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INCOME TAXES | 12 Months Ended
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Dec. 31, 2018
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 reduced 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 $24.5 million at December 31, 2017, pursuant to the provisions of ASC Topic 740, Income Taxes, which requires the impact of tax law changes to be recognized in the period in which the legislation is enacted. An additional reduction of net deferred income tax liabilities of $3.8 million was recognized in 2018 related to the reversal of temporary differences through the Company’s fiscal tax year end of February 28, 2018. As of December 31, 2018, the accounting for the income tax effect of the Tax Reform Act has been completed, and all amounts recorded are considered final. In addition to the effect on net deferred tax liabilities, the Company recorded a reduction in current income tax expense of $0.1 million and $1.3 million at December 31, 2018 and 2017, respectively, as a result of the Tax Reform Act, to reflect the Company’s application of a blended rate due to the use of a fiscal year rather than a calendar year for U.S. income tax filing. Due to the fact that the Company’s fiscal tax year included 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 the twelve months ended December 31, 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. In computing total tax expense for the twelve months ended December 31, 2018, a federal blended rate of 32.74% was applied to the two months ended February 28, 2018, and a 21% federal statutory rate was applied to the ten months ended December 31, 2018. The Tax Reform Act made many other changes in the tax law applicable to corporations, including the one-time transition tax on earnings of foreign subsidiaries, the tax on global intangible low-taxed income, and the tax on base erosion payments. At December 31, 2018, the Company has determined these provisions of the Tax Reform Act will not have a significant impact on the Company’s consolidated financial statements. Significant components of the provision or benefit for income taxes for the years ended December 31 were as follows:
|  | 2018(1) |  | 2017(1) |  | 2016 |
|  | (in thousands, except percentages) |
Current provision (benefit): |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 9,750 |  | $ | (1,969) |  | $ | (604) |
State |  |  | 3,264 |  |  | 3,701 |  |  | (335) |
Foreign |  |  | 2,238 |  |  | 331 |  |  | 1,052 |
|  |  | 15,252 |  |  | 2,063 |  |  | 113 |
Deferred provision (benefit): |  |  |  |  |  |  |  |  |  |
Federal |  |  | 1,157 |  |  | (9,312) |  |  | 8,161 |
State |  |  | 737 |  |  | (867) |  |  | 1,354 |
Foreign |  |  | (22) |  |  | (34) |  |  | 7 |
|  |  | 1,872 |  |  | (10,213) |  |  | 9,522 |
Total provision (benefit) for income taxes |  | $ | 17,124 |  | $ | (8,150) |  | $ | 9,635 |
| (1) |  | For 2018 and 2017, the income tax provision (benefit) reflects the impact of the Tax Reform Act, as previously disclosed in this Note. Deferred income tax liabilities were reduced by $3.8 million and $24.5 million for 2018 and 2017, respectively, as a result of the decrease in the U.S. corporate statutory tax rate from 35% to 21% effective January 1, 2018. Current tax expense was reduced by $0.1 million and $1.3 million for 2018 and 2017, respectively, as a result of the tax 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:
|  | 2018(2) |  | 2017(1)(2) |  | 2016(1) |
|  | (in thousands) |
Amortization, depreciation, and basis differences for property, plant and equipment and other long-lived assets |  | $ | 23,153 |  | $ | 21,876 |  | $ | 12,182 |
Amortization of intangibles |  |  | (763) |  |  | (1,030) |  |  | (3,623) |
Changes in reserves for workers’ compensation, third-party casualty, and cargo claims |  |  | 469 |  |  | (812) |  |  | 362 |
Revenue recognition |  |  | (2,524) |  |  | 332 |  |  | 1,862 |
Allowance for doubtful accounts |  |  | (115) |  |  | (719) |  |  | (295) |
Nonunion pension and other retirement plans |  |  | (2,810) |  |  | (1,977) |  |  | 3,861 |
Multiemployer pension fund withdrawal(3) |  |  | (5,818) |  |  | — |  |  | — |
Federal net operating loss carryforwards utilized |  |  | 125 |  |  | 28 |  |  | 161 |
State net operating loss carryforwards utilized (generated) |  |  | 621 |  |  | 229 |  |  | (304) |
State depreciation adjustments |  |  | (1,761) |  |  | (1,244) |  |  | (758) |
Share-based compensation |  |  | (529) |  |  | 352 |  |  | (681) |
Valuation allowance increase (decrease) |  |  | (744) |  |  | 401 |  |  | (61) |
Other accrued expenses |  |  | (4,881) |  |  | (852) |  |  | (4,108) |
Impact of the Tax Reform Act(2) |  |  | (3,772) |  |  | (24,542) |  |  | — |
Other |  |  | 1,221 |  |  | (2,255) |  |  | 924 |
Deferred tax provision (benefit) |  | $ | 1,872 |  | $ | (10,213) |  | $ | 9,522 |
| (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% for 2017 and 2016.
