Provision for Income Taxes

6 Months Ended

Jan. 31, 2017

12.

Provision for Income Taxes

The overall effective income tax rate for the three months ended January 31, 2017 was 34.1% compared with 31.3% for the three months ended January 31, 2016. The effective income tax rate for the fiscal 2016 three-month period was favorably impacted by the retroactive reinstatements of the federal research and development credit and other credits that were enacted on December 18, 2015.

The overall effective income tax rate for the six months ended January 31, 2017 was 33.0% compared with 33.1% for the six months ended January 31, 2016. The effective income tax rate for the fiscal 2017 six-month period includes a benefit of $1,843 related to the adoption of ASU 2016-09 as discussed in Note 1 to the Condensed Consolidated Financial Statements. The effective income tax rate for the fiscal 2016 six-month period was favorably impacted by the retroactive reinstatements of the federal research and development credit and other credits that were enacted on December 18, 2015.

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, 2017, the Company released $1,156 of gross uncertain tax positions and related interest and penalties recorded at July 31, 2016 related to the effective settlement of various uncertain tax positions and statute of limitation expirations, which resulted in a net income tax benefit of $750. The Company accrued $191 in interest and penalties related to the remaining uncertain tax positions recorded at July 31, 2016. For the three months ended January 31, 2017, the Company released $264 of gross uncertain tax positions and related interest and penalties recorded at July 31, 2016 related to the effective settlement of various uncertain tax positions and statute of limitation expirations, which resulted in a net income tax benefit of $170 and accrued $95 in interest and penalties.

The Company anticipates a decrease of approximately $5,448 in unrecognized tax benefits, and $905 in accrued interest related to unrecognized tax benefits recorded as of January 31, 2017, 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 2013, 2014 and 2015 remain open for federal income tax purposes and fiscal years 2012, 2013, 2014 and 2015 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 being audited by the IRS for tax year end July 31, 2014. The company is also under exam by various state authorities for fiscal years ended July 31, 2012 through 2015. The Company believes it has adequately reserved for its exposure to additional payments for uncertain tax positions related to its Federal and State income tax returns in its liability for unrecognized tax benefits. During the three months ended January 31, 2017, the Company finalized its California audit for fiscal years 2013 and 2014. There were no tax assessments related to the completion of the California audit. During the three months ended January 31, 2017, the Company reached a preliminary agreement to settle the audit with the state of Indiana for tax years ended July 31, 2008, 2009 and 2010, and the impact of the agreement was not significant.