Income before income taxes was comprised of the following (in thousands):

 

		Year Ended June 30,
		2018				2017				2016
Domestic		$	81,557			$	81,721			$	120,154
Foreign			44,395				30,240				27,327
Income before income taxes		$	125,952			$	111,961			$	147,481

 

The provision for income taxes consisted of the following (in thousands):

 

		Year Ended June 30,
		2018				2017				2016
Taxes on income consist of:
Currently tax provision:
Federal		$	28,416			$	28,462			$	34,805
State			5,315				4,051				2,958
Foreign			11,983				8,212				7,579
Total current tax provision			45,714				40,725				45,342
Deferred tax provision:
Federal			(40,378	)			(901	)			1,906
State			(1,381	)			(968	)			(428	)
Foreign			(4,154	)			(2,981	)			(3,815	)
Total deferred tax provision			(45,912	)			(4,850	)			(2,337	)
Total income tax provision		$	(198	)		$	35,875			$	43,005

 

 

On the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code which impacted our fiscal year ended limited to, () reducing the U.S. federal corporate tax rate, () requiring a -time transition tax on certain unrepatriated earnings of foreign subsidiaries that electively be paid over years, and () accelerated year expensing of certain capital expenditures. The Tax Act reduced the federal corporate tax rate from  to  effective Internal Revenue Code Section provides that for our fiscal year ended we calculate a blended corporate tax rate of which is based on a proration of the applicable tax rates before and after effective date of the Tax Act. The statutory tax rate of  will apply for fiscal and beyond.

 

The Tax Act also puts in place new tax laws that will impact our taxable income beginning in fiscal which include, but are limited to () creating a Base Erosion Anti-abuse Tax (BEAT), which is a new minimum tax, () generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, () a new provision designed to tax currently global intangible low-taxed income (GILTI), () a provision that could limit the amount of deductible interest expense, () the repeal of the domestic production activity deduction, () additional limitations on the deductibility of certain executive compensation, and () limitations on the utilization of foreign tax credits to reduce the U.S. income tax liability.

 

Shortly after the Tax Act was enacted, the SEC staff issued Staff Accounting Bulletin Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB ) which provides guidance on accounting for the Tax Act’s impact. SAB provides a measurement period, which in case should extend beyond year from the Tax Act enactment date, during which a company acting in good faith complete the accounting for the impacts of the Tax Act under ASC Topic In accordance with SAB the Company must reflect the income tax effects of the Tax Act in the reporting period in which the accounting under ASC Topic is complete.  In March the FASB issued ASU - . which added FASB Codification the guidance provided by the SEC in

 

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete, the Company can determine a reasonable estimate for those effects and record a provisional estimate in the financial statements in the reporting period in which a reasonable estimate can be determined. If a Company cannot determine a provisional estimate to be included in the financial statements, the Company should continue to apply ASC based on the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted. If a Company is unable to provide a reasonable estimate of the impacts of the Tax Act in a reporting period, a provisional amount must be recorded in the reporting period in which a reasonable estimate can be determined.

 

We complied with SAB when preparing our annual consolidated financial statements for the year ended Reasonable estimates were used in determining several of the components of the impact of the Tax Act, including our fiscal deferred income tax activity and the amount of post- foreign deferred earnings subject to the repatriation transition tax. We are still analyzing certain aspects of the Tax Act including state tax implications and refining our calculations, which could potentially affect the measurement of our deferred tax balances and the amount of the repatriation toll charge liability, and ultimately cause us to revise our initial estimates in future periods. In addition, changes in interpretations, assumptions and guidance regarding the Tax Act, as well as the potential for technical corrections, could have a material impact on our effective tax rate in future periods.

 

Transition Tax: The transition tax is a tax on the previously untaxed accumulated and current earnings and profits (E&P) of certain of our foreign subsidiaries as of In order to determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post- E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. E&P is similar to retained earnings of the subsidiary but requires other adjustments to conform to U.S. tax rules. We are able to make a reasonable estimate of the transition tax and recorded a provisional transition tax obligation of  million which the Company expects to elect to pay, net of certain tax credit carryforwards, over years beginning in fiscal year Of this liability, million is recorded as a current liability with the remaining million classified as a long-term liability within our balance sheet. We are in the process of analyzing if proposed regulations REG-- issued on will have any impact to our current estimate of our transition tax liability. In addition, we have considered state income tax implications and concluded at this time that the impact is immaterial. However, we continue to monitor for additional interpretative guidance including information regarding state income tax implications.

