Income Taxes

3 Months Ended

Jul. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 7: INCOME TAXES

We file a consolidated federal income tax return in the U.S. with the IRS and file tax returns in various state, local, and foreign jurisdictions. Tax returns are typically examined and either settled upon completion of the examination or through the appeals process. Our U.S. federal income tax returns for 2015 and 2017 remain open for examination. Our U.S. federal income tax returns for 2016 along with 2014 and all prior periods are closed. With respect to state and local jurisdictions and countries outside of the U.S., we are typically subject to examination for three to six years after the income tax returns have been filed. Although the outcome of tax audits is always uncertain, we believe that adequate amounts of tax, interest, and penalties have been provided for in the accompanying consolidated financial statements for any adjustments that might be incurred due to federal, state, local or foreign audits.

We had gross unrecognized tax benefits of $179.2 million, $204.5 million and $185.1 million as of July 31, 2019 and 2018 and April 30, 2019, respectively. The gross unrecognized tax benefits decreased $5.9 million and increased $18.4 million during the three months ended July 31, 2019 and 2018, respectively. The decrease in unrecognized tax benefits during the three months ending July 31, 2019 is related to favorable audit settlements as well as state statute

of limitation periods ending in the current quarter. We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $24.3 million within the next twelve months. The anticipated decrease is due to the expiration of statutes of limitations and anticipated closure of various state tax matters currently under examination. For such matters where a change in the balance of unrecognized tax benefits is not yet deemed reasonably possible, no estimate has been included. The portion of unrecognized benefits expected to be cash settled within the next twelve months amounts to $6.5 million and is included in accrued income taxes on our consolidated balance sheet.

Consistent with prior years, our pretax loss for the three months ended July 31, 2019 is expected to be offset by income in the fourth quarter due to the established pattern of seasonality in our primary business operations. As such, management has determined that it is more-likely-than-not that realization of tax benefits recorded in our financial statements will occur within our fiscal year. The amount of tax benefit recorded for the three months ended July 31, 2019 reflects management’s estimate of the annual effective tax rate applied to the year-to-date loss from continuing operations adjusted for the tax impact of items discrete to the quarter.

A discrete income tax benefit of $8.3 million was recorded in the three months ended July 31, 2019 compared to a discrete tax benefit of $0.5 million in the same period of the prior year. The discrete tax benefit recorded in the current period primarily resulted from audit settlements in various state jurisdictions and valuation allowance changes related to utilization of foreign losses.

Our effective tax rate from continuing operations, including the effects of discrete income tax items, was 29.6% and 25.1% for the three months ended July 31, 2019 and 2018, respectively. Discrete items increased the effective tax rate for the three months ended July 31, 2019 and 2018 by 4.0% and 0.2%, respectively. Due to the loss in both periods, a discrete tax benefit in either period increases the tax rate while an item of discrete tax expense decreases the tax rate. The impact of discrete tax items combined with the seasonal nature of our business can cause the effective tax rate through our first quarter to be significantly different than the rate for our full fiscal year.