Note 16 - Income Taxes

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

16.

Income Taxes

New Tax Legislation

On

December 22, 2017,

the President of the United States signed into law the Tax Cuts and Jobs Act (the

“2017

Tax Act”) tax reform legislation. This legislation makes significant changes to the U.S. tax law, including a reduction in the corporate tax rate from the current rate of

35%

to

21%

starting in

2018.

As a result of the enacted law, the Company was required to revalue deferred tax assets and liabilities at the future rate. This revaluation resulted in a

$2.3

million income tax benefit in continuing operations and a corresponding reduction in the deferred tax liability. The other provisions of the

2017

Tax Act did

not

have a material impact on the

2017

consolidated financial statements.

In accordance with Staff Accounting Bulletin

No.

118,

which provides guidance on accounting for the tax effects of the

2017

Tax Act, the Company has recorded a reasonable estimate of the impact on the consolidated financial statements. The provisional amounts incorporate assumptions made based upon the Company’s current interpretation and implementation guidance of the

2017

Tax Act. The Company does

not

expect a significant adjustment to the recorded amounts.

Income Tax Expense

The components of the Company’s income before income taxes and its provision for (benefit from) income taxes consist of the following:

	Years ended December 31,
	2017			2016		2015
Income before income taxes
Domestic	$	48,446		$	50,181	$	48,608
Foreign		(2,244	)		689		(354	)
	$	46,202		$	50,870	$	48,254

	Years ended December 31,
	2017			2016			2015
Provision for (benefit from) income taxes:
Current provision:
Federal	$	12,608		$	14,982		$	14,572
State		2,737			3,265			3,635
Foreign		31			302			249
		15,376			18,549			18,456
Deferred provision:
Federal		(426	)		(70	)		(370	)
State		(68	)		(84	)		(33	)
Foreign		(496	)		(72	)		(557	)
		(990	)		(226	)		(960	)
Total provision	$	14,386		$	18,323		$	17,496

Deferred Tax Assets and Liabilities

Significant components of the Company’s deferred tax assets and liabilities consist of the following:

	December 31,
	2017		2016
Deferred tax assets:
Net operating loss carry forward, foreign	$	959	$	1,253
Stock-based compensation expense		2,309		1,882
Foreign currency exchange		265		677
Accrued expenses and other		496		308
Inventory reserve		740		640
Deferred tax assets	$	4,769	$	4,760

	December 31,
	2017			2016
Deferred tax liabilities:
Acquisition-related Intangibles	$	(2,743	)	$	(2,932	)
Depreciation		(7,419	)		(8,376	)
Deferred tax liabilities	$	(10,162	)	$	(11,308	)
Net deferred tax liabilities	$	(5,393	)	$	(6,548	)

Tax Rate

The reconciliation between the U.S. federal statutory rate and the Company’s effective rate is summarized as follows:

	Years ended December 31,
	2017			2016			2015
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State tax expense, net of federal benefit		4.8	%		4.5	%		4.8	%
Impact of rate change on deferred taxes		(4.9	%)		0.0	%		0.0	%
Permanent items, including nondeductible expenses		0.6	%		0.5	%		(0.3	%)
State investment tax credit		(0.7	%)		(0.1	%)		0.0	%
Federal, state and foreign research and development credits		(1.4	%)		(0.9	%)		(0.4	%)
Foreign rate differential		0.5	%		(0.1	%)		0.1	%
Domestic production deduction		(2.8	%)		(2.9	%)		(2.9	%)
Effective income tax rate		31.1	%		36.0	%		36.3	%

As of

December 31, 2017,

the Company had NOL’s for income tax purposes in Italy of

$4.0

million that do

not

expire.

Accounting for Uncertainty in Income Taxes

The Company had

no

unrecognized tax benefits for the years ended

December 31, 2017

and

2016,

respectively.

The Company does

not

anticipate experiencing any significant increases or decreases in its unrecognized tax benefits within the

twelve

months following

December 31, 2017.

In the normal course of business, Anika and its subsidiaries

may

be periodically examined by various taxing authorities. We file income tax returns in the U.S. federal jurisdiction, in certain U.S. states, and in Italy. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. The

2014

through

2016

tax years remain subject to examination by the IRS and other taxing authorities for U.S. federal and state tax purposes. The

2011

through

2016

tax years remain subject to examination by the appropriate governmental authorities for Italy.

Upon the settlement of certain stock-based awards (i.e., exercise, vesting, forfeiture, or cancellation), the actual tax deduction is compared with cumulative financial reporting compensation cost, and any excess tax deduction related to these awards is considered a windfall tax benefit. With the adoption of ASU

2016

-

09

in

2017,

the Company records windfall tax benefits to income tax expense. Prior to the adoption of ASU

2016

-

09,

such benefits were tracked in a “windfall tax benefit pool” as part of additional paid-in capital. The Company follows the with-and-without approach for the direct effects of windfall/shortfall items and to determine the timing of the recognition of any related benefits. The Company recorded a windfall tax benefit in income tax expense of

$0.4

million in

2017.

The amount of excess tax benefits previously recognized through additional paid-in capital was

$0.6

million and

$0.9

million in

2016

and

2015,

respectively.