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Income Taxes | 12 Months Ended
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Jun. 30, 2019
Income Tax Disclosure [Abstract] |
Income Taxes |
1 0. | INCOME TAXES
Income tax expense (benefit) consists of the following:
|  | Year ended June 30, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (24.2 | ) |  | $ | 7.7 |  |  | $ | 15.5 |
State |  |  | (0.1 | ) |  |  | 2.2 |  |  |  | 2.4 |
Foreign |  |  | 0.2 |  |  |  | — |  |  |  | — |
Total Current |  |  | (24.1 | ) |  |  | 9.9 |  |  |  | 17.9 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 17.8 |  |  |  | (22.7 | ) |  |  | 1.5 |
State |  |  | 1.7 |  |  |  | 0.7 |  |  |  | (1.7 | )
Foreign |  |  | 0.4 |  |  |  | (1.4 | ) |  |  | (1.7 | )
Change in valuation allowance |  |  | (0.2 | ) |  |  | 0.5 |  |  |  | 3.0 |
Total Deferred |  |  | 19.7 |  |  |  | (22.9 | ) |  |  | 1.1 |
Total income tax expense (benefit) |  | $ | (4.4 | ) |  | $ | (13.0 | ) |  | $ | 19.0 |
Income (loss) before income taxes consists of the following:
|  | Year ended June 30, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
United States |  | $ | (0.6 | ) |  | $ | 122.3 |  |  | $ | 39.2 |
Foreign |  |  | 0.6 |  |  |  | (2.2 | ) |  |  | (3.0 | )
Total |  | $ | — |  |  | $ | 120.1 |  |  | $ | 36.2 |
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, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Federal income tax expense at the statutory rate |  |  | 0.0 |  |  | 21.0 | % |  |  | 33.7 |  |  | 28.1 | % |  |  | 12.7 |  |  | 35.0 | %
State income taxes, net of federal benefit |  |  | 2.0 |  |  | 6422.1 | % |  |  | 2.9 |  |  | 2.4 | % |  |  | 0.7 |  |  | 1.9 | %
Research and development credits, net of the federal tax on state credits |  |  | (3.7 | ) |  | -11880.9 | % |  |  | (2.1 | ) |  | -1.7 | % |  |  | (3.1 | ) |  | -8.5 | %
Uncertain tax positions, net of federal benefit |  |  | 2.9 |  |  | 9312.1 | % |  |  | 2.5 |  |  | 2.1 | % |  |  | 1.2 |  |  | 3.3 | %
Uncertain tax benefits statute expired, net of federal benefit |  |  | (7.1 | ) |  | -22798.5 | % |  |  | — |  |  | 0.0 | % |  |  | — |  |  | 0.0 | %
Incentive stock option and employee stock purchase plan expense |  |  | (3.1 | ) |  | -9954.3 | % |  |  | (1.7 | ) |  | -1.4 | % |  |  | 4.0 |  |  | 10.9 | %
Foreign rate differential |  |  | 0.8 |  |  | 2568.8 | % |  |  | (0.8 | ) |  | -0.7 | % |  |  | (0.5 | ) |  | -1.5 | %
Change in valuation allowance |  |  | (0.2 | ) |  | -642.2 | % |  |  | 0.6 |  |  | 0.5 | % |  |  | 3.0 |  |  | 8.3 | %
Tax Cut and Jobs Act Impact |  |  | — |  |  | 0.0 | % |  |  | (32.0 | ) |  | -26.6 | % |  |  | — |  |  | 0.0 | %
Fair value adjustments related to acquisition contingent consideration |  |  | 0.8 |  |  | 2568.8 | % |  |  | (17.0 | ) |  | -14.2 | % |  |  | 0.8 |  |  | 2.1 | %
Non-deductible meals and entertainment |  |  | 1.3 |  |  | 4174.4 | % |  |  | 0.4 |  |  | 0.3 | % |  |  | 0.6 |  |  | 1.6 | %
Non-deductible officer compensation |  |  | 0.6 |  |  | 1926.6 | % |  |  | — |  |  | 0.0 | % |  |  | — |  |  | 0.0 | %
Non-deductible legal settlement |  |  | 1.9 |  |  | 6101.0 | % |  |  | — |  |  | 0.0 | % |  |  | — |  |  | 0.0 | %
Foreign disregarded election |  |  | 6.4 |  |  | 20550.8 | % |  |  | — |  |  | 0.0 | % |  |  | — |  |  | 0.0 | %
Changes in revenue recognition/method |  |  | (7.3 | ) |  | -23440.8 | % |  |  | — |  |  | 0.0 | % |  |  | — |  |  | 0.0 | %
Other, net |  |  | 0.3 |  |  | 963.4 | % |  |  | 0.5 |  |  | 0.5 | % |  |  | (0.4 | ) |  | -0.7 | %
|  |  | (4.4 | ) |  | -14107.7 | % |  |  | (13.0 | ) |  | -10.7 | % |  |  | 19.0 |  |  | 52.4 | %
The significant components of the Company’s deferred tax assets and liabilities were comprised of the following:
|  | Year ended June 30, |
|  | 2019 |  |  | 2018 |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 85.7 |  |  | $ | 44.6 |
Property, plant and equipment |  |  | — |  |  |  | 1.1 |
Accrued vacation |  |  | 1.2 |  |  |  | 1.4 |
AR allowance |  |  | 3.3 |  |  |  | 10.7 |
Stock compensation expense |  |  | 16.0 |  |  |  | 17.0 |
Research and development credits |  |  | 25.4 |  |  |  | 13.0 |
Uncertain state tax positions |  |  | 1.3 |  |  |  | 1.3 |
Other, net |  |  | 9.0 |  |  |  | 0.9 |
Total gross deferred tax assets |  |  | 141.9 |  |  |  | 90.0 |
Less valuation allowance |  |  | (38.9 | ) |  |  | (37.8 | )
Total deferred tax assets |  |  | 103.0 |  |  |  | 52.2 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Intangible assets |  |  | 175.4 |  |  |  | 109.5 |
Property, plant and equipment |  |  | 2.5 |  |  |  | — |
Deferred revenue |  |  | 7.7 |  |  |  | — |
Total deferred tax liabilities |  |  | 185.6 |  |  |  | 109.5 |
Net deferred tax liability |  |  | (82.6 | ) |  |  | (57.3 | )
