Provision For Income Taxes

6 Months Ended

Jan. 31, 2012

Provision For Income Taxes [Abstract]

Provision For Income Taxes

12. Provision for Income Taxes

The Company accounts for income taxes under the provisions of ASC 740, "Income Taxes". The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current period and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as we have to determine the probability of various possible outcomes. We re-evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.

It is the Company's policy to recognize interest and penalties accrued relative to unrecognized tax benefits in income tax expense. For the three and six month periods ended January 31, 2012, no material changes occurred in the balance of unrecognized tax benefits. The Company accrued $734 in interest and penalties for the six month period ended January 31, 2012 related to the remaining uncertain tax benefits recorded at July 31, 2011. The Company accrued $366 in interest and penalties during the three month period ended January 31, 2012 related to the remaining uncertain tax benefits recorded at July 31, 2011.

The Company and its subsidiaries file a consolidated U. S. federal income tax return, multiple U.S. state income tax returns and multiple Canadian income tax returns. The Company has been audited for U.S. federal purposes through fiscal 2007. Periodically, various state and local jurisdictions conduct audits and therefore a variety of other years are subject to state and local review. The Company is currently being audited by the State of California for the tax years ended July 31, 2007 and July 31, 2008. The Company has reserved for its exposure to additional payments for uncertain tax positions on its California income tax returns in its liability for unrecognized tax benefits. In addition, the Company is currently being audited by the State of Oregon for tax years ended July 31, 2006 through July 31, 2008 and by the State of Indiana for the tax years ended July 31, 2008, 2009 and 2010. No additional reserves have been established for possible payments or penalties in these states as the Company does not believe there are significant uncertain tax positions in its tax returns in Oregon and Indiana.

The overall effective income tax rate for the three months ended January 31, 2012 was 36.4% compared with 22.9% for the three months ended January 31, 2011. The primary reason for the increase in the overall effective income tax rate from January 31, 2011 to January 31, 2012 was the settlement of an uncertain tax position that occurred in the three months ended January 31, 2011, partially offset by a reduction in the state blended tax rate in the three months ended January 31, 2012 compared to the three months ended January 31, 2011. An additional tax benefit was also recorded in the three months ended January 31, 2011 as a result of the retroactive reinstatement of the Federal research and development credit that occurred in December 2010.

The overall effective income tax rate for the six months ended January 31, 2012 was 35.8% compared with 28.6% for the six months ended January 31, 2011. The primary reason for the increase in the overall effective income tax rate was the settlement of certain uncertain tax positions that occurred in the six months ended January 31, 2011, partially offset by a reduction in the state blended tax rate in the six months ended January 31, 2012 compared to the six months ended January 31, 2011. An additional tax benefit was also recorded in the six months ended January 31, 2011 as a result of the retroactive reinstatement of the Federal research and development credit that occurred in December 2010.

The Company anticipates a decrease of approximately $3,500 in unrecognized tax benefits, and $800 in accrued interest and penalties related to these unrecognized tax benefits, within the next 12 months from (1) expected settlements or payments of uncertain tax positions, and (2) lapses of the applicable statutes of limitations. Actual results may differ materially from this estimate.