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Income Taxes | 12 Months Ended
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Jun. 30, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act reduces the corporate federal tax rate from 35% to 21% effective January 1, 2018 and implements a modified territorial tax system. Since the Company has a June 30th fiscal year-end, the lower tax rate resulted in a blended U.S. statutory federal rate of approximately 28% for the fiscal year ended June 30, 2018. The U.S. statutory federal rate will be 21% for subsequent fiscal years. As part of of the Tax Act, U.S. companies are required to pay a one-time transition tax on the deemed repatriation of undistributed foreign earnings and to remeasure deferred tax assets and liabilities. In response to the Tax Act, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) that provides guidance on accounting for the impact of the Tax Act. SAB 118 allows companies to record provisional amounts to the extent reasonably estimable and adjust them over time as more information becomes available, not to extend beyond the measurement period of one year from the enactment of the Tax Act. Accordingly, the Company has recorded provisional amounts for the one-time transition tax on the deemed repatriation of undistributed foreign earnings and the remeasurement of deferred tax assets and liabilities. The final impact from the enactment of the Tax Act may differ from the estimates provided for a number of reasons including, but not limited to, the issuance of final regulations, interpretation of the law and refinement of the Company's ongoing analysis of the new tax positions. Any changes in the provisional amount recognized will be reflected in the income tax expense in the period they are identified. The Tax Act includes a mandatory deemed repatriation of all undistributed foreign earnings that are subject to a U.S. income tax as part of the transition. For the fiscal year ended June 30, 2018, the Company recognized provisional income tax expense of $9.6 million for a one-time transition tax liability on total post-1986 foreign subsidiaries’ earnings and profits (“E&P”) that were previously deferred from U.S. income taxes. No additional income tax expense has been provided for any remaining undistributed foreign earnings not subject to the transition tax and any additional outside basis difference inherent for these entities as such amounts continue to be indefinitely reinvested in foreign operations. As part of accounting for the Tax Act, the Company remeasured certain deferred tax assets and liabilities based on the rates at which such deferred taxes are expected to reverse in the future, which is generally 21% . For the fiscal year ended June 30, 2018 the Company recognized provisional income tax benefit of $1.6 million for the remeasurement of the Company’s deferred tax asset and liability balances. Income tax expense (benefit) consists of:
| Fiscal Year Ended June 30,
| 2018 |  | 2017 |  | 2016
| (in thousands)
Current: |  |  |  |  |
Federal | $ | 38,263 |  |  | $ | 31,149 |  |  | $ | 21,855 |
State | 3,503 |  |  | 2,615 |  |  | 1,652 |
Foreign | 9,203 |  |  | 269 |  |  | 6,100 |
Total current | 50,969 |  |  | 34,033 |  |  | 29,607 |
Deferred: |  |  |  |  |
Federal | (9,987 | ) |  | (3,832 | ) |  | 3,990 |
State | (1,962 | ) |  | (397 | ) |  | 365 |
Foreign | (11,248 | ) |  | 2,445 |  |  | (1,571 | )
Total deferred | (23,197 | ) |  | (1,784 | ) |  | 2,784 |
Provision for income taxes | $ | 27,772 |  |  | $ | 32,249 |  |  | $ | 32,391 |
A reconciliation of the U.S. Federal income tax expense at a blended statutory rate of 28% for the fiscal year ended June 30, 2018 and a statutory rate of 35% for the June 30, 2017 and 2016 fiscal years to actual income tax expense is as follows:
| Fiscal Year Ended June 30,
| 2018 |  | 2017 |  | 2016
| (in thousands)
U.S. statutory rate | 28.0 | % |  | 35.0 | % |  | 35.0 | %
U.S. Federal income tax at statutory rate | $ | 17,094 |  |  | $ | 35,524 |  |  | $ | 33,603 |
Increase (decrease) in income taxes due to: |  |  |  |  |
State and local income taxes, net of Federal benefit | 1,883 |  |  | 1,729 |  |  | 1,578 |
Tax credits | (1,825 | ) |  | (1,430 | ) |  | (2,517 | )
Valuation allowance | 1,530 |  |  | 444 |  |  | 541 |
Effect of foreign operations, net | (1,396 | ) |  | (1,477 | ) |  | (1,150 | )
Stock compensation | 1,049 |  |  | (61 | ) |  | (62 | )
Capitalized acquisition costs | 48 |  |  | 231 |  |  | 70 |
Nontaxable income | (9 | ) |  | (4,437 | ) |  | — |
Disallowed interest | 1,888 |  |  | 2,011 |  |  | 571 |
Other | (1,438 | ) |  | (285 | ) |  | (243 | )
U.S. Tax Reform transition tax | 9,609 |  |  | — |  |  | — |
U.S. Tax Reform impact of rate change on deferred taxes | (1,615 | ) |  | — |  |  | — |
Belgium Tax Reform impact of rate change on deferred taxes | 1,040 |  |  | — |  |  | — |
Other jurisdictions impact of rate change on deferred taxes | (86 | ) |  | — |  |  | — |
Provision for income taxes | $ | 27,772 |  |  | $ | 32,249 |  |  | $ | 32,391 |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:
| June 30,
| 2018 |  | 2017
| (in thousands)
Deferred tax assets derived from: |  |  |
Allowance for accounts receivable | $ | 12,874 |  |  | $ | 11,687 |
Inventories | 4,060 |  |  | 5,235 |
Nondeductible accrued expenses | 7,426 |  |  | 3,968 |
Net operating loss carryforwards | 5,350 |  |  | 3,141 |
Tax credits | 5,795 |  |  | 4,094 |
Timing of amortization deduction from goodwill | 5,756 |  |  | 1,285 |
Deferred compensation | 5,696 |  |  | 7,934 |
Stock compensation | 2,809 |  |  | 5,424 |
Timing of amortization deduction from intangible assets | 2,510 |  |  | 3,032 |
Total deferred tax assets | 52,276 |  |  | 45,800 |
Valuation allowance | (5,098 | ) |  | (3,473 | )
Total deferred tax assets, net of allowance | 47,178 |  |  | 42,327 |
Deferred tax liabilities derived from: |  |  |
Timing of depreciation and other deductions from building and equipment | (7,468 | ) |  | (7,778 | )
Timing of amortization deduction from goodwill | (1,782 | ) |  | (5,013 | )
