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Income Taxes | 12 Months Ended
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Jun. 30, 2018
Income Tax Disclosure [Abstract] |
Income Taxes |
11. | INCOME TAXES
Income tax expense(benefit) consists of the following:
|  | Year ended June 30, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 6.7 |  |  | $ | 17.1 |  |  | $ | 22.4 |
State |  |  | 2.2 |  |  |  | 2.4 |  |  |  | 3.4 |
Total Current |  |  | 8.9 |  |  |  | 19.5 |  |  |  | 25.8 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (22.7 | ) |  |  | 1.5 |  |  |  | 10.7 |
State |  |  | 0.7 |  |  |  | (1.7 | ) |  |  | (3.4 | )
Foreign |  |  | (1.4 | ) |  |  | (1.7 | ) |  |  | 3.5 |
Change in valuation allowance |  |  | 0.5 |  |  |  | 3.0 |  |  |  | 2.2 |
Total Deferred |  |  | (22.9 | ) |  |  | 1.1 |  |  |  | 13.0 |
Total income tax expense |  | $ | (14.0 | ) |  | $ | 20.6 |  |  | $ | 38.8 |
Income (loss) before income taxes consists of the following:
|  | Year ended June 30, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
United States |  | $ | 119.1 |  |  | $ | 43.9 |  |  | $ | 156.6 |
Foreign |  |  | (2.2 | ) |  |  | (3.0 | ) |  |  | (0.6 | )
Total |  | $ | 116.9 |  |  | $ | 40.9 |  |  | $ | 156.0 |
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, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Federal income tax expense at the statutory rate |  |  | 28.1 | % |  |  | 35.0 | % |  |  | 35.0 | %
State income taxes, net of federal benefit |  |  | 2.5 |  |  |  | 1.7 |  |  |  | 2.2 |
Research and development credits, net of the federal tax on state credits |  |  | (1.8 | ) |  |  | (7.6 | ) |  |  | (1.4 | )
Uncertain tax positions, net of federal benefit |  |  | 2.0 |  |  |  | 3.0 |  |  |  | 0.6 |
Uncertain tax benefits statute expired, net of federal benefit |  |  | - |  |  |  | - |  |  |  | (4.8 | )
Incentive stock option and employee stock purchase plan expense |  |  | (1.1 | ) |  |  | 2.0 |  |  |  | (0.3 | )
Foreign rate differential |  |  | (0.8 | ) |  |  | (1.3 | ) |  |  | - |
Change in valuation allowance |  |  | 0.5 |  |  |  | 7.4 |  |  |  | 1.4 |
Tax Cut and Jobs Act Impact |  |  | (27.3 | ) |  |  | - |  |  |  | - |
Fair value adjustments related to acquisition contingent consideration |  |  | (14.7 | ) |  |  | - |  |  |  | - |
Early adoption of ASU 2016-09 |  |  | (0.3 | ) |  |  | 7.7 |  |  |  | (8.3 | )
Acquisition related transaction costs |  |  | - |  |  |  | 1.9 |  |  |  | - |
Other, net |  |  | 0.9 |  |  |  | 0.6 |  |  |  | 0.5 |
|  |  | (12.0 | )% |  |  | 50.4 | % |  |  | 24.9 | %
The significant components of the Company’s deferred tax assets and liabilities were comprised of the following:
|  | Year ended June 30, |
|  | 2018 |  |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 44.6 |  |  | $ | 75.5 |
Property, plant and equipment |  |  | 1.1 |  |  |  | 2.1 |
Accrued vacation |  |  | 1.4 |  |  |  | 3.0 |
AR allowance |  |  | 10.7 |  |  |  | 15.4 |
Stock compensation expense |  |  | 17.0 |  |  |  | 29.9 |
Research and development credits |  |  | 13.0 |  |  |  | 9.9 |
Uncertain state tax positions |  |  | 1.3 |  |  |  | 1.4 |
Other, net |  |  | 0.9 |  |  |  | 2.3 |
Total gross deferred tax assets |  |  | 90.0 |  |  |  | 139.5 |
Less valuation allowance |  |  | (37.8 | ) |  |  | (40.5 | )
Total deferred tax assets |  |  | 52.2 |  |  |  | 99.0 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Intangible assets |  |  | 109.5 |  |  |  | 177.7 |
Total deferred tax liabilities |  |  | 109.5 |  |  |  | 177.7 |
Net deferred tax liability |  |  | (57.3 | ) |  |  | (78.7 | )
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act makes broad and complex changes to the U.S. tax code that are affecting our fiscal year ending June 30, 2018, including, but not limited to (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) creating the base erosion anti-abuse tax (BEAT), a new minimum tax; (6) creating a new limitation on deductible interest expense; (7) revising the rules that limit the deductibility of compensation to certain highly compensated executives, and (8) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. The SEC staff issued SAB 118, 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 ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the 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. In connection with the Company’s initial analysis of the impact of the Tax Act and consistent with the requirement to record a provisional estimate when applicable, the Company recorded net income tax benefit during the year ended June 30, 2018 of approximately $32.0 million. This provisional estimate primarily consists of a net benefit for the corporate rate reduction due to the revaluing of its net deferred tax liabilities as a result of the reduction in the federal corporate tax rates. The Company’s net deferred tax liabilities represent temporary differences between the book bases of assets which are greater than their tax