EEI 2017 Form 10-K

Table of Contents In October 2015, EEI sold its majority interest in a Kentucky-based subsidiary. Indirect operating expenses were $0.3 million lower during fiscal year 2017 as a result of sale of this subsidiary during the prior year. EEI recognized a loss on its investment in this subsidiary of approximately $0.4 million in administrative and indirect operating expenses during the fourth quarter of fiscal year 2015. Also during fiscal year 2015, management completed an assessment of goodwill recorded on the acquisition date of this subsidiary, and recorded $0.1 million of goodwill impairment loss in administrative and indirect operating expenses. Fiscal Year 2017 Versus 2016 Excluding the impact of bonuses and the sale of a subsidiary noted above, total indirect operating expenses from U.S. operations decreased 6% during fiscal year 2017. The Company’s U.S. operations continue to improve operating efficiency and operate under an expense management strategy that has resulted in significant reductions in indirect operating expenses over the past three fiscal years. Indirect operating expenses generally decreased within our South American business segment during fiscal year 2017, as management within our foreign subsidiaries continued with their critical review of indirect staffing levels and key administrative processes, resulting in improved operating efficiency and cost reductions. These operations also realized a full year benefit of efficiencies and cost reductions initiated in the prior fiscal year. The increase in indirect expenses at GAC was primarily the result of higher bad debt expense. Fiscal Year 2016 Versus 2015 Excluding the effects of bonuses and sale of a subsidiary noted above, total indirect operating expenses for fiscal year 2016 decreased 6% from the prior year, as compared with the prior fiscal year. With the exception of our Chilean operations in South America, indirect operating expenses generally decreased within all of our operating segments. During fiscal year 2016, management continued its critical review of indirect staffing levels and key administrative processes at EEI and all of its significant domestic and foreign subsidiaries, resulting in improved operating efficiency and cost reductions. The Company also realized a full year benefit of efficiencies and cost reductions initiated in prior fiscal years. Income Taxes The income tax provision resulting from domestic and foreign operations is summarized in the following table. Fiscal Year Ended July 31, 2017 2016 2015 ($ in thousands) Income tax provision from: Domestic operations $ 2,276 $ 2,158 $ 2,119 Foreign operations 196 1,601 1,650 Consolidated operations $ 2,472 $ 3,759 $ 3,769 Consolidated effective tax rate from: Domestic operations 41.8% 46.4% 67.8% Foreign operations *% *% 31.3% Consolidated operations 45.6% 86.1% 47.3% * percentage based on minimal pre-tax income not meaningful. Fiscal Year 2017 Versus 2016 The consolidated effective tax rate decreased to 45.6% for fiscal year 2017 from 86.1% for the prior year, primarily due to a higher tax rate for our South American operations in fiscal 2016. The effective tax rate fiscal year 2017 includes the incremental tax impact of the Company’s portion of dividends declared by its majority owned subsidiary in Chile, which was greater than the dividends anticipated at July 31, 2016, and the write-off of a deferred tax asset previously maintained by the Company’s majority owned subsidiary in Peru. 24