect 2018 income tax expense, particularly in the first quarter. In addition to the change in the tax rate, the Act makes other changes to corporate tax law which will affect the Company’s U.S. income tax expense in 2018 and subsequent years. Based on information available at this time, none of the changes, other than the tax rate change, are expected, either individually or in the aggregate, to be material to the Company’s operating results. Significant components of the provision or benefit for income taxes for the years ended December 31 were as follows:
|  | 2017(1) |  | 2016 |  | 2015 |
|  | (in thousands) |
Current provision (benefit): |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (1,969) |  | $ | (604) |  | $ | 9,156 |
State |  |  | 3,701 |  |  | (335) |  |  | 165 |
Foreign |  |  | 331 |  |  | 1,052 |  |  | 2,124 |
|  |  | 2,063 |  |  | 113 |  |  | 11,445 |
Deferred provision (benefit): |  |  |  |  |  |  |  |  |  |
Federal |  |  | (9,312) |  |  | 8,161 |  |  | 12,914 |
State |  |  | (867) |  |  | 1,354 |  |  | 3,589 |
Foreign |  |  | (34) |  |  | 7 |  |  | (68) |
|  |  | (10,213) |  |  | 9,522 |  |  | 16,435 |
Total provision (benefit) for income taxes |  | $ | (8,150) |  | $ | 9,635 |  | $ | 27,880 |
| 1) |  | For 2017, the income tax provision (benefit) reflects the provisional impact of the Tax Reform Act, as previously disclosed in this Note. Deferred income tax liabilities were reduced by approximately $24.5 million as a result of the decrease in the U.S. corporate statutory rate from 35% to 21%, effective January 1, 2018, and current tax expense was reduced by approximately $1.3 million as a result of the law change and the Company’s application of a blended rate due to the use of a fiscal year other than the calendar year for U.S. income tax filing purposes.
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. Components of the deferred tax provision or benefit for the years ended December 31, were as follows:
|  | 2017(1) |  | 2016(1) |  | 2015(1) |
|  | (in thousands) |
Amortization, depreciation, and basis differences for property, plant and equipment and other long-lived assets |  | $ | 21,876 |  | $ | 12,182 |  | $ | 21,098 |
Amortization of intangibles |  |  | (1,030) |  |  | (3,623) |  |  | (3,184) |
Changes in reserves for workers’ compensation, third-party casualty, and cargo claims |  |  | (812) |  |  | 362 |  |  | (674) |
Revenue recognition |  |  | 332 |  |  | 1,862 |  |  | 7 |
Allowance for doubtful accounts |  |  | (719) |  |  | (295) |  |  | 307 |
Foreign tax credit carryforward utilized |  |  | — |  |  | — |  |  | 434 |
Nonunion pension and other retirement plans |  |  | (1,977) |  |  | 3,861 |  |  | (234) |
Deferred compensation plans |  |  | 226 |  |  | 203 |  |  | 541 |
Federal net operating loss carryforwards utilized |  |  | 28 |  |  | 161 |  |  | 70 |
State net operating loss carryforwards utilized (generated) |  |  | 229 |  |  | (304) |  |  | 623 |
State depreciation adjustments |  |  | (1,244) |  |  | (758) |  |  | (657) |
Share-based compensation |  |  | 352 |  |  | (681) |  |  | (621) |
Valuation allowance increase (decrease) |  |  | 401 |  |  | (61) |  |  | 22 |
Leases |  |  | 16 |  |  | (1) |  |  | (969) |
Other accrued expenses |  |  | (852) |  |  | (4,108) |  |  | 1,256 |
Provisional impact of the Tax Reform Act(2) |  |  | (24,542) |  |  | — |  |  | — |
Other |  |  | (2,497) |  |  | 722 |  |  | (1,584) |
Deferred tax provision (benefit) |  | $ | (10,213) |  | $ | 9,522 |  | $ | 16,435 |
| 1) |  | The components of the deferred tax provision above reflect the statutory U.S. income tax rate in effect for the applicable year, which is 35%.
| 2) |  | For 2017, the provisional effect of the change in the U.S. corporate tax rate to 21% in accordance with the Tax Reform Act is reflected as a separate component of the deferred tax provision.
