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. 28, 2013

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 28, 2013		December 29, 2012		December 31, 2011
United States	$	46,314	$	44,957	$	43,513
Foreign	10,858		10,896		14,073
Total	$	57,172	$	55,853	$	57,586

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 $54,213, $50,231, and $49,753 for the years 2013, 2012, and 2011, 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 28, 2013			December 29, 2012			December 31, 2011
Current tax expense (benefit):
United States	$	15,634		$	15,396		$	14,034
State and local	950			924			436
Foreign	2,466			1,788			3,972
Total Current	19,050			18,108			18,442
Deferred tax expense (benefit):
United States	158			545			1,095
State and local	6			12			471
Foreign	(26		)	(210		)	(99		)
Total Deferred	138			347			1,467
Total income tax provision	$	19,188		$	18,455		$	19,909

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



	For the year ended
	December 28, 2013			December 29, 2012			December 31, 2011
U.S. federal taxes at the statutory rate	$	20,010		$	19,549		$	20,155
Increase (decrease)
Foreign tax credit	(433		)	(358		)	(1,026		)
Domestic production activity deduction	(1,632		)	(1,483		)	(1,075		)
Research and Development Tax Credit - Current Year	(50		)	(50		)	(150		)
Foreign income taxed at lower rate	(1,013		)	(901		)	(1,052		)
Nondeductible items	302			411			1,049
State and local taxes, net	957			935			907
Change in reserve	168			710			440
Other	879			(358		)	661
Income tax provision	$	19,188		$	18,455		$	19,909

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 28, 2013, and December 29, 2012 are presented below:



			December 28, 2013			December 29, 2012
Deferred tax assets:
	Current:
		Accrued expenses and other	$	474		$	248
	Total current deferred tax assets		474			248

	Noncurrent:
		Accrued expenses and other	2,414			1,426
	Total noncurrent deferred tax assets		2,414			1,426

Deferred tax liabilities:
	Noncurrent:
		Depreciation	(8,867		)	(8,656		)
		Other	(1,294		)	—
Total noncurrent deferred tax liabilities			(10,161		)	(8,656		)
Net noncurrent deferred tax liability			$	(7,747	)	$	(7,230	)

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 2013 and 2012, 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 28, 2013, cumulative earnings were approximately $62 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 - January 1, 2011	169
Increases from positions taken during prior periods	440
Lapse of statute of limitations	—
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

At December 28, 2013, the Company had an unrecognized tax benefit of $1,122 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 28, 2013, 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 2004 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 2004 through 2011. 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 2004 through 2011 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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