Income Taxes

3 Months Ended

Jul. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Our consolidated interim effective tax rate is based on our expected annual operating income, statutory tax rates, and income tax laws in the various jurisdictions where we operate. Significant or unusual items, including adjustments to accruals for tax uncertainties, are recognized in the fiscal quarter in which the related event or a change in judgment occurs. The expected tax rate on ordinary income for the fiscal year is 24.9%, which is greater than the U.S. federal statutory rate of 21.0%, due to state taxes, effects of foreign operations, and the reversal of prepaid taxes on prior intercompany sales of inventory recorded at higher than current statutory tax rates.

The effective tax rate of 28.5% for the three months ended July 31, 2021, is higher than the expected tax rate of 24.9% on ordinary income for the full fiscal year, primarily due to a prior year true-up of deferred tax liabilities and tax rate changes in certain foreign jurisdictions. The 28.5% effective tax rate for the three months ended July 31, 2021, was higher than the

effective tax rate of 11.6% for the same period last year, primarily reflecting a deferred tax benefit in the prior year related to an intercompany transfer of assets, the reversal of prepaid taxes on prior intercompany sales of inventory recorded at higher than current statutory tax rates, a prior year true-up of deferred tax liabilities, and changes in tax laws in certain foreign jurisdictions.

We have asserted that the undistributed earnings of the majority of our foreign subsidiaries are reinvested indefinitely outside the United States. Therefore, no income taxes have been provided for any outside basis differences inherent in these subsidiaries other than those subject to the one-time repatriation tax. We have a limited number of subsidiaries that are not permanently reinvested and therefore we have recorded the deferred tax liability related to the undistributed earnings (but not for their outside basis differences).