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Income Taxes | 12 Months Ended
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Sep. 30, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The components of income from continuing operations, before income taxes are as follows (in thousands):
| Fiscal years ended September 30,
| 2018 |  | 2017 |  | 2016
United States | $ | (2,887 | ) |  | $ | 5,170 |  |  | $ | 9,841 |
International | 5,677 |  |  | 4,321 |  |  | 6,849 |
Income from continuing operations, before income taxes | $ | 2,790 |  |  | $ | 9,491 |  |  | $ | 16,690 |
The components of the income tax provision are as follows (in thousands):
| Fiscal years ended September 30,
| 2018 |  | 2017 |  | 2016
Current: |  |  |  |  |
Federal | $ | 526 |  |  | $ | 312 |  |  | $ | (141 | )
State | 57 |  |  | 165 |  |  | 139 |
Foreign | 1,412 |  |  | 1,756 |  |  | 2,099 |
Deferred: |  |  |  |  |
U.S. | (668 | ) |  | (1,454 | ) |  | 1,260 |
Foreign | 160 |  |  | (654 | ) |  | (145 | )
Income tax provision | $ | 1,487 |  |  | $ | 125 |  |  | $ | 3,212 |
The net deferred tax asset consists of the following (in thousands):
| As of September 30,
| 2018 |  | 2017
Non-current deferred tax asset | $ | 6,665 |  |  | $ | 9,211 |
Non-current deferred tax liability | (334 | ) |  | (534 | )
Net deferred tax asset | $ | 6,331 |  |  | $ | 8,677 |
Uncollectible accounts and other reserves | $ | 1,000 |  |  | $ | 1,063 |
Depreciation and amortization | (369 | ) |  | (673 | )
Inventories | 740 |  |  | 824 |
Compensation costs | 3,388 |  |  | 5,863 |
Tax carryforwards | 7,063 |  |  | 7,514 |
Valuation allowance | (3,291 | ) |  | (5,952 | )
Identifiable intangible assets | (2,298 | ) |  | (581 | )
Other | 98 |  |  | 619 |
Net deferred tax asset | $ | 6,331 |  |  | $ | 8,677 |
As of September 30, 2018, our estimated carryforwards for tax purposes are as follows: We have $3.6 million of tax carryforwards (net of reserves) related to federal and state research and development tax credits. We also have $3.5 million of carryforwards (net, tax effected) consisting of U.S. capital loss of $3.2 million and non-U.S. net operating losses of $0.3 million. The majority of our federal research and development tax credits have a 20-year carryforward period. The state research and development tax credits have a 15-year carryforward period. The majority of our non-U.S. net operating losses have an unlimited carryforward period. Our non-U.S. tax credit carryforwards will expire in 2032. Our U.S. capital loss carryforward will expire in 2020. Our valuation allowance for certain U.S. and foreign locations was $3.3 million at September 30, 2018 and $6.0 million at September 30, 2017. The decrease is a result of expected tax capital gains in fiscal 2019 resulting from the sale of our corporate headquarters building (see Note 18 to the Consolidated Financial Statements). The deferred tax assets realized could vary if there are differences in the timing or amount of future reversals of existing deferred tax liabilities or changes in the 11. INCOME TAXES (CONTINUED) amounts of future taxable income. If future taxable income projections are not realized, an additional valuation allowance may be required, and would be reflected as income tax expense at the time that any such change in future taxable income is determined. The reconciliation of the statutory federal income tax amount to our income tax provision is as follows (in thousands):
| Fiscal years ended September 30,
| 2018 |  | 2017 |  | 2016
Statutory income tax amount | $ | 1,001 |  |  | $ | 2,917 |  |  | $ | 5,548 |
Increase (decrease) resulting from: |  |  |  |  |
State taxes, net of federal benefits | (312 | ) |  | (125 | ) |  | 204 |
Manufacturing deduction | (364 | ) |  | (150 | ) |  | (450 | )
Meal and entertainment | 82 |  |  | 63 |  |  | 55 |
Transaction costs | 79 |  |  | — |  |  | — |
Employee stock purchase plan | 56 |  |  | 79 |  |  | 83 |
Foreign operations | (3 | ) |  | 218 |  |  | 276 |
Valuation allowance - current year increase | 275 |  |  | 159 |  |  | (43 | )
Utilization of tax credits | (1,609 | ) |  | (1,168 | ) |  | (1,116 | )
Discrete items: |  |  |  |  |
Valuation allowance | (1,317 | ) |  | — |  |  | — |
Discrete tax benefits | (765 | ) |  | (954 | ) |  | (1,461 | )
One-time transition tax | 250 |  |  | — |  |  | — |
Deferred balance sheet remeasure | 2,727 |  |  | — |  |  | — |
ASU 2016-09 excess stock compensation | 643 |  |  | — |  |  | — |
Contingent consideration | 388 |  |  | (1,172 | ) |  | (154 | )
Adjustment of tax contingency reserves | 315 |  |  | 257 |  |  | 202 |
Other, net | 41 |  |  | 1 |  |  | 68 |
