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Income Taxes | 12 Months Ended
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Sep. 30, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Recent Tax Legislation: On December 22, 2017, The Tax Cuts and Jobs Act (the “Tax Act”) was enacted by the U.S. government. The Tax Act makes broad and complex changes to the U.S. tax code that affect our fiscal year ended September 30, 2018, including, but not limited to: (1) reducing the U.S. federal corporate income tax rate; (2) requiring a one-time transition tax on certain un-repatriated earnings of foreign subsidiaries; and (3) repealing the performance-based compensation exception to the $1 million deduction limitation. The Tax Act reduces the federal corporate tax rate from 35% to 21% effective January 1, 2018. In accordance with Section 15 of the Internal Revenue Code, we have utilized a blended rate of 24.5% for our fiscal 2018 tax year by applying a prorated percentage of the number of days prior to and subsequent to the January 1, 2018 effective date. We recorded charges for the re-measurement of the deferred tax assets and liabilities of $14.0 million to our income tax expense for the fiscal year ended September 30, 2018. The Tax Act has expanded the scope of previously enacted rules for certain covered employees that receive remuneration in excess of $1 million. As these new Section 162(m) rules impact the future deductibility of the related performance-based compensation, we recorded a provisional charge of $6.0 million. The Deemed Repatriation Transition Tax (the “Transition Tax”) is a tax on previously untaxed accumulated earnings and profits (“E&P”) of deferred foreign income. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. We are able to make a reasonable estimate and recorded a provisional Transition Tax obligation of $3.6 million. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) in December 2017, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under FASB Accounting Standards Codification (“ASC”) 740, “Accounting for Income Taxes” (“ASC 740”). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The Tax Act was effective in the first quarter of fiscal 2018. As of September 30, 2018, we have not completed our accounting for the estimated tax effects for the Transition Tax nor the excessive employee remuneration. During fiscal 2018, we recorded a provisional net charge of $9.6 million related to the Tax Act based on reasonable estimates for those tax effects and $14.0 million for the re-measurement of the deferred tax assets and liabilities, in which accounting is now complete. Due to the timing of the enactment and the complexity in applying the provisions of the Tax Act, the provisional net charge is subject to revisions as we continue to complete our analysis, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, Internal Revenue Service (“IRS”), FASB, and other standard-setting and regulatory bodies. Adjustments may materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made. Our accounting for the estimated tax effects of the Tax Act will be completed during the measurement period, which is not expected to extend beyond one year from the enactment date. The Tax Act includes a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries, a foreign derived intangible income (“FDII”), and a base erosion anti-abuse tax (“BEAT”) measure that taxes certain payments between a U.S. corporation and its foreign subsidiaries. The GILTI, FDII, and BEAT provisions of the Tax Act will be effective for us beginning October 1, 2018. The provision for income taxes was as follows during fiscal 2018, 2017 and 2016:
| Year ended September 30,
| 2018 |  | 2017 |  | 2016
| (In thousands)
Current: |  |  |  |  |
Federal | $ | 8,071 |  |  | $ | 19,576 |  |  | $ | 50,631 |
State | 2,236 |  |  | 1,055 |  |  | 2,900 |
Foreign | 9,559 |  |  | 8,486 |  |  | 7,597 |
| 19,866 |  |  | 29,117 |  |  | 61,128 |
Deferred: |  |  |  |  |
Federal | 28,013 |  |  | (5,027 | ) |  | (23,592 | )
State | 132 |  |  | (296 | ) |  | (225 | )
Foreign | (2,416 | ) |  | (726 | ) |  | (2,190 | )
| 25,729 |  |  | (6,049 | ) |  | (26,007 | )
Total provision | $ | 45,595 |  |  | $ | 23,068 |  |  | $ | 35,121 |
