Income Taxes

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

15. INCOME TAXES

Income tax provision (benefit) consists of the following (in thousands):

	Year Ended December 31,
	2017			2016		2015
Current income tax provision:
Federal	$	41,177		$	26,752	$	25,105
State		5,420			2,798		2,560
		46,597			29,550		27,665
Deferred income tax provision:
Federal		1,177			5,217		987
State		(983	)		216		37
		194			5,433		1,024
Total income tax provision	$	46,791		$	34,983	$	28,689

The income tax provision differs from the amount of income tax determined by applying the U.S. Federal statutory rate to income before taxes as a result of the following (in thousands):

	Year Ended December 31,
	2017			2016			2015
U.S. Federal statutory taxes	$	49,671		$	35,990		$	26,876
State and local taxes, net of U.S. Federal benefit		5,110			3,747			2,806
Permanent items		576			396			1,308
Excess tax benefits from vesting or settlement of stock compensation awards		(1,454	)		(1,749	)		—
Domestic production activities deduction		(4,376	)		(2,740	)		(2,262	)
Federal credits		(534	)		(488	)		(328	)
Other		(2,202	)		(173	)		289
Total income tax provision	$	46,791		$	34,983		$	28,689

Deferred tax assets and liabilities consist of the following (in thousands):

	As of December 31,
	2017			2016
Deferred tax assets:
Net operating losses	$	123		$	93
Residential product warranty reserve		8,876			14,510
Stock-based compensation		1,823			2,186
Accruals not currently deductible and other		1,838			2,261
Inventories		3,783			5,785
State tax credit carryforwards		3,619			4,020
Gross deferred tax assets, before valuation allowance		20,062			28,855
Valuation allowance		(3,096	)		(4,061	)
Gross deferred tax assets, after valuation allowance		16,966			24,794
Deferred tax liabilities:
Depreciation and other		(18,055	)		(25,688	)
Gross deferred tax liabilities		(18,055	)		(25,688	)
Net deferred tax (liability) asset	$	(1,089	)	$	(894	)

The Company recognizes deferred tax assets and liabilities based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted rates expected to be in effect during the year in which the differences reverse. In accordance with accounting standards, the Company assesses the likelihood that its deferred tax assets will be realized. Deferred tax assets are reduced by a valuation allowance when, after considering all available positive and negative evidence, it is determined that it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.

The Company has recognized the tax effects of the Tax Cuts and Jobs Act (Act) in its consolidated financial statements and related notes as of and for the year ended December 31, 2017. Deferred tax assets and deferred tax liabilities that existed as of the enactment date and that are expected to reverse after the Act’s effective date of January 1, 2018 have been adjusted to reflect the new Federal statutory tax rate of 21%. The effect of the change in tax rate on the deferred tax assets and deferred tax liabilities resulted in a tax benefit of $1.9 million for the year ended December 31, 2017, which is included in “Other” in the above tax rate reconciliation. We continue to analyze certain aspects of the Act and refine our calculation, which could potentially affect the measurement of these balances or give rise to new deferred tax amounts. As of December 31, 2017, the Company had a valuation allowance of $3.1 million against deferred tax assets it estimates will not be realized. The Company will analyze its position in subsequent reporting periods, considering all available positive and negative evidence, in determining the expected realization of its deferred tax assets.

In 2016, the Company adopted ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” and, accordingly, recognizes excess tax benefits for stock-based awards within income tax expense when realized. The Company applied the guidance in the new standard prospectively as of January 1, 2016. Excess tax benefits for the year ended December 31, 2015 are recorded in additional paid-in-capital. The Company realized $1.5 million and $1.7 million of excess tax benefits during 2017 and 2016, respectively.

The Company recognizes interest and penalties related to tax matters as a component of “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Comprehensive Income. As of December 31, 2017, the Company has identified no uncertain tax position and, accordingly, has not recorded any unrecognized tax benefits or associated interest and penalties.

The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations may result in future assessments by these taxing authorities, and the Company has accrued a liability when it believes that it is not more likely than not that it will realize the benefits of tax positions that it has taken or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with accounting standards. As of December 31, 2017, Federal tax years 2013 through 2016 remain subject to examination. The Company believes that adequate provisions have been made for all tax returns subject to examination. Sales made to foreign distributors are not taxable in any foreign jurisdictions as the Company does not have a taxable presence.