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Note 10 - Income Taxes | 12 Months Ended
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Jun. 30, 2018
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | Note 10. Income Taxes: Income before income taxes was comprised of the following (in thousands):
|  | Year Ended June 30, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Domestic |  | $ | 81,557 |  |  | $ | 81,721 |  |  | $ | 120,154 |
Foreign |  |  | 44,395 |  |  |  | 30,240 |  |  |  | 27,327 |
Income before income taxes |  | $ | 125,952 |  |  | $ | 111,961 |  |  | $ | 147,481 |
The provision for income taxes consisted of the following (in thousands):
|  | Year Ended June 30, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Taxes on income consist of: |  |  |  |  |  |  |  |  |  |  |  |
Currently tax provision: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 28,416 |  |  | $ | 28,462 |  |  | $ | 34,805 |
State |  |  | 5,315 |  |  |  | 4,051 |  |  |  | 2,958 |
Foreign |  |  | 11,983 |  |  |  | 8,212 |  |  |  | 7,579 |
Total current tax provision |  |  | 45,714 |  |  |  | 40,725 |  |  |  | 45,342 |
Deferred tax provision: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (40,378 | ) |  |  | (901 | ) |  |  | 1,906 |
State |  |  | (1,381 | ) |  |  | (968 | ) |  |  | (428 | )
Foreign |  |  | (4,154 | ) |  |  | (2,981 | ) |  |  | (3,815 | )
Total deferred tax provision |  |  | (45,912 | ) |  |  | (4,850 | ) |  |  | (2,337 | )
Total income tax provision |  | $ | (198 | ) |  | $ | 35,875 |  |  | $ | 43,005 |
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code which impacted our fiscal year ended June 30, 2018. These impacts include, but are not limited to, ( 1 ) reducing the U.S. federal corporate tax rate, ( 2 ) requiring a one -time transition tax on certain unrepatriated earnings of foreign subsidiaries that may electively be paid over eight years, and ( 3 ) accelerated first year expensing of certain capital expenditures. The Tax Act reduced the federal corporate tax rate from 35% to 21% effective January 1, 2018. Internal Revenue Code Section 15 provides that for our fiscal year ended June 30, 2018 we calculate a blended corporate tax rate of 28.1%, which is based on a proration of the applicable tax rates before and after effective date of the Tax Act. The statutory tax rate of 21% will apply for fiscal 2019 and beyond. The Tax Act also puts in place new tax laws that will impact our taxable income beginning in fiscal 2019, which include, but are not limited to ( 1 ) creating a Base Erosion Anti-abuse Tax (BEAT), which is a new minimum tax, ( 2 ) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, ( 3 ) a new provision designed to tax currently global intangible low-taxed income (GILTI), ( 4 ) a provision that could limit the amount of deductible interest expense, ( 5 ) the repeal of the domestic production activity deduction, ( 6 ) additional limitations on the deductibility of certain executive compensation, and ( 7 ) limitations on the utilization of foreign tax credits to reduce the U.S. income tax liability. Shortly after the Tax Act was enacted, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118 ) which provides guidance on accounting for the Tax Act’s impact. SAB 118 provides a measurement period, which in no case should extend beyond one year from the Tax Act enactment date, during which a company acting in good faith may complete the accounting for the impacts of the Tax Act under ASC Topic 740. In accordance with SAB 118, the Company must reflect the income tax effects of the Tax Act in the reporting period in which the accounting under ASC Topic 740 is complete. In March 2018, the FASB issued ASU No. 2018 - 05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 118 . which added FASB Codification the guidance provided by the SEC in December 2017. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete, the Company can determine a reasonable estimate for those effects and record a provisional estimate in the financial statements in the first reporting period in which a reasonable estimate can be determined. If a Company cannot determine a provisional estimate to be included in the financial statements, the Company should continue to apply ASC 740 based on the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted. If a Company is unable to provide a reasonable estimate of the impacts of the Tax Act in a reporting period, a provisional amount must be recorded in the first reporting period in which a reasonable estimate can be determined. We complied with SAB No. 118 when preparing our annual consolidated financial statements for the year ended June 30, 2018. Reasonable