bases. Upon the reversal of those temporary differences, the future tax impact will be based on the lower federal corporate tax rate enacted by the Tax Act. The Company is continuing to gather information and to analyze aspects of the Tax Act, which could potentially affect the estimated impact on the deferred tax balances. For various reasons that are discussed more fully below, the Company has not completed its accounting for the income tax effects of certain elements of the Tax Act. To the extent the Company was not yet able to make reasonable estimates of the impact of certain elements, it has not recorded any adjustments related to those elements and have continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before the Tax Act. The Company records liabilities for unrecognized tax benefits resulting from uncertainties of tax positions. See further explanations below regarding the Company’s overall liability for uncertain tax positions. The $32.0 benefit that was recorded during the year as a provisional estimate of the impact of the Tax Act during the fiscal year includes $3.3 income tax benefit due to revaluing its liability for uncertain tax positions. The Company’s deferred tax balance includes a deferred tax asset for a net operating loss, upon which a liability for unrecognized tax benefit has been recorded. Due to the estimated timing of the reversal of the net operating loss and the reduction of the deferred tax asset resulting from the lower tax rates of the Tax Act, a corresponding reduction in the liability for unrecognized tax benefit was also recorded. In addition to the benefit recorded during year ended June 30, 2018 for the provisional estimated impact on the Company’s net deferred tax liabilities, the lower federal corporate tax rate reduced the Company’s estimated annual effective tax rate which was applied to year to date operating results in accordance with the interim accounting guidelines. The Company estimates that the reduction in the federal corporate rate will have an ongoing effect to reduce the Company’s income tax expense from continuing operations. As a result of changes made by the Tax Act, Section 162(m) will limit the deduction of compensation, including performance-based compensation, in excess of $1.0 million paid to anyone who, for tax years beginning after January 1, 2018, serves as the Chief Executive Officer or Chief Financial Officer, or who is among the three most highly compensated executive officers for any fiscal year. The only exception to this rule is for compensation that is paid pursuant to a binding written contract in effect on November 2, 2017 that would have otherwise been deductible under the prior Section 162(m) rules. Accordingly, any compensation paid in the future pursuant to new compensation arrangements entered into after November 2, 2017, even if performance-based, will count towards the $1 million fiscal year deduction limit if paid to a covered executive. No material estimate was recorded by the Company during the fiscal year, as the law is effective for tax years beginning after January 1, 2018. The Company has evaluated its binding contracts entered into prior to November 2, 2017, and believes there will be no material impact for adjustments related to deferred equity compensation currently carried as a deferred tax asset on the Company’s balance sheet. The Company is still analyzing certain aspects of the Act and refining calculations, which could potentially affect the impact of this provision. The Tax Act also implements certain changes on the taxation of the Company’s foreign operations. The Company’s accounting for the following elements of the Tax Act is incomplete, and we were not yet able to make reasonable estimates of the effects. Therefore, no provisional adjustments were recorded. The Deemed Repatriation Transition Tax (Transition Tax) is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of the Company’s foreign subsidiaries. To determine the amount of the Transition Tax, the Company 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. While the Company estimates that there will not be a material impact in the current fiscal year due to the Transition Tax, the Company is not able to make a reasonable estimate of the Transition Tax and have not recorded a provisional amount. The Company is continuing to gather additional information needed to finalize the amount of post-1986 E&P to more precisely compute the amount of the Transition Tax. The Tax Act creates a new requirement that certain income (i.e., GILTI) earned by controlled foreign corporations (CFCs) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is currently defined as the excess of (1) 10 percent of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income. Because of the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The Company is not making a policy election at this time. The Company’s calculation of the deferred balance with