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 a discrete net income tax benefit during the quarter ended December 31, 2017 of approximately $32.6 ($0.45 earnings per share increase). This provisional estimate primarily consists of a net benefit for the corporate rate reduction due to the revaluing of 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 has now completed its accounting of the income tax effects of the Tax Act. The full impact of the Tax Act is discussed more fully below. In addition to the discrete benefit recorded during the quarter ended December 31, 2017 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 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 $1.0 fiscal year deduction limit if paid to a covered executive. There was not a material impact during the fiscal year ended June 30, 2018, as the law is effective for tax years beginning after January 1, 2018. The Company evaluated its binding contracts entered into prior to November 2, 2017, and determined there is no material impact for adjustments related to deferred equity compensation currently carried as a deferred tax asset on the Company’s balance sheet. For the fiscal year ended June 30, 2019, the Company realized a material impact due to compensation in excess of $1.0, which has been reflected in the effective tax rate. 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. The Company has concluded that there was not a material impact during the current or previous fiscal year due to the Transition Tax, as such, no Transition Tax has been recorded. Other revisions to the taxation of foreign earnings became effective for the Company’s fiscal year ending on June 30, 2019. The Company specifically analyzed both the Global Intangible Low-taxed Income (G.I.L.T.I.) and Base Erosion Anti-Abuse Tax (B.E.A.T.) to determine what, if any, material impact there may be. The Company has determined that both the additional provisions of the Tax Act had no effect on the Company’s fiscal year ended June 30, 2018, as the provisions did not apply, and no material effect on the Company’s fiscal year ending June 30, 2019 due to tax elections made by the Company to treat its foreign subsidiaries as disregarded entities. All other foreign provisions were also deemed immaterial or not applicable to the fiscal years ended June 30, 2018 and June 30, 2019. 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, 2019 and 2018, the Company’s valuation allowance increased by $1.1 and decreased $2.7, respectively. The net increase of the valuation allowance in the year ended June 30, 2019 is primarily due to the acquisition of Counsyl, Inc. The Company acquired Counsyl, Inc. on July 31, 2018 (see Note 2). As part of the purchase accounting for the acquisition, a net deferred tax liability of approximately $67.6 was recorded, consisting primarily of intangible assets for which the book basis exceeds the tax basis. A corresponding deferred tax asset of $60.7 was recorded, consisting primarily of net operating loss and research credit carryforwards. At June 30, 2019, 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 |  | $ | 274.6 |  |  | Yes |  |  | 2027 |  |  |  | 2038 |
Utah net operating loss |  |  | 209.5 |  |  | No |  |  | 2016 |  |  |  | 2024 |
California net operating loss |  |  | 47.0 |  |  | No |  |  | 2023 |  |  |  | 2038 |
Oklahoma net operating loss |  |  | 14.1 |  |  | Yes |  |  | 2023 |  |  |  | 2033 |
Other state net operating loss |  |  | 7.1 |  |  | Yes |  |  | 2023 |  |  |  | 2039 |
Foreign net operating losses (various jurisdictions) |  |  | 33.4 |  |  | No |  | Various |  |  | Various |
Federal research credit |  |  | 9.3 |  |  | Yes |  |  | 2025 |  |  |  | 2032 |
Utah research credit |  |  | 11.0 |  |  | No |  |  | 2021 |  |  |  | 2031 |
California research credit |  |  | 5.3 |  |  | No |  |  | 2023 |  |  |  | 2039 |
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, 2019. 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 such foreign operations, the amount of unrecorded deferred liability resulting from the indefinite reversal criteria at June 30, 2018 is $0. For those foreign entities for which an election has been made to be treated as disregarded for U.S. tax purposes, the appropriate U.S. jurisdiction deferred tax assets and liabilities have been recorded. 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, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Unrecognized tax benefits at the beginning of year |  | $ | 24.9 |  |  | $ | 25.2 |  |  | $ | 24.2 |
Gross increases - current year tax positions |  |  | 2.2 |  |  |  | 0.6 |  |  |  | 0.7 |
Gross increases - prior year tax positions |  |  | 0.5 |  |  |  | 2.4 |  |  |  | 0.7 |
Gross increases - acquisitions |  |  | 2.3 |  |  |  | — |  |  |  | — |
Gross decreases - prior year tax positions |  |  | (0.1 | ) |  |  | (3.3 | ) |  |  | — |
Gross decreases - settlements |  |  | (2.7 | ) |  |  | — |  |  |  | — |
Gross decreases - statute lapse |  |  | (5.4 | ) |  |  | — |  |  |  | (0.4 | )
Unrecognized tax benefits at end of year |  | $ | 21.7 |  |  | $ | 24.9 |  |  | $ | 25.2 |
Interest and penalties in year-end balance |  | $ | 0.8 |  |  | $ | 1.5 |  |  | $ | (0.9 | )
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 State of New Jersey for the fiscal years June 30, 2013 through 2017; the city of New York for the fiscal years June 30, 2014 through 2016; Germany for the fiscal years June 30, 2013 through 2015; and Switzerland for the fiscal years June 30, 2015 through 2016. 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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