XML 31 R21.htm IDEA: XBRL DOCUMENT v3.24.2.u1
Note 13 - Income Taxes
 9 Months Ended
Jun. 30, 2024
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

13. Income Taxes

 

The Company recorded an income tax benefit of $0.5 million and $0.9 million during the three and nine months ended June 30, 2024, respectively. The tax benefit for the three months ended June 30, 2024 was driven by the Company's loss from operations. The tax benefit for the nine months ended June 30, 2024 was primarily driven by the pre-tax loss from operations offset by $1.7 million of charges related to a valuation allowance recorded against deferred tax assets in a foreign subsidiary, $0.5 million of stock compensation shortfall expense for tax deductions that were lower than the associated book compensation expense and $0.7 million of expenses related to a valuation allowance on beginning of year U.S. state deferred tax assets. The Company’s tax rate on the loss from operations was lower than statutory rates because the Company was not providing a full tax benefit on U.S. losses due to a partial valuation allowance being recorded against U.S. federal and state deferred tax assets during the current year. As a result of the valuation allowance, the benefit was reduced by $1.3 million and $9.6 million during the three and nine months ended June 30, 2024.

 

The Company recorded an income tax benefit of $1.2 million and $9.1 million, respectively, during the three and nine months ended June 30, 2023. The tax benefit for the three months ended  June 30, 2023 was primarily driven by the pre-tax loss from operations during the period. The tax benefit for the nine months ended June 30, 2023 was primarily driven by the pre-tax loss from operations and a $1.4 million deferred tax benefit resulting from the extension of a tax incentive in China. The effective tax rates for the three and nine months ended June 30, 2023 are slightly higher than statutory rates. The effective rates are driven higher than statutory rates by the discrete tax benefit in China noted above and the fair value adjustment of the contingent consideration related to the B Medical acquisition. The contingent consideration generated $18.5 million of pre-tax income that is not subject to income taxes, therefore, the tax benefit is being driven by a tax loss that is significantly higher than the book loss for these periods. 

 

       The Company evaluates the realizability of its deferred tax assets by tax-paying component and assesses the need for a valuation allowance on an annual and a quarterly basis. The Company evaluates the profitability of each tax-paying component on a historical cumulative basis and a forward-looking basis in the course of performing this analysis.

 

The Company has generated U.S. pre-tax losses in recent years but has been in an overall deferred tax liability position where future taxable temporary differences were considered sufficient to offset future deductible temporary differences. The Company expects to generate a U.S. loss during fiscal year 2024 which will result in a partial valuation allowance against U.S. federal and state deferred tax assets. In addition to the U.S. federal and state partial valuation allowance being recorded against deferred tax assets through the estimated annual effective tax rate, the Company has also recorded $0.7 million of valuation allowances against U.S. state deferred tax assets which related to beginning of year.

 

The Company also maintains a valuation allowance against net deferred tax assets on certain foreign tax-paying components.

 

During the nine months ended June 30, 2024, the Company repatriated approximately $455.0 million in cash from its German subsidiary. The Company recorded net tax benefits in the amount of $3.2 million related to the repatriation. The benefit included $5.2 million related to deductible U.S. foreign exchange losses on the repatriation measured at the foreign exchange rate on the date of repatriation. This benefit was offset by $2.0 million of state income taxes, net of federal benefit that was recorded during fiscal year 2023. During the nine months ended June 30, 2024, the Company reversed the $2.9 million deferred tax asset due to changes in foreign exchange rates up to the repatriation date. The impact was recorded against other comprehensive income.

 

The Company has not provided deferred income taxes on the outside basis difference of any foreign subsidiary and maintains its general assertion of indefinite reinvestment regarding those subsidiaries and the remaining earnings of its German subsidiary as of June 30, 2024.

 

The Company maintains liabilities for unrecognized tax benefits based on its estimates and assumptions. The Company recognizes interest related to unrecognized tax benefits as a component of the income tax provision or benefit. The Company recognized minimal interest expense related to its unrecognized tax benefits during the three and nine months ended June 30, 2024.

 

The Company is subject to U.S. federal, state, local and foreign income taxes in various jurisdictions. The amount of income taxes paid is subject to the Company’s interpretation of applicable tax laws in the jurisdictions in which it files.

 

In the normal course of business, the Company is subject to income tax audits in various global jurisdictions in which it operates. The years subject to examination vary for the United States and international jurisdictions, with the earliest tax year being 2018. Based on the outcome of these examinations or the expiration of statutes of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits could change from those recorded in the Condensed Consolidated Balance Sheets. The Company currently anticipates that it is reasonably possible that the unrecognized tax benefits and accrued interest on those benefits will not be reduced in the next twelve months due to the statute of limitations expirations. These unrecognized tax benefits would impact the effective tax rate if recognized.