Note 15 - Income Taxes

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

15. Income Taxes

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in March 2020. The CARES Act includes several provisions that provide economic relief for individuals and businesses. The Company will continue to evaluate the impact of the CARES Act, but does not expect it to result in a material impact. 

The benefit from income taxes was $2.0 million and $0.4 million for the three- and six-month periods ended June 30, 2020, based on effective tax rates of 20.6% and 17.9%, respectively. The provision for income taxes was $3.0 million and $4.5 million for the three- and six-month periods ended June 30, 2019, based on effective tax rates of 24.2% and 24.3%, respectively. The net decrease in the effective tax rate for the three- and six-month periods ended June 30, 2020, as compared to the same periods in 2019, was primarily due to the $1.9 million tax expense on the impairment of non-tax deductible goodwill offset by the $1.7 million tax benefit on the decrease in the fair value of the contingent consideration.  In addition, the Company recorded a $0.3 million tax windfall for the six-month period ended June 30, 2020 related to exercises of employee equity awards. The Company recognized a net deferred tax liability of $11.2 million primarily due to intangible assets and inventory step up offset by net operating losses and research and development tax credits associated with the Arthrosurface acquisition discussed in Note 3.

The Company files income tax returns in the United States on a federal basis, 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.

In connection with the preparation of the financial statements, the Company assesses whether it was more likely than not that it would be able to utilize, in future periods, the net deferred tax assets associated with its net operating loss carry-forward. In the second quarter of 2020, the Company established a valuation allowance in the amount of $0.4 million against the portion of the deferred tax asset balance that is “more likely than not” not to be realized.