respect to the new GILTI tax rules will depend, in part, on analyzing our global income to determine whether the Company expects to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Because whether the Company expects to have future U.S. inclusions in taxable income related to GILTI depends on not only the Company’s current structure and estimated future results of global operations but also the Company’s intent and ability to modify our structure and/or our business, the Company is not yet able to reasonably estimate the effect of this provision of the Tax Act. Therefore, the Company has not made any adjustments related to potential GILTI tax in our financial statements. Other revisions to the taxation of foreign earnings will not be effective until the Company’s fiscal year ending on June 30, 2019. The Company is in the process of evaluating the additional provisions of the Tax Act that will become effective in their fiscal year ending June 30, 2019. The impact of the Tax Act may differ from this estimate, possibly materially, due to, among other things, changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of the Tax Act. The Company will continue to update the provisional estimates as information is obtained, such as state impacts regarding decoupling from the Tax Act provisions, realization of deferred amounts in the fiscal year, and accounting method elections that may be made by the Company. 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, 2018 and 2017, the Company’s valuation allowance decreased by $2.7 and increased $4.9, respectively. The net decrease of the valuation allowance in the year ended June 30, 2018 is primarily due to a corresponding decrease in the deferred tax asset for net operating loss carryforwards that decreased as a result of the Tax Act. The Company acquired Assurex Health, Inc. on August 31, 2016 (see Note 2). As part of the purchase accounting for the acquisition, a net deferred tax liability of approximately $66.3 was recorded, consisting primarily of intangible assets for which the book basis exceeds the tax basis. At June 30, 2018, 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.
|  |  |  |  |  | Subject to |  | Expires |  |  |  |  |
Carryforwards |  | Amount |  |  | sections 382, 383 |  | beginning in year |  |  | Through |
Federal net operating loss |  | $ | 112.2 |  |  | Yes |  |  | 2027 |  |  |  | 2033 |
Utah net operating loss |  |  | 209.5 |  |  | No |  |  | 2016 |  |  |  | 2024 |
Oklahoma net operating loss |  |  | 14.1 |  |  | Yes |  |  | 2023 |  |  |  | 2033 |
Foreign net operating losses (various jurisdictions) |  |  | 34.7 |  |  | No |  | Various |  |  | Various |
Federal research credit |  |  | 4.7 |  |  | Yes |  |  | 2025 |  |  |  | 2032 |
Utah research credit |  |  | 10.6 |  |  | No |  |  | 2021 |  |  |  | 2031 |
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 tax benefit, pursuant to the guidance of ASU 2016-09. The Company’s deferred tax asset for the Utah net operating loss ‘excess tax benefits’ is approximately $8.3 and is offset by a $8.3 valuation allowance at June 30, 2018. Notwithstanding the Deemed Repatriation Tax mentioned above, and consistent with the indefinite reversal criteria of ASC 740-30-25-17, the Company intends to continue 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, 2018 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, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Unrecognized tax benefits at the beginning of year |  | $ | 25.2 |  |  | $ | 24.2 |  |  | $ | 26.3 |
Gross increases - current year tax positions |  |  | 0.6 |  |  |  | 0.7 |  |  |  | 0.6 |
Gross increases - prior year tax positions |  |  | 2.4 |  |  |  | 0.7 |  |  |  | 5.4 |
Gross increases - acquisitions |  |  | — |  |  |  | — |  |  |  | — |
Gross decreases - prior year tax positions |  |  | (3.3 | ) |  |  | (0.4 | ) |  |  | (8.1 | )
Unrecognized tax benefits at end of year |  | $ | 24.9 |  |  | $ | 25.2 |  |  | $ | 24.2 |
Interest and penalties in year-end balance |  | $ | 1.5 |  |  | $ | (0.9 | ) |  | $ | 0.5 |
Interest and penalties related to uncertain tax positions are included as a component of income tax expense and all other interest and penalties are included as a component of other income (expense). The Company files U.S., foreign and state income tax returns in jurisdictions with various statutes of limitations. The Company is currently under audit by the IRS for the fiscal years ended June 30, 2014 and June 30, 2015; the State of New Jersey for the fiscal years June 30, 2013 through 2017; the state of Wisconsin for the fiscal years June 30, 2014 through 2016; Germany for the fiscal years June 30, 2013 through 2015; and Canada for the fiscal years June 30, 2014 through 2015. 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.

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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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