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INCOME TAXES | 12 Months Ended
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Jul. 31, 2019
Income Tax Disclosure [Abstract] |
INCOME TAXES | 13. INCOME TAXES The sources of earnings before income taxes are as follows:
|  | For the Fiscal Year Ended July 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
United States |  | $ | 200,859 |  |  | $ | 633,029 |  |  | $ | 556,386 |
Foreign |  |  | (16,193 | ) |  |  | – |  |  |  | – |
Total |  | $ | 184,666 |  |  | $ | 633,029 |  |  | $ | 556,386 |
The components of the provision (benefit) for income taxes are as follows:
|  | For the Fiscal Year Ended July 31, |
Income Taxes: |  | 2019 |  |  | 2018 |  |  | 2017 |
U.S. Federal |  | $ | 48,757 |  |  | $ | 166,402 |  |  | $ | 200,370 |
U.S. state and local |  |  | 5,921 |  |  |  | 21,025 |  |  |  | 20,941 |
Foreign |  |  | 6,611 |  |  |  |  |  |  |  |  |
Total current expense |  |  | 61,289 |  |  |  | 187,427 |  |  |  | 221,311 |
U.S. Federal |  |  | 10,862 |  |  |  | 17,820 |  |  |  | (37,033 | )
U.S. state and local |  |  | (36 | ) |  |  | (2,369 | ) |  |  | (2,146 | )
Foreign |  |  | (19,914 | ) |  |  | – |  |  |  | – |
Total deferred expense (benefit) |  |  | (9,088 | ) |  |  | 15,451 |  |  |  | (39,179 | )
Total income tax expense |  | $ | 52,201 |  |  | $ | 202,878 |  |  | $ | 182,132 |
The Tax Act was signed into law on December 22, 2017. Under the Tax Act, the federal corporate income tax rate has been reduced from 35.0% to 21.0% starting January 1, 2018, which resulted in the use of a blended federal corporate income tax rate of 26.9% for the Company’s 2018 fiscal year. The reduced rate of 21% is applicable to the entire fiscal 2019 year. As a result of other Tax Act changes, the Company’s income tax rate for fiscal 2019 was impacted by, among other items, the repeal of the domestic production activities deduction (“Internal Revenue Code Section 199”), the favorable tax benefit of the Foreign Derived Intangible Income (“FDII”) provision and limitations on the deductibility of executive compensation. The Tax Act also included substantial changes to the taxation of foreign income which are applicable to the Company as a result of the acquisition of EHG during fiscal 2019 . The GILTI provision may also prospectively impact the Company’s income tax expense. Under the GILTI provision, a portion of the company’s foreign earnings may be subject to U.S. taxation, offset by available foreign tax credits, subject to limitation. For fiscal 2019, the Company incurred no U.S. taxation related to the GILTI provision of the Tax Act. The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act for which the accounting under ASC 740 is incomplete. The rules allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. Accordingly, as of July 31, 2018, the Company recorded a provisional amount of $34,000 of additional deferred income tax expense related to the remeasurement of our net deferred tax assets using its best estimates based on reasonable and supportable assumptions and information as of the reporting date. The Company recorded a provisional amount of $2,000 in the fourth quarter of fiscal 2018 of additional income tax expense as a result of guidance from the Internal Revenue Service related to limitations on the deductibility of executive compensation as provided under the Tax Act. During the second quarter of fiscal 2019, the Company completed its accounting for the income tax effects of the Tax Act. The differences between income tax expense at the federal statutory rate and the actual income tax expense are as follows:
|  | For the Fiscal Year Ended July 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Provision at federal statutory rate |  | $ | 38,779 |  |  | $ | 170,095 |  |  | $ | 194,735 |
Differences between U.S. federal statutory and foreign tax rates |  |  | 1,478 |  |  |  |  |  |  |  |  |
U.S. state and local income taxes, net of federal benefit |  |  | 4,642 |  |  |  | 14,255 |  |  |  | 11,021 |
