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Income Taxes | 12 Months Ended
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Jul. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Earnings before income taxes consists of the following:
|  | Years Ended July 31,
|  | 2018 |  | 2017 |  | 2016
United States |  | $ | 48,903 |  |  | $ | 43,561 |  |  | $ | 61,349 |
Other Nations |  | 103,112 |  |  | 83,071 |  |  | 47,996 |
Total |  | $ | 152,015 |  |  | $ | 126,632 |  |  | $ | 109,345 |
Earnings before income taxes in the United States increased to $48,903 in fiscal 2018 from $43,561 in fiscal 2017 primarily due to increased organic sales and expense management in the U.S. The increase in earnings before income taxes in Other Nations to $103,112 in fiscal 2018 from $83,071 in fiscal 2017 was primarily due to increased organic sales and improved profitability in fiscal 2018 in both the Company's European and Asian-based businesses. The decrease in earnings 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 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 before income taxes by $21,003, as well as improved profitability in fiscal 2017 in both the Company's European and Asian-based businesses. Income tax expense consists of the following:
|  | Years Ended July 31,
|  | 2018 |  | 2017 |  | 2016
Current income tax expense: |  |  |  |  |  |
United States |  | $ | 2,830 |  |  | $ | 15,279 |  |  | $ | 5,048 |
Other Nations |  | 26,593 |  |  | 23,826 |  |  | 19,929 |
States (U.S.) |  | 910 |  |  | 1,163 |  |  | 1,348 |
|  | $ | 30,333 |  |  | $ | 40,268 |  |  | $ | 26,325 |
Deferred income tax (benefit) expense: |  |  |  |  |  |
United States |  | $ | 30,267 |  |  | $ | (8,173 | ) |  | $ | 3,946 |
Other Nations |  | (1,462 | ) |  | (1,329 | ) |  | (1,387 | )
States (U.S.) |  | 1,817 |  |  | 221 |  |  | 351 |
|  | $ | 30,622 |  |  | $ | (9,281 | ) |  | $ | 2,910 |
Total income tax expense |  | $ | 60,955 |  |  | $ | 30,987 |  |  | $ | 29,235 |
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Reform Act reduces the U.S. federal corporate income tax rate from 35.0% to 21.0%, imposes a one-time tax on deemed repatriated earnings of foreign subsidiaries, eliminates the domestic manufacturing deduction and moves to a partial territorial system by providing a 100% dividend received deduction on certain qualified dividends from foreign subsidiaries. As the Company has a July 31 fiscal year end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal income tax rate of 26.9% for the fiscal year ended July 31, 2018, and 21.0% for subsequent fiscal years. The tax effects of temporary differences are as follows as of July 31, 2018 and 2017:
|  | July 31, 2018
|  | Assets |  | Liabilities |  | Total
Inventories |  | $ | 3,095 |  |  | $ | (53 | ) |  | $ | 3,042 |
Prepaid catalog costs |  | — |  |  | (978 | ) |  | (978 | )
Employee benefits |  | 3,772 |  |  | (91 | ) |  | 3,681 |
Accounts receivable |  | 828 |  |  | (1 | ) |  | 827 |
Fixed assets |  | 2,959 |  |  | (4,911 | ) |  | (1,952 | )
Intangible assets |  | 1,073 |  |  | (29,630 | ) |  | (28,557 | )
Deferred and equity-based compensation |  | 10,656 |  |  | — |  |  | 10,656 |
Postretirement benefits |  | 3,280 |  |  | — |  |  | 3,280 |
Tax credit and net operating loss carry-forwards |  | 64,348 |  |  | — |  |  | 64,348 |
Less valuation allowance |  | (56,866 | ) |  | — |  |  | (56,866 | )
Other, net |  | 8,548 |  |  | (8,962 | ) |  | (414 | )
Total |  | $ | 41,693 |  |  | $ | (44,626 | ) |  | $ | (2,933 | )
|  | 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 | )
Deferred and equity-based 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 |  | 12,630 |  |  | (10,798 | ) |  | 1,832 |
Total |  | $ | 83,677 |  |  | $ | (53,482 | ) |  | $ | 30,195 |
Tax carry-forwards at July 31, 2018 are comprised of:
• | Foreign net operating loss carry-forwards of $108,540, of which $88,197 have no expiration date and the remainder of which expire within the next five years.
• | State net operating loss carry-forwards of $35,231, which expire from 2022 to 2038.
• | Foreign tax credit carry-forwards of $25,115, which expire from 2021 to 2027.
• | State R&D credit carry-forwards of $11,448, which expire from 2019 to 2033.
