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Income Taxes | 12 Months Ended
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Jul. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income before income taxes consists of the following:
|  | Years Ended July 31,
|  | 2019 |  | 2018 |  | 2017
United States |  | $ | 55,077 |  |  | $ | 48,903 |  |  | $ | 43,561 |
Other Nations |  | 109,567 |  |  | 103,112 |  |  | 83,071 |
Total |  | $ | 164,644 |  |  | $ | 152,015 |  |  | $ | 126,632 |
Income tax expense consists of the following:
|  | Years Ended July 31,
|  | 2019 |  | 2018 |  | 2017
Current income tax expense: |  |  |  |  |  |
United States |  | $ | 2,232 |  |  | $ | 2,830 |  |  | $ | 15,279 |
Other Nations |  | 22,445 |  |  | 26,593 |  |  | 23,826 |
States (U.S.) |  | 913 |  |  | 910 |  |  | 1,163 |
|  | $ | 25,590 |  |  | $ | 30,333 |  |  | $ | 40,268 |
Deferred income tax expense (benefit): |  |  |  |  |  |
United States |  | $ | 8,451 |  |  | $ | 30,267 |  |  | $ | (8,173 | )
Other Nations |  | (667 | ) |  | (1,462 | ) |  | (1,329 | )
States (U.S.) |  | 12 |  |  | 1,817 |  |  | 221 |
|  | $ | 7,796 |  |  | $ | 30,622 |  |  | $ | (9,281 | )
Total income tax expense |  | $ | 33,386 |  |  | $ | 60,955 |  |  | $ | 30,987 |
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 reduced the U.S. federal corporate income tax rate from 35.0% to 21.0%, imposed a one-time tax on deemed repatriated income of foreign subsidiaries, eliminated the domestic manufacturing deduction and moved to a partial territorial system by providing a 100% dividend received deduction on certain qualified dividends from foreign subsidiaries. The tax effects of temporary differences are as follows as of July 31, 2019 and 2018:
|  | July 31, 2019
|  | Assets |  | Liabilities |  | Total
Inventories |  | $ | 3,856 |  |  | $ | (1 | ) |  | $ | 3,855 |
Prepaid catalog costs |  | — |  |  | (631 | ) |  | (631 | )
Employee compensation and benefits |  | 7,021 |  |  | (89 | ) |  | 6,932 |
Accounts receivable |  | 943 |  |  | (233 | ) |  | 710 |
Fixed assets |  | 3,125 |  |  | (6,869 | ) |  | (3,744 | )
Intangible assets |  | 1,432 |  |  | (31,415 | ) |  | (29,983 | )
Deferred and equity-based compensation |  | 7,352 |  |  | — |  |  | 7,352 |
Postretirement benefits |  | 2,659 |  |  | (71 | ) |  | 2,588 |
Tax credit and net operating loss carry-forwards |  | 62,966 |  |  | — |  |  | 62,966 |
Less valuation allowance |  | (60,073 | ) |  | — |  |  | (60,073 | )
Other, net |  | 7,406 |  |  | (7,961 | ) |  | (555 | )
Total |  | $ | 36,687 |  |  | $ | (47,270 | ) |  | $ | (10,583 | )
|  | July 31, 2018
|  | Assets |  | Liabilities |  | Total
Inventories |  | $ | 3,095 |  |  | $ | (53 | ) |  | $ | 3,042 |
Prepaid catalog costs |  | — |  |  | (978 | ) |  | (978 | )
Employee compensation and 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 | )
Tax carry-forwards at July 31, 2019 are comprised of:
• | Foreign net operating loss carry-forwards of $100,335, of which $83,826 have no expiration date and the remainder of which expire within the next five years.
• | State net operating loss carry-forwards of $32,986, which expire from 2022 to 2038.
• | Foreign tax credit carry-forwards of $27,343, which expire from 2021 to 2029.
• | State R&D credit carry-forwards of $12,882, which expire from 2020 to 2034.