Significant components of the deferred tax assets and liabilities at December 31 were as follows:
|  | 2017(1) |  | 2016(1) |
|  | (in thousands) |
Deferred tax assets: |  |  |  |  |  |  |
Accrued expenses |  | $ | 36,843 |  | $ | 53,366 |
Pension liabilities |  |  | 4,413 |  |  | 4,869 |
Postretirement liabilities other than pensions |  |  | 6,236 |  |  | 9,903 |
Share-based compensation |  |  | 4,466 |  |  | 7,119 |
Federal and state net operating loss carryovers |  |  | 1,781 |  |  | 2,229 |
Other |  |  | 1,508 |  |  | 1,856 |
Total deferred tax assets |  |  | 55,247 |  |  | 79,342 |
Valuation allowance |  |  | (844) |  |  | (293) |
Total deferred tax assets, net of valuation allowance |  |  | 54,403 |  |  | 79,049 |
Deferred tax liabilities: |  |  |  |  |  |  |
Amortization, depreciation, and basis differences for property, plant and equipment, and other long-lived assets |  |  | 73,725 |  |  | 95,248 |
Intangibles |  |  | 14,573 |  |  | 24,715 |
Revenue recognition |  |  | 6,172 |  |  | 5,679 |
Prepaid expenses |  |  | 3,125 |  |  | 5,109 |
Total deferred tax liabilities |  |  | 97,595 |  |  | 130,751 |
Net deferred tax liabilities |  | $ | (43,192) |  | $ | (51,702) |
| 1) |  | The amounts for deferred tax assets and liabilities reflect the applicable tax rates for each category, with the U.S. federal rate at 35% for 2016 and at 21% for a substantial portion of 2017 temporary differences in accordance with the Tax Reform Act. The amounts also include deferred taxes for states and foreign jurisdictions.
Reconciliation between the effective income tax rate, as computed on income before income taxes, and the statutory federal income tax rate for the years ended December 31 is presented in the following table:
|  | 2017(1) |  | 2016(1) |  | 2015(1) |
|  | (in thousands) |
Income tax provision at the statutory federal rate |  | $ | 18,052 |  | $ | 9,901 |  | $ | 25,457 |
Federal income tax effects of: |  |  |  |  |  |  |  |  |  |
State income taxes |  |  | (992) |  |  | (357) |  |  | (1,314) |
Nondeductible expenses |  |  | 1,551 |  |  | 1,653 |  |  | 1,426 |
Life insurance proceeds and changes in cash surrender value |  |  | (927) |  |  | (1,001) |  |  | (110) |
Dividends received deduction |  |  | (9) |  |  | (11) |  |  | (3) |
Alternative fuel credit |  |  | — |  |  | (1,180) |  |  | (1,141) |
Increase (decrease) in valuation allowances |  |  | 401 |  |  | (61) |  |  | 22 |
Decrease in uncertain tax positions(2) |  |  | (720) |  |  | — |  |  | — |
Adoption of ASC 718 relating to stock compensation(3) |  |  | (1,129) |  |  | — |  |  | — |
Impact of the Tax Reform Act on current tax(1) |  |  | (1,288) |  |  | — |  |  | — |
Impact of the Tax Reform Act on deferred tax(1) |  |  | (24,542) |  |  | — |  |  | — |
Other(4) |  |  | (1,678) |  |  | (1,387) |  |  | (2,267) |
Federal income tax provision (benefit) |  |  | (11,281) |  |  | 7,557 |  |  | 22,070 |
State income tax provision |  |  | 2,834 |  |  | 1,019 |  |  | 3,754 |
Foreign income tax provision |  |  | 297 |  |  | 1,059 |  |  | 2,056 |
Total provision (benefit) for income taxes |  | $ | (8,150) |  | $ | 9,635 |  | $ | 27,880 |
Effective tax (benefit) rate |  |  | (15.8) | % |  | 34.1 | % |  | 38.3 | %
| (1) |  | Amounts in this reconciliation reflect the statutory U.S. income tax rate in effect for the applicable year prior to the enactment of the Tax Reform Act, which is 35%. For 2017, the effect of the change in the U.S. corporate tax rate to 21% in accordance with the Tax Reform Act is reflected in separate components of the reconciliation.
| (2) |  | The statute of limitations for the federal return on which these credits were claimed expired in the fourth quarter of 2017.
| (3) |  | The Company made a policy election to account for forfeitures as they occur.
| (4) |  | Includes foreign income tax provision, as presented in this table.