  

The following is a reconciliation of the federal tax calculated at the statutory rate of to the actual income taxes provided (in thousands):

 

		Year Ended June 30,
		2018				2017				2016
Income tax expense at federal statutory rate			28.1	%			35.0	%			35.0	%
State income taxes, net of federal benefit			2.5	%			1.9	%			1.3	%
Qualified production activity deduction			(2.4	)%			(3.4	)%			(2.7	)%
Research and development tax credit			(1.4	)%			(1.4	)%			(1.1	)%
Contingent consideration adjustment			3.3	%			4.1	%			-	%
Foreign tax rate differences			(3.5	)%			(4.6	)%			(3.1	)%
Option exercises			(1.8)	%			-	%			-	%
Domestic tax legislation changes			(26.2	)%			-	%			-	%
Other, net			1.2	%			0.4	%			(0.2	)%
Effective tax rate			(0.2	)%			32.0	%			29.2	%

  

 

The effective tax rate for the year ended decreased by compared to the prior year. The decrease in the Company’s tax rate for fiscal was due to the impact of discrete items, primarily the net tax benefit of million related to the Tax Act discussed above. This net tax benefit consisted of million due to the re-measurement of the Company’s deferred tax accounts to reflect the U.S. federal corporate tax rate reduction impact to our net deferred tax balances offset by expense for the federal transition tax of million. Also impacting the Company’s fiscal effective tax rate was a million tax benefit related to stock option exercises offset by a net discrete tax expense of million related to the revaluation of contingent consideration, which is a tax deductible expense.

 

The effective tax rate for the year ended increased by compared to the prior year. The increase was primarily due to unfavorable discrete events in fiscal related to the revaluation of contingent consideration which is a tax deductible expense. The Company recognized net expense related to discrete tax items of million in fiscal including million in expense related to the revaluation of contingent consideration which is a tax deductible expense.

 

Deferred taxes on the Consolidated Balance Sheets consisted of the following temporary differences (in thousands):

 

		June 30
		2018				2017
Inventory		$	5,873			$	9,415
Net operating loss carryovers			15,938				24,617
Tax credit carryovers			7,029				6,386
Excess tax basis in equity investments			2,813				4,381
Deferred compensation			7,806				9,052
Other			3,864				9,937
Valuation allowance			(2,978	)			(3,341	)
Deferred tax assets			40,345				60,447
Net unrealized gain on available-for-sale investments			(8,384	)			(11,153	)
Intangible asset amortization			(111,247	)			(162,460	)
Depreciation			(6,349	)			(5,628	)
Other			(658	)			(1,802	)
Deferred tax liabilities			(126,638	)			(181,043	)
Net deferred tax liabilities		$	(86,293	)		$	(120,596	)

 

A deferred tax valuation allowance is required when it is more likely than that all or a portion of deferred tax assets will be realized. The valuation allowance as of was million, a decrease of million from the prior year. The decrease was driven by a decrease in the valuation allowance for the Company’s net operating loss and credit carryforwards.

 

As of the million valuation allowance relates to certain foreign and state tax net operating loss and state credit carryforwards that existed at the date the Company acquired ACD, Novus, ProteinSimple and CyVek as well as immaterial amounts generated after the acquisitions. The Company believes it is more likely than that these tax carryovers will be realized.

 

As of the Company has federal operating loss carryforwards of approximately million and state operating loss carryforwards of million from its acquisitions of ACD, ProteinSimple and CyVek, which are limited under IRC Section  As of the Company has foreign net operating loss carryforwards of million. The net operating loss carryforwards expire between fiscal and The Company has a deferred tax asset of million, net of the valuation allowance discussed above, related to the net operating loss carryovers. As of the Company has federal and state tax credit carryforwards of million and million, respectively. The federal tax credit carryforwards expire between and The majority of the state credit carryforwards have expiry date. The Company has a deferred tax asset of million, net of the valuation allowance discussed above, related to the tax credit carryovers.

 

The Company has recognized a deferred tax liability for unremitted foreign earnings of approximately million from its foreign operations because its subsidiaries have invested or will invest the undistributed earnings indefinitely. The transition tax noted above results in the previously untaxed foreign earnings being included in the federal and state fiscal taxable income. We are currently analyzing our global working capital requirements and the potential tax liabilities that would be incurred if the non-U.S. subsidiaries distribute cash to the U.S. parent, which include local country withholding tax and potential U.S. state taxation.  At this time, and until we fully analyze the applicable provisions of the Tax Act, our intention with respect to unremitted foreign earnings is to continue to indefinitely reinvest outside the U.S. those earnings needed for working capital or additional foreign investment.    Therefore, it is practical to estimate the amount of the deferred income tax liabilities related to investments in these foreign subsidiaries.

 

The following is a reconciliation of the beginning and ending balance of unrecognized tax benefits (in thousands):

 

		Year Ended June 30,
		2018				2017				2016
Beginning balance		$	1,747			$	1,480			$	1,688
Additions due to acquisitions							628
Additions for tax positions of current year			35				13				36
Closure of tax years							(374	)			(244	)
Tax Reform			165
Ending balance		$	1,947			$	1,747			$	1,480

 

The Company does believe it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase in the next months. The Company files income tax returns in the U.S federal and certain state tax jurisdictions, and several jurisdictions outside the U.S. The Company's federal returns are subject to tax assessment for and subsequent years. State and foreign income tax returns are generally subject to examination for a period of to years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to year after formal notification to the states.