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, 2016

The provision for income taxes consists of the following:



	2016		2015		2014
Current:
Federal	$	24,139	$	8,319	$	33,631
State	3,052		1,242		4,306
	27,191		9,561		37,937
Deferred:
Federal	3,256		12,477		(2,102		)
State	269		2,054		(919		)
	3,525		14,531		(3,021		)
	$	30,716	$	24,092	$	34,916

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, 2016, 2015 and 2014 were $1,732, $5,413 and $2,109, 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:



	2016			2015			2014
Tax expense at the statutory rate	$	20,435		$	27,883		$	33,630
State income taxes, net of federal benefit	2,229			2,178			1,879
Non-deductible transaction costs	—			394			—
Incentive stock options	(88		)	(120		)	(96		)
Other permanent differences	474			216			186
TQI goodwill impairment	8,990			—			—
Deferred tax asset valuation allowance	(2		)	(11		)	39
Federal qualified property deductions	(1,311		)	(6,066		)	—
Federal income tax credits	—			(732		)	(533		)
Other	(11		)	350			(189		)
	$	30,716		$	24,092		$	34,916

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, 2016			December 31, 2015
Deferred tax assets:
Accrued expenses	$	9,647		$	11,952
Allowance for doubtful accounts	662			936
Share-based compensation	5,005			5,242
Accruals for income tax contingencies	252			268
Net operating loss carryforwards	10,231			13,620
Total deferred tax assets	25,797			32,018
Valuation allowance	(282		)	(284		)
Total deferred tax assets, net of valuation allowance	25,515			31,734
Deferred tax liabilities:
Tax over book depreciation	29,416			28,027
Intangible assets	17,588			25,399
Prepaid expenses deductible when paid	4,862			5,018
Goodwill	15,520			13,166
Total deferred tax liabilities	67,386			71,610
Net deferred tax liabilities	$	(41,871	)	$	(39,876	)

Total income tax payments, net of refunds, during fiscal years 2016, 2015 and 2014 were $10,628, $25,264 and $30,087, respectively.

As a result of the Towne acquisition the Company has approximately $27,050 and $36,034 of federal net operating losses as of December 31, 2016 and 2015 respectively, 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, 2016 and 2015, the Company had state net operating loss carryforwards of $18,155 and $23,595, respectively, that will expire between 2016 and 2030. 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 decreased $2 during 2016, but the valuation allowance increased $11 during 2015.

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 2012.

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



	Liability for
	Unrecognized Tax
	Benefits
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
Reductions for settlement with state taxing authorities	(247		)
Additions for tax positions of current year	56
Balance at December 31, 2016	$	582

Included in the liability for unrecognized tax benefits at December 31, 2016 and December 31, 2015 are tax positions of $582 and $773, 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, 2016 and December 31, 2015, are accrued penalties of $103 and $156, respectively. The liability for unrecognized tax benefits at December 31, 2016 and December 31, 2015 also included accrued interest of $184 and $371, respectively.