Income Taxes

12 Months Ended

Jul. 31, 2015

Income Tax Disclosure [Abstract]

Income Taxes

NOTE J Income Taxes

The components of earnings before income taxes are as follows:

	2015		2014		2013
	(thousands of dollars)
Earnings before income taxes:
United States	$	92,362	$	131,396	$	147,317
Foreign		196,241		229,307		200,864
Total	$	288,603	$	360,703	$	348,181

The components of the provision for income taxes are as follows:

	2015			2014			2013
	(thousands of dollars)
Income taxes:
Current
Federal	$	28,482		$	48,981		$	35,820
State		2,956			4,724			4,337
Foreign		54,665			54,536			52,300
		86,103			108,241			92,457
Deferred
Federal		(4,232	)		(9,465	)		7,071
State		94			365			312
Foreign		(1,473	)		1,338			964
		(5,611	)		(7,762	)		8,347
Total	$	80,492		$	100,479		$	100,804

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

	2015			2014			2013
Statutory U.S. federal rate		35.0	%		35.0	%		35.0	%
State income taxes		0.9	%		1.1	%		1.2	%
Foreign operations		(7.9	)%		(6.1	)%		(6.3	)%
Export, manufacturing, and research credits		(1.1	)%		(0.8	)%		(1.5	)%
Change in unrecognized tax benefits		1.3			(1.1	)%		0.5	%
Other		(0.3	)%		(0.2	)%		0.1	%
		27.9	%		27.9	%		29.0	%

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

	2015			2014
	(thousands of dollars)
Deferred tax assets:
Accrued expenses	$	10,566		$	11,118
Compensation and retirement plans		39,090			32,317
NOL and tax credit carryforwards		4,353			3,471
LIFO and inventory reserves		6,891			5,482
Other		4,993			4,470
Deferred tax assets, gross		65,893			56,858
Valuation allowance		(2,737	)		(3,471	)
Net deferred tax assets		63,156			53,387
Deferred tax liabilities:
Depreciation and amortization		(50,628	)		(49,901	)
Other		(2,359	)		(1,025	)
Deferred tax liabilities		(52,987	)		(50,926	)
Prepaid tax assets		4,421			4,392
Net tax asset	$	14,590		$	6,853

Deferred income tax assets on the face of the balance sheet include $4.4 million and $4.4 million of prepaid tax assets related to intercompany transfers of inventory as of July 31, 2015 and 2014, respectively.

The effective tax rate for Fiscal 2015 was 27.9 percent compared to 27.9 percent in Fiscal 2014. The effective tax rate in the current year was favorably impacted by the reinstatement of the Research and Experimentation Credit in the U.S., non-recurring tax costs associated with foreign dividend distributions recorded during the prior year, and an increase in tax benefits from international operations. The effective tax rate in the prior year was favorably impacted by the settlement of a tax audit and the remeasurement of certain deferred tax assets due to a change in tax rates in certain foreign jurisdictions.

The Company has not provided for U.S. income taxes on additional undistributed earnings of non-U.S. subsidiaries of approximately $938.0 million. The Company currently intends to indefinitely reinvest these undistributed earnings as there are significant investment opportunities outside the U.S. or to repatriate the earnings only when it is tax effective to do so. If any portion were to be distributed, the related U.S. tax liability may be reduced by foreign income taxes paid on those earnings plus any available foreign tax credit carryovers. Determination of the unrecognized deferred tax liability related to these undistributed earnings is not practicable. In Fiscal 2015, the Company repatriated $125.0 million of cash held by its foreign subsidiaries in the form of a cash dividend, which represented total planned dividends for the current year.

The Company maintains a reserve for uncertain tax benefits. The accounting standard defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authorities based solely on the technical merits of the position. If the recognition threshold is met, the tax benefit is measured and recognized as the largest amount of tax benefit that in the Company’s judgment is greater than 50 percent likely to be realized. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

	2015			2014			2013
	(thousands of dollars)
Gross unrecognized tax benefits at beginning of fiscal year	$	15,005		$	18,419		$	16,514
Additions for tax positions of the current year		4,660			2,959			5,453
Additions for tax positions of prior years		100			1,706			407
Reductions for tax positions of prior years		(608	)		(7,113	)		(1,640	)
Settlements		—			(240	)		(277	)
Reductions due to lapse of applicable statute of limitations		(970	)		(726	)		(2,038	)
Gross unrecognized tax benefits at end of fiscal year	$	18,187		$	15,005		$	18,419

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the fiscal year ended July 31, 2015, the Company recognized interest expense, net of tax benefit, of approximately $0.4 million. At July 31, 2015, and July 31, 2014, accrued interest and penalties on a gross basis were $1.8 million and $1.7 million, respectively.

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 2008. The IRS has completed examinations of the Company’s U.S. federal income tax returns through 2012.

If the Company were to prevail on all unrecognized tax benefits recorded, substantially all of the unrecognized tax benefits would benefit the effective tax rate. With an average statute of limitations of about 5 years, up to $1.1 million of the unrecognized tax benefits could potentially expire in the next 12 month period, unless extended by audit. It is possible that quicker than expected settlement of either current, or future audits and disputes would cause additional reversals of previously recorded reserves in the next 12 month period. Quantification of an estimated range and timing of future audit settlements cannot be made at this time.