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Income Tax | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income (loss) from operations before income taxes consisted of the following:
| (Dollars in thousands)
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
United States | $ | 10,159 |  |  | $ | (708 | ) |  | $ | 3,583 |
Canada | (65 | ) |  | (823 | ) |  | (2,431 | )
| $ | 10,094 |  |  | $ | (1,531 | ) |  | $ | 1,152 |
Provision (benefit) for income taxes from operations for the years ended December 31, consisted of the following:
| (Dollars in thousands)
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
Current income tax expense (benefit): |  |  |  |  |
U.S. federal | $ | 296 |  |  | $ | 97 |  |  | $ | (461 | )
U.S. state | 129 |  |  | (33 | ) |  | 75 |
Canada | 1,209 |  |  | 3 |  |  | 1,241 |
Total | $ | 1,634 |  |  | $ | 67 |  |  | $ | 855 |
Deferred income tax expense (benefit): |  |  |  |  |
U.S. federal | $ | (17,971 | ) |  | $ | — |  |  | $ | — |
U.S. state | (3,257 | ) |  | 31 |  |  | — |
Canada | — |  |  | — |  |  | — |
Total | $ | (21,228 | ) |  | $ | 31 |  |  | $ | — |
Total income tax expense (benefit): |  |  |  |  |
U.S. federal | $ | (17,675 | ) |  | $ | 97 |  |  | $ | (461 | )
U.S. state | (3,128 | ) |  | (2 | ) |  | 75 |
Canada | 1,209 |  |  | 3 |  |  | 1,241 |
Total | $ | (19,594 | ) |  | $ | 98 |  |  | $ | 855 |
The reconciliation between the effective income tax rate and the statutory federal rate for operations was as follows:
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
Statutory federal rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
Increase (decrease) resulting from: |  |  |  |  |
Change in valuation allowance - reversal | (210.5 | ) |  | — |  |  | — |
Change in valuation allowance - federal tax rate change | (126.4 | ) |  | — |  |  | — |
Change in valuation allowance - current period activity | (65.7 | ) |  | 14.5 |  |  | (86.4 | )
Federal tax rate change | 126.4 |  |  | — |  |  | — |
Foreign income inclusion | 29.2 |  |  | — |  |  | — |
Change in uncertain tax positions | 7.7 |  |  | 0.6 |  |  | 56.2 |
State and local taxes, net | 4.7 |  |  | (17.4 | ) |  | 10.4 |
Alternative minimum tax | 3.6 |  |  | (6.3 | ) |  | 7.6 |
Meals & entertainment | 1.4 |  |  | (9.0 | ) |  | 11.6 |
Executive life insurance | 0.9 |  |  | (3.1 | ) |  | 2.4 |
Provision to return differences | (0.7 | ) |  | (4.5 | ) |  | 24.4 |
Captive insurance income | 0.3 |  |  | (3.0 | ) |  | — |
Foreign tax rate differential | 0.1 |  |  | (14.3 | ) |  | 17.9 |
Other items, net | (0.1 | ) |  | 1.1 |  |  | (4.9 | )
Provision for income taxes (benefit) | (194.1 | )% |  | (6.4 | )% |  | 74.2 | %
The Company paid income taxes of $0.3 million, $0.2 million and $0.1 million in the years ended December 31, 2017, 2016, and 2015, respectively. At December 31, 2017, the Company had $28.8 million of U.S. federal net operating loss carryforwards which are subject to expiration beginning in 2030 and $23.4 million of various state net operating loss carryforwards which expire at varying dates through 2034. In the second quarter of 2017, the Company increased its deferred tax assets and related valuation allowance by $7.6 million that may arise from future settlement of uncertain tax positions in Canada. There was no impact to the Company's consolidated statements of income and comprehensive income, balance sheets or statements of cash flows, as at the time the Company had valuation allowances equal to the value of the deferred tax assets. That amount was reduced to $4.6 million as of December 31, 2017 primarily as a result of the lower U.S. federal rate. Primarily due to the cumulative losses that were incurred over several years, management determined in 2012 that it was more likely than not that the company would not be able to utilize its deferred tax assets to offset future taxable income. Valuation allowances ("VA’s") were recorded against virtually all the gross deferred tax assets at that time. At each reporting date since 2012, Lawson management has considered new evidence, both positive and negative, that could impact management’s view with regard to the realization of its deferred tax assets and the reversal of the corresponding valuation allowances. If the company was able to demonstrate that it can consistently generate income it may lead to a determination that there is sufficient positive evidence to conclude that it is more likely than not that the company will be able to utilize its deferred tax assets to offset future taxable income. We have continued to generate pre-tax profits and have utilized some of our net operating loss carryforwards over the last two years and are now in a three year cumulative income position in the U.S. Based on available evidence, including the utilization of $18.0 million of net operating loss carryforwards in 2017, we have reached a point of increased confidence in our ability to sustain profit levels and we now believe it is more likely than not that we will be able to utilize a substantial amount of our deferred tax assets to offset future taxable income. Therefore, a