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Note 13 - Income Taxes | 12 Months Ended
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Dec. 31, 2016
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, |
|  | 2016 |  |  | 2015 |  |  | 2014 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 11,717 |  |  | $ | 13,614 |  |  | $ | 38,161 |
State |  |  | 2,047 |  |  |  | 1,966 |  |  |  | 1,645 |
Foreign |  |  | 4,460 |  |  |  | 3,588 |  |  |  | 5,701 |
|  |  | 18,224 |  |  |  | 19,168 |  |  |  | 45,507 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 41,264 |  |  |  | 31,869 |  |  |  | 42,474 |
State |  |  | 3,029 |  |  |  | 1,387 |  |  |  | (3,134 | )
Foreign |  |  | (5,585 | ) |  |  | (7,326 | ) |  |  | (1,462 | )
|  |  | 38,708 |  |  |  | 25,930 |  |  |  | 37,878 |
Change in valuation allowance |  |  | 638 |  |  |  | 138 |  |  |  | 364 |
Provision for income taxes |  | $ | 57,570 |  |  | $ | 45,236 |  |  | $ | 83,749 |
As of Dece mber 31, 2016, 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 2015. In addition, the Company is subject to audit by various foreign taxing jurisdictions for the tax years 2011 through 2015. 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. Significant components of deferred tax assets and liabilities are as follows:
|  | December 31, |
|  | 2016 |  |  | 2015 |
Deferred tax assets: |  |  |  |  |  |  |  |
Accrued expenses |  | $ | 22,758 |  |  | $ | 18,982 |
Deferred revenue |  |  | 10,645 |  |  |  | 9,389 |
Inventories |  |  | 10,159 |  |  |  | 9,772 |
Pension obligations |  |  | 7,512 |  |  |  | 7,684 |
Stock-based compensation |  |  | 7,291 |  |  |  | 7,974 |
Operating loss and credit carryforwards |  |  | 20,927 |  |  |  | 15,677 |
Other |  |  | 2,822 |  |  |  | 2,842 |
Valuation allowance |  |  | (4,362 | ) |  |  | (1,523 | )
Total deferred tax assets |  |  | 77,752 |  |  |  | 70,797 |
Deferred tax liabilitites: |  |  |  |  |  |  |  |
Goodwill and intangible assets |  |  | 58,133 |  |  |  | 12,455 |
Depreciation |  |  | 25,194 |  |  |  | 19,507 |
Debt refinancing costs |  |  | 7,193 |  |  |  | 7,732 |
Prepaid expenses |  |  | 1,173 |  |  |  | 1,241 |
Total deferred tax liabilities |  |  | 91,693 |  |  |  | 40,935 |
Net deferred tax assets (liabilities) |  | $ | (13,941 | ) |  | $ | 29,862 |
As of December 31, 2016 and 2015, deferred tax assets of $3,337 and $34,812, and deferred tax liabilities of $17,278 and $4,950, respectively, were reflected on the consolidated balance sheets. The Company had approximately $592,000 of tax-deductible goodwill and intangible asset amortization remaining as of December 31, 2016 related to our acquisition by CCMP in 2006 that is expected to generate aggregate cash tax savings of approximately $ 231,000 through 2021, assuming continued profitability and a 39% tax rate. The recognition of the tax benefit associated with these assets for tax purposes is expected to be approximately $122,000 annually through 2020 and approximately $102,000 in 2021, which generates annual cash tax savings of approximately $48,000 through 2020 and approximately $40,000 in 2021, assuming profitability and a 39% tax rate. Generac Brazil, a cquired 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, 2016. In addition, the Company recorded a valuation allowance in the opening balance sheet and as of December 31, 2016 rel ated to the Pramac acquisition. The valuation allowance represents a reserve for deferred tax assets, including loss carryforwards, of Pramac subsidiaries, for which utilization is uncertain. At December 31, 201 6, the Company had state research and development credits, and state manufacturing credit carryforwards of approximately $17,498 and $3,736, respectively, which expire between 2017 and 2031. Changes in the Company ’s gross liability for unrecognized tax benefits, excluding interest and penalties, were as follows:
|  | December 31, |
|  | 2016 |  |  | 2015 |
Unrecognized tax benefit, beginning of period |  | $ | 7,239 |  |  | $ | 6,394 |
Increase in unrecognized tax benefit for positions taken in current period |  |  | 704 |  |  |  | 845 |
Unrecognized tax benefit, end of period |  | $ | 7,943 |  |  | $ | 7,239 |
The unrecognized tax benefit as of December 31, 2016 and 2015, if recognized, would impact the effective tax rate. Interest and penalties are recorded as a component of income tax expense. As of December 31, 2016, 2015 and 2014, total interest of approximately $272, $174 and $86, respectively, and penalties of approximately $425, $363 and $263, respectively, associated with net unrecognized tax benefits are included in the Company’s consolidated balance sheets. 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, 2017. 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 $7,551 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 t he years ended December 31, 2016, 2015 and 2014 are as follows:
|  | Year Ended December 31, |
|  | 2016 |  |  | 2015 |  |  | 2014 |
U.S. statutory rate |  |  | 35.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
State taxes |  |  | 4.1 |  |  |  | 4.1 |  |  |  | 3.1 |
Research and development credits |  |  | (1.0 | ) |  |  | (2.3 | ) |  |  | (5.0 | )
Other |  |  | (1.3 | ) |  |  | - |  |  |  | (0.7 | )
Effective tax rate |  |  | 36.8 | % |  |  | 36.8 | % |  |  | 32.4 | %

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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 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&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=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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