Provision for Income Taxes

9 Months Ended

Apr. 30, 2019

15.	Provision for Income Taxes

The effective income tax rate for the three months ended April 30, 2019 was 24.3%, and the effective income tax rate for the nine months ended April 30, 2019 was 46.6%. The income tax rate for the three months ended April 30, 2019 was favorably impacted by certain foreign rate differences as a result of the EHG acquisition, which includes certain interest income not subject to corporate income tax. The effective rates for the periods presented include the effect of the deal-contingent foreign currency forward contract, as noted in Note 5 to the Condensed Consolidated Financial Statements, and the effects of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, which include, but are not limited to, a reduction in the U.S. federal corporate income tax rate to 21.0%, the repeal of the domestic production deduction, and expanded limitations on the deductibility of executive compensation. The Tax Act also included substantial changes to the taxation of foreign income which are applicable to the Company as a result of the acquisition of EHG. The Global Intangible Low Taxed Income (GILTI) provisions may also impact the Company’s effective income tax rate. Under GILTI, a portion of the Company’s foreign earnings will be subject to U.S. taxation, offset by available foreign tax credits subject to limitation. The deal-contingent foreign currency forward contract was settled in connection with the close of the EHG acquisition. The Company recognized income related to the contract during the three months ended April 30, 2019 and expense during the nine months ended April 30, 2019. Under current federal income tax law, the foreign currency forward contract was characterized as a component of the acquisition of EHG. As a result, the foreign currency forward contract gain/loss recognized for financial statement purposes is not recognized for federal income tax purposes.

Within the next 12 months, the Company anticipates a decrease of approximately $4,000 in unrecognized tax benefits, and $940 in accrued interest related to unrecognized tax benefits recorded as of April 30, 2019, from expected settlements or payments of uncertain tax positions and lapses of the applicable statutes of limitations. Actual results may differ from these estimates.

The Company files income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. For U.S. federal income tax purposes, fiscal years 2016 through 2018 remain open and could be subject to examination. In major state and major foreign jurisdictions, years subsequent to fiscal year 2015 generally remain open and could be subject to examination. The state of Indiana completed an exam of the Company for the fiscal years ended July 31, 2013 through 2015. The Company is also currently under exam by other state tax authorities for the fiscal years ended July 31, 2015 through 2017. The Company believes it has adequately reserved for its exposure to additional payments for uncertain tax positions in its liability for unrecognized tax benefits.