Nondeductible compensation |  |  | 2,401 |  |  |  | – |  |  |  | – |
Nondeductible acquisition costs |  |  | 3,031 |  |  |  | – |  |  |  | – |
Nondeductible foreign currency forward contract loss on acquisition |  |  | 14,863 |  |  |  | – |  |  |  | – |
Nontaxable foreign currency remeasurement gains |  |  | (12,942 | ) |  |  |  |  |  |  |  |
Federal income tax credits and incentives |  |  | (3,373 | ) |  |  | (3,518 | ) |  |  | (3,228 | )
Domestic production activities deduction |  |  | – |  |  |  | (16,175 | ) |  |  | (19,527 | )
Change in uncertain tax positions |  |  | 1,279 |  |  |  | 396 |  |  |  | 375 |
Effect of the U.S. Tax Act |  |  | – |  |  |  | 38,620 |  |  |  | – |
Other |  |  | 2,043 |  |  |  | (795 | ) |  |  | (1,244 | )
Total income tax expense |  | $ | 52,201 |  |  | $ | 202,878 |  |  | $ | 182,132 |
A summary of the deferred income tax balances is as follows:
|  | July 31, |
|  | 2019 |  |  | 2018 |
Deferred income tax asset (liability): |  |  |  |  |  |  |  |
Inventory basis |  | $ | 807 |  |  | $ | 922 |
Employee benefits |  |  | 5,272 |  |  |  | 3,427 |
Self-insurance reserves |  |  | 5,185 |  |  |  | 6,368 |
Accrued product warranties |  |  | 62,563 |  |  |  | 62,332 |
Accrued incentives |  |  | 6,144 |  |  |  | 5,235 |
Sales returns and allowances |  |  | 1,516 |  |  |  | 1,741 |
Accrued expenses |  |  | 3,617 |  |  |  | 1,905 |
Property, plant and equipment |  |  | (22,699 | ) |  |  | (9,060 | )
Deferred compensation |  |  | 15,247 |  |  |  | 12,864 |
Intangibles |  |  | (143,861 | ) |  |  | (9,151 | )
Net operating loss and other carryforwards |  |  | 15,725 |  |  |  | – |
Unrealized gain/loss |  |  | (4,546 | ) |  |  | – |
Unrecognized tax benefits |  |  | 2,689 |  |  |  | 2,581 |
Other |  |  | 2,759 |  |  |  | (720 | )
Valuation allowance |  |  | (12,945 | ) |  | $ | – |
Deferred income tax asset (liability), net |  | $ | (62,527 | ) |  | $ | 78,444 |
Total deferred tax assets and deferred tax liabilities at July 31, 2019 and 2018 are as follows:
|  | July 31, |
|  | 2019 |  |  | 2018 |
Deferred tax assets |  | $ | 273,273 |  |  | $ | 97,375 |
Deferred tax liabilities |  |  | (322,855 | ) |  |  | (18,931 | )
Valuation allowance |  |  | (12,945 | ) |  |  | – |
Net deferred tax assets / (liabilities) |  | $ | (62,527 | ) |  | $ | 78,444 |
The deferred tax assets are reduced by a valuation allowance if, based upon available evidence, it is more likely than not that some, or all, of the deferred tax assets will not be realized. The valuation allowance recorded at July 31, 2019 relates to certain foreign net operating loss carry forwards and other assets in foreign jurisdictions. The Company has made an accounting policy election to treat income tax expense incurred due to the GILTI provision as a current year tax expense in the period in which a related income tax liability is incurred. For fiscal 2019, the Company incurred no income tax expense related to the GILTI provision. With the exception of foreign subsidiary investment basis differences not attributable to un-repatriated foreign earnings, we consider all of our undistributed earnings of our foreign subsidiaries, as of July 31, 2019, to not be indefinitely reinvested outside of the United States. As of July 31, 2019, the related income tax cost of the repatriation of foreign earnings is not material. Additionally, the Company has no unrecorded deferred tax liabilities related to the investment in foreign subsidiaries at July 31, 2019. As of July 31, 2019, the Company has $3,162 of U.S. state tax credit carry forwards that expire from fiscal 2026-2029 of which the Company expects to realize prior to expiration. At July 31, 2019, the Company had $54,008 of net operating loss (“NOL”) carryforwards available to offset future taxable income in certain foreign jurisdictions with the expiration periods ranging from fiscal 2023 to indefinite carryforward. In addition, the Company has $4,811 of gross U.S. state tax NOL carryforwards that expire from fiscal 2020-2039 that the Company does not expect to realize and therefore has been fully reserved. The deferred tax asset of $299 associated with the U.S. state tax NOL carryforwards and the related equal and offsetting valuation allowance are not reflected in the table above. 