INCOME TAX EXPENSE

3 Months Ended

Dec. 31, 2018

Income tax expense in the first quarter of 2019 was $5.9 million compared to income tax benefit of $21.9 million in the first quarter of 2018. The first quarter 2019 effective income tax rate was 25.5% compared to (170.8%) in the first quarter of 2018. Income tax expense in the first quarter 2019 was unfavorably impacted by return to provision true-ups increasing the first quarter effective tax rate by 1.3%. H.R. 1,

Tax Cuts and Jobs Act

(“TCJA”), was signed into law on December 22, 2017. The total impact of the TCJA in the first quarter of 2018 was a net benefit of $25.1 million. The impacts were as follows: First, the Company’s 2018 federal statutory rate dropped from 35.0% to 24.5% which required an adjustment to the value of its deferred tax assets and liabilities since the first quarter of 2018 was the period that included the enactment date. This adjustment resulted in a favorable impact ($30.3 million provisional amount in the first quarter of 2018) which lowered the first quarter of 2018 effective tax rate by 236.8%. Second, the TCJA subjected the Company’s cumulative foreign earnings to federal income tax ($2.9 million provisional amount in the first quarter of 2018) which unfavorably impacted the first quarter of 2018 effective tax rate by 22.8%. The Company also recorded a $2.3 million provisional estimate of the income tax effects of the future repatriation of the cumulative earnings of its foreign subsidiaries which unfavorably impacted the first quarter of 2018 effective tax rate by 18.3%.

Staff Accounting Bulletin No. 118 (SAB 118) was issued by the SEC effective December 22, 2017. SAB 118 allows registrants to record provisional amounts of the income tax effects of the TCJA where the information necessary to complete the accounting under ASC Topic 740 is not available but the amounts are based on reasonable estimates. SAB 118 permits registrants to record adjustments to its provisional amounts during the measurement period (which cannot exceed one year).

The Company recorded a provisional charge for the Transition Tax of $3.7 million for the year ended September 30, 2018 and this charge is complete as of December 31, 2018 with minimal changes. Provisions under the TCJA that became effective for the Company in the current fiscal year include a further reduction in the U.S. statutory rate to 21%, a new minimum tax on global intangible low-taxed income (“GILTI”), the benefit of the deduction for foreign-derived intangible income (“FDII”), and changes to IRC Section 162(m) related to the deductibility of executive compensation.