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Income Taxes | 12 Months Ended
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Jul. 31, 2012
Income Taxes | 10. INCOME TAXES The components of the provision (benefit) for income taxes are as follows:
Income Taxes: |  | 2012 |  |  | 2011 |  |  | 2010 |
Federal |  | $ | 57,736 |  |  | $ | 48,943 |  |  | $ | 55,462 |
State and local |  |  | 4,658 |  |  |  | 250 |  |  |  | 9,337 |
Foreign |  |  | – |  |  |  | – |  |  |  | (11) |
Total current expense |  |  | 62,394 |  |  |  | 49,193 |  |  |  | 64,788 |
Federal |  |  | (3,387) |  |  |  | (2,989) |  |  |  | (3,430) |
State and local |  |  | (55) |  |  |  | 150 |  |  |  | (29) |
Total deferred benefit |  |  | (3,442) |  |  |  | (2,839) |  |  |  | (3,459) |
Total income tax expense |  | $ | 58,952 |  |  | $ | 46,354 |  |  | $ | 61,329 |
The primary components of the changes in current federal tax expense and current state and local tax expense between fiscal 2012 and 2011 are described in the following paragraphs. Current Federal Tax Expense Current federal tax expense increased $8,793 to $57,736 from fiscal year 2011 to fiscal year 2012. Of this amount, $9,822 was due to the increase in pre-tax income of $28,064. Current federal tax expense also increased by $1,441 in 2012 as a result of reduced income tax credits and incentives. In addition, current federal tax expense decreased by $409 as a result of the increased Domestic Manufacturing Deduction in 2012 and decreased by $1,586 due to decreases in various temporary items. The other changes to current federal tax expense are included in the schedule below. Current federal tax expense decreased $6,519 to $48,943 from fiscal year 2010 to fiscal year 2011. Of this decrease, $6,568 was due to the reduction in pre-tax income of $18,766. In addition, current federal tax expense decreased by $1,491 as a result of the increased Domestic Manufacturing Deduction in fiscal year 2011 and increased by $1,207 due to increases in various temporary items. Further, current federal tax expense decreased by $1,578 when compared to fiscal year 2010 as a result of a disallowed executive compensation deduction in 2010. The other changes to current federal tax expense are included in the schedule below. Current State and Local Tax Expense Current state and local tax expense increased $4,408 to $4,658 from fiscal year 2011 to fiscal year 2012. Of this amount, $617 was due to the increase in pre-tax income of $28,064. In addition, current state and local tax expense increased by $4,244 due to an increase in the Company’s unrecognized tax benefits. Current state and local tax expense decreased $9,087 to $250 from fiscal year 2010 to fiscal year 2011. Of this decrease, $657 was due to the reduction in pre-tax income of $18,766. In addition, current state and local tax expense increased $232 due to increases in various temporary items. Current state and local tax expense decreased by $2,329 due to a decrease in the Company’s state related unrecognized tax benefits and also decreased by $3,731 as a result of a reduction in the Company’s state blended tax rate and increased income tax credits. Further, current state and local tax expense decreased $212 when compared to fiscal year 2010 as a result of a disallowed executive compensation deduction in 2010. The table below shows the components of the total current income tax expense for fiscal 2012, 2011 and 2010:
|  | 2012 |  |  | 2011 |  |  | 2010 |
Federal tax expense at statutory rates |  | $ | 63,242 |  |  | $ | 53,420 |  |  | $ | 59,988 |
State tax expense at various state tax rates (net of federal benefit) |  |  | 1,054 |  |  |  | 956 |  |  |  | 5,153 |
Current tax expense effect of accrued product warranties |  |  | 2,371 |  |  |  | 1,698 |  |  |  | 3,622 |
Current tax expense effect of other temporary items |  |  | (270) |  |  |  | 1,989 |  |  |  | (407) |
Federal income tax credits and incentives |  |  | (980) |  |  |  | (2,421) |  |  |  | (1,069) |
Domestic production activities deduction |  |  | (5,645) |  |  |  | (5,236) |  |  |  | (3,745) |
