Income Taxes

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes broad and complex changes to the U.S. tax code that impacted the Company’s accounting and reporting for income taxes during the year ended July 31, 2018. These changes primarily consist of the following:

•

A reduction in the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018, which resulted in a U.S. blended federal statutory income tax rate for the Company for the year ended July 31, 2018 of approximately 27% (August 2017 through December 2017 at 35% and January 2018 through July 2018 at 21%), and which will then be reduced to 21% for the year ending July 31, 2019 and thereafter, subject to future changes in the tax laws.


•	The remeasurement of U.S. net deferred tax liabilities as of the effective date utilizing the new U.S. federal corporate income tax rate of 21%.


•	A territorial tax regime resulting in a one-time transitional repatriation tax on unremitted foreign earnings (“Transition Tax”), which may be paid over an eight-year period.


•	The elimination of the domestic production activities deduction, as well as revised limitations on certain business expenses and executive compensation deductions under “Section 162(m)” of the Internal Revenue Code.


•	Provides for a tax on global intangible low-taxed income (“GILTI”), a base erosion anti-abuse tax (“BEAT”) and a deduction for foreign derived intangible income (“FDII”).

On December 22, 2017, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance related to accounting for the income tax effects of the Tax Act. SAB 118 provides that companies (i) should record the effects of the changes from the Tax Act for which the accounting is complete (not provisional), (ii) should record provisional amounts for the effects of the changes from the Tax Act for which the accounting is not complete, and for which reasonable estimates can be determined, in the period they are identified, and (iii) should not record provisional amounts if reasonable estimates cannot be made for the effects of the changes from the Tax Act, and should continue to apply guidance based on the tax law in effect prior to the enactment on December 22, 2017. In addition, SAB 118 established a one-year measurement period (through December 22, 2018) where a provisional amount could be subject to adjustment, and requires certain qualitative and quantitative disclosures related to provisional amounts and accounting during the measurement period.

The Tax Act increased limitations on the deductibility of certain executive compensation, expands the definition of a “covered employee” under Section 162(m), and, among other modifications, repeals the exception for performance-based compensation and commissions from the $1.0 million deduction limitation. The Tax Act also provides transitional guidance, which will allow certain payments made under written and binding agreements that were entered into prior to November 2, 2017 to be treated as if they were made under the provisions of Section 162(m) that were in effect prior to enactment of the Tax Act. The Company is in the process of reviewing existing compensation arrangements for covered employees as well as assessing the impact of transitional guidance on the realizability of existing deferred tax assets related to compensation arrangements of its covered employees. As a result, the Company did not made any adjustments related to the impact of the new executive compensation limitations in its consolidated financial statements for the year ended July 31, 2018.

As a result of the Tax Act, the Company recorded a one-time, provisional net tax benefit of approximately $61.0 million on its Consolidated Statement of Operations for the year ended July 31, 2018, as described below. The Company continues to evaluate the impact of these provisions; however, during this provisional period, it has determined there should be no GILTI inclusion, BEAT would not apply and there is an immaterial FDII deduction. The Company has not made a policy decision regarding whether to record deferred taxes on GILTI or use the period cost method.

Due to the reduction in the U.S. corporate tax rate, the Company remeasured its U.S. net deferred tax liabilities as of the effective date and recognized an estimated provisional benefit of approximately $67.0 million, as a discrete item in the benefit from income taxes for the year ended July 31, 2018, which is a reduction in net deferred tax liabilities in the accompanying Consolidated Balance Sheet as of July 31, 2018. The Company also recorded an estimated provisional charge for the Transition Tax of approximately $6.0 million as a discrete item in the benefit from income taxes for the year ended July 31, 2018.

The changes included in the Tax Act are broad and complex. The final transitional impacts of the Tax Act may materially differ from the above amounts due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise with respect to the Tax Act or any updates the Company has utilized to calculate the transitional impacts. The Company will complete its analysis no later than December 22, 2018 (the end of the one-year measurement period).

The Tax Act does not provide for additional income taxes for any remaining undistributed foreign earnings not subject to the Transition Tax, or for any additional outside basis differences inherent in foreign entities, as these amounts continue to be indefinitely reinvested in those foreign operations. Substantially all of the Company’s unremitted foreign earnings that have not been previously taxed have now been subjected to U.S. taxation under the Transition Tax. The Company has made no additional provision for U.S. income taxes or additional non-U.S. taxes on the remaining unremitted accumulated earnings of non-U.S. subsidiaries. It is not practical at this time to determine the income tax liability related to any remaining undistributed earnings or additional basis difference not subject to the Transition Tax.

