Forward Air Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes (Notes)

Income Taxes (Notes)

12 Months Ended

Dec. 31, 2015

The provision for income taxes consists of the following:



	2015		2014			2013
Current:
Federal	$	8,319	$	33,631		$	22,466
State	1,242		4,306			2,133
	9,561		37,937			24,599
Deferred:
Federal	12,477		(2,102		)	4,367
State	2,054		(919		)	489
	14,531		(3,021		)	4,856
	$	24,092	$	34,916		$	29,455

The tax benefit associated with the exercise of stock options and the vesting of non-vested shares recorded to additional paid in capital during the years ended December 31, 2015, 2014 and 2013 were $5,413, $2,109 and $3,612, respectively, and are reflected as an increase in additional paid-in capital in the accompanying consolidated statements of shareholders’ equity.

The historical income tax expense differs from the amounts computed by applying the federal statutory rate of 35.0% to income before income taxes as follows:



	2015			2014			2013
Tax expense at the statutory rate	$	27,883		$	33,630		$	29,373
State income taxes, net of federal benefit	2,178			1,879			1,876
Non-deductible transaction costs	394			—			—
Incentive stock options	(120		)	(96		)	(908		)
Meals and entertainment	216			186			139
Deferred tax asset valuation allowance	(11		)	39			(85		)
Federal qualified property deductions	(6,066		)	—			—
Federal income tax credits	(732		)	(533		)	(1,023		)
Other	350			(189		)	83
	$	24,092		$	34,916		$	29,455

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. Significant components of the Company’s deferred tax liabilities and assets are as follows:



	December 31, 2015			December 31, 2014
Deferred tax assets:
Accrued expenses	$	11,952		$	6,313
Allowance for doubtful accounts	936			1,002
Share-based compensation	5,242			5,698
Accruals for income tax contingencies	268			300
Impairment of goodwill and other intangible assets	216			534
Net operating loss carryforwards	13,620			280
Total deferred tax assets	32,234			14,127
Valuation allowance	(284		)	(273		)
Total deferred tax assets, net of valuation allowance	31,950			13,854
Deferred tax liabilities:
Tax over book depreciation	28,027			19,222
Intangible assets	25,399			3,639
Prepaid expenses deductible when paid	5,018			2,488
Goodwill	13,382			11,189
Total deferred tax liabilities	71,826			36,538
Net deferred tax liabilities	$	(39,876	)	$	(22,684	)

Total income tax payments, net of refunds, during fiscal years 2015, 2014 and 2013 were $25,264, $30,087 and $25,168, respectively.

As a result of the Towne acquisition the Company has approximately $36,034 of federal net operating losses as of December 31, 2015, that will expire between 2020 and 2030. The Company expects to be able to fully utilize these federal net operating losses before they expire.

At December 31, 2015 and 2014, the Company had state net operating loss carryforwards of $23,595 and $6,500, respectively, that will expire between 2015 and 2029. Also, the use of these state net operating losses is limited to the future taxable income of separate legal entities. Based on expectations of future taxable income, management believes that it is more likely than not that the results of operations for certain separate legal entities will not generate sufficient taxable income to realize portions of these net operating loss benefits for state loss carryforwards. As a result, a valuation allowance has been provided for the state loss carryforwards for these specific legal entities. The valuation allowance on these state loss carryforwards increased $11 and $39 during 2015 and 2014, respectively.

Income Tax Contingencies

The Company, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various states and Canada. With a few exceptions, the Company is no longer subject to U.S. federal, state and local, or Canadian examinations by tax authorities for years before 2011.

A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:



	Liability for
	Unrecognized Tax
	Benefits
Balance at December 31, 2012	277
Additions for tax positions of current year	209
Additions for tax positions of prior years - TQI	853
Balance at December 31, 2013	1,339
Reductions for settlement with state taxing authorities	(697		)
Additions for tax positions of prior years - TQI	63
Additions for tax positions of current year	66
Balance at December 31, 2014	771
Reductions for settlement with state taxing authorities	(64		)
Additions for tax positions of current year	66
Balance at December 31, 2015	$	773

Included in the liability for unrecognized tax benefits at December 31, 2015 and December 31, 2014 are tax positions of $773 and $771, respectively, which represents tax positions where the realization of the ultimate benefit is uncertain and the disallowance of which would affect the Company’s annual effective income tax rate.

Included in the liability for unrecognized tax benefits at December 31, 2015 and December 31, 2014, are accrued penalties of $156 and $170, respectively. The liability for unrecognized tax benefits at December 31, 2015 and December 31, 2014 also included accrued interest of $371 and $414, respectively.