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Income Taxes | 12 Months Ended
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Jun. 30, 2015
Income Taxes |
10. | INCOME TAXES
Income tax expense consists of the following:
|  | Year ended June 30, |
|  | 2015 |  |  | 2014 |  |  | 2013 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 53.7 |  |  | $ | 97.4 |  |  | $ | 80.3 |
State |  |  | 4.7 |  |  |  | 3.5 |  |  |  | 6.0 |
Total Current |  |  | 58.4 |  |  |  | 100.9 |  |  |  | 86.3 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (2.1 | ) |  |  | (0.7 | ) |  |  | 0.7 |
State |  |  | 8.7 |  |  |  | 0.8 |  |  |  | (0.4 | )
Foreign |  |  | (2.3 | ) |  |  | (2.9 | ) |  |  | (2.1 | )
Change in valuation allowance |  |  | (8.0 | ) |  |  | 3.5 |  |  |  | 1.6 |
Total Deferred |  |  | (3.7 | ) |  |  | 0.7 |  |  |  | (0.2 | )
Total income tax expense |  | $ | 54.7 |  |  | $ | 101.6 |  |  | $ | 86.1 |
Income (loss) before income taxes consists of the following:
|  | Year ended June 30, |
|  | 2015 |  |  | 2014 |  |  | 2013 |
United States |  | $ | 147.0 |  |  | $ | 292.0 |  |  | $ | 243.6 |
Foreign |  |  | (12.1 | ) |  |  | (14.2 | ) |  |  | (10.3 | )
Total |  | $ | 134.9 |  |  | $ | 277.8 |  |  | $ | 233.3 |
The differences between income taxes at the statutory federal income tax rate and income taxes reported in the consolidated statements of operations were as follows:
|  | Year ended June 30, |
|  | 2015 |  |  | 2014 |  |  | 2013 |
Federal income tax expense at the statutory rate |  |  | 35.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
State income taxes, net of federal benefit |  |  | 1.7 |  |  |  | 1.6 |  |  |  | 1.7 |
Research and development credits, net of the federal tax on state credits |  |  | (2.5 | ) |  |  | (0.2 | ) |  |  | (1.0 | )
Uncertain tax positions, net of federal benefit on state positions |  |  | 1.2 |  |  |  | (0.1 | ) |  |  | 0.2 |
Incentive stock option and employee stock purchase plan expense |  |  | 0.2 |  |  |  | (0.3 | ) |  |  | (0.5 | )
Adjustment to deferred tax liability attributable to acquired intangible assets |  |  | 1.6 |  |  |  | — |  |  |  | — |
Foreign rate differential |  |  | 1.6 |  |  |  | 0.8 |  |  |  | 0.6 |
Change in valuation allowance |  |  | 2.6 |  |  |  | 1.2 |  |  |  | 0.7 |
Basis difference, disposition of foreign subsidiary |  |  | — |  |  |  | (1.9 | ) |  |  | — |
California basis step-up election, net of related valuation allowance impact |  |  | (1.2 | ) |  |  | — |  |  |  | — |
Other, net |  |  | 0.4 |  |  |  | 0.5 |  |  |  | 0.2 |
Effective income tax rate |  |  | 40.6 | % |  |  | 36.6 | % |  |  | 36.9 | %
The Company’s effective tax rate for the year ended June 30, 2015 was greater than the years ended June 30, 2014 and 2013. This increase was primarily due to an increase in the Company’s liability for unrecognized tax benefits, an increase in the valuation allowance attributable to state research credits and an adjustment in the deferred tax liability related to intangible assets acquired in 2011. The Company evaluated the intangible assets acquired in 2011 as part of the acquisition of Rules Based Medicine and determined that no tax basis is available for the intangible asset for In Process Research & Development. This resulted in an adjustment to the related deferred tax liability and a corresponding increase in the Company’s deferred income tax expense. The effective tax rate was also negatively impacted by foreign losses for which no benefit is recognized. The fiscal 2015 foreign losses, and the resulting impact on the effective rate, were larger in proportion to consolidated income as compared to the earlier years. The significant components of the Company’s deferred tax assets and liabilities were comprised of the following at June 30, 2015 and 2014:
|  | Year ended June 30, |
|  | 2015 |  |  | 2014 |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 61.1 |  |  | $ | 77.0 |
Property, plant and equipment |  |  | 2.9 |  |  |  | 2.9 |
Accrued vacation |  |  | 1.7 |  |  |  | 1.6 |
Allowance for doubtful accounts |  |  | 2.7 |  |  |  | 3.3 |
Stock compensation expense |  |  | 36.8 |  |  |  | 26.0 |
Research and development credits |  |  | 8.9 |  |  |  | 11.2 |
Uncertain state tax positions |  |  | 1.1 |  |  |  | 0.6 |
Other, net |  |  | 0.9 |  |  |  | 0.3 |
Total gross deferred tax assets |  |  | 116.1 |  |  |  | 122.9 |
Less valuation allowance |  |  | (33.4 | ) |  |  | (41.4 | )
Total deferred tax assets |  |  | 82.7 |  |  |  | 81.5 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Intangible assets |  |  | 69.4 |  |  |  | 71.8 |
Total deferred tax liabilities |  |  | 69.4 |  |  |  | 71.8 |
Net deferred tax assets |  |  | 13.3 |  |  |  | 9.7 |
Current net deferred tax asset |  |  | 13.5 |  |  |  | 6.5 |
Long term net deferred tax asset |  |  | (0.2 | ) |  |  | 3.2 |
Net deferred tax asset |  | $ | 13.3 |  |  | $ | 9.7 |
