Provision for Income Taxes

6 Months Ended

Jan. 31, 2016

Provision for Income Taxes

12. Provision for Income Taxes

The overall effective income tax rate for the three months ended January 31, 2016 was 31.3% compared with 31.4% for the three months ended January 31, 2015. The effective income tax rates for the fiscal 2015 three-month period and fiscal 2016 three-month period were both impacted, to a similar extent, by the retroactive reinstatement of the federal research and development credit and other credits that were enacted on December 19, 2014 and December 18, 2015 respectively.

The overall effective income tax rate for the six months ended January 31, 2016 was 33.1% compared with 31.1% for the six months ended January 31, 2015. The primary reason for the increase in the effective income tax rate is due to uncertain tax benefits that settled favorably in the six months ended January 31, 2015 while no such settlements occurred in the six months ended January 31, 2016. The effective income tax rates for the fiscal 2015 and fiscal 2016 periods were both impacted, to a similar extent, by the retroactive reinstatement of the federal research and development credit and other credits that were enacted on December 19, 2014 and December 18, 2015 respectively.

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, 2016, there were no material changes to the balance of unrecognized tax benefits and the Company accrued $282 in interest and penalties related to the remaining uncertain tax positions recorded at July 31, 2015. For the three months ended January 31, 2016, the Company accrued $141 in interest and penalties related to the remaining uncertain tax positions recorded at July 31, 2015.

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 $5,340 in unrecognized tax benefits, and $1,182 in accrued interest and penalties related to unrecognized tax benefits recorded as of January 31, 2016, within the next 12 months from expected settlements or payments of uncertain tax positions and lapses of the applicable statutes of limitations. Actual results may differ from these estimates.

Generally, fiscal years 2012, 2013 and 2014 remain open for federal income tax purposes and fiscal years 2011, 2012, 2013 and 2014 remain open for state and Canadian 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 disputing the audit results by the state of Indiana for tax years ended July 31, 2008, 2009 and 2010. The Company believes it has adequately reserved for its exposure to additional payments for uncertain tax positions related to its Indiana income tax returns in its liability for unrecognized tax benefits.