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

Jan. 02, 2016

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
	January 2, 2016		December 27, 2014		December 28, 2013
United States	$	45,964	$	52,713	$	46,314
Foreign	3,266		13,029		10,858
Total	$	49,230	$	65,742	$	57,172

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 $58,207, $60,052, and $54,213 for the years 2015, 2014, and 2013, 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
	January 2, 2016			December 27, 2014			December 28, 2013
Current tax expense (benefit):
United States	$	14,538		$	17,897		$	15,634
State and local	948			1,249			950
Foreign	1,359			2,574			2,466
Total Current	16,845			21,720			19,050
Deferred tax expense (benefit):
United States	(781		)	112			158
State and local	(58		)	(7		)	6
Foreign	86			142			(26		)
Total Deferred	(753		)	247			138
Total income tax provision	$	16,092		$	21,967		$	19,188

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



	For the year ended
	January 2, 2016			December 29, 2014			December 28, 2013
U.S. federal taxes at the statutory rate	$	17,231		$	23,010		$	20,010
Increase (decrease)
Foreign tax credit	(310		)	(432		)	(433		)
Domestic production activity deduction	(1,699		)	(1,793		)	(1,632		)
Foreign income taxed at lower rate	(420		)	(957		)	(1,013		)
Nondeductible items	—			392			302
State and local taxes, net	890			1,242			957
Change in reserve	304			193			168
Other	96			312			829
Income tax provision	$	16,092		$	21,967		$	19,188

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 January 2, 2016, and December 27, 2014 are presented below:



			January 2, 2016			December 27, 2014
Deferred tax assets:
	Current:
		Accrued expenses and other	$	460		$	467
	Total current deferred tax assets		460			467

	Noncurrent:
		Accrued expenses and other	2,157			2,863
	Total noncurrent deferred tax assets		2,157			2,863

Deferred tax liabilities:
	Noncurrent:
		Depreciation	(8,708		)	(10,265		)
		Other	(860		)	(1,099		)
Total noncurrent deferred tax liabilities			(9,568		)	(11,364		)
Net noncurrent deferred tax liability			$	(7,411	)	$	(8,501	)

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 2015 and 2014, 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 January 2, 2016, cumulative earnings were approximately $74 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 for 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 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
Increases from positions taken during prior periods	110
Settled positions	783
Lapse of statute of limitations	—
Unrecognized tax benefits - January 2, 2016	$	2,049

At January 2, 2016, the Company had an unrecognized tax benefit of $2,049 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 January 2, 2016, 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.