Helios Technologies 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. 27, 2014

Deferred income tax assets and liabilities are provided to reflect the future tax consequences of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements.

For financial reporting purposes, income before income taxes includes the following components:



	For the year ended
	December 27, 2014		December 28, 2013		December 29, 2012
United States	$	52,713	$	46,314	$	44,957
Foreign	13,029		10,858		10,896
Total	$	65,742	$	57,172	$	55,853

The Company derives its pretax income based on the consolidated results of its legal entities. The Company has made the decision to consolidate engineering and manufacturing for the most part in the U.S. The Company’s foreign subsidiaries primarily act as part of our sales and distribution channel, resulting in different pretax income levels. Products manufactured in the U.S. are sold worldwide and are the primary reason that pretax income in the U.S. is higher than foreign pretax income. The U.S. legal entity had third party export sales of $60,052, $54,213, and $50,231 for the years 2014, 2013, and 2012, respectively. Foreign pretax income is impacted by the level of foreign manufacturing, sales at varying market levels, as well as direct sales to large OEM customers.

The components of the income tax provision (benefit) are as follows:



	For the year ended
	December 27, 2014			December 28, 2013			December 29, 2012
Current tax expense (benefit):
United States	$	17,897		$	15,634		$	15,396
State and local	1,249			950			924
Foreign	2,574			2,466			1,788
Total Current	21,720			19,050			18,108
Deferred tax expense (benefit):
United States	112			158			545
State and local	(7		)	6			12
Foreign	142			(26		)	(210		)
Total Deferred	247			138			347
Total income tax provision	$	21,967		$	19,188		$	18,455

The reconciliation between the effective income tax rate and the U.S. federal statutory rate is as follows:



	For the year ended
	December 27, 2014			December 28, 2013			December 29, 2012
U.S. federal taxes at the statutory rate	$	23,010		$	20,010		$	19,549
Increase (decrease)
Foreign tax credit	(432		)	(433		)	(358		)
Domestic production activity deduction	(1,793		)	(1,632		)	(1,483		)
Foreign income taxed at lower rate	(957		)	(1,013		)	(901		)
Nondeductible items	392			302			411
State and local taxes, net	1,242			957			935
Change in reserve	193			168			710
Other	312			829			(408		)
Income tax provision	$	21,967		$	19,188		$	18,455

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 taxes. The temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 27, 2014, and December 28, 2013 are presented below:



			December 27, 2014			December 28, 2013
Deferred tax assets:
	Current:
		Accrued expenses and other	$	467		$	474
	Total current deferred tax assets		467			474

	Noncurrent:
		Accrued expenses and other	2,863			2,414
	Total noncurrent deferred tax assets		2,863			2,414

Deferred tax liabilities:
	Noncurrent:
		Depreciation	(10,265		)	(8,867		)
		Other	(1,099		)	(1,294		)
Total noncurrent deferred tax liabilities			(11,364		)	(10,161		)
Net noncurrent deferred tax liability			$	(8,501	)	$	(7,747	)

A valuation allowance to reduce the deferred tax assets reported is required if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. For the fiscal years ended 2014 and 2013, management has determined that a valuation allowance was not required.

The Company intends and has the ability to indefinitely reinvest the earnings of its non-U.S. subsidiaries, which reflect full provision for non-U.S. income taxes, to expand its international operations. These earnings relate to ongoing operations and, at December 27, 2014, cumulative earnings were approximately $72 million. Accordingly, no provision has been made for U.S. income taxes that might be payable upon repatriation of such earnings. In the event any earnings of non-U.S. subsidiaries are repatriated, the Company will provide U.S. income taxes upon repatriation of such earnings, which will be offset by applicable foreign tax credits, subject to certain limitations.

The Company prescribes a recognition threshold and measurement attribute for an uncertain tax position taken or expected to be taken in a tax return.

The following is a roll-forward of the Company’s unrecognized tax benefits:



Unrecognized tax benefits - December 31, 2011	$	609
Increases from positions taken during prior periods	710
Settled Positions	(124		)
Lapse of statute of limitations	—
Unrecognized tax benefits - December 29, 2012	$	1,195
Increases from positions taken during prior periods	168
Settled positions	(241		)
Lapse of statute of limitations	—
Unrecognized tax benefits - December 28, 2013	$	1,122
Increases from positions taken during prior periods	193
Settled positions	(159		)
Lapse of statute of limitations	—
Unrecognized tax benefits - December 27, 2014	$	1,156

At December 27, 2014, the Company had an unrecognized tax benefit of $1,156 including accrued interest. If recognized, the unrecognized tax benefit would have a favorable effect on the effective tax rate in future periods. The Company recognizes interest and penalties related to income tax matters in income tax expense. Interest related to the unrecognized tax benefit has been recognized and included in income tax expense. Interest accrued as of December 27, 2014, is not considered material to the Company’s consolidated financial statements.

The Company files U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. The Company is no longer subject to income tax examinations by tax authorities for years prior to 2005 for the majority of tax jurisdictions.

The Company’s federal returns are currently under examination by the Internal Revenue Service (IRS) in the United States for the periods 2005 through 2012. To date, there have not been any significant proposed adjustments that have not been accounted for in the Company’s consolidated financial statements.

Audit outcomes and the timing of audit settlements are subject to significant uncertainty. It is reasonably possible that within the next twelve months the Company will resolve some or all of the matters presently under consideration for 2005 through 2012 with the IRS and that there could be significant increases or decreases to unrecognized tax benefits.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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