Income Taxes

12 Months Ended

Jul. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of earnings before income taxes are as follows (in millions):

	Year Ended July 31,
	2020		2019		2018
Earnings before income taxes:
United States	$	112.8	$	127.4	$	103.2
Foreign	222.4		247.8		260.4
Total	$	335.2	$	375.2	$	363.6

The components of the provision for income taxes are as follows (in millions):

	Year Ended July 31,
	2020		2019		2018
Income tax provision (benefit):
Current
Federal	$	9.7	$	21.3	$	100.0
State	3.1		4.0		5.3
Foreign	62.7		72.5		71.0
	75.5		97.8		176.3
Deferred
Federal	4.1		7.4		6.5
State	0.2		1.4		0.2
Foreign	(1.6)		1.4		0.3
	2.7		10.2		7.0
Total	$	78.2	$	108.0	$	183.3

The following table reconciles the U.S. statutory income tax rate with the effective income tax rate:

	Year Ended July 31,
	2020		2019		2018
Statutory U.S. federal rate	21.0	%	21.0	%	26.9	%
State income taxes	0.9		1.3		0.9
Foreign operations	3.5		4.7		1.7
Global Intangible Low Tax Income	0.2		1.3		N/A
Foreign Derived Intangible Income	(1.4)		(1.4)		N/A
Export, manufacturing and research credits	(0.7)		(0.8)		(1.0)
Change in unrecognized tax benefits	0.6		(0.8)		(0.3)
Tax benefits on stock-based compensation	(1.2)		(1.6)		(1.2)
Impact of U.S. Tax Cuts and Jobs Act	—		5.0		23.2
Other	0.4		0.1		0.2
Effective income tax rate	23.3	%	28.8	%	50.4	%

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows (in millions):

	July 31,
	2020		2019
Deferred tax assets:
Accrued expenses	$	9.9	$	10.1
Compensation and retirement plans	31.8		27.9
NOL and tax credit carryforwards	8.1		4.4
Inventory reserves	3.4		3.0
Operating lease assets	18.8		—
Other	4.2		4.5
Gross deferred tax assets	76.2		49.9
Valuation allowance	(8.1)		(4.4)
Deferred tax assets, net of valuation allowance	68.1		45.5
Deferred tax liabilities:
Depreciation and amortization	(47.4)		(43.2)
Operating lease liabilities	(18.8)		—
Other	(1.8)		(1.4)
Deferred tax liabilities	(68.0)		(44.6)
Net deferred tax asset	$	0.1	$	0.9

The activity in the NOL and tax credit valuation allowances is as follows (in millions):

	Year Ended July 31,
	2020		2019		2018
Balance at beginning of year	$	(4.4)	$	(6.2)	$	(5.2)
Additions charged to costs and expenses	(3.7)		(0.2)		(1.0)
Deductions from reserves	—		2.0		—
Balance at end of year	$	(8.1)	$	(4.4)	$	(6.2)

As of July 31, 2020, the Company had tax effected operating losses and tax credit carryovers for federal, approximately $2.4 million, state, approximately $2.5 million, and international, approximately $3.2 million, with all amounts before limitation impacts and valuation allowances. Federal tax attribute carryovers will expire after 10 years, the state after one to 20 years, and the international after one year to an indefinite carryover period. As of July 31, 2020, the Company had provided $8.1 million of valuation allowance against certain of these deferred tax assets based on management’s determination that it is more-likely-than-not that the tax benefits related to these assets will not be realized.

As of July 31, 2020, the total undistributed earnings of the Company’s non-U.S. subsidiaries was approximately $1.3 billion, of which approximately $1.1 billion was not considered indefinitely reinvested. The Company is subject to foreign withholding taxes on a small portion of these earnings distributable in the future in the form of dividends. Thus, the Company annually provides for foreign withholding taxes payable upon future dividend distributions of the earnings not considered indefinitely reinvested. For the year ended July 31, 2020, the Company recognized a tax charge of $9.8 million related to these foreign withholding taxes. The remaining $230.0 million of earnings are considered indefinitely reinvested, and it is not practicable to estimate, within any reasonable range, the additional taxes that may be payable on the potential distribution of the portion of the undistributed earnings considered indefinitely reinvested.

The transition tax is payable over an eight year period, and the portion not due within 12 months as of July 31, 2020 is $68.3 million. This amount is classified within non-current income taxes payable in the Consolidated Balance Sheets.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in millions):

	Year Ended July 31,
	2020		2019		2018
Gross unrecognized tax benefits at beginning of fiscal year	$	15.5	$	18.5	$	18.8
Additions for tax positions of the current fiscal year	2.8		2.5		4.4
Additions for tax positions of prior fiscal years	0.2		0.7		0.2
Reductions for tax positions of prior fiscal years	(0.1)		(4.9)		(3.1)
Settlements	—		—		(0.4)
Reductions due to lapse of applicable statute of limitations	(1.5)		(1.3)		(1.4)
Gross unrecognized tax benefits at end of fiscal year	$	16.9	$	15.5	$	18.5

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the year ended July 31, 2020, the Company recognized interest expense, net of tax benefit, of approximately $0.7 million. At July 31, 2020 and 2019, accrued interest and penalties on a gross basis were $2.2 million and $1.6 million, respectively. If the Company were to prevail on all unrecognized tax benefits recorded, substantially all of the unrecognized tax benefits would benefit from the effective tax rate. With an average statute of limitations of approximately five years, up to $5.4 million of the unrecognized tax benefits could potentially expire in the next 12 month period, unless extended by an audit.

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to state and foreign income tax examinations by tax authorities for years before 2015.

The Company believes that it is remote that any adjustment necessary to the reserve for income taxes over the next 12 month period will be material. However, it is possible the current and future resolution of audits or disputes may result in a material change to the reserve for income taxes, although the quantification of such potential adjustments cannot be made at this time.