The reduction in the U.S. federal income tax rate as a result of the Tax Reform Act requires the Company to remeasure its U.S. deferred tax assets and liabilities to the income tax rate at which the deductible or taxable event is expected to be realized. The Tax Reform Act also changes the statutory U.S. federal tax rate from 35.0% to 26.9% for the entire year ended July 31, 2018. Additionally, the Company established a valuation allowance against its deferred tax assets related to foreign tax credit carryforwards, primarily related to the impact of the Tax Reform Act on the Company's ability to utilize these foreign tax credit carryforwards. The provisional impact of the Tax Reform Act related to the remeasurement of deferred tax assets and liabilities, the impact on the Company’s fiscal 2018 earnings from the reduced tax rate, and the establishment of the valuation allowance discussed above resulted in net income tax expense of $16,761 for the year ended July 31, 2018. The valuation allowance increased by $18,303 during the fiscal year ended July 31, 2018, primarily due to the establishment of a valuation allowance on a significant portion of foreign tax credit carryforwards as a result of the Tax Reform Act. The net increase was partially offset by valuation allowance decreases in China, India, Sweden, Brazil, and South Africa primarily due to the utilization of net operating loss carryforwards that had valuation allowances applied to them. 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,
|  | 2018 |  | 2017 |  | 2016
Tax at statutory rate |  | 26.9 | % |  | 35.0 | % |  | 35.0 | %
State income taxes, net of federal tax benefit |  | 1.6 | % |  | 1.0 | % |  | 0.8 | %
International rate differential |  | (1.1 | )% |  | (6.3 | )% |  | 0.4 | %
Rate variances arising from foreign subsidiary distributions(1) |  | 0.8 | % |  | (5.9 | )% |  | 0.5 | %
Foreign tax credit carryforward valuation allowance(2) |  | 14.1 | % |  | — | % |  | — | %
Divestiture of business(3) |  | (0.8 | )% |  | — | % |  | — | %
Adjustments to tax accruals and reserves(4) |  | 2.2 | % |  | 3.6 | % |  | (3.7 | )%
Research and development tax credits and domestic manufacturer’s deduction |  | (2.0 | )% |  | (1.8 | )% |  | (3.6 | )%
Deferred tax and other adjustments, net |  | (1.6 | )% |  | (1.1 | )% |  | (2.7 | )%
Effective tax rate |  | 40.1 | % |  | 24.5 | % |  | 26.7 | %
(1) | The year ended July 31, 2017, includes the generation of foreign tax credit carryforwards from cash repatriations that occurred during the fiscal year.
(2) | The year ended July 31, 2018, includes the establishment of a valuation allowance against foreign tax credit carryforwards as a result of the Tax Reform Act.
(3) | The year ended July 31, 2018, includes the divestiture of the Company's Runelandhs business based in Sweden. Refer to Note 13 - Divestitures for additional information.
(4) | The years ended July 31, 2018 and 2017, 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.
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, 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 |
Additions based on tax positions related to the current year | 2,467 |
Additions for tax positions of prior years | 1,586 |
Reductions for tax positions of prior years | (23 | )
Lapse of statute of limitations | (489 | )
Settlements with tax authorities | (1,277 | )
Cumulative Translation Adjustments and other | (196 | )
Balance as of July 31, 2018 | $ | 20,430 |
The $20,430 of unrecognized tax benefits, if recognized, would affect the Company's effective income tax rate. The Company has classified $13,238 and $11,725, excluding interest and penalties, of the reserve for uncertain tax positions in Other Liabilities on the Consolidated Balance Sheets as of July 31, 2018 and 2017, respectively. The Company has classified $7,192 and $6,637, excluding interest and penalties, as a reduction of long-term deferred income tax assets on the Consolidated Balance Sheets as of July 31, 2018 and 2017, 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 $556, an increase of $674, and an increase of $3 in interest expense during the years ended July 31, 2018, 2017, and 2016, respectively. There was an $83 increase to the reserve for uncertain tax positions for penalties during the year ended July 31, 2018, an increase of $218 during the year ended July 31, 2017, and an increase of $66 during the year end July 31, 2016. These amounts are net of reversals due to reductions for tax positions of prior years, statute of limitations, and settlements. At July 31, 2018 and 2017, the Company had $2,762 and $2,239, 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. At July 31, 2018 and 2017, the Company had $3,027 and $2,948, respectively, accrued for penalties on unrecognized tax benefits. Interest expense and penalties are recorded as a component of income tax expense in the Consolidated Statements of Earnings. The Company estimates that it is reasonably possible that the unrecognized tax benefits may be reduced by $9,686 within 12 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 $9,686 during the next twelve months. During the year ended July 31, 2018, the Company recognized $675 of tax benefits (including interest and penalties) associated with the lapse of statutes of limitations. The Company also recognized $1,742 of tax benefits (including interest and penalties) associated with the reduction of tax positions for prior years due to the closure of certain 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’18
France |  | F’15 — F’18
Unremitted Earnings As part of the transition to the partial territorial tax system, the Tax Reform Act imposes a one-time tax on the mandatory deemed repatriation of historical earnings of foreign subsidiaries. Companies can claim certain credits for foreign taxes deemed paid on foreign earnings subject to the mandatory deemed repatriation. The Company’s provisional calculations resulted in an income tax charge of $3,327 related to the deemed repatriation of the historical earnings of foreign subsidiaries during the year ended July 31, 2018. Existing foreign tax credit carryforwards were used to fully offset this tax, resulting in no cash payments related to this charge. As a result of the Tax Reform Act, the Company expects that it will repatriate certain historical and future foreign earnings periodically, which in certain jurisdictions may be subject to withholding and income taxes. These additional withholding and income taxes are recorded as a deferred tax liability associated with the basis difference in such jurisdictions. During the year ended July 31, 2018, the Company recorded a provisional income tax expense of $984 related to the recording of a deferred tax liability for future withholding and income taxes on the distribution of foreign earnings. The uncertainty related to the taxation of such withholding and income taxes on distributions under the Tax Reform Act and the finalization of future cash repatriation plans make the deferred tax liability a provisional amount. Provisional Disclosure The Company continues to review the anticipated impacts of the global intangible low taxed income (“GILTI”), foreign derived intangible income ("FDII") and base erosion anti-abuse tax (“BEAT”) enacted under the Tax Reform Act, which are not effective until fiscal year 2019. The consolidated financial statements for the year ended July 31, 2018, do not include a provisional estimate associated with either GILTI, FDII or BEAT. The final enactment impacts of the Tax Reform Act may differ from the above estimates due to changes in interpretation, legislative action to address questions that arise, changes in accounting standards for income taxes or related interpretations in response to the Tax Reform Act, or any updates or changes to information the Company has utilized to develop the estimates, including impacts from changes to current year earnings estimates and foreign exchange rates of foreign subsidiaries. The U.S. Securities and Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Reform Act to finalize the recording of the related tax impacts.

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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 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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