Income taxes paid, excluding income tax refunds, totaled $22.7 million, $24.3 million, and $39.0 million in 2017, 2016, and 2015, respectively. Income tax refunds totaled $18.5 million, $32.5 million, and $21.3 million in 2017, 2016, and 2015, respectively. In the first quarter of 2017, the Company adopted an amendment to ASC Topic 718, Compensation – Stock Compensation, which requires the income tax effects of awards to be recognized in the statement of operations when awards vest or are settled and allows employers to make a policy election to account for forfeitures as they occur. The Company may experience volatility in its income tax provision as a result of recording all excess tax benefits and tax deficiencies in the income statement upon settlement of awards, which occurs primarily during the second quarter of each year except for 2018 which will predominantly occur in the fourth quarter. As a result of applying the provisions of the amendment, the tax rate for 2017 reflects a benefit of 2.2%. The tax benefit of dividends on share based payment awards was less than $0.1 million each for 2017, 2016, and 2015. The 2016 and 2015 amounts were reflected in paid in capital. The Company had state net operating loss carryforwards of $19.9 million and state contribution carryforwards of $1.4 million at December 31, 2017. These state net operating loss and contribution carryforwards expire in 5 to 20 years, with the majority of states allowing a 15 or 20 years. As of December 31, 2017, the Company had a valuation allowance of $0.8 million related to state net operating loss and contribution carryforwards, due to the uncertainty of realization. As of December 31, 2016, the Company had a valuation allowance of $0.3 million related to foreign net operating loss carryforwards. This valuation allowance reversed during 2017, as the foreign net operating loss was fully utilized. Consolidated federal income tax returns filed for tax years through 2013 are closed by the applicable statute of limitations. During 2014, the IRS completed an examination of the tax returns for 2010, 2011, and 2012, resulting in an adjustment of less than $0.1 million. The Company is under examination by one state taxing authority at December 31, 2017. The Company is not under examination by foreign taxing authorities at December 31, 2017. The Company acquired Panther Expedited Services, Inc. (“Panther”) on June 15, 2012. For periods subsequent to the acquisition date, Panther has been included in consolidated federal income tax returns filed by the Company and in consolidated or combined state income tax returns in states permitting or requiring consolidated or combined income tax returns for affiliated groups such as the Company and its subsidiaries. For periods prior to the acquisition date, Panther and its subsidiaries filed a consolidated federal income tax return on a stand‑alone basis. Panther’s federal tax returns for years through 2012 are now closed by the statute of limitations. At December 31, 2017, Panther had federal net operating loss carryforwards of approximately $1.5 million from periods ending on or prior to June 15, 2012. State net operating loss carryforwards for the same periods are approximately $5.0 million. Federal net operating loss carryforwards will expire if not used within 14 years. State carryforward periods for Panther vary from 5 to 20 years. For federal tax purposes and for most states, the use of such carryforwards is limited by Section 382 of the Internal Revenue Code (“IRC”). The limitation applies by restricting the amount of net operating loss carryforwards that may be used in individual tax years subsequent to the acquisition date. However, it is not expected that the Section 382 limitation will result in the expiration of net operating loss carryforwards prior to their availability under Section 382. The Company established a reserve for uncertain tax positions of $0.3 million at December 31, 2013, and increased the reserve to $0.7 million at December 31, 2014 as a result of certain credits taken on amended federal returns. The statute of limitations for the federal return on which these credits were claimed expired in the fourth quarter of 2017, and the reserve of $0.7 million was removed at December 31, 2017. The Company established a reserve for uncertain tax positions of less than $0.1 million at December 31, 2016, and maintained the reserve at December 31, 2017, due to uncertainty of how the IRS will interpret regulations related to research and development credits claimed on the Company’s 2015 federal return. For 2017, 2016 and 2015, interest of less than $0.1 million was paid related to federal and state income taxes. Accrued interest on the foreign income tax obligations of less than $0.1 million remained at December 31, 2017. Any interest or penalties related to income taxes are charged to operating expenses.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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