XML 122 R24.htm IDEA: XBRL DOCUMENT

Income Taxes

12 Months Ended

Oct. 31, 2019

16.Income Taxes

The provision for income taxes for the years ended October 31, 2019, 2018 and 2017 consists of the following:

(in thousands)		2019		2018		2017
Current:
Federal	$	100,812	$	104,510	$	136,959
State		29,938		26,942		22,753
Deferred:
Federal		3,222		24,894		11,952
State		1,280		357		2,002
Total	$	135,252	$	156,703	$	173,666

On December 22, 2017, the Tax Cuts and Jobs Act (2017 Tax Act) was signed into law in the U.S. Among other significant changes, the 2017 Tax Act reduced the statutory federal income tax rate for U.S. corporate taxpayers from a maximum of 35 percent to 21 percent and required the deemed repatriation of foreign earnings not previously subject to U.S. taxation.

The following table reconciles the U.S. statutory federal income tax rate to the Company’s effective tax rate for the years ended October 31, 2019, 2018 and 2017:

	2019		2018		2017
Statutory U.S. federal income tax rate⁽¹⁾	21.0	%	23.3	%	35.0	%
State income tax, net of federal income tax benefits	4.7		4.4		3.5
Net income attributable to non-controlling and other beneficial
Interests	(1.2)		(0.7)		(1.8)
Non-recurring impact of U.S. tax reform	-		4.4		-
Stock-based compensation	0.2		0.4		0.3
Net excess tax benefits from stock-based compensation plans⁽²⁾	(1.0)		(3.2)		-
Other items	0.5		0.2		-
Effective income tax rate	24.2	%	28.8	%	37.0	%

The Company's statutory U.S. federal income tax rate for the year ended October 31, 2018 was a blend of 35 percent and 21 percent based on the number of days in the Company's fiscal year before and after the January 1, 2018 effective date of the reduction in the federal corporate income tax rate pursuant to the 2017 Tax Act.Reflects the impact of the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which was adopted by the Company as of November 1, 2017 and requires additional paid-in-capital to be recognized as income tax benefit or income tax expense in the period of vesting or settlement. For the year ended October 31, 2017, net excess tax benefits of approximately $3.2 million were included in additional paid-in-capital.

The Company’s income tax provision for the year ended October 31, 2019 included $3.2 million of charges associated with certain provisions of the 2017 Tax Act taking effect for the Company in fiscal 2019, relating principally to limitations on the deductibility of executive compensation. The Company’s income tax provision was reduced by net excess tax benefits of $5.4 million related to the exercise of employee stock options and vesting of restricted stock awards during the period, and $8.4 million related to net income attributable to redeemable non-controlling interests and other beneficial interests, which is not taxable to the Company.

The Company’s income tax provision for the year ended October 31, 2018 included a non-recurring charge of $24.0 million to reflect the enactment of the 2017 Tax Act. This non-recurring charge was based on guidance issued by the Internal Revenue Service (IRS) and the Company’s interpretation of certain provisions of the tax law changes. The charge consists of $21.2 million from the revaluation of the Company’s deferred tax assets and liabilities and $2.8 million for the deemed repatriation of foreign-sourced net earnings not previously subject to U.S. taxation. The Company’s income tax provision was reduced by net excess tax benefits of $17.5 million related to the exercise of stock options and vesting of restricted stock during the period, and $4.4 million related to the net income attributable to redeemable non-controlling interests and other beneficial interests, which is not taxable to the Company.

As of October 31, 2019, the Company considers the undistributed earnings of certain foreign subsidiaries to be indefinitely reinvested in foreign operations. As of October 31, 2019, the Company had approximately $11.4 million of undistributed earnings primarily from foreign operations in the U.K. that are not available to fund domestic operations or to distribute to shareholders unless repatriated. Reflecting the treatment of taxable deemed distributions under the 2017 Tax Act, the impact of Global Intangible Low Taxed Income on the Company’s future foreign earnings and lack of withholding tax imposed by certain foreign governments, any future tax liability with respect to these undistributed earnings is immaterial.

As of October 31, 2019, the Company had approximately $8.5 million of undistributed earnings from its Canadian subsidiary. The Company no longer considers the undistributed earnings of its Canadian subsidiary to be indefinitely reinvested in foreign operations. This change in assertion allowed the Canadian subsidiary to declare and pay a $65.2 million dividend in April 2019 to its U.S. parent company, which is a wholly-owned subsidiary of the Company. The payment of this dividend had no financial statement impact, as all previously undistributed earnings from the Canadian subsidiary were subject to taxation in fiscal 2018 due to the 2017 Tax Act. The dividend did, however, result in a $0.5 million reduction in our fiscal 2019 tax expense due to a realized foreign exchange loss.

Deferred income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts and tax basis of the Company’s assets and liabilities. The significant components of deferred income taxes were as follows:

(in thousands)			2019		2018
Deferred tax assets:
	Stock-based compensation	$	45,505	$	41,759
	Investment basis in partnerships		25,245		10,050
	Deferred rent		8,017		8,129
	Differences between book and tax bases of investments		7,893		6,988
	Compensation and benefit expense		5,259		4,202
	Federal benefit of unrecognized state tax benefits		282		247
	Other		193		240
Total deferred tax asset		$	92,394	$	71,615

Deferred tax liabilities:
	Deferred sales commissions	$	(14,189)	$	(12,422)
	Differences between book and tax bases of property		(7,270)		(6,691)
	Differences between book and tax bases of goodwill
	and intangibles		(8,218)		(5,008)
	Unrealized net holding gains on investments		-		(1,579)
	Unrealized gains on derivative instruments		(56)		(89)
Total deferred tax liability		$	(29,733)	$	(25,789)
Net deferred tax asset		$	62,661	$	45,826

As of October 31, 2019 and 2018, no valuation allowance has been recorded for deferred tax assets, reflecting management’s belief that all deferred tax assets will be utilized.

The changes in gross unrecognized tax benefits, excluding interest and penalties, for the years ended October 31, 2019, 2018 and 2017 were as follows:

(in thousands)			2019		2018		2017
Beginning balance		$	695	$	1,029	$	1,859
	Additions for tax positions of prior years		-		7		12
	Additions based on tax positions related to current year		74		93		75
	Reductions for tax positions of prior years		(26)		-		(898)
	Reductions for settlements with taxing authorities		-		-		(19)
	Lapse of statute of limitations		-		(434)		-
Ending balance		$	743	$	695	$	1,029

Unrecognized tax benefits, if recognized, would reduce the income tax provision by $0.7 million, $0.7 million and $1.0 million, respectively, for the years ended October 31, 2019, 2018 and 2017.

The Company recognized $0.1 million in interest and penalties in its income tax provision for both of the years ended October 31, 2019 and 2018, respectively. The Company did not recognize any interest or penalties in its income tax provision for the year ended October 31, 2017. Accrued interest and penalties, which are included as a component of unrecognized tax benefits, totaled $0.8 million and $0.7 million at October 31, 2019 and 2018, respectively.

The Company believes that it is reasonably possible that approximately $0.7 million of its currently remaining unrecognized tax benefits, each of which are individually insignificant, may be recognized within the next 12 months as a result of a lapse of the statute of limitations and settlements with state taxing authorities.

The Company is generally no longer subject to income tax examinations by U.S. federal, state, local or non-U.S. taxing authorities for fiscal years prior to fiscal 2015.