Gulf Island Fabrication, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

INCOME TAXES

12 Months Ended

Dec. 31, 2017

Our provision for income taxes for 2017 was impacted by the Tax Cuts and Jobs Act enactment in December 2017 and our adoption of Accounting Standards Update (ASU) 2016-09, Improvements to Share-Based Payment Accounting, on January 1, 2017.

As of December 31, 2017, we have not completed our accounting for the tax effects of the Tax Cuts and Jobs Act. In accordance with SAB 118, we have recorded provisional amounts related to the transition tax, impacts of the Tax Cuts and Jobs Act on state taxes and provisions of the Tax Cuts and Jobs Act related to executive compensation. Our accounting for the tax effects of the Tax Cuts and Jobs Act will be completed before the end of the measurement period which is one year from the date of enactment of the Tax Cuts and Jobs Act. Our preliminary estimate of the impact of the Tax Cuts and Jobs Act was immaterial to our deferred tax position as of December 31, 2017. Our net position is based on reasonable estimates for those tax effects of the Tax Cuts and Jobs Act. Changes to these estimates or new guidance issued by regulators may materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made.

Adoption of ASU2016-09 requires the recognition of the excess tax benefit or tax deficiency resulting from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes created when common stock vests as an income tax benefit or expense in the Company’s statement of operations. Under previous GAAP, this difference was required to be recognized in additional paid-in capital. The expense or benefit required to be recognized is calculated separately as a discrete item each reporting period and not as part of the Company’s projected annual effective tax rate. During the year ended December 31, 2017, we recorded tax expense of $253,000.

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2017 and 2016 were as follows (in thousands):



	2017			2016
Deferred tax liabilities:
Property, plant and equipment	$	17,605		$	27,468
Prepaid insurance	453			766
Total deferred tax liabilities:	18,058			28,234
Deferred tax assets:
Employee benefits	962			1,303
Uncompleted contracts	2,664			106
Stock based compensation expense	350			1,488
Allowance for uncollectible accounts	99			192
Long term incentive awards	280			264
Federal net operating losses	13,190			617
State net operating losses	511			—
AMT credit carryforwards	—			1,030
Other	394			—
Less valuation allowance	(392		)	—
Total deferred tax assets:	18,058			5,000
Net deferred tax liabilities:	$	—		$	23,234

Significant components of income tax expense (benefit) for the years ended December 31 were as follows (in thousands):



	2017			2016			2015
Current:
Federal	$	—		$	302		$	219
State	83			361			473
Total current	83			663			692
Deferred:
Federal	(23,827		)	1,549			(13,614		)
State	(449		)	(171		)	(447		)
Total deferred	(24,276		)	1,378			(14,061		)
Income taxes	$	(24,193	)	$	2,041		$	(13,369	)

A valuation allowance is provided to reserve for deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2017, we had a valuation allowance of $392,000 offsetting our deferred tax assets. As of December 31, 2017 we had gross, federal net operating losses that are eligible for carryforward to offset future net income of $62.8 million, of which $4.0 million will expire on December 31, 2035. Our remaining federal net operating loss carryforwards will expire December 31, 2037.

A reconciliation of income taxes computed at the U.S. federal statutory tax rate to the Company’s income tax (benefit) expense for the years ended December 31, 2017, 2016 and 2015 is as follows (in thousands):



	2017			%	2016		%	2015			%
U.S. statutory rate	$	(24,136	)	35.0%	$	1,945	35.0%	$	(13,556	)	35.0%
Increase (decrease) resulting from:
Permanent differences	330			(0.5)%	64		1.1%	275			(0.7)%
State income taxes	(366		)	0.5%	32		0.6%	—			—%
Vesting of common stock	253			(0.4)%	—		—%	—			—%
Other	(274		)	0.5%	—		—%	(88		)	0.2%
Income tax (benefit) expense	$	(24,193	)	35.1%	$	2,041	36.7%	$	(13,369	)	34.5%