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Note 13 - Income Taxes

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Income Tax Disclosure [Text Block]

13.   Income Taxes

The Company’s provision for income taxes consists of the following:

		Year Ended December 31,
		2015				2014				2013
Current:
Federal		$	13,614			$	38,161			$	48,287
State			1,966				1,645				5,648
Foreign			3,588				5,701				2,214
			19,168				45,507				56,149
Deferred:
Federal		$	31,869			$	42,474			$	42,003
State			1,387				(3,134	)			5,523
Foreign			(7,326	)			(1,462	)			167
			25,930				37,878				47,693
Change in valuation allowance			138				364				335
Provision for income taxes		$	45,236			$	83,749			$	104,177

During 2015, the Internal Revenue Service completed field work on income tax audits for the 2012 and 2013 tax years. A final audit report was issued and resulted in no change to the Company’s provision for income taxes. As of December 31, 2015, due to the carryforward of net operating losses, and research and development credits, the Company is open to U.S. federal and state income tax examinations for the tax years 2006 through 2014. In addition, the Company is subject to audit by various foreign taxing jurisdictions for the tax years 2010 through 2015.

Significant components of deferred tax assets and liabilities are as follows:

		December 31,
		2015				2014
Deferred tax assets:
Goodwill and intangible assets		$	-			$	23,624
Accrued expenses			18,982				18,191
Deferred revenue			9,389				7,945
Inventories			9,772				9,177
Pension obligations			7,684				8,738
Stock-based compensation			7,974				8,628
Operating loss and credit carryforwards			15,677				10,047
Other			2,842				1,428
Valuation allowance			(1,523	)			(1,385	)
Total deferred tax assets			70,797				86,393
Deferred tax liabilitites:
Goodwill and intangible assets			12,455				-
Depreciation			19,507				18,535
Debt refinancing costs			7,732				10,925
Prepaid expenses			1,241				1,032
Total deferred tax liabilities			40,935				30,492
Net deferred tax assets		$	29,862			$	55,901

The net current and noncurrent components of deferred taxes included in the consolidated balance sheets are as follows:

		December 31,
		2015				2014
Net current deferred tax assets		$	29,355			$	22,841
Net long-term deferred tax assets			8,196				47,894
Net long-term deferred tax liabilitites			(6,166	)			(13,449	)
Valuation allowance			(1,523	)			(1,385	)
Net deferred tax assets		$	29,862			$	55,901

Generac Brazil, acquired as part of the Ottomotores acquisition, has generated net operating losses for multiple years as part of the start-up of the business. The realizability of the deferred tax assets associated with these net operating losses is uncertain so a valuation allowance was recorded in the opening balance sheet as of December 8, 2012 and continued through December 31, 2015.

At December 31, 2015, the Company had state research and development credit, and state manufacturing credit carryforwards of approximately $16,275 and $3,132, respectively, which expire between 2017 and 2030.

Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, were as follows:

		December 31,
		2015				2014
Unrecognized tax benefit, beginning of period		$	6,394			$	-
Increase in unrecognized tax benefit for positions taken in current period			845				6,394
Unrecognized tax benefit, end of period		$	7,239			$	6,394

The entire unrecognized tax benefit as of December 31, 2015 and 2014, if recognized, would impact the effective tax rate.

Interest and penalties are recorded as a component of income tax expense. As of December 31, 2015 and 2014, total interest of approximately $174 and $86, respectively, and penalties of approximately $363 and $263, respectively, associated with net unrecognized tax benefits are included in the Company’s consolidated balance sheets. There were no interest or penalties related to income taxes that had been accrued or recognized as of and for the year ended December 31, 2013.

The Company does not expect a significant increase or decrease to the total amounts of unrecognized tax benefits related to continuing operations during the fiscal year ending December 31, 2016.

The Company considers the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and the Company’s specific plans for reinvestment of those subsidiary earnings. The Company has not provided for additional U.S. income taxes on approximately $11,430 of undistributed earnings of consolidated non-U.S. subsidiaries. It is not practicable to estimate the amount of unrecognized withholding taxes and deferred tax liability on such earnings.

A reconciliation of the statutory tax rates and the effective tax rates for the years ended December 31, 2015, 2014 and 2013 are as follows:

		Year Ended December 31,
		2015				2014				2013
U.S. stautory rate			35.0	%			35.0	%			35.0	%
State taxes			4.1				3.1				3.7
Valuation allowance			0.6				0.2				0.2
Research and development credits			(2.3	)			(5.0	)			(0.6	)
Other			(0.6	)			(0.9	)			(0.9	)
Effective tax rate			36.8	%			32.4	%			37.4	%

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- 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.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08.(h))
-URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690

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-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 15
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319

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-Publisher FASB
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-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319

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