Due to sustained positive operating performance and the availability of expected future taxable income, the Company concluded that it is more likely than not that the benefits of the majority of its deferred income tax assets will be realized. However, for certain deferred tax assets, a valuation allowance has been established. For the years ended June 30, 2015 and 2014, the Company’s valuation allowance decreased by $8.0 and increased by $33.2, respectively. The net decrease of the valuation allowance in the year ended June 30, 2015 consisted of a decrease of $11.5 related to the use of California net operating losses and credits made available through a post-acquisition California stand-alone state tax election and an offsetting increase in the amount of $3.5 which was related to foreign net operating losses and state tax research credits, for which the company concluded it was more likely than not that the benefits of the losses and credits will not be realized. The increase for the year ended June 30, 2014 consisted of $29.7 related to the acquisition of Crescendo Bioscience, Inc. and $3.5 primarily due to foreign net operating losses, for which the Company concluded it was more likely than not that the benefits of the losses will not be realized. For the years ended June 30, 2015 and 2014, the Company realized $3.4 and $11.1, respectively, of excess tax benefits from stock-based compensation as a reduction of taxes payable. Excess tax benefits from stock based compensation are credited directly to additional paid-in-capital. The Company has adopted the with-and-without tax allocation approach for excess tax benefits, which results in the windfall tax benefits being utilized last after considering all other tax attributes available to the Company. At June 30, 2015, the Company had the following net operating loss and research credit carryforwards, with their respective expiration periods. Certain carryforwards are subject to the limitations of Section 382 and 383 of the Internal Revenue Code as indicated
Carryforwards |  | Amount |  |  | Subject to sections 382, 383 |  | Expires beginning in year |  | Through
Federal net operating loss |  | $ | 138.4 |  |  | Yes |  | 2027 |  | 2033
Utah net operating loss |  |  | 229.9 |  |  | No |  | 2016 |  | 2024
Oklahoma net operating loss |  |  | 14.1 |  |  | Yes |  | 2023 |  | 2033
Foreign net operating losses (various jurisdictions) |  |  | 39.3 |  |  | No |  | Various |  | Various
Federal research credit |  |  | 3.2 |  |  | Yes |  | 2025 |  | 2032
Utah research credit |  |  | 8.6 |  |  | No |  | 2021 |  | 2029
Due to a post-acquisition California stand-alone state election related to the acquisition of Crescendo Bioscience, Inc., all of Crescendo’s California net operating loss carryforwards and California research credit carryforwards were utilized or lost at the acquisition, resulting in no remaining carryforwards. All of the Utah net operating loss carryforwards are ‘excess tax benefits’ as defined by ASC guidance and, if realized in future years, will be recognized as a credit to additional paid-in capital. Approximately $92.6 of the Utah net operating loss ‘excess tax benefits’ are attributable to periods prior to adoption of guidance limiting recognition of the deferred tax asset and are included in deferred tax assets (prior to any offset by valuation allowance.) The remaining $137.3 of Utah net operating loss ‘excess tax benefits’ are not included in deferred tax assets and will be recognized only upon realization of the tax benefit. The Company’s deferred tax asset for the Utah net operating loss ‘excess tax benefits’ attributable to periods prior to the adoption of the standard is approximately $3.0 and is offset by a full valuation allowance at June 30, 2015. If the ‘excess tax benefits’ are recognized as additional paid-in-capital in future years, the corresponding valuation allowance will be reversed. Consistent with the indefinite reversal criteria of ASC 740-30-25-17, the Company intends to invest undistributed earnings of its foreign subsidiaries indefinitely. Due to the cumulative losses that have been incurred to date in its foreign operations, the amount of unrecorded deferred liability resulting from the indefinite reversal criteria at June 30, 2015 is $0. In July 2006, the FASB issued ASC Topic 740 Subtopic 10 Section 05, which clarifies the accounting for uncertainty in tax positions. Accounting guidance requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company adopted the guidance on July 1, 2007 and recorded $0 cumulative effect. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|  | Year ended June 30, |
|  | 2015 |  |  | 2014 |  |  | 2013 |
Unrecognized tax benefits at the beginning of year |  | $ | 24.2 |  |  | $ | 10.9 |  |  | $ | 10.2 |
Gross increases - current year tax positions |  |  | 1.1 |  |  |  | 1.8 |  |  |  | 0.7 |
Gross increases - prior year tax positions |  |  | 1.0 |  |  |  | 0.3 |  |  |  | — |
Gross increases - acquisitions |  |  | — |  |  |  | 14.2 |  |  |  | — |
Gross decreases - prior year tax positions |  |  | — |  |  |  | (3.0 | ) |  |  | — |
Unrecognized tax benefits at end of year |  | $ | 26.3 |  |  | $ | 24.2 |  |  | $ | 10.9 |
Interest and penalties in year-end balance |  | $ | 1.0 |  |  | $ | 0.6 |  |  | $ | 0.3 |
Interest and penalties related to uncertain tax positions are included as a component of income tax expense. The Company files U.S., foreign and state income tax returns in jurisdictions with various statutes of limitations. The years ended June 30, 2012 through June 30, 2015 remain subject to examination at June 30, 2015. The Company’s New Jersey State income tax returns for the years ended June 30, 2007 through 2013 are currently under examination by the New Jersey State Division of Taxation and Finance. Annual tax provisions include amounts considered necessary to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues may differ materially from the amount accrued. The Company’s U.S. federal tax return, foreign income tax returns and all other state tax returns are not currently under examination.

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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=6907707&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=6907707&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=6907707&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=6907707&loc=d3e32537-109319 + Details
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