INCOME TAXES

Income Before Income Taxes

The components of income before income taxes are as follows:



Year Ended June 30,	2018		2017		2016
U.S.	$	186,874	$	154,472	$	139,960
Foreign	17,844		12,494		(60,982		)
Income before income taxes	$	204,718	$	166,966	$	78,978

Provision

The provision (benefit) for income taxes consists of:



Year Ended June 30,	2018			2017			2016
Current:
Federal	$	48,131		$	26,456		$	45,226
State and local	8,038			4,692			6,349
Foreign	5,309			4,760			4,407
Total current	61,478			35,908			55,982
Deferred:
Federal	5,955			852			397
State and local	(586		)	535			(30		)
Foreign	(3,754		)	(4,239		)	(6,948		)
Total deferred	1,615			(2,852		)	(6,581		)
Total	$	63,093		$	33,056		$	49,401

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was enacted in the U.S., making significant changes to U.S. tax law. The Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on certain un-remitted earnings of foreign subsidiaries that were previously tax deferred, generally eliminates U.S. federal income tax on dividends from foreign subsidiaries, and creates new taxes on certain foreign-sourced earnings. During fiscal 2018, the Company revised its estimated annual effective tax rate to reflect the change in the federal statutory rate from 35% to 21%. The rate change was administratively effective as of the beginning of our fiscal year, resulting in the Company using a blended statutory rate for the annual period of 28.06%. The corporate income tax rate change had a favorable impact to the Company of $12,113 for fiscal 2018.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Act for which the accounting under ASC 740 is incomplete. To the extent that a company's accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before enactment of the Act.

Accordingly, as of June 30, 2018 we have not completed our accounting for the tax effects of the Act. For fiscal 2018, we recognized a provisional tax liability of $3,877 related to the one-time transition tax on certain un-remitted earnings of foreign subsidiaries, which is payable over eight years. We also re-measured the applicable deferred tax assets and liabilities based on the rates at which they are expected to reverse. The Company recorded a provisional amount of $2,414 of additional deferred income tax expense related to the re-measurement of our deferred tax balance. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. Overall, considering the decrease in the corporate income tax rate and the expense related to the transition tax and deferred tax re-measurement, the Act resulted in a net tax benefit of $5,822 for fiscal 2018, which is included as a component of income tax expense in the statements of consolidated income.

During the fourth quarter of fiscal 2017, the Company recorded a net tax benefit of $22,246 pertaining to a worthless stock deduction. The tax benefit of this deduction was based on the write-off of the Company's investment in one of its Canadian subsidiaries for U.S. tax purposes reduced by $1,019 of tax provided for a valuation allowance applicable to the related state deferred income tax asset.

The exercise of non-qualified stock appreciation rights and options during fiscal 2018, 2017 and 2016 resulted in $419, $1,921 and $212, respectively, of income tax benefits to the Company derived from the difference between the market and option price of the shares at the date of exercise and the fair value of the options on the grant date. Vesting of stock awards and other stock compensation in fiscal 2018, 2017 and 2016 resulted in $430, $482 and $(4), respectively, of incremental income tax benefits (expense) over the amounts previously reported for financial reporting purposes. Due to the adoption of ASU 2016-09 in fiscal 2017, the tax benefits for fiscal 2018 and 2017 were recorded in income tax expense in the statements of consolidated income, while the fiscal 2016 tax expense was recorded in additional paid-in capital.