Rate Reconciliation A reconciliation of the tax rate computed by applying the statutory U.S. federal income tax rate to income before income taxes to the total income tax expense is as follows:
|  | Years Ended July 31,
|  | 2019 |  | 2018 |  | 2017
Tax at statutory rate |  | 21.0 | % |  | 26.9 | % |  | 35.0 | %
State income taxes, net of federal tax benefit |  | 0.3 | % |  | 1.6 | % |  | 1.0 | %
International rate differential |  | 2.2 | % |  | (1.1 | )% |  | (6.3 | )%
Rate variances arising from foreign subsidiary distributions(1) |  | (0.4 | )% |  | 0.8 | % |  | (5.9 | )%
Foreign tax credit carryforward valuation allowance(2) |  | 1.8 | % |  | 14.1 | % |  | — | %
Divestiture of business(3) |  | — | % |  | (0.8 | )% |  | — | %
Adjustments to tax accruals and reserves(4) |  | (3.6 | )% |  | 2.2 | % |  | 3.6 | %
Non-deductible executive compensation(5) |  | 2.3 | % |  | 0.5 | % |  | — | %
Research and development tax credits and domestic manufacturer’s deduction |  | (1.6 | )% |  | (2.0 | )% |  | (1.8 | )%
Deferred tax and other adjustments, net |  | (1.7 | )% |  | (2.1 | )% |  | (1.1 | )%
Effective tax rate |  | 20.3 | % |  | 40.1 | % |  | 24.5 | %
(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 14, "Divestiture" for additional information.
(4) | The years ended July 31, 2018 and 2017, include increases in uncertain tax positions, while the year ended July 31, 2019, includes reductions of uncertain tax positions resulting from the closure of audits and lapses in statutes of limitations.
(5) | The years ended July 31, 2019 and 2018, include non-deductible compensation such as salaries, bonuses, and other equity compensation of the Company's executives (as defined in Internal Revenue Service Code Section 162(m)).
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, 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 |
Additions based on tax positions related to the current year | 2,518 |
Additions for tax positions of prior years | 612 |
Reductions for tax positions of prior years | (378 | )
Lapse of statute of limitations | (8,140 | )
Cumulative Translation Adjustments and other | (201 | )
Balance as of July 31, 2019 | $ | 14,841 |
Of the $14,841 of unrecognized tax benefits, if recognized, $12,037 would affect the Company's income tax rate. The Company has classified $10,218 and $13,238, excluding interest and penalties, of the reserve for uncertain tax positions in "Other liabilities" on the Consolidated Balance Sheets as of July 31, 2019 and 2018, respectively. The Company has classified $4,623 and $7,192, excluding interest and penalties, as a reduction of long-term deferred income tax assets on the accompanying Consolidated Balance Sheets as of July 31, 2019 and 2018, 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 a decrease of $1,013, an increase of $556, and an increase of $674 in interest expense during the years ended July 31, 2019, 2018, and 2017, respectively. There was a $2,357 decrease to the reserve for uncertain tax positions for penalties during the year ended July 31, 2019, an increase of $83 during the year ended July 31, 2018, and an increase of $218 during the year end July 31, 2017. These amounts are net of reversals due to reductions for tax positions of prior years, statute of limitations, and settlements. At July 31, 2019 and 2018, the Company had $1,740 and $2,762, 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, 2019 and 2018, the Company had $663 and $3,027, 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 Income. The Company estimates that it is reasonably possible that the unrecognized tax benefits may be reduced by $5,429 within 12 months as a result of the resolution of worldwide tax matters, tax audit settlements, amended tax filings, and/or the expiration of statute of limitations, all of which, if recognized, would result in an income tax benefit in the Consolidated Statements of Income. During the year ended July 31, 2019, the Company recognized $9,797 of tax benefits (including interest and penalties) associated with the lapse of statutes of limitations. The Company also recognized $568 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’16 — F’19

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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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