Income tax provision | $ | 1,487 |  |  | $ | 125 |  |  | $ | 3,212 |
During fiscal 2018, net tax expense discrete to the period was $1.5 million, primarily as a result of $3.0 million tax expense related to new U.S. tax legislation that was enacted during the first quarter of fiscal 2018 and $0.6 million for the adoption of ASU 2016-09 related to the accounting for the tax effects of stock compensation (discussed below). This was offset partially by a net tax benefit of $1.3 million for the release of valuation allowances. The valuation allowance release consists of a $1.1 million release of a valuation allowance against U.S. federal capital loss carryforward due to expected capital gains tax in fiscal 2019 resulting from the sale of our corporate headquarters building in October 2018 (see Note 18 to the Consolidated Financial Statements). This expense is included within the discrete items in the above table. The Tax Cuts and Jobs Act of 2017 (the “Act”) was enacted on December 22, 2017. The Act lowered the U.S. federal corporate tax rate from 35% to 21% as of January 1, 2018 and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. Due to our fiscal year end, our statutory rate for fiscal 2018 will be a blend of the new and old tax rates. At September 30, 2018 we had not fully completed our accounting for the tax effects of enactment of the Act. However, in certain cases described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. For the items for which we were able to determine a reasonable estimate, we recognized a provisional income tax expense amount of $3.0 million which is included as a component of income tax expense. We remeasured U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. This requires estimates of our changes in deferred tax assets and liabilities before and after the new statutory rate was enacted. As a result, we are still analyzing certain aspects of the legislation and refining our calculations such as, refining current year estimates and filings of tax returns, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. As of September 30, 2018, the provisional amount recorded related to the re-measurement of this deferred tax balance was $2.7 million. This is a result a federal income tax rate of 35% for fiscal 2017, 24.25% for fiscal 2018 11. INCOME TAXES (CONTINUED) and 21% for fiscal 2019 and beyond. Timing differences as of September 30, 2018 are estimated balances and thus will result in a change to our estimate of the deferred rate change. This estimate will be finalized with the filing of our fiscal 2018 income tax return. Since many of the deferred tax balances in the period include estimates of events that have not yet occurred, we are unable to determine the final impact of the tax change at this time. In addition, we considered the potential tax expense impacts of the one-time transition tax. The transition tax is based on our total post-1986 earnings and profits (“E&P”) previously deferred from U.S. income taxes. A provisional amount for our one-time transition tax liability was recorded for foreign subsidiaries, including estimated state tax impacts. This resulted in an increase in income tax expense of $0.3 million for the twelve months ended September 30, 2018. We have not yet completed the calculation of E&P for foreign subsidiaries. Further, this transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when we finalize the calculation of E&P previously deferred from U.S. federal taxation, evaluate the testing periods for cash and E&P measurement and finalize substantiation of material foreign taxes paid or accrued. Furthermore, it is expected that additional guidance will be forthcoming from U.S. Treasury which may or may not impact the final transition tax required. We will complete our accounting for the Act during the first quarter of fiscal 2019. We do not expect any material adjustments. We adopted ASU 2016-09 “Improvements to Employee Share-Based Payment Accounting” on October 1, 2017. As a result of the adoption, we recorded $0.6 million of excess tax expense related to our share-based payments in our provision for income taxes for the twelve months ended September 30, 2018. Historically, this was recorded in additional paid-in capital. The excess tax expense related to share-based payments are recognized as tax expense discretely related to the twelve months ended September 30, 2018. During fiscal 2017, net tax benefits discrete to the period were $1.0 million, primarily from the reversal of tax reserves due to the expiration of statutes of limitation from U.S. and foreign tax jurisdictions. These