| (2) |  | For 2018 and 2017, the effect of the change in the U.S. corporate tax rate from 35% to 21% in accordance with the Tax Reform Act is reflected as a separate component of the deferred tax provision.
| (3) |  | ABF Freight recorded a multiemployer pension fund withdrawal liability in 2018 resulting from the transition agreement it entered into with the New England Teamsters and Trucking Industry Pension Fund (see Note I).
Significant components of the deferred tax assets and liabilities at December 31 were as follows:
|  | 2018 |  | 2017(1) |
|  | (in thousands) |
Deferred tax assets: |  |  |  |  |  |  |
Accrued expenses |  | $ | 39,885 |  | $ | 36,843 |
Pension liabilities |  |  | 2,754 |  |  | 4,413 |
Multiemployer pension fund withdrawal(2) |  |  | 5,710 |  |  | — |
Postretirement liabilities other than pensions |  |  | 7,660 |  |  | 6,236 |
Share-based compensation |  |  | 4,893 |  |  | 4,466 |
Federal and state net operating loss carryovers |  |  | 1,152 |  |  | 1,781 |
Other |  |  | 1,355 |  |  | 1,508 |
Total deferred tax assets |  |  | 63,409 |  |  | 55,247 |
Valuation allowance |  |  | (53) |  |  | (844) |
Total deferred tax assets, net of valuation allowance |  |  | 63,356 |  |  | 54,403 |
Deferred tax liabilities: |  |  |  |  |  |  |
Amortization, depreciation, and basis differences for property, plant and equipment, and other long-lived assets |  |  | 93,525 |  |  | 73,725 |
Intangibles |  |  | 14,066 |  |  | 14,573 |
Revenue recognition |  |  | 1,513 |  |  | 6,172 |
Prepaid expenses |  |  | 3,225 |  |  | 3,125 |
Total deferred tax liabilities |  |  | 112,329 |  |  | 97,595 |
Net deferred tax liabilities |  | $ | (48,973) |  | $ | (43,192) |
| (1) |  | The amounts for deferred tax assets and liabilities reflect the applicable tax rates for each category, with the U.S. federal rate 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.
| (2) |  | ABF Freight recorded a multiemployer pension fund withdrawal liability in 2018 resulting from the transition agreement it entered into with the New England Teamsters and Trucking Industry Pension Fund (see Note I).