The foreign provision was based on foreign pre-tax earnings of $13.0 million, $27.8 million and $33.0 million in fiscal 2018, 2017 and 2016, respectively. Current foreign tax expense related to foreign tax withholdings was $6.0 million, $4.6 million and $6.5 million in fiscal 2018, 2017 and 2016, respectively. Foreign withholding tax and related foreign tax credits are included in current tax expense above. Deferred tax assets and liabilities at September 30, 2018 and 2017 were as follows:
| September 30,
| 2018 |  | 2017
| (In thousands)
Deferred tax assets: |  |  |
Loss and credit carryforwards | $ | 24,400 |  |  | $ | 34,383 |
Compensation benefits | 30,388 |  |  | 45,823 |
Property and equipment | — |  |  | 3,476 |
Other assets | 9,674 |  |  | 12,239 |
| 64,462 |  |  | 95,921 |
Less valuation allowance | (19,564 | ) |  | (17,657 | )
Total deferred tax assets | 44,898 |  |  | 78,264 |
Deferred tax liabilities: |  |  |
Intangible assets | (15,921 | ) |  | (25,346 | )
Property and equipment | (2,616 | ) |  | — |
Other liabilities | (6,229 | ) |  | (5,714 | )
Total deferred tax liabilities | (24,766 | ) |  | (31,060 | )
Deferred tax assets, net | $ | 20,132 |  |  | $ | 47,204 |
Based upon the level of historical taxable income and projections for future taxable income over the periods that the deferred tax assets will reverse, management believes it is more likely than not that we will realize the benefits of the deferred tax assets, net of the existing valuation allowance at September 30, 2018. As of September 30, 2018, we had available U.S. federal, state and foreign net operating loss (“NOL”) carryforwards of approximately $13.7 million, $0.2 million, and $41.9 million, respectively. The U.S. NOLs were acquired in connection with our acquisitions of Braun in fiscal 2005, Adeptra in fiscal 2012 and Infoglide in fiscal 2013. The U.S. federal NOL carryforward will expire at various dates beginning in fiscal 2020, if not utilized. The state NOL carryforward will expire at various dates beginning in fiscal 2021, if not utilized. The $41.9 million of foreign NOL includes $25.1 million related to China. Due to a limited ability to utilize the China NOLs, a full valuation allowance has been recorded on the China NOLs, resulting in no tax benefit. Utilization of the U.S. federal and state NOL are subject to an annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions. In fiscal 2016 and 2017 we generated excess foreign tax credits associated with dividends received from two of our foreign subsidiaries. In fiscal 2018 the excess foreign tax credits generated in prior years were completely utilized. We also have available excess California state research credit of approximately $10.5 million. The California state research credit does not have an expiration date; however, based on enacted law and expected future cash taxes, we have recorded a valuation allowance of $10.5 million. A reconciliation of the provision for income taxes, with the amount computed by applying the U.S. federal statutory income tax rate (24.5% in fiscal 2018, and 35% in fiscal 2017 and 2016) to income before provision for income taxes for fiscal 2018, 2017 and 2016 is shown below:
| Year Ended September 30,
| 2018 |  | 2017 |  | 2016
| (In thousands)
Income tax provision at U.S. federal statutory rate | $ | 46,119 |  |  | $ | 52,963 |  |  | $ | 50,599 |
State income taxes, net of U.S. federal benefit | 3,429 |  |  | 2,193 |  |  | 2,244 |
Foreign tax rate differential | (42 | ) |  | (1,761 | ) |  | (4,661 | )
Intercompany interest | — |  |  | (477 | ) |  | (1,223 | )
Research credits | (3,486 | ) |  | (2,572 | ) |  | (4,398 | )
Domestic production deduction | (3,041 | ) |  | (3,075 | ) |  | (3,726 | )
Amended returns/audit settlements/statute expirations | (2,349 | ) |  | (1,296 | ) |  | (248 | )
Foreign | 4,040 |  |  | 744 |  |  | (1,702 | )
Valuation allowance | 1,907 |  |  | 2,512 |  |  | 1,262 |
Foreign tax credit | 1,320 |  |  | (1,342 | ) |  | (3,286 | )
Excess tax benefits relating to stock-based compensation | (22,253 | ) |  | (24,746 | ) |  | — |
Tax effect of the Tax Act | 23,579 |  |  | — |  |  | — |
Other | (3,628 | ) |  | (75 | ) |  | 260 |
Recorded income tax provision | $ | 45,595 |  |  | $ | 23,068 |  |  | $ | 35,121 |
