Income Taxes (Notes)

9 Months Ended

Oct. 31, 2019

Income Taxes [Abstract]

Income Tax Disclosure [Text Block]

NOTE 6 — INCOME TAXES

U.S. Tax Reform

On December 22, 2017, the U.S. federal government enacted the U.S. Tax Cuts and Jobs Act (“U.S. Tax Reform”) which significantly revised U.S. corporate income tax law by, among other things, reducing the U.S. federal corporate income tax rate from 35% to 21% and implementing a modified territorial tax system that included a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. Due to the complexities involved in accounting for U.S. Tax Reform, the SEC issued Staff Accounting Bulletin (“SAB”) 118 which required that the Company include in its financial statements the reasonable estimate of the impact of U.S. Tax Reform on earnings to the extent such reasonable estimate had been determined. SAB 118 allowed the Company to report provisional amounts within a measurement period up to one year due to the complexities inherent in adopting the changes. During the three and nine months ended October 31, 2018, the Company decreased its provisional estimate of the one-time transition tax by $24.0 million upon further analysis of earnings and profits of the Company's foreign subsidiaries and utilization of foreign tax credits.

Tax Indemnifications

In connection with the acquisition of TS, pursuant to the interest purchase agreement, the Company and Avnet agreed to indemnify each other in relation to certain tax matters. As a result, the Company has recorded certain indemnification assets for expected amounts to be received from Avnet related to liabilities recorded for unrecognized tax benefits. The Company has also recorded certain indemnification liabilities for expected amounts to be paid to Avnet. The Company recorded a benefit in income tax expense of $5.5 million during the three months ended October 31, 2018 and a benefit in income tax expense of $0.6 million and $6.1 million during the nine months ended October 31, 2019 and 2018, respectively, due to the resolution of certain pre-acquisition tax matters.

Effective Tax Rate

The Company's effective tax rate was 22.1% and 2.0% for the three months ended October 31, 2019 and 2018, respectively, and 22.1% and 7.0% for the nine months ended October 31, 2019 and 2018, respectively. On an absolute dollar basis, the provision for income taxes increased to $25.7 million for the third quarter of fiscal 2020 compared to $2.3 million for the third quarter of fiscal 2019 and increased to $64.0 million for the nine months ended October 31, 2019 compared to $16.8 million for the nine months ended October 31, 2018.

The increase in both the effective tax rate and the provision for income taxes for the three and nine months ended October 31, 2019, as compared to the prior year is primarily due to the prior year decrease in the provisional estimate of the one-time transition tax related to U.S. Tax Reform and the impact of the resolution of certain pre-acquisition tax matters related to TS. The increase in both the effective tax rate and the provision for income taxes for the nine months ended October 31, 2019, as compared to the prior year, is also impacted by a $13.0 million income tax benefit recognized during the nine months ended October 31, 2018. The income tax benefit was due to the Company's finalization of the geographic allocation of the purchase price for the acquisition of TS for tax reporting purposes as part of a settlement agreement with Avnet, which resulted in the recognition of a deferred tax asset in the U.S. for future tax deductions related to the amortization of goodwill for tax purposes. Additionally, the increase in the absolute dollar value of the provision for income taxes for the nine months ended October 31, 2019 as compared to the prior year is due to an increase in taxable earnings.