benefits are included within the discrete tax benefits in the above table. During fiscal 2016, net tax benefits discrete to the period were $1.5 million, primarily from the reinstatement of the federal research and development tax credit for calendar year 2015 and the reversal of tax reserves due to the expiration of statutes of limitation from U.S. and foreign tax jurisdictions. In addition, we filed amended income tax returns resulting in an additional domestic refund related to qualified manufacturing activities. These benefits are included within the discrete items in the above table. A reconciliation of the beginning and ending amount of unrecognized tax benefits is (in thousands):
| Fiscal years ended September 30,
| 2018 |  | 2017 |  | 2016
Unrecognized tax benefits at beginning of fiscal year | $ | 1,335 |  |  | $ | 1,708 |  |  | $ | 1,618 |
Increases related to: |  |  |  |  |
Prior year income tax positions | 39 |  |  | 21 |  |  | 107 |
Current year income tax positions | 315 |  |  | 257 |  |  | 240 |
Decreases related to: |  |  |  |  |
Prior year income tax positions | — |  |  | — |  |  | (71 | )
Settlements | — |  |  | — |  |  | (30 | )
Expiration of statute of limitations | (128 | ) |  | (651 | ) |  | (156 | )
Unrecognized tax benefits at end of fiscal year | $ | 1,561 |  |  | $ | 1,335 |  |  | $ | 1,708 |
The total amount of unrecognized tax benefits ("UTB") at September 30, 2018 that, if recognized, would affect our effective tax rate is $1.4 million. We expect that it is reasonably possible that the total amounts of UTB that will decrease over the next 12 months due to the expiration of various statutes of limitations will be immaterial. Of the $1.6 million of UTB, $0.8 million is included in non-current income taxes payable and $0.8 million is included with non-current deferred tax assets on the consolidated balance sheet at September 30, 2018. We recognize interest and penalties related to income tax matters in income tax expense. During fiscal 2018 and 2017, there were insignificant amounts of interest and penalties related to income tax matters in income tax expense. We had accrued 11. INCOME TAXES (CONTINUED) interest and penalties related to unrecognized tax benefits of $0.1 million at both September 30, 2018 and 2017. These accrued interest and penalties are included in our non-current income taxes payable on our consolidated balance sheets. We file a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to state and local or non-U.S. income tax examinations by tax authorities for years before fiscal year 2014. We continue to review the outside basis differential of our foreign investments given recent US tax reform as discussed above. Our policy is to reinvest earnings of our foreign subsidiaries indefinitely to fund current operations and provide for future international expansion opportunities, and only repatriate earnings to the extent that U.S. taxes have been recorded. As a majority of foreign earnings have been subject to tax under the one time transition tax ("IRC Sec. 965"), a portion of already taxed cash balances were remitted to the US during the year which gave rise to nominal additional tax effects. Furthermore, we have considered any additional taxes which may result from future distributions of cash which have also been subject to US tax under IRC Sec. 965, such as local withholding taxes, US tax on currency as well as potential US State income taxes, which additional nominal deferred tax effects were included in the current year tax computations. Other than these potential distributions, no additional income taxes have been provided for any undistributed foreign earnings not subject to the transition tax and additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. At September 30, 2018, we had approximately $4.0 million of un-taxed accumulated undistributed foreign earnings that was not subject to IRC Sec. 965, for which we have not accrued additional U.S. tax. Although we have no current need to repatriate historical foreign earnings that have not been taxed in the United States, if we change our assertion from indefinitely reinvesting undistributed foreign earnings, we would have to accrue applicable taxes. The amount of any taxes and the application of any tax credits would be determined based on the income tax laws at the time of such repatriation. Under current tax laws, we estimate the unrecognized deferred tax liability to be immaterial.

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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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