10.

INCOME TAXES

Income Before Income Taxes

The consolidated income (loss) before income taxes for 2015, 2014 and 2013 consists of the following (in thousands):

	2015		2014		2013
Domestic	$	163,325	$	98,246	$	77,465
Foreign		(14)		216		158
Total income before income taxes	$	163,311	$	98,462	$	77,623

Income Tax Expense

The consolidated income tax expense for 2015, 2014 and 2013 consists of the following components (in thousands):

	2015		2014		2013
Current
Federal	$	58,090	$	19,036	$	158
State		8,627		1,805		717
Foreign		54		118		130
	$	66,771	$	20,959	$	1,005
Deferred
Federal	$	(7,930)	$	12,913	$	26,792
State		288		3,778		3,412
Foreign		(107)		(118)		(115)
	$	(7,749)	$	16,573	$	30,089
Total consolidated expense	$	59,022	$	37,532	$	31,094

The following table provides a reconciliation of differences from the U.S. Federal statutory rate of 35% as follows (in thousands):

	2015		2014		2013
Pretax book income	$	163,311	$	98,462	$	77,623

Federal tax expense at 35% statutory rate		57,159		34,462		27,168
State and local income taxes		6,190		4,808		3,870
Benefit of domestic production deduction		(5,255)		(2,010)		-
Other		928		272		56
Total income tax expense	$	59,022	$	37,532	$	31,094

Deferred Taxes

The Company’s deferred income taxes are primarily due to temporary differences between financial and income tax reporting for the depreciation of property, plant and equipment, amortization of intangibles, compensation adjustments, inventory adjustments, other accrued liabilities and tax losses carried forward.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Companies are required to assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence, both positive and negative, using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified.

The Company assesses, on a quarterly basis, the realizability of its deferred tax assets by evaluating all available evidence, both positive and negative, including: (1) the cumulative results of operations in recent years, (2) the nature of recent losses, if applicable, (3) estimates of future taxable income, (4) the length of operating loss carryforward (“NOLs”) periods and (5) the uncertainty associated with a possible change in ownership, which imposes an annual limitation on the use of these carryforwards.

As of December 31, 2015 and 2014, the Company retained a valuation allowance of $1.2 and $1.3 million, respectively, against deferred tax assets related to various state and local NOLs that are subject to restrictive rules for future utilization.

As of December 31, 2015, the Company has no U.S. federal tax NOLs. The Company has various multistate income tax NOLs, which have been recorded as a deferred income tax asset, of approximately $2.5 million, before valuation allowances. These NOLs will expire beginning in 2016, if unused.

The components of deferred tax assets and deferred tax liabilities as of December 31, 2015 and 2014 were as follows (in thousands):

	2015		2014
Deferred tax assets
Tax credits and loss carryforwards	$	563	$	2,550
Accrued liabilities		9,211		6,882
Incentive compensation		24,682		19,333
Other		3,909		3,389
	$	38,365	$	32,154
Deferred tax liabilities
Property, plant and equipment		(4,000)		(2,858)
Intangibles		(5,325)		(5,565)
Prepaid assets		(697)		(638)
Convertible note discount		(3,234)		(5,117)
Other		(1,658)		(2,025)
	$	(14,914)	$	(16,203)

Net deferred tax asset before valuation allowances and reserves	$	23,451	$	15,951
Valuation allowances		(1,159)		(1,307)
Net deferred tax asset	$	22,292	$	14,644

Tax Reserves

The Company’s policy with respect to interest and penalties associated with reserves or allowances for uncertain tax positions is to classify such interest and penalties in income tax expense in the Statements of Operations. As of December 31, 2015 and 2014, the total amount of unrecognized income tax benefits was approximately $11.7 million and $11.0 million, respectively, all of which, if recognized, would impact the effective income tax rate of the Company. As of December 31, 2015 and 2014, the Company had recorded a total of $1.1 and $0.3 million, respectively of accrued interest and penalties related to uncertain tax positions. The Company foresees no significant changes to the facts and circumstances underlying its reserves and allowances for uncertain income tax positions as reasonably possible during the next 12 months. As of December 31, 2015, the Company is subject to unexpired statutes of limitation for U.S. federal income taxes for the years 2003 through 2015. The Company is also subject to unexpired statutes of limitation for Indiana state income taxes for the years 2003 through 2015.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands) and all balances as of December 31, 2015 are included in either Other Noncurrent Liabilities or Current Deferred Income Taxes in the Company’s Consolidated Balance Sheet:

Balance at January 1, 2014	$	10,971

Decrease in prior year tax positions		(323)

Balance at December 31, 2014	$	10,648

Decrease in prior year tax positions		(23)

Balance at December 31, 2015	$	10,625