U.S. and foreign components of income before benefit (provision) for income taxes is as follows (in thousands):



	Year Ended July 31,
	2018		2017		2016
U.S.	$	264,379	$	251,478	$	231,756
Foreign	75,713		96,971		10,863
Income before income taxes	$	340,092	$	348,449	$	242,619

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Significant components of the Company’s deferred tax liabilities and assets are as follows (in thousands):



	July 31,
	2018			2017
Deferred income tax liabilities:
Fixed assets	$	126,697		$	180,480
Intangible assets	54,708			65,614
Other	12,865			31,191
Total	194,270			277,285
Deferred income tax assets:
Canyons obligation	13,145			19,276
Stock-based compensation	9,824			17,862
Investment in Partnerships	15,113			17,511
Deferred compensation and other accrued benefits	9,220			15,215
Contingent Consideration	5,476			10,472
Unfavorable lease obligation, net	5,580			9,542
Net operating loss carryforwards and other tax credits	5,716			12,783
Other, net	11,501			19,468
Total	75,575			122,129
Valuation allowance for deferred income taxes	(5,450		)	(6,955		)
Deferred income tax assets, net of valuation allowance	70,125			115,174
Net deferred income tax liability	$	124,145		$	162,111

The components of deferred income taxes recognized in the Consolidated Balance Sheets are as follows (in thousands):



	July 31,
	2018		2017
Non-current deferred income tax asset	$	9,773	$	9,331
Net non-current deferred income tax liability	133,918		171,442
Net deferred income tax liability	$	124,145	$	162,111

Significant components of the (benefit) provision for income taxes are as follows (in thousands):



	Year Ended July 31,
	2018			2017		2016
Current:
Federal	$	(43,366	)	$	55,887	$	70,553
State	9,562			8,096		10,555
Foreign	18,436			16,311		4,431
Total current	(15,368		)	80,294		85,539
Deferred:
Federal	(45,922		)	29,065		7,603
State	2,941			3,601		1,051
Foreign	(2,789		)	3,771		(1,028		)
Total deferred	(45,770		)	36,437		7,626
(Benefit) provision for income taxes	$	(61,138	)	$	116,731	$	93,165

A reconciliation of the income tax (benefit) provision from continuing operations and the amount computed by applying the United States federal statutory income tax rate to income before income taxes is as follows:



	Year Ended July 31,
	2018		2017		2016
At U.S. federal income tax rate	26.8	%	35.0	%	35.0	%
State income tax, net of federal benefit	3.0	%	2.2	%	3.1	%
Change in valuation allowance	0.3	%	0.9	%	0.1	%
Excess tax benefits related to stock-based compensation	(20.9	)%	—	%	—	%
Impacts of the Tax Act	(24.7	)%	—	%	—	%
Noncontrolling interests	(1.7	)%	(2.1	)%	—	%
Foreign rate differential	(1.5	)%	(3.4	)%	(0.2	)%
Other	0.7	%	0.9	%	0.4	%
Effective tax rate	(18.0	)%	33.5	%	38.4	%

A reconciliation of the beginning and ending amount of unrecognized tax benefits associated with uncertain tax positions, excluding associated deferred tax benefits and accrued interest and penalties, if applicable, is as follows (in thousands):



	Year Ended July 31,
	2018			2017		2016
Balance, beginning of year	$	76,111		$	57,032	$	38,572
Additions based on tax positions related to the current year	—			—		—
Additions for tax positions of prior years	12,394			19,079		18,460
Reductions for tax positions of prior years	—			—		—
Lapse of statute of limitations	(10,263		)	—		—
Settlements	—			—		—
Balance, end of year	$	78,242		$	76,111	$	57,032

As of July 31, 2018, the Company’s unrecognized tax benefits associated with uncertain tax positions relate to the treatment of the Talisker lease payments as payments of debt obligations and that the tax basis in Canyons goodwill is deductible, and are included within “other long-term liabilities” in the accompanying Consolidated Balance Sheets.

During the year ended July 31, 2018, the Company experienced a reduction in the uncertain tax positions due to the lapse of the statute of limitations of $10.3 million, which was offset with an increase to the uncertain tax position of $12.4 million. Interest and penalties associated with the statute of limitations lapse were approximately $0.9 million. The Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months. Additionally, the Company expects a reduction to its uncertain tax positions for the fiscal year ending July 31, 2019, due to the lapse of the statute of limitations. As of July 31, 2018 and 2017, accrued interest and penalties, net of tax, was $5.2 million and $3.6 million, respectively. For the years ended July 31, 2018, 2017 and 2016, the Company recognized as income tax expense $1.6 million, $2.0 million and $1.1 million of interest expense and penalties, net of tax, respectively.

The Company’s major tax jurisdictions in which it files income tax returns is the U.S. federal jurisdiction, various state jurisdictions, Australia, and Canada. The Company is no longer subject to U.S. federal examinations for tax years prior to 2014. With few exceptions, the Company is no longer subject to examination by various U.S. state jurisdictions for tax years prior to 2012. Additionally, the Company is no longer subject to audits for the tax years prior to 2013 for Australia and Canada.

The Company has NOL carryforwards totaling $9.2 million which are primarily comprised of state net operating loss (“NOL”) carryforwards that expire by the year ending July 31, 2031. As of July 31, 2018, the Company has recorded a valuation allowance on $4.3 million of these NOL carryforwards as the Company has determined that it is more likely than not that these NOL carryforwards will not be realized. Certain fully valued state NOLs have expired and were written off during the year ended July 31, 2018. Additionally, the Company has foreign tax credit carryforwards of $4.2 million, which expire by the year ending July 31, 2027. As of July 31, 2018, the Company has recorded a valuation allowance of $4.2 million on foreign tax credit carryforwards as the Company has determined that it is more likely than not that these foreign tax credit carryforwards will not be realized.