Executive compensation limitation |  |  | 38 |  |  |  | – |  |  |  | 1,578 |
Change in uncertain tax positions |  |  | 2,540 |  |  |  | (1,426) |  |  |  | (1,931) |
Adjustments to current tax payable |  |  | (301) |  |  |  | (1,169) |  |  |  | 807 |
Other permanent items |  |  | 345 |  |  |  | 1,382 |  |  |  | 792 |
Total Current Income Taxes |  | $ | 62,394 |  |  | $ | 49,193 |  |  | $ | 64,788 |
The differences between income taxes at the federal statutory rate and the actual income taxes are as follows:
|  | 2012 |  |  | 2011 |  |  | 2010 |
Provision at federal statutory rate |  | $ | 63,242 |  |  | $ | 53,420 |  |  | $ | 59,988 |
State and local income taxes (net of federal benefit) |  |  | 975 |  |  |  | 978 |  |  |  | 5,124 |
Federal income tax credits and incentives |  |  | (980) |  |  |  | (2,421) |  |  |  | (1,069) |
Domestic production activities deduction |  |  | (5,645) |  |  |  | (5,236) |  |  |  | (3,745) |
Change in uncertain tax positions |  |  | 1,619 |  |  |  | (1,124) |  |  |  | (278) |
Executive compensation limitation |  |  | 38 |  |  |  | – |  |  |  | 1,578 |
Reduction of excess current tax payable and deferred tax liabilities |  |  | (642) |  |  |  | (645) |  |  |  | (1,061) |
Other permanent Items |  |  | 345 |  |  |  | 1,382 |  |  |  | 792 |
Income Taxes |  | $ | 58,952 |  |  | $ | 46,354 |  |  | $ | 61,329 |
Income before income taxes includes foreign loss of $8,154 in fiscal 2010. The Company’s foreign subsidiary was sold on April 30, 2010.
A summary of deferred income taxes is as follows: |  | July 31, |  |  | July 31, |
|  | 2012 |  |  | 2011 |
Current deferred tax asset (liability): |  |  |  |  |  |  |  |
Inventory basis |  | $ | (589) |  |  | $ | (251) |
Employee benefits |  |  | 2,026 |  |  |  | 3,102 |
Self-insurance reserves |  |  | 8,556 |  |  |  | 8,036 |
Accrued product warranties |  |  | 26,690 |  |  |  | 24,443 |
Accrued incentives |  |  | 2,369 |  |  |  | 2,948 |
Sales returns and allowances |  |  | 1,145 |  |  |  | 1,231 |
Accrued expenses |  |  | 1,399 |  |  |  | 2,938 |
Unrecognized tax benefits |  |  | 963 |  |  |  | 597 |
Other |  |  | (1,662) |  |  |  | (1,456) |
Total current net deferred tax asset |  |  | 40,897 |  |  |  | 41,588 |
Long-term deferred tax asset (liability): |  |  |  |  |  |
Property basis |  |  | (4,482) |  |  |  | (5,166) |
Investments |  |  | (433) |  |  |  | (898) |
Deferred compensation |  |  | 5,069 |  |  |  | 4,836 |
Intangibles |  |  | (35,524) |  |  |  | (37,513) |
Unrecognized tax benefits |  |  | 14,436 |  |  |  | 13,882 |
Total net long-term deferred tax liability |  |  | (20,934) |  |  |  | (24,859) |
Net deferred tax asset |  | $ | 19,963 |  |  | $ | 16,729 |
The Company’s net deferred tax assets increased $3,234 to $19,963 from July 31, 2011 to July 31, 2012. Of this increase, $2,247 was from an increase in the product warranty reserve. In addition, the liability for intangibles decreased $1,989. These changes were offset by a $1,539 decrease in accrued expenses. As of July 31, 2012, the Company had recorded a $143 capital loss carryover that it expects to realize prior to expiration. Unrecognized Tax Benefits: The benefits of tax positions reflected on income tax returns but whose outcome remains uncertain are only recognized for financial accounting purposes if they meet the minimum recognition threshold specified in ASC 740, which also provides guidance on derecognition, measurement, classification, interest and penalties, and disclosure. The total amount of unrecognized tax benefits that, if recognized, would impact the Company’s effective tax rate were $22,454 for 2012, $21,453 for 2011 and $20,719 for 2010. Changes in the unrecognized tax benefit during fiscal year 2012, 2011 and 2010 were as follows:
|  | 2012 |  |  | 2011 |  |  | 2010 |
Beginning balance |  |  |  | $ | 32,174 |  |  |  |  | $ | 31,039 |  |  |  |  | $ | 30,235 |
Tax positions related to prior years: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Additions |  |  |  |  | 562 |  |  |  |  |  | 1,817 |  |  |  |  |  | 760 |
Reductions |  |  |  |  | (284) |  |  |  |  |  | (1,062) |  |  |  |  |  | (1,883) |
