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Income Taxes | 12 Months Ended
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Jul. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Earnings from continuing operations before income taxes consists of the following:
|  | Years Ended July 31,
|  | 2017 |  | 2016 |  | 2015
United States |  | $ | 43,561 |  |  | $ | 61,349 |  |  | $ | (582 | )
Other Nations |  | 83,071 |  |  | 47,996 |  |  | 25,577 |
Total |  | $ | 126,632 |  |  | $ | 109,345 |  |  | $ | 24,995 |
The decrease in earnings from continuing operations before income taxes in the United States to $43,561 in fiscal 2017 from $61,349 in fiscal 2016 was primarily due to intercompany royalty transactions that occurred in fiscal 2016 which increased U.S. earnings before income taxes by $21,003. The increase in earnings from continuing operations before income taxes in Other Nations to $83,071 in fiscal 2017 from $47,996 in fiscal 2016 was primarily due to intercompany royalty transactions that occurred in fiscal 2016 which decreased earnings in other nations before income taxes by $21,003, as well as improved profitability in fiscal 2017 in both our European and Asian-based businesses. The increase in earnings from continuing operations before income taxes in the United States to $61,349 in fiscal 2016 from a loss of $582 in fiscal 2015 was primarily due to impairment and restructuring charges of $24,574 recognized in fiscal 2015, as well as intercompany royalty transactions that occurred in fiscal 2016 which increased U.S. earnings before income taxes by $21,003. The increase in earnings from continuing operations before income taxes in Other Nations to $47,996 in fiscal 2016 from $25,577 in fiscal 2015 was primarily due to impairment and restructuring charges of $39,114 recognized in fiscal 2015, as well as intercompany royalty transactions that occurred in fiscal 2016 which decreased earnings before income taxes by $21,003. Income tax expense from continuing operations consists of the following:
|  | Years Ended July 31,
|  | 2017 |  | 2016 |  | 2015
Current income tax expense (benefit): |  |  |  |  |  |
United States |  | $ | 15,279 |  |  | $ | 5,048 |  |  | $ | 9,075 |
Other Nations |  | 23,826 |  |  | 19,929 |  |  | 18,806 |
States (U.S.) |  | 1,163 |  |  | 1,348 |  |  | (352 | )
|  | $ | 40,268 |  |  | $ | 26,325 |  |  | $ | 27,529 |
Deferred income tax (benefit) expense: |  |  |  |  |  |
United States |  | $ | (8,173 | ) |  | $ | 3,946 |  |  | $ | (5,906 | )
Other Nations |  | (1,329 | ) |  | (1,387 | ) |  | (1,868 | )
States (U.S.) |  | 221 |  |  | 351 |  |  | 338 |
|  | $ | (9,281 | ) |  | $ | 2,910 |  |  | $ | (7,436 | )
Total income tax expense |  | $ | 30,987 |  |  | $ | 29,235 |  |  | $ | 20,093 |
Deferred income taxes result from temporary differences in the recognition of revenues and expenses for financial statement and income tax purposes. The tax effects of temporary differences are as follows:
|  | July 31, 2017
|  | Assets |  | Liabilities |  | Total
Inventories |  | $ | 4,516 |  |  | $ | (1 | ) |  | $ | 4,515 |
Prepaid catalog costs |  | — |  |  | (1,107 | ) |  | (1,107 | )
Employee benefits |  | 8,932 |  |  | — |  |  | 8,932 |
Accounts receivable |  | 1,141 |  |  | (11 | ) |  | 1,130 |
Fixed assets |  | 2,819 |  |  | (3,884 | ) |  | (1,065 | )
Intangible assets |  | 1,187 |  |  | (37,681 | ) |  | (36,494 | )
Capitalized R&D expenditures |  | 570 |  |  | — |  |  | 570 |
Deferred compensation |  | 16,743 |  |  | — |  |  | 16,743 |
Postretirement benefits |  | 4,144 |  |  | — |  |  | 4,144 |
Tax credit and net operating loss carry-forwards |  | 70,128 |  |  | — |  |  | 70,128 |
Less valuation allowance |  | (38,563 | ) |  | — |  |  | (38,563 | )
Other, net |  | 12,060 |  |  | (10,798 | ) |  | 1,262 |
Total |  | $ | 83,677 |  |  | $ | (53,482 | ) |  | $ | 30,195 |
|  | July 31, 2016
|  | Assets |  | Liabilities |  | Total
Inventories |  | $ | 5,142 |  |  | $ | (153 | ) |  | $ | 4,989 |
Prepaid catalog costs |  | — |  |  | (1,577 | ) |  | (1,577 | )
Employee benefits |  | 6,347 |  |  | — |  |  | 6,347 |
Accounts receivable |  | 1,619 |  |  | (15 | ) |  | 1,604 |
Fixed assets |  | 2,847 |  |  | (2,695 | ) |  | 152 |
Intangible assets |  | 1,144 |  |  | (31,777 | ) |  | (30,633 | )
Capitalized R&D expenditures |  | 855 |  |  | — |  |  | 855 |
Deferred compensation |  | 20,549 |  |  | — |  |  | 20,549 |
Postretirement benefits |  | 4,152 |  |  | — |  |  | 4,152 |
Tax credit and net operating loss carry-forwards |  | 56,790 |  |  | — |  |  | 56,790 |
Less valuation allowance |  | (37,992 | ) |  | — |  |  | (37,992 | )
Other, net |  | 10,918 |  |  | (15,173 | ) |  | (4,255 | )
Total |  | $ | 72,371 |  |  | $ | (51,390 | ) |  | $ | 20,981 |
Tax loss carry-forwards at July 31, 2017 are comprised of:
• | Foreign net operating loss carry-forwards of $126,423, of which $99,077 have no expiration date and the remainder of which expire within the next five years.