Effective Tax Rates

The following reconciles the U.S. federal statutory income tax rate to the Company’s effective income tax rate:



Year Ended June 30,	2018		2017		2016
Statutory income tax rate	28.1	%	35.0	%	35.0	%
Effects of:
State and local taxes	3.1		2.8		5.2
U.S. federal tax reform	3.1		—		—
Worthless stock deduction	—		(13.9	)	—
Stock compensation	(0.4	)	(1.4	)	—
Goodwill impairment	—		—		27.1
Impact of foreign operations	(1.3	)	(2.3	)	(3.0	)
Deductible dividend	(0.3	)	(0.4	)	(0.9	)
Valuation allowance	(0.9	)	0.3		0.5
Other, net	(0.6	)	(0.3	)	(1.3	)
Effective income tax rate	30.8	%	19.8	%	62.6	%

Consolidated Balance Sheets

Significant components of the Company’s deferred tax assets and liabilities are as follows:



June 30,	2018			2017
Deferred tax assets:
Compensation liabilities not currently deductible	$	19,334		$	26,873
Other expenses and reserves not currently deductible	13,169			11,601
Goodwill and intangibles	3,197			5,661
Foreign tax credit (expiring in years 2025-2026)	413			709
Net operating loss carryforwards (expiring in years 2023-2038)	11,315			5,729
Other	199			119
Total deferred tax assets	47,627			50,692
Less: Valuation allowance	(38		)	(1,831		)
Deferred tax assets, net of valuation allowance	47,589			48,861
Deferred tax liabilities:
Inventories	(8,196		)	(7,447		)
Goodwill and intangibles	(86,176		)	(30,482		)
Depreciation and differences in property bases	(9,294		)	(10,122		)
Total deferred tax liabilities	(103,666		)	(48,051		)
Net deferred tax (liabilities) assets	$	(56,077	)	$	810
Net deferred tax (liabilities) assets are classified as follows:
Other assets	$	2,103		$	8,985
Other liabilities	(58,180		)	(8,175		)
Net deferred tax (liabilities) assets	$	(56,077	)	$	810

Valuation allowances are provided against deferred tax assets where it is considered more-likely-than-not that the Company will not realize the benefit of such assets. The remaining net deferred tax asset is the amount management believes is more-likely-than-not of being realized. The realization of these deferred tax assets can be impacted by changes to tax laws, statutory rates and future income levels.

As a result of the Act, the Company’s net unremitted foreign earnings of $77,374 have been subject to U.S. taxation. As of June 30, 2018, all such undistributed earnings of non-U.S. subsidiaries are considered permanently reinvested. Therefore, no taxes have been provided that would result from the remittance of such earnings. The net amount of the unrecognized tax liability with respect to the distribution of these earnings is estimated to be approximately $1,986. In addition, we expect foreign tax credits would be available to either offset or partially reduce the tax cost in the event of a distribution.

Unrecognized Income Tax Benefits

The Company and its subsidiaries file income tax returns in U.S. federal, various state, local and foreign jurisdictions. The following table sets forth the changes in the amount of unrecognized tax benefits for the years ended June 30, 2018, 2017 and 2016:



Year Ended June 30,	2018			2017			2016
Unrecognized Income Tax Benefits at beginning of the year	$	3,533		$	2,915		$	2,604
Current year tax positions	143			574			539
Prior year tax positions	636			259			—
Expirations of statutes of limitations	(324		)	(189		)	(132		)
Settlements	—			(26		)	(96		)
Unrecognized Income Tax Benefits at end of year	$	3,988		$	3,533		$	2,915

Included in the balance of unrecognized income tax benefits at June 30, 2018, 2017 and 2016 are $3,725, $3,323 and $2,691, respectively, of income tax benefits that, if recognized, would affect the effective income tax rate.

During 2018, 2017 and 2016, the Company recognized $(110) and $163 and $127 of (benefit) expense, respectively, for interest and penalties related to unrecognized income tax benefits in its statements of consolidated income. The Company had a liability for penalties and interest of $677 and $787 as of June 30, 2018 and 2017, respectively. The Company does not anticipate a significant change to the total amount of unrecognized income tax benefits within the next twelve months.

The Company is subject to U.S. federal income tax examinations for the tax years 2015 through 2018 and to state and local income tax examinations for the tax years 2012 through 2018. In addition, the Company is subject to foreign income tax examinations for the tax years 2011 through 2018.

The Company’s unrecognized income tax benefits are included in other liabilities in the consolidated balance sheets since payment of cash is not expected within one year.