13.

Provision for Income Taxes

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current period and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Fluctuations in the actual outcome of these tax consequences could materially impact our financial position or results of operations.

The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires the Company to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as the probability of various possible outcomes must be determined. These uncertain tax positions are re-evaluated on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, voluntary settlements and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.

The overall effective income tax rate for the three months ended January 31, 2015 was 31.4% compared with 28.0% for the three months ended January 31, 2014. The primary reason for the increase in the effective income tax rate is due to uncertain tax benefits that settled favorably in the three months ended January 31, 2014 while no such settlements occurred in the three months ended January 31, 2015. For the three months ended January 31, 2015, the Company recorded a tax benefit from the retroactive reinstatement of the federal research and development credit and other credits that were enacted on December 19, 2014.

The overall effective income tax rate for the six months ended January 31, 2015 was 31.1% compared with 31.6% for the six months ended January 31, 2014. The primary reason for the decrease in the effective income tax rate was the retroactive reinstatement of the federal research and development credit and other credits that occurred during the six months ended January 31, 2015. In addition, the effective income tax rates for the fiscal 2014 and fiscal 2015 periods were both impacted, to a similar extent, by various uncertain tax benefits that settled favorably.

It is the Company’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in income tax expense. For the six months ended January 31, 2015, the Company released $4,506 of gross uncertain tax positions and related interest and penalties recorded at July 31, 2014 related to the effective settlement of various uncertain tax positions, which resulted in a net income tax benefit of $2,387. The Company accrued $293 in interest and penalties related to the remaining uncertain tax positions recorded at July 31, 2014 and recorded $90 of additional uncertain tax benefit reserve related to previous tax periods. For the three months ended January 31, 2015, the Company recorded $90 of additional uncertain tax benefit reserve related to previous tax periods and accrued $147 in interest and penalties.

The Company anticipates a decrease of approximately $2,560 in unrecognized tax benefits, and $385 in accrued interest and penalties related to unrecognized tax benefits recorded as of January 31, 2015, within the next 12 months from expected settlements or payments of uncertain tax positions and lapses of the applicable statutes of limitations. In addition, the Company is currently in the process of pursuing a variety of settlement alternatives with taxing authorities. It is reasonably possible that some of these settlements could be finalized in the next 12 months. If these settlements are finalized within the next 12 months, the gross unrecognized tax benefits may decrease between $100 and $2,700 and related accrued interest and penalties may decrease between $150 and $1,200. It is reasonably possible that some of these settlements will result in cash payments by the Company. Actual results may differ from these estimates.

Generally, fiscal years 2012 and 2013 remain open for federal income tax purposes and fiscal years 2011, 2012 and 2013 remain open for state and foreign income tax purposes. The Company and its subsidiaries file a consolidated U.S. federal income tax return and multiple state income tax returns. The Company is currently being audited by the state of Indiana for tax years ended July 31, 2008, 2009 and 2010 and the state of Illinois for tax years ended July 31, 2011 and 2012. During the three months ended January 31, 2015, the Company settled its Oregon audit for July 31, 2011, 2012 and 2013 for a nominal amount. The Company believes it has adequately reserved for its potential exposure to additional payments for uncertain tax positions related to its Indiana and Illinois income tax returns in its liability for unrecognized tax benefits.