• | State net operating loss carry-forwards of $35,875, which expire from 2022 to 2034.
• | Foreign tax credit carry-forwards of $27,022, which expire from 2021 to 2027.
• | State research and development credit carry-forwards of $11,028, which expire from 2018 to 2033.
The valuation allowance increased by $571 during the fiscal year ended July 31, 2017, primarily due to the application of valuation allowances to the generation of current year net operating losses in Brazil, United Kingdom and Sweden. These increases were partially offset by decreases in the valuation allowance in China, India, and Wisconsin due to the utilization of net operating loss carry-forwards that had valuation allowances applied to them. If reversed in future periods, substantially all of the valuation allowance would impact the income tax rate. The valuation allowance decreased by $1,930 during the fiscal year ended July 31, 2016, primarily due to the appreciation of the U.S. Dollar against the Swedish Krona and the utilization of net operating loss carry-forwards that had valuation allowances applied to them in China and India. These decreases were partially offset by the increase in valuation allowances in Brazil due to the application of valuation allowances to the generation of net operating losses during fiscal 2016. If reversed in future periods, substantially all of the valuation allowance would impact the income tax rate. Rate Reconciliation A reconciliation of the tax computed by applying the statutory U.S. federal income tax rate to earnings from continuing operations before income taxes to the total income tax expense is as follows:
|  | Years Ended July 31,
|  | 2017 |  | 2016 |  | 2015
Tax at statutory rate |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
Impairment charges (1) |  | — | % |  | — | % |  | 55.8 | %
State income taxes, net of federal tax benefit |  | 1.0 | % |  | 0.8 | % |  | 1.6 | %
International rate differential |  | (6.3 | )% |  | 0.4 | % |  | (2.2 | )%
Rate variances arising from foreign subsidiary distributions (2) |  | (5.9 | )% |  | 0.5 | % |  | (0.3 | )%
Adjustments to tax accruals and reserves (3) |  | 3.6 | % |  | (3.7 | )% |  | 17.8 | %
Research and development tax credits and section 199 manufacturer’s deduction |  | (1.8 | )% |  | (3.6 | )% |  | (3.9 | )%
Non-deductible divestiture fees and account write-offs |  | (0.6 | )% |  | (0.4 | )% |  | (4.8 | )%
Deferred tax and other adjustments (4) |  | (0.6 | )% |  | (1.4 | )% |  | (21.1 | )%
Other, net |  | 0.1 | % |  | (0.9 | )% |  | 2.5 | %
Effective tax rate |  | 24.5 | % |  | 26.7 | % |  | 80.4 | %
(1) | For the year ended July 31, 2015, $39.8 million of the total impairment charge of $46.9 million recorded was nondeductible for income tax purposes.
(2) | The year ended July 31, 2017, includes the generation of foreign tax credit carry-forwards from cash repatriations that occurred during the fiscal year.
(3) | The years ended July 31, 2017 and 2015, include increases in current year uncertain tax positions, while the year ended July 31, 2016, includes reductions of uncertain tax positions resulting from the closure of audits and lapses in statutes of limitations.
(4) | The year ended July 31, 2015, includes the generation $5.0 million of foreign tax credit carry-forwards from the fiscal 2014 U.S. tax return.