Tax positions related to current year: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Additions |  |  |  |  | 3,995 |  |  |  |  |  | 3,713 |  |  |  |  |  | 4,095 |
Settlements |  |  |  |  | (1,364) |  |  |  |  |  | (2,642) |  |  |  |  |  | (817) |
Lapses in statute of limitations |  |  |  |  | (1,183) |  |  |  |  |  | (691) |  |  |  |  |  | (1,351) |
Ending balance |  |  |  | $ | 33,900 |  |  |  |  | $ | 32,174 |  |  |  |  | $ | 31,039 |
It is the Company’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in income tax expense. Interest and penalties are not included in the schedule above of unrecognized tax benefits. The total amount of liabilities accrued for interest and penalties related to unrecognized tax benefits as of July 31, 2012, 2011 and 2010 were $13,265, $12,533 and $13,326, respectively. The total amount of interest and penalties expense (benefit) recognized in the Consolidated Statements of Income and Comprehensive Income for July 31, 2012, 2011 and 2010 were $503, $(995) and $(2,200), respectively. The total unrecognized tax benefits above, along with the related accrued interest and penalties, are reported within the liability section of the Consolidated Balance Sheets. A portion of the unrecognized tax benefits is classified as short-term and is included in the “Income and other taxes” line of the balance sheet, while the remainder is classified as a long-term liability. The components of total unrecognized tax benefits are summarized as follows:
|  | 2012 |  |  | 2011 |  |  | 2010 |
Unrecognized tax benefits |  |  |  | $ | 33,900 |  |  |  |  | $ | 32,174 |  |  |  |  | $ | 31,039 |
Accrued interest and penalties |  |  |  |  | 13,265 |  |  |  |  |  | 12,533 |  |  |  |  |  | 13,326 |
Total unrecognized tax benefits |  |  |  | $ | 47,165 |  |  |  |  | $ | 44,707 |  |  |  |  | $ | 44,365 |
Short-term, included in “Income and other taxes” |  |  |  | $ | 2,649 |  |  |  |  | $ | 1,683 |  |  |  |  | $ | 8,679 |
Long-term |  |  |  |  | 44,516 |  |  |  |  |  | 43,024 |  |  |  |  |  | 35,686 |
Total unrecognized tax benefits |  |  |  | $ | 47,165 |  |  |  |  | $ | 44,707 |  |  |  |  | $ | 44,365 |
The Company anticipates a decrease of approximately $3,700 in unrecognized tax benefits, $900 in interest and $40 in penalties during fiscal 2013 from expected settlements or payments of uncertain tax positions and lapses of the applicable statutes of limitations. In addition, the Company is currently in the process of pursuing a variety of settlement alternatives with taxing authorities. It is reasonably possible that some of these settlements could be successfully finalized in the next 12 months. If these settlements are successfully finalized within the next 12 months, the gross unrecognized tax benefits may decrease between $3,200 and $13,100 and related accrued interest and penalties may decrease between $1,800 and $5,800. Actual results may differ materially from these estimates. Generally, fiscal years 2009, 2010 and 2011 remain open for federal, state and foreign income tax purposes. The Company and its corporate subsidiaries file a consolidated U.S. federal income tax return and multiple state income tax returns. The federal returns are subject to examination by taxing authorities for all years after fiscal 2008. The Company is currently being audited by the state of California for tax years ended July 31, 2007 and July 31, 2008 and by the state of Indiana for tax years ended July 31, 2008, 2009 and 2010. The Company believes it has fully reserved for its exposure to additional payments for uncertain tax positions related to its California and Indiana income tax returns in its liability for unrecognized tax benefits. In addition, the Company paid approximately $113 in tax and interest during fiscal year 2012 to finalize the state of Oregon tax audit for the tax years ended July 31, 2006 through 2008 and also paid approximately $7 in tax and interest to finalize certain state of Michigan tax audits for tax years ended July 31, 2006 through 2008.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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