large portion of our U.S. valuation allowances were released in 2017. Certain valuation allowances mostly pertaining to the deferred tax assets related to our foreign operations will remain. The Company will continue to monitor all positive and negative evidence related to the remaining valuation of deferred tax assets on a quarterly basis. The Tax Cuts and Jobs Act was enacted into law on December 22, 2017. Among its provisions, the law reduced the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018, requiring the Company to re-measure its net U.S. deferred tax assets to reflect the reduction in the tax rate. The impact of the change resulted in a reduction to deferred tax assets of $12.6 million offset by the same decrease in the valuation allowance. The income tax benefit recorded in 2017 of $19.6 million was primarily the result of the valuation allowance reversal of $21.2 million recorded at December 31, 2017. The Tax Cuts and Jobs Act also requires that a US shareholder of a specified foreign corporation ("SFC") to include in gross income, at the end of the SFC’s last tax year beginning before January 1, 2018, the US shareholder’s pro-rata share of certain of the SFC’s undistributed and previously untaxed post-1986 foreign earnings and profits ("E&P"). The U.S. shareholder’s income inclusion is taxed at an effective U.S. federal income tax rate of either 15.5% or 8%. The 15.5% rate applies to the extent that the SFC’s hold cash and certain other assets, and the 8% rate applies to the extent the income inclusion exceeds the foreign cash position. During the fourth quarter of 2017, the Company utilized $8.4 million of net operating losses to offset its E&P. The Securities and Exchange Commission ("SEC") recently issued SAB 118 (Income Tax Accounting Implications of the Tax Cuts and Jobs Act) which allows registrants to record provisional amounts during a measurement period. The SAB allows a company to recognize provisional amounts when it does not have the necessary information prepared in reasonable detail to calculate the effect of the change in tax law. Per the SAB, a company should report provisional amounts when the accounting is not complete, but for which a reasonable estimate can be determined. Lawson has included in its 2017 taxable income calculation a provisional amount of approximately $8.4 million representing previously untaxed foreign earnings and profits. The Company will not accrue any federal income tax on this amount as the company is able to utilize federal net operating losses to offset the income. As a result of acquisitions completed in 2017, 2016 and 2015, the Company recorded $19.6 million of tax deductible goodwill that may result in a tax benefit in future periods. Deferred income tax assets and liabilities contain the following temporary differences:
| (Dollars in thousands)
| December 31,
| 2017 |  | 2016
Deferred tax assets: |  |  |
Net operating loss carryforward | $ | 12,120 |  |  | $ | 17,518 |
Compensation and benefits | 7,828 |  |  | 12,126 |
Inventory reserve | 1,689 |  |  | 2,750 |
Capital loss carryforward | 1,326 |  |  | 2,210 |
Accounts receivable reserve | 130 |  |  | 183 |
Other | 1,155 |  |  | 1,770 |
Total deferred tax assets | 24,248 |  |  | 36,557 |
Deferred tax liabilities: |  |  |
Intangible assets | 3,115 |  |  | — |
Property, plant and equipment | 41 |  |  | 433 |
Other | 403 |  |  | 688 |
Total deferred liabilities | 3,559 |  |  | 1,121 |
Net deferred tax assets before valuation allowance | 20,689 |  |  | 35,436 |
Valuation allowance | (2,556 | ) |  | (35,416 | )
Net deferred tax assets | $ | 18,133 |  |  | $ | 20 |
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| (Dollars in thousands)
| December 31,
| 2017 |  | 2016
Balance at beginning of year | $ | 3,249 |  |  | $ | 3,136 |
Additions for tax positions of current year | 865 |  |  | 544 |
Additions for tax positions of prior years | 141 |  |  | 116 |
Reductions for tax positions of prior year | — |  |  | (547 | )
Balance at end of year | $ | 4,255 |  |  | $ | 3,249 |
The recognition of the unrecognized tax benefits would have a favorable effect on the effective tax rate. Due to the uncertainty of both timing and resolution of income tax examinations, the Company is unable to determine whether any amounts included in the December 31, 2017 balance of unrecognized tax benefits represent tax positions that could significantly change during the next twelve months. The unrecognized tax benefits are recorded as a component of Other liabilities in the Consolidated Balance Sheets. Interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense. The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. As of December 31, 2017, the Company was subject to U.S federal income tax examinations for the years 2014 through 2016 and income tax examinations from various other jurisdictions for the years 2011 through 2016.

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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 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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