Uncertain Tax Positions The Company follows the guidance in ASC 740, "Income Taxes" regarding uncertain tax positions. The guidance requires application of a more likely than not threshold to the recognition and de-recognition of income tax positions. A reconciliation of unrecognized tax benefits (excluding interest and penalties) is as follows:
Balance at July 31, 2014 | $ | 17,849 |
Additions based on tax positions related to the current year | 5,862 |
Additions for tax positions of prior years | — |
Reductions for tax positions of prior years | (280 | )
Lapse of statute of limitations | (805 | )
Settlements with tax authorities | (221 | )
Cumulative Translation Adjustments and other | (1,272 | )
Balance as of July 31, 2015 | $ | 21,133 |
Additions based on tax positions related to the current year | 3,093 |
Additions for tax positions of prior years | 1,290 |
Reductions for tax positions of prior years | (9,369 | )
Lapse of statute of limitations | (344 | )
Settlements with tax authorities | (456 | )
Cumulative Translation Adjustments and other | (53 | )
Balance as of July 31, 2016 | $ | 15,294 |
Additions based on tax positions related to the current year | 2,500 |
Additions for tax positions of prior years | 1,124 |
Reductions for tax positions of prior years | (62 | )
Lapse of statute of limitations | (663 | )
Settlements with tax authorities | (118 | )
Cumulative Translation Adjustments and other | 287 |
Balance as of July 31, 2017 | $ | 18,362 |
The $18,362 of unrecognized tax benefits, if recognized, would affect the Company's effective income tax rate. The Company has classified $11,725 and $9,304, excluding interest and penalties, of the reserve for uncertain tax positions in Other Liabilities on the Consolidated Balance Sheets as of July 31, 2017 and 2016, respectively. The Company has classified $6,637 and $5,990, excluding interest and penalties, as a reduction of long-term deferred income tax assets on the Consolidated Balance Sheets as of July 31, 2017 and 2016, respectively. Interest expense is recognized on the amount of potentially underpaid taxes associated with the Company's tax positions, beginning in the first period in which interest starts accruing under the respective tax law and continuing until the tax positions are settled. The Company recognized an increase of $674, an increase of $3 and a decrease of $157 in interest expense during the years ended July 31, 2017, 2016, and 2015, respectively. There was a $218 increase to the reserve for uncertain tax positions for penalties during the year ended July 31, 2017, an increase of $66 during the year ended July 31, 2016, and no changes during the year end July 31, 2015. These amounts are net of reversals due to reductions for tax positions of prior years, statute of limitations, and settlements. At July 31, 2017 and 2016, the Company had $2,239 and $1,530, respectively, accrued for interest on unrecognized tax benefits. Penalties are accrued if the tax position does not meet the minimum statutory threshold to avoid the payment of a penalty. Interest expense and penalties are recorded as a component of income tax expense in the Consolidated Statements of Earnings. At July 31, 2017 and 2016, the Company had $2,948 and $2,730, respectively, accrued for penalties on unrecognized tax benefits. The Company estimates that it is reasonably possible that the unrecognized tax benefits may be reduced by $1,748 within twelve months as a result of the resolution of worldwide tax matters, tax audit settlements, amended tax filings, and/or statute expirations. The maximum amount that would be recognized in the Consolidated Statements of Earnings as an income tax benefit is $1,748 during the next twelve months. During the year ended July 31, 2017, the Company recognized $726 of tax benefits (including interest and penalties) associated with the lapse of statutes of limitations. The Company also recognized $320 of tax benefits (including interest and penalties) associated with the reduction of tax positions for prior years due to the closure of tax audits. The Company and its subsidiaries file income tax returns in the U.S., various state, and foreign jurisdictions. The following table summarizes the open tax years for the Company's major jurisdictions:
Jurisdiction |  | Open Tax Years
United States — Federal |  | F’15 — F’17
France |  | F’14 — F’17
Germany |  | F’09 — F’17
United Kingdom |  | F’16 — F’17
Unremitted Earnings The Company does not provide for U.S. deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that have been reinvested indefinitely. These earnings relate to ongoing operations and at July 31, 2017, were approximately $244,123. These earnings have been reinvested in non-U.S. business operations, and the Company does not intend to repatriate these earnings to fund U.S. operations if doing so would result in incremental tax expense. It is not practicable to determine the income tax liability that would be payable if such earnings were not indefinitely reinvested. At July 31, 2017, $94,861 of the total $133,944 in cash and cash equivalents was held outside of the U.S.

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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 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: 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=65882285&loc=d3e32559-109319 Reference 3: 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=65882285&loc=d3e32718-109319 Reference 4: 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=65882285&loc=d3e32639-109319 Reference 5: 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=65882285&loc=d3e32537-109319 + Details
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