The increase in our income tax provision in fiscal 2018 compared to fiscal 2017 is primarily due to recording the impact related to the enactment of the Tax Act in fiscal 2018. This includes re-measurement to our deferred tax assets and liabilities for the tax rate changes, the one-time Transition Tax, and a provisional charge related to the loss of deductibility of performance-based compensation for certain employees. The decrease in our income tax provision in fiscal 2017 compared to fiscal 2016 was due primarily to the adoption of ASU 2016-09 on October 1, 2016. We no longer record excess tax benefits as an increase to additional paid-in capital, but instead record such excess tax benefits on a prospective basis as a reduction of income tax expense. Prior to the enactment of the Tax Act we had not made a provision for U.S. income or additional foreign withholding taxes on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries as we intended to reinvest the earnings of our non-U.S. subsidiaries in those operations indefinitely, except where we were able to repatriate these earnings to the U.S. without material incremental tax provision. As of September 30, 2018, we have approximately $79.7 million of unremitted earnings of non-U.S. subsidiaries, of which $57.9 million was included in our current year provision for income taxes due to the one-time Transition Tax on the deemed repatriation of deferred foreign income under the Tax Act. The Company generates substantial cash flow in the U.S. and does not have a current need for the cash to be returned to the U.S. from the foreign entities. While the Transition Tax resulted in the reduction of the excess of the amount for financial reporting over the tax basis in our foreign subsidiaries such that a repatriation may not result in additional U.S. income tax, an actual repatriation from our non-US subsidiaries could still be subject to additional foreign withholding taxes and U.S. state taxes. Unrecognized Tax Benefit for Uncertain Tax Positions We conduct business globally and, as a result, file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities. With a few exceptions, we are no longer subject to U.S. federal, state, local, or foreign income tax examinations for fiscal years prior to 2014. We are currently under audit by Illinois for fiscal 2014 and 2015, Minnesota for fiscal 2013, 2014, 2015 and 2016 and California for fiscal 2016 and 2017. We do not anticipate any adjustments related to those audits that will result in a material change to our consolidated financial statements. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| Year Ended September 30,
| 2018 |  | 2017 |  | 2016
| (In thousands)
Gross unrecognized tax benefits at beginning of year | $ | 6,480 |  |  | $ | 6,799 |  |  | $ | 4,634 |
Gross increases for tax positions in prior years | 404 |  |  | 57 |  |  | 1,004 |
Gross decreases for tax positions in prior years | — |  |  | (19 | ) |  | (117 | )
Gross increases based on tax positions related to the current year | 1,625 |  |  | 1,291 |  |  | 1,310 |
Decreases for settlements and payments | — |  |  | (151 | ) |  | (32 | )
Decreases due to statue expiration | (2,396 | ) |  | (1,497 | ) |  | — |
Gross unrecognized tax benefits at end of year | $ | 6,113 |  |  | $ | 6,480 |  |  | $ | 6,799 |
We had $6.1 million of total unrecognized tax benefits as of September 30, 2018, including $5.8 million of tax benefits that, if recognized, would impact the effective tax rate. Although the timing and outcome of audit settlements are uncertain, it is unlikely there will be a reduction of the uncertain tax benefits in the next twelve months. We recognize interest expense related to unrecognized tax benefits and penalties as part of the provision for income taxes in our consolidated statements of income and comprehensive income. We recognize interest earned related to income tax matters as interest income in our consolidated statements of income and comprehensive income. As of September 30, 2018, we have accrued interest of $0.3 million related to the unrecognized tax benefits.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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