estimates were used in determining several of the components of the impact of the Tax Act, including our fiscal 2018 deferred income tax activity and the amount of post- 1986 foreign deferred earnings subject to the repatriation transition tax. We are still analyzing certain aspects of the Tax Act including state tax implications and refining our calculations, which could potentially affect the measurement of our deferred tax balances and the amount of the repatriation toll charge liability, and ultimately cause us to revise our initial estimates in future periods. In addition, changes in interpretations, assumptions and guidance regarding the Tax Act, as well as the potential for technical corrections, could have a material impact on our effective tax rate in future periods. Transition Tax: The transition tax is a tax on the previously untaxed accumulated and current earnings and profits (E&P) of certain of our foreign subsidiaries as of December 22, 2017. In order 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. E&P is similar to retained earnings of the subsidiary but requires other adjustments to conform to U.S. tax rules. We are able to make a reasonable estimate of the transition tax and recorded a provisional transition tax obligation of $3.3 million which the Company expects to elect to pay, net of certain tax credit carryforwards, over eight years beginning in fiscal year 2019. Of this liability, $0.3 million is recorded as a current liability with the remaining $3.0 million classified as a long-term liability within our June 30, 2018 balance sheet. We are in the process of analyzing if proposed regulations REG- 104226 - 18 issued on August 9, 2018 will have any impact to our current estimate of our transition tax liability. In addition, we have considered state income tax implications and concluded at this time that the impact is immaterial. However, we continue to monitor for additional interpretative guidance including information regarding state income tax implications. The following is a reconciliation of the federal tax calculated at the statutory rate of 28.1% to the actual income taxes provided (in thousands):
|  | Year Ended June 30, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Income tax expense at federal statutory rate |  |  | 28.1 | % |  |  | 35.0 | % |  |  | 35.0 | %
State income taxes, net of federal benefit |  |  | 2.5 | % |  |  | 1.9 | % |  |  | 1.3 | %
Qualified production activity deduction |  |  | (2.4 | )% |  |  | (3.4 | )% |  |  | (2.7 | )%
Research and development tax credit |  |  | (1.4 | )% |  |  | (1.4 | )% |  |  | (1.1 | )%
Contingent consideration adjustment |  |  | 3.3 | % |  |  | 4.1 | % |  |  | - | %
Foreign tax rate differences |  |  | (3.5 | )% |  |  | (4.6 | )% |  |  | (3.1 | )%
Option exercises |  |  | (1.8) | % |  |  | - | % |  |  | - | %
Domestic tax legislation changes |  |  | (26.2 | )% |  |  | - | % |  |  | - | %
Other, net |  |  | 1.2 | % |  |  | 0.4 | % |  |  | (0.2 | )%
Effective tax rate |  |  | (0.2 | )% |  |  | 32.0 | % |  |  | 29.2 | %
The effective tax rate for the year ended June 30, 2018 decreased by 32.2% compared to the prior year. The decrease in the Company’s tax rate for fiscal 2018 was due to the impact of discrete items, primarily the net tax benefit of $33.0 million related to the Tax Act discussed above. This net tax benefit consisted of $36.5 million due to the re-measurement of the Company’s deferred tax accounts to reflect the U.S. federal corporate tax rate reduction impact to our net deferred tax balances offset by expense for the federal transition tax of $3.3 million. Also impacting the Company’s fiscal 2018 effective tax rate was a $2.2 million tax benefit related to stock option exercises offset by a net discrete tax expense of $4.2 million related to the revaluation of contingent consideration, which is not a tax deductible expense. The effective tax rate for the year ended June 30, 2017 increased by 2.8% compared to the prior year. The increase was primarily due to unfavorable discrete events in fiscal 2017 related to the revaluation of contingent consideration which is not a tax deductible expense. The Company recognized net expense related to discrete tax items of $3.8 million in fiscal 2017, including $4.5 million in expense related to the revaluation of contingent consideration which is not a tax deductible expense. Deferred taxes on the Consolidated Balance Sheets consisted of the following temporary differences (in thousands):
|  | June 30 |
|  | 2018 |  |  | 2017 |
Inventory |  | $ | 5,873 |  |  | $ | 9,415 |
Net operating loss carryovers |  |  | 15,938 |  |  |  | 24,617 |
Tax credit carryovers |  |  | 7,029 |  |  |  | 6,386 |