Timing of amortization deduction from intangible assets | (17,498 | ) |  | (2,053 | )
Total deferred tax liabilities | (26,748 | ) |  | (14,844 | )
Net deferred tax assets | $ | 20,430 |  |  | $ | 27,483 |
The components of pretax earnings are as follows:
| Fiscal Year Ended June 30,
| 2018 |  | 2017 |  | 2016
| (in thousands)
Domestic | $ | 66,416 |  |  | $ | 79,871 |  |  | $ | 76,062 |
Foreign | (5,491 | ) |  | 21,624 |  |  | 19,948 |
Worldwide pretax earnings | $ | 60,925 |  |  | $ | 101,495 |  |  | $ | 96,010 |
As of June 30, 2018, there were (i) gross net operating loss carryforwards of approximately $2.4 million for U.S. federal income tax purposes; (ii) gross state net operating loss carryforwards of approximately $4.1 million; (iii) foreign gross net operating loss carryforwards of approximately $17.8 million; (iv) state income tax credit carryforwards of approximately $2.2 million that will began to expire in the 2018 tax year; and (v) withholding tax credits of approximately $3.5 million; and (vi) foreign tax credits of $0.6 million. The Company maintains a valuation allowance of $0.6 million for foreign net operating losses, a less than $0.1 million valuation allowance for state net operating losses, a $3.5 million valuation allowance for withholding tax credits, a $0.6 million valuation allowance for foreign tax credits, and $0.3 million valuation allowance for state income tax credits, and a less than $0.1 million valuation allowance for the notional interest deduction, where it was determined that, in accordance with ASC 740, it is more likely than not that they cannot be utilized. The Company adopted ASU 2016-09 during fiscal year 2018 which required the Company to recognize excess tax benefits and tax deficiencies as income tax expense or benefit for stock award settlements that were previously recognized as additional paid-in-capital. As a result of these changes, the Company recognized net tax expense of $1.0 million for the fiscal year ended June 30, 2018. The one-time transition tax is based on the total post-1986 foreign subsidiaries’ earnings and profits (“E&P”) were previously deferred from U.S. income taxes. Prior to the passage of the Tax Act, the Company did not provide for U.S. income taxes for undistributed earnings of foreign subsidiaries that were considered to be retained indefinitely for reinvestment. The Company will continue to distribute the earnings of its Canadian subsidiary, but earnings from all other geographies will continue to be considered retained indefinitely for reinvestment. It has been the practice of the Company to reinvest those earnings in the business outside the United States. Apart from the one-time transition tax, any incremental deferred income taxes on the unremitted foreign earnings are not expected to be material. As of June 30, 2018, the Company had gross unrecognized tax benefits of $2.1 million, $1.4 million of which, if recognized, would affect the effective tax rate. This reflects a decrease of $0.1 million on a gross basis over the prior fiscal year. The Company does not expect that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Income Statement. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheet. The total amount of interest and penalties accrued, but excluded from the table below were $1.2 million for the fiscal year ending June 30, 2018 and $1.1 million for the fiscal year ended June 30, 2017 and $1.2 million for the fiscal year ended June 30, 2016, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| June 30,
| 2018 |  | 2017 |  | 2016
| (in thousands)
Beginning Balance | $ | 2,176 |  |  | $ | 2,148 |  |  | $ | 1,301 |
Additions based on tax positions related to the current year | 157 |  |  | 174 |  |  | 326 |
Additions for tax positions of prior years | — |  |  | — |  |  | 658 |
Reduction for tax positions of prior years | (280 | ) |  | (146 | ) |  | (137 | )
Ending Balance | $ | 2,053 |  |  | $ | 2,176 |  |  | $ | 2,148 |
Financial results for the Belgium business produced pre-tax loss of approximately $5.3 million for the year ended June 30, 2018. To the extent the Belgium business does not return to profitability as expected, this could affect the valuation of certain deferred tax assets. However, the Belgium business reported cumulative taxable income for two of the four prior years. In the judgment of management, the conditions that gave rise to the fiscal current year and prior year pre-tax losses are temporary and that it is more likely than not that the deferred tax asset will be realized. A corporate tax reform law was enacted in Belgium on December 25, 2017, which reduces the corporate tax rate from 33% to 25% over a three-year period. The company remeasured certain deferred tax assets and liabilities based on the rates at which such deferred taxes are expected to reverse in the future. As a result, the Company recognized income tax expense of $1.0 million during the year ended June 30, 2018. During the quarter ended June 30, 2017, a lawsuit filed by ScanSource Brazil with the Brazilian Supreme Court in 2014 regarding the tax treatment of certain Brazilian state-provided tax benefits was settled in Scansource Brazil’s favor. As a result, Scansource Brazil was awarded and recovered a tax settlement. The Company recorded, discrete to the June 30, 2017 quarter, the income tax benefit associated with that recovery equal to approximately $4.5 million. The Company conducts business globally and, as a result, one or more of its subsidiaries files income tax returns in the United States federal, various state, local and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities in countries in which it operates. With certain exceptions, the Company is no longer subject to state and local, or non-United States income tax examinations by tax authorities for tax years before June 30, 2013.

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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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