INCOME TAXES

The components of loss from continuing operations before provision for income taxes are as follows:



	Twelve Months Ended July 31,
	2019			2018
	(In thousands)
Income (loss) from operations before income taxes:
U.S.	$	(68,959	)	$	(60,574	)
Foreign	6,860			25,286
Total loss from operations before income taxes	$	(62,099	)	$	(35,288	)

The components of income tax expense have been recorded in the Company's consolidated financial statements as follows:



	Twelve Months Ended July 31,
	2019		2018
	(In thousands)
Income tax expense (benefit) from operations	$	4,670	$	(71,202	)
Total income tax expense (benefit)	$	4,670	$	(71,202	)

The components of income tax expense from operations consist of the following:



	Twelve Months Ended July 31,
	2019		2018
	(In thousands)
Current provision
Federal	$	—	$	—
State	288		—
Foreign	1,525		7,592
	1,813		7,592
Deferred provision:
Federal	1,563		(76,168		)
State	753		(2,352		)
Foreign	541		(274		)
	2,857		(78,794		)
Total tax provision	$	4,670	$	(71,202	)

During the year ended July 31, 2017, the Company elected to early adopt ASU No. 2015-17, which requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. This guidance allows for adoption on either a prospective or retrospective basis. As of July 31, 2019, the Company recorded a non-current deferred tax asset of $1.0 million and a non-current deferred tax liability of $0.1 million in Other Assets, and Other Long-term Liabilities, respectively. As of July 31, 2018, the Company recorded a non-current deferred tax asset of $1.6 million and a non-current deferred tax liability of $0.1 million in Other Assets and Other Long-term Liabilities, respectively. The components of deferred tax assets and liabilities are as follows:



	July 31, 2019			July 31, 2018
	(In thousands)
Deferred tax assets:
Accruals and reserves	$	21,297		$	16,070
Tax basis in excess of financial basis of investments in affiliates	6,534			6,232
Tax basis in excess of financial basis for intangible and fixed assets	187			311
Net operating loss and capital loss carry forwards	469,735			468,129
Total gross deferred tax assets	497,753			490,742
Less: valuation allowance	(451,189		)	(438,467		)
Net deferred tax assets	$	46,564		$	52,275
Deferred tax liabilities:
Financial basis in excess of tax basis for intangible and fixed assets	$	(43,885	)	$	(50,141	)
Convertible Debt	(1,761		)	(634		)
Total gross deferred tax liabilities	(45,646		)	(50,775		)
Net deferred tax asset	$	918		$	1,500

The net change in the total valuation allowance for the fiscal year ended July 31, 2019 was an increase of approximately $12.7 million. This increase is primarily due to the U.S. valuation allowance. A valuation allowance has been recorded against the gross deferred tax asset in the U.S and certain foreign subsidiaries since management believes that after considering all the available objective evidence, both positive and negative, historical and prospective, it is more likely than not that certain assets will not be realized. The net change in the total valuation allowance for the fiscal year ended July 31, 2018 was a decrease of approximately $333.4 million.

The Company has certain deferred tax benefits, including those generated by net operating losses and certain other tax attributes (collectively, the "Tax Benefits"). The Company's ability to use these Tax Benefits could be substantially limited if it were to experience an "ownership change," as defined under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). In general, an ownership change would occur if there is a greater than 50-percentage point change in ownership of securities by stockholders owning (or deemed to own under Section 382 of the Code) five percent or more of a corporation's securities over a rolling three year period.

In December 2017, the Tax Cuts and Jobs Act, or the Tax Act ("TCJA"), was signed into law. Among other things, the Tax Act permanently lowers the corporate federal income tax rate to 21% from the existing maximum rate of 35%, effective for tax years including or commencing January 1, 2018. As a result of the reduction of the corporate federal income tax rate to 21%, U.S. GAAP requires companies to revalue their deferred tax assets and deferred tax liabilities as of the date of enactment, with the resulting tax effects accounted for in the reporting period of enactment. This revaluation resulted in a provision of $280.4 million to income tax expense in continuing operations and a corresponding reduction in the valuation allowance. As a result, there was no impact to the Company's income statement as a result of reduction in tax rates. The total provision of $280.4 million included a provision of $305.9 million to income tax expense for the Company and a benefit of $25.5 million to income tax expense for IWCO. As noted above, the net tax expense of $280.4 was offset completely by a corresponding reduction in the valuation allowance

Beginning on January 1, 2018, the TCJA also requires a minimum tax on certain future earnings generated by foreign subsidiaries while providing for future tax-free repatriation of such earnings through a 100% dividends-received deduction. Other provisions of the TCJA for the Company in FY2019 include updated regulations under Section 163j as well as Global Intangible Low Taxed Income ("GILTI") as well as Base Erosion Anti-Abuse Tax ("BEAT") provisions. The Company's interest expense deduction under 163j will be limited for tax purposes based on calculation of 30% of its EBITDA on a tax basis. The Company has estimated its fiscal year 2019 GILTI inclusion based on its current year foreign activity. The foreign entities have minor E&P adjustments that will be factored in as part of the tax return filing. These amounts are not material and will not have a significant impact on the overall tax provision or disclosure. Due to the net operating losses available in the U.S., the Company is not entitled to a Section 250 deduction which is why the total income amount has been recorded as the GILTI inclusion. The Company has made an accounting policy election, as allowed by the SEC and FASB, to recognize the impact of GILTI within the period incurred. Therefore, no U.S. deferred taxes are provided in GILTI inclusions of future foreign subsidiary earnings.