Excess tax basis in equity investments |  |  | 2,813 |  |  |  | 4,381 |
Deferred compensation |  |  | 7,806 |  |  |  | 9,052 |
Other |  |  | 3,864 |  |  |  | 9,937 |
Valuation allowance |  |  | (2,978 | ) |  |  | (3,341 | )
Deferred tax assets |  |  | 40,345 |  |  |  | 60,447 |
Net unrealized gain on available-for-sale investments |  |  | (8,384 | ) |  |  | (11,153 | )
Intangible asset amortization |  |  | (111,247 | ) |  |  | (162,460 | )
Depreciation |  |  | (6,349 | ) |  |  | (5,628 | )
Other |  |  | (658 | ) |  |  | (1,802 | )
Deferred tax liabilities |  |  | (126,638 | ) |  |  | (181,043 | )
Net deferred tax liabilities |  | $ | (86,293 | ) |  | $ | (120,596 | )
A deferred tax valuation allowance is required when it is more likely than not that all or a portion of deferred tax assets will not be realized. The valuation allowance as of June 30, 2018 was $3.0 million, a decrease of $0.3 million from the prior year. The decrease was driven by a decrease in the valuation allowance for the Company’s net operating loss and credit carryforwards. As of June 30, 2018, the $3.0 million valuation allowance relates to certain foreign and state tax net operating loss and state credit carryforwards that existed at the date the Company acquired ACD, Novus, ProteinSimple and CyVek as well as immaterial amounts generated after the acquisitions. The Company believes it is more likely than not that these tax carryovers will not be realized. As of June 30, 2018, the Company has federal operating loss carryforwards of approximately $38.4 million and state operating loss carryforwards of $72.8 million from its acquisitions of ACD, ProteinSimple and CyVek, which are not limited under IRC Section 382. As of June 30, 2018, the Company has foreign net operating loss carryforwards of $3.2 million. The net operating loss carryforwards expire between fiscal 2019 and 2035. The Company has a deferred tax asset of $14.0 million, net of the valuation allowance discussed above, related to the net operating loss carryovers. As of June 30, 2018, the Company has federal and state tax credit carryforwards of $3.5 million and $4.4 million, respectively. The federal tax credit carryforwards expire between 2019 and 2035. The majority of the state credit carryforwards have no expiry date. The Company has a deferred tax asset of $6.0 million, net of the valuation allowance discussed above, related to the tax credit carryovers. The Company has not recognized a deferred tax liability for unremitted foreign earnings of approximately $124.6 million from its foreign operations because its subsidiaries have invested or will invest the undistributed earnings indefinitely. The transition tax noted above results in the previously untaxed foreign earnings being included in the federal and state fiscal 2018 taxable income. We are currently analyzing our global working capital requirements and the potential tax liabilities that would be incurred if the non-U.S. subsidiaries distribute cash to the U.S. parent, which include local country withholding tax and potential U.S. state taxation. At this time, and until we fully analyze the applicable provisions of the Tax Act, our intention with respect to unremitted foreign earnings is to continue to indefinitely reinvest outside the U.S. those earnings needed for working capital or additional foreign investment. Therefore, it is not practical to estimate the amount of the deferred income tax liabilities related to investments in these foreign subsidiaries. The following is a reconciliation of the beginning and ending balance of unrecognized tax benefits (in thousands):
|  | Year Ended June 30, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Beginning balance |  | $ | 1,747 |  |  | $ | 1,480 |  |  | $ | 1,688 |
Additions due to acquisitions |  |  |  |  |  |  | 628 |  |  |  |  |
Additions for tax positions of current year |  |  | 35 |  |  |  | 13 |  |  |  | 36 |
Closure of tax years |  |  |  |  |  |  | (374 | ) |  |  | (244 | )
Tax Reform |  |  | 165 |  |  |  |  |  |  |  |  |
Ending balance |  | $ | 1,947 |  |  | $ | 1,747 |  |  | $ | 1,480 |
The Company does not believe it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase in the next twelve months. The Company files income tax returns in the U.S federal and certain state tax jurisdictions, and several jurisdictions outside the U.S. The Company's federal returns are subject to tax assessment for 2015 and subsequent years. State and foreign income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.

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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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