Income Taxes

12 Months Ended

Jun. 30, 2012

Income Taxes

(8) Income Taxes

Income tax expense (benefit) consists of the following:

	Year ended June 30,
(In thousands)	2012			2011			2010
Current:
Federal	$	67,492		$	61,172		$	8,072
State		4,647			3,444			8,509
Total Current		72,139			64,616			16,581
Deferred:
Federal		(2,192	)		27,370			38,162
State		2,326			1,979			4,701
Foreign		(1,735	)		—			—
Change in valuation allowance		1,851			(35,024	)		(70,913	)
Total Deferred		250			(5,675	)		(28,050	)
Total income tax expense (benefit)	$	72,389		$	58,941		$	(11,469	)

Income (loss) before income taxes consists of the following:

	Year ended June 30,
(In thousands)	2012			2011			2010
United States	$	189,702		$	159,973		$	140,834
Foreign		(5,162	)		(322	)		—
		184,540			159,651			140,834

The differences between income taxes at the statutory federal income tax rate and income taxes reported in the consolidated statements of income were as follows:

	Year ended June 30,
	2012			2011			2010
Federal income tax expense at the statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit		2.7			2.7			4.3
Research and development credits, net of the federal tax on state credits		(1.3	)		(0.9	)		(4.7	)
Uncertain tax positions, net of federal benefit on state positions		0.2			0.3			6.1
Incentive stock option and employee stock purchase plan expense		1.0			2.1			—
Change in valuation allowance		1.0			(2.1	)		(50.3	)
Other, net		0.6			(0.1	)		1.5
		39.2	%		37.0	%		(8.1	) %

The significant components of the Company’s deferred tax assets and liabilities were comprised of the following at June 30, 2012 and 2011:

	Year ended June 30,
(In thousands)	2012			2011
Net operating loss carryforwards	$	7,781		$	6,530
Property, plant and equipment		2,781			1,422
Accrued vacation		979			653
Allowance for doubtful accounts		1,725			1,393
Stock compensation expense		21,353			14,363
Capital loss carryover		1,553			1,754
Research and development credits		5,365			7,009
Alternative minimum tax credit		—			5,304
Uncertain state tax positions		1,216			1,121
Other, net		80			866
Total gross deferred tax assets		42,833			40,415
Less valuation allowance		(6,613	)		(4,762	)
Net deferred tax assets	$	36,220		$	35,653

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 certain of its deferred income tax assets will be realized. Accordingly, the Company reversed the valuation allowances on a significant portion of the Company’s gross deferred income tax assets during the year ended June 30, 2010. The Company also reversed $35,024,000 of additional valuation allowance during the year ended June 30, 2011. For the year ended June 30, 2012, the Company’s valuation allowance increased by $1,851,000 primarily due to foreign and state net operating losses, for which the Company concluded it was not more likely than not that the benefits of the losses will be realized.

For the year ended June 30, 2012, the Company realized $34,193,000 of excess tax benefits from stock-based compensation as a reduction of taxes payable which resulted from excess tax benefits incurred subsequent to the adoption of Statement 123(R) (as codified in ASC 718).

For the year ended June 30, 2011, the Company realized $58,831,000 of excess tax benefits from stock-based compensation as a reduction of taxes payable, which benefit is credited directly to additional paid-in capital. Of this amount, $31,653,000 resulted from excess tax benefits incurred prior to the adoption of FASB Statement 123(R) (as codified in ASC 718). The remaining $27,178,000 resulted from excess tax benefits incurred subsequent to the adoption of Statement 123(R).

The Company adopted Statement 123(R) on July 1, 2005. Prior to the adoption of Statement 123(R), the Company recorded deferred tax assets for net operating losses attributable to stock-based compensation excess tax benefits and a corresponding valuation allowance. According to guidance, the valuation allowance attributable to these excess tax benefits is not reversed until the excess tax benefits are realized as a reduction of taxes payable. During the year ended June 30, 2011, the Company realized a significant portion of the excess tax benefits attributable to the periods prior to the adoption of Statement 123(R) and reversed the corresponding valuation allowance. The following table presents a reconciliation of income tax expense to reflect the realization of these excess tax benefits and the corresponding change in valuation allowance:

	Years ended June 30,
(in thousands)	2012			2011			2010
Total current tax expense	$	72,139		$	64,616		$	16,581
Deferred tax expense (benefit):
Deferred tax expense attributable to realization of stock-based compensation excess tax benefits due to utilization of net operating loss carryforward deferred tax assets – credited to additional paid-in capital		—			31,653			—
Other deferred tax expense		(1,601	)		(2,304	)		42,863
Net deferred tax expense before change in valuation allowance		(1,601	)		29,349			42,863
Decrease in valuation allowance attributable to stock-based compensation tax benefits – credited to additional paid-in capital		—			(31,653	)		—
Change in valuation allowance attributable to income tax expense (benefit)		1,851			(3,371	)		(70,913	)
Net increse (decrease) in valuation allowance		1,851			(35,024	)		(70,913	)
Total deferred tax expense (benefit)		250			(5,675	)		(28,050	)
Total income tax expense (benefit)	$	72,389		$	58,941		$	(11,469	)

On May 31, 2011, the Company acquired 100% of the stock of Rules-Based Medicine, Inc. (“RBM”.) Certain of RBM’s assets and liabilities have tax bases that differ from the recorded bases for book purposes and RBM had certain net operating loss and credit carry-forwards at acquisition. A net deferred tax asset of $2,104,000 was recorded in the purchase accounting and included in the Company’s total deferred tax asset balance.

At June 30, 2012, the Company had total federal and alternative minimum tax net operating loss carry-forwards of approximately $7,252,000 and a $401,000 federal research credit carry-forward. These federal net operating loss and research credit carry-forwards result from the acquisition of RBM at May 31, 2011 and are subject to the limitations imposed by Section 382 of the Internal Revenue Code. If not utilized, these net operating loss and research credit carry-forwards expire beginning in 2030 through 2031. The Company has foreign net operating loss carry-forwards in various countries totaling $7,006,000, which carry-forwards expire at various dates. A valuation allowance has been established on all foreign net operating loss carry-forwards. The Company had Utah net operating loss carry-forwards of approximately $229,900,000. If not utilized, these operating loss carry-forwards expire beginning in 2015 through 2028. None of the Utah net operating loss carry-forwards are subject to the limitations imposed by Section 382 of the Internal Revenue Code. The Company had approximately $7,637,000 of Utah research and development tax credit carry-forwards, which can be carried forward to reduce Utah income taxes. Upon utilization to reduce Utah income tax, there will be a corresponding federal tax due resulting in net Utah credits of $4,964,000. If not utilized, the Utah research and development tax credit carry-forwards expire beginning in 2025 through 2030.

All of the Utah net operating loss carry-forwards are ‘excess tax benefits’ as defined by ASC guidance and, if realized in future years, will be recognized as a credit to additional paid-in capital. Approximately $92,557,000 of the Utah net operating loss ‘excess tax benefits’ are attributable to periods prior to adoption of guidance limiting recognition of the deferred tax asset and are included in deferred tax assets (prior to any offset by valuation allowance.) The remaining $137,343,000 of Utah net operating loss ‘excess tax benefits’ are not included in deferred tax assets and will be recognized only upon realization of the tax benefit.

The Company’s deferred tax asset for the ‘excess tax benefits’ attributable to periods prior to the adoption of the standard are offset by a valuation allowance of approximately $3,008,000. If the ‘excess tax benefits’ are recognized as additional paid-in-capital in future years, the corresponding valuation allowance will be reversed. The Company has a valuation allowance of $1,553,000 offsetting its capital loss carry-forward. The capital loss carry-forward expires in the year ended June 30, 2014 and the Company does not expect to have capital gains to offset the loss prior to expiration of the carry-forward period. The Company also has a valuation allowance of $2,052,000 offsetting its foreign and miscellaneous state net operating loss carry-forwards.

In July 2006, the FASB issued ASC Topic 740 Subtopic 10 Section 05, which clarifies the accounting for uncertainty in tax positions. ASC 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,
(In thousands)	2012		2011			2010
Unrecognized tax benefits at the beginning of year	$	9,648	$	9,797		$	—
Gross increases – current year tax positions	$	560		—			9,797
Gross increases – prior year tax positions		—		848			—
Decreases related to settlements		—		(997	)		—
Unrecognized tax benefits at end of year	$	10,208	$	9,648		$	9,797
Interest and penalties in year-end balance	$	—	$	—		$	900

Interest and penalties related to uncertain tax positions are included as a component of income tax expense.

The Company files U.S., U.K., French and state income tax returns in jurisdictions with various statutes of limitations. The 2008 through 2011 tax years remain subject to examination at June 30, 2012. The Company’s New York State income tax returns for the years ended June 30, 2007, 2008 and 2009 are currently under examination by the New York State Department of Taxation and Finance. 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. To the Company’s knowledge, the Company’s U.S. federal tax return, U.K. income tax return and all other state tax returns are not currently under examination.