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 minimum recognition thresholds. The total amount of unrecognized tax benefits that, if recognized, would have impacted the Company’s effective tax rate were $11,332 for fiscal 2019, $10,491 for fiscal 2018 and $8,477 for fiscal 2017. Changes in the unrecognized tax benefit during fiscal years 2019, 2018 and 2017 were as follows:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Beginning balance |  | $ | 13,004 |  |  | $ | 12,671 |  |  | $ | 13,269 |
Tax positions related to prior years: |  |  |  |  |  |  |  |  |  |  |  |
Additions |  |  | – |  |  |  | 353 |  |  |  | 75 |
Reductions |  |  | (263 | ) |  |  | (2,203 | ) |  |  | (1,510 | )
Tax positions related to current year: |  |  |  |  |  |  |  |  |  |  |  |
Additions |  |  | 2,062 |  |  |  | 3,629 |  |  |  | 3,853 |
Settlements |  |  | (773 | ) |  |  | (192 | ) |  |  | (1,450 | )
Lapses in statute of limitations |  |  | (918 | ) |  |  | (1,254 | ) |  |  | (1,566 | )
Tax positions acquired from EHG |  |  | 736 |  |  |  | – |  |  |  | – |
Ending balance |  | $ | 13,848 |  |  | $ | 13,004 |  |  | $ | 12,671 |
It is the Company’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in income tax expense. The total amount of liabilities accrued for interest and penalties related to unrecognized tax benefits as of July 31, 2019 and 2018 were $1,758 and $1,290, respectively. The total amount of interest and penalties expense (benefit) recognized in the Consolidated Statements of Income and Comprehensive Income for the fiscal years ended July 31, 2019, 2018 and 2017 were $454, $203 and $(218), 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 Consolidated Balance Sheets, while the remainder is classified as a long-term liability. The components of total unrecognized tax benefits are summarized as follows:
|  | July 31, |
|  | 2019 |  |  | 2018 |
Unrecognized tax benefits |  | $ | 13,848 |  |  | $ | 13,004 |
Reduction to unrecognized tax benefits which offset tax credit and loss carryforwards |  |  | (1,916 | ) |  |  | (955 | )
Accrued interest and penalties |  |  | 1,758 |  |  |  | 1,290 |
Total unrecognized tax benefits |  | $ | 13,690 |  |  | $ | 13,339 |
Short-term, included in “Income and other taxes” |  | $ | 2,891 |  |  | $ | 893 |
Long-term |  |  | 10,799 |  |  |  | 12,446 |
Total unrecognized tax benefits |  | $ | 13,690 |  |  | $ | 13,339 |
The Company anticipates a decrease of approximately $3,800 in unrecognized tax benefits and $850 in interest during fiscal 2020 from expected settlements or payments of uncertain tax positions and lapses of the applicable statutes of limitations. Actual results may differ from these estimates. The Company files income tax returns in the U.S. federal jurisdiction and in many U.S. state and foreign jurisdictions. The Company is currently under exam by certain U.S. state tax authorities for the fiscal years ended July 31, 2015 through 2017. The Company believes it has adequately reserved for its exposure to additional payments for uncertain tax positions in its liability for unrecognized tax benefits. The major tax jurisdictions we file in, with the years still subject to income tax examinations, are listed below:
Major Tax Jurisdiction |  | Tax Years Subject to Exam |
United States – Federal |  | Fiscal 2016 – Fiscal 2018 |
United States – State |  | Fiscal 2016 – Fiscal 2018 |
Germany |  | Fiscal 2016 – Fiscal 2018 |
France |  | Fiscal 2016 – Fiscal 2018 |
Italy |  | Fiscal 2015 – Fiscal 2018 |
United Kingdom |  | Fiscal 2018 |

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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