The TCJA also requires a Transition Tax on any net accumulated earnings and profits as of the two required measurement dates, November 2, 2017 and December 31, 2017. As such, as of July 31, 2018, all of the Company's accumulated earnings and profits are deemed repatriated. Therefore, there is no deferred tax liability for earnings oversees that have not been remitted. The final calculation of net accumulated earnings and profits resulted in an accumulated deficit, and therefore did not result in a Transition Tax. This calculation was finalized with the filing of the fiscal year 2018 tax return.

In December 2017, the SEC staff issued Staff Accounting Bulletin, or SAB, No. 118 to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for income tax effects of the TCJA. As of December 31, 2018, the Company finalized its accounting for the TCJA and no measurement adjustments were recorded.

As more fully described in Note 4, the Company completed the IWCO Acquisition on December 15, 2017. Going forward, the Company and IWCO will file a consolidated federal tax return. As a result of the acquisition, the Company recorded a net deferred tax liability of $77.0 million. After considering the transaction, the projected combined results, and available temporary differences from the acquired business, the Company has determined in accordance with ASC 805-740-30-3 that its valuation allowance in the same amount of IWCO's full deferred tax liability may be released and the benefit be recognized in income.

The Company has net operating loss carryforwards for federal and state tax purposes of approximately $2.1 billion and $160.0 million, respectively, at July 31, 2019. The federal net operating losses will expire from fiscal year 2022 through 2038 and the state net operating losses will expire from fiscal year 2018 through 2039. The Company has a foreign net operating loss carryforward of approximately $72.6 million, of which $56.7 million has an indefinite carryforward period. In addition, the Company has $19.4 million of capital loss carryforwards for federal and state tax purposes. The federal and state capital losses will expire in fiscal year 2020 through fiscal year 2021.

Income tax expense attributable to income from continuing operations differs from the expense computed by applying the U.S. federal income tax rate of 21.0% to income (loss) from continuing operations before income taxes as a result of the following:



	Twelve Months Ended July 31,
	2019			2018
	(In thousands)
Computed "expected" income tax expense (benefit)	$	(13,041	)	$	(9,467	)
Increase (decrease) in income tax expense resulting from:
Change in valuation allowance	16,158			(329,415		)
Foreign dividends	—			7,379
Foreign tax rate differential	(593		)	(1,948		)
Federal rate change	—			280,438
Nondeductible goodwill impairment	—			191
Nondeductible expenses	2,484			(15,852		)
Foreign withholding taxes	336			1,961
Addition (reversal) of uncertain tax position reserves	645			(48		)
State benefit of U.S. Loss	—			(4,654		)
State income taxes, net of federal benefit	113			—
Other	(1,432		)	213
Actual income tax expense	$	4,670		$	(71,202	)

The calculation of the Company's income tax liabilities involves dealing with uncertainties in the application of complex tax regulations in several tax jurisdictions. The Company is periodically reviewed by domestic and foreign tax authorities regarding the amount of taxes due. These reviews include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various filing positions, the Company records estimated reserves when necessary. Based on the evaluation of current tax positions, the Company believes it has appropriately accrued for exposures.

The Company operates in multiple taxing jurisdictions, both within and outside of the United States. At July 31, 2019 and 2018, the total amount of the liability for unrecognized tax benefits, including interest, related to federal, state and foreign taxes was approximately $2.4 million and $1.6 million, respectively. To the extent the unrecognized tax benefits are recognized, the entire amount would impact income tax expense.

The Company files income tax returns in the U.S., various states and in foreign jurisdictions. The federal and state income tax returns are generally subject to tax examinations for the tax years ended July 31, 2015 through July 31, 2019. To the extent the Company has tax attribute carryforwards, the tax year in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period. In addition, a number of tax years remain subject to examination by the appropriate government agencies for certain countries in the Europe and Asia regions. In Europe, the Company's 2011 through 2018 tax years remain subject to examination in most locations while the Company's 2007 through 2018 tax years remain subject to examination in most Asia locations.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:



	Twelve Months Ended July 31,
	2019			2018
	(In thousands)
Balance as of beginning of year	$	1,525		$	681
Additions for current year tax positions	704			903
Currency translation	(22		)	—
Reductions for lapses in statute of limitations	—			(59		)
Balance as of end of year	$	2,207		$	1,525

In accordance with the Company's accounting policy, interest related to income taxes is included in the provision of income taxes line of the Consolidated Statements of Operations. For the fiscal year ended July 31, 2019, the Company has not recognized any material interest expense related to uncertain tax positions. As of July 31, 2019 and 2018, the Company had recorded liabilities for increases in interest expense related to uncertain tax positions in the amount of $0.2 million and $0.1 million, respectively. The Company did not accrue for penalties related to income tax positions as there were no income tax positions that required the Company to accrue penalties. The Company does not expect that any unrecognized tax benefits will reverse in the next twelve months.