Note 13 – Income Taxes

The enactment of the Tax Cuts and Jobs Act (Tax Act) on December 22, 2017 significantly changed U.S. federal income tax law. The changes with the largest effects on the Company were the reduction of the statutory federal corporate tax rate from 35% to 21% effective January 1, 2018 and the imposition of a transition tax on foreign earnings not previously subject to U.S. taxation. As a result of the Company’s fiscal year, the Company’s statutory federal corporate rate is a blended rate of 25.7% in 2018, which will be reduced to 21% in 2019 and thereafter.

Deferred income taxes were remeasured as a result of the new statutory rate, resulting in a tax benefit of $34.3 million for the three and six months ended February 28, 2018.

The Tax Act requires the Company to accrue a transition tax in its 2018 taxable income on foreign earnings not previously subject to U.S. taxation. The transition tax resulted in a tax expense of $11.5 million for the three and six months ended February 28, 2018. The Company intends to pay this transition tax over eight years as permitted by the Tax Act. Notwithstanding this deemed inclusion in taxable income, any actual repatriation of these foreign earnings would be accompanied by foreign withholding taxes. The Company does not intend to repatriate these foreign earnings and continues to assert that its foreign earnings are indefinitely reinvested.

The Tax Act also imposed a tax on global intangible low-taxed income (GILTI tax) for taxable years beginning after December 31, 2017, which is applicable to the Company beginning in 2019.

Staff Accounting Bulletin 118, issued by the SEC on the date of the Tax Act, allows registrants to record provisional amounts related to the Tax Act during a measurement period that will end at the earlier of one year from the date of the enactment of the Tax Act or whenever the registrant has obtained and analyzed the information necessary to finalize its accounting. The amounts that were recorded in the three and six months ended February 28, 2018 for the remeasurement of deferred income taxes and for the transition tax are provisional amounts. Both were recorded as discrete items of tax expense or benefit. These amounts may be revised in subsequent quarters as further information is obtained and analyzed.

The table below reconciles the effects of the Tax Act discussed above on the effective tax rate for the six months ended February 28, 2018:


Effective tax rate before the Tax Act	33.0	%
Benefit from reduction in statutory federal corporate tax rate from 35% to 25.7%	(5.6	)

Effective tax rate before discrete items	27.4
Discrete benefit from revaluation of deferred income taxes	(31.7	)
Discrete expense from transition tax	10.6

Effective tax rate	6.3	%