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:
|  | 2018(1) |  | 2017(2) |  | 2016(2) |
|  | (in thousands, except percentages) |
Income tax provision at the statutory federal rate |  | $ | 17,721 |  | $ | 18,052 |  | $ | 9,901 |
Federal income tax effects of: |  |  |  |  |  |  |  |  |  |
State income taxes |  |  | (840) |  |  | (992) |  |  | (357) |
Nondeductible expenses |  |  | 946 |  |  | 1,551 |  |  | 1,653 |
Life insurance proceeds and changes in cash surrender value |  |  | 7 |  |  | (927) |  |  | (1,001) |
Alternative fuel credit |  |  | (1,203) |  |  | — |  |  | (1,180) |
Increase (decrease) in valuation allowances |  |  | (891) |  |  | 401 |  |  | (61) |
Increase (decrease) in uncertain tax positions |  |  | 933 |  |  | (720) |  |  | — |
Settlement of share-based compensation |  |  | (649) |  |  | (1,129) |  |  | — |
Impact of the Tax Reform Act on current tax(2) |  |  | (52) |  |  | (1,288) |  |  | — |
Impact of the Tax Reform Act on deferred tax(2) |  |  | (3,772) |  |  | (24,542) |  |  | — |
Other(3) |  |  | (1,293) |  |  | (1,687) |  |  | (1,398) |
Federal income tax provision (benefit) |  |  | 10,907 |  |  | (11,281) |  |  | 7,557 |
State income tax provision |  |  | 4,001 |  |  | 2,834 |  |  | 1,019 |
Foreign income tax provision |  |  | 2,216 |  |  | 297 |  |  | 1,059 |
Total provision (benefit) for income taxes |  | $ | 17,124 |  | $ | (8,150) |  | $ | 9,635 |
Effective tax (benefit) rate |  |  | 20.3 | % |  | (15.8) | % |  | 34.1 | %
| (1) |  | Amounts in this reconciliation reflect the statutory U.S. income tax rate in effect for the applicable year after the enactment of the Tax Reform Act, which is 21%. The effect of applying a blended rate of 32.74% for the two months ended February 28, 2018, in accordance with the Tax Reform Act, is reflected in separate components of the reconciliation.
| (2) |  | 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.
| (3) |  | Includes foreign income tax provision, as presented in this table.
Income taxes paid, excluding income tax refunds, totaled $21.8 million, $22.7 million, and $24.3 million in 2018, 2017, and 2016, respectively. Income tax refunds totaled $18.5 million, $18.5 million, and $32.5 million in 2018, 2017, and 2016, 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 when it predominantly occurred in the fourth quarter. As a result of applying the provisions of the amendment, the tax rates for 2018 and 2017 reflects a benefit of 0.8% and 2.2%, respectively. The tax benefit of dividends on share based payment awards was less than $0.1 million each for 2018, 2017, and 2016. The 2016 amount was reflected in paid in capital. The Company had state net operating loss carryforwards of $7.9 million and state contribution carryforwards of $1.1 million at December 31, 2018. These state net operating loss and contribution carryforwards expire in 5 to 20 years, with the majority of states allowing 15 or 20 years. At December 31, 2018 and 2017, the Company had a valuation allowance of $0.1 million related to state contribution carryforwards, due to the uncertainty of realization. At December 31, 2017, the Company established a valuation allowance of $0.7 million related to certain state net operating loss carryforwards set to expire in 5 years. Due to tax-planning strategies that included decreased state tax depreciation, state taxable income was generated for 2018, and a portion of the state net operating loss carryforwards for which the valuation allowance was established were utilized. In addition, management concluded, based on available evidence, that it was more likely than not that remaining net operating losses would be utilized, and the remaining valuation allowance of $0.7 million was reversed. 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 2014 are closed by the applicable statute of limitations. The Company is under examination by three state taxing authorities at December 31, 2018. The Company is not under examination by foreign taxing authorities at December 31, 2018. 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. At December 31, 2018, Panther had federal net operating loss carryforwards of approximately $1.3 million from periods ending on or prior to June 15, 2012. State net operating loss carryforwards for the same periods are approximately $5.3 million. Federal net operating loss carryforwards will expire if not used within 13 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. At December 31, 2018, 2017, and 2016, the Company had reserves for uncertain tax positions totaling of $1.0 million, less than $0.1 million, and $0.7 million, respectively. A $0.7 million reserve for uncertain tax positions as of December 31, 2016 was related to 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 was removed at December 31, 2017. The Company also had a reserve for uncertain tax positions of less than $0.1 million at December 31, 2016, and maintained the reserve at December 31, 2018, due to uncertainty of how the IRS will interpret regulations related to research and development credits claimed on the 2015 federal return. A reserve for uncertain tax positions of $0.9 million was established at December 31, 2018 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 expires in the first quarter of 2020. For 2018, 2017 and 2016, interest of less than $0.1 million was paid related to federal, foreign and state income taxes. Accrued interest on the foreign income tax obligations of less than $0.1 million remained at December 31, 2018. 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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