Income Taxes

12 Months Ended

Jul. 31, 2011

4. Income Taxes

Income (loss) before income taxes consists of the following:


	Years Ended July 31,
	2011		2010		2009
United States	$	29,913	$	4,423	$	(383	)
Other Nations		114,145		104,979		97,655

Total	$	144,058	$	109,402	$	97,272

Income taxes consist of the following:


	Years Ended July 31,
	2011			2010			2009
Current income tax expense:
United States	$	5,784		$	474		$	3,486
Other Nations		37,384			32,800			31,223
States (U.S.)		399			1,006			1,081

		43,567			34,280			35,790

Deferred income tax (benefit) expense:
United States		(5,161	)		(4,604	)		(7,633	)
Other Nations		(3,746	)		(1,942	)		(1,693	)
States (U.S.)		746			(288	)		686

		(8,161	)		(6,834	)		(8,640	)

Total	$	35,406		$	27,446		$	27,150

Deferred income taxes result from temporary differences in the recognition of revenues and expenses for financial statement and income tax purposes.

The approximate tax effects of temporary differences are as follows:


	July 31, 2011
	Assets			Liabilities			Total
Inventories	$	5,328		$	(37	)	$	5,291
Prepaid catalog costs		18			(3,038	)		(3,020	)
Employee benefits		892			—			892
Accounts receivable		1,979			(75	)		1,904
Other, net		8,429			(2,363	)		6,066

Current		16,646			(5,513	)		11,133

Fixed Assets		2,189			(7,672	)		(5,483	)
Intangible Assets		1,964			(33,798	)		(31,834	)
Capitalized R&D expenditures		2,807			—			2,807
Deferred compensation		23,654			—			23,654
Postretirement benefits		6,764			—			6,764
Tax credit carry-forwards and net operating losses		62,638			—			62,638
Less valuation allowance		(27,476	)		—			(27,476	)
Other, net		2,453			—			2,453

Noncurrent		74,993			(41,470	)		33,523

Total	$	91,639		$	(46,983	)	$	44,656


	July 31, 2010
	Assets			Liabilities			Total
Inventories	$	6,666		$	—		$	6,666
Prepaid catalog costs		16			(2,299	)		(2,283	)
Employee benefits		1,910			7			1,917
Accounts receivable		2,033			—			2,033
Other, net		6,512			(1,519	)		4,993

Current		17,137			(3,811	)		13,326

Fixed Assets		1,734			(9,270	)		(7,536	)
Intangible Assets		1,970			(26,969	)		(24,999	)
Capitalized R&D expenditures		7,953			—			7,953
Deferred compensation		22,100			—			22,100
Postretirement benefits		7,573			—			7,573
Tax credit carry-forwards and net operating losses		48,140			—			48,140
Less valuation allowance		(27,510	)		—			(27,510	)
Other, net		199			(6,429	)		(6,230	)

Noncurrent		62,159			(42,668	)		19,491

Total	$	79,296		$	(46,479	)	$	32,817

Tax loss carry-forwards at July 31, 2011 are comprised of:

•

Foreign net operating loss carry-forwards of $84,182, of which $73,388 have no expiration date and the remainder of which expire within the next 5 years.

•

State net operating loss carry-forwards of $71,880, which expire from 2014 to 2030.

•

Foreign tax credit carry-forwards of $28,304, which expire from 2018 to 2021.

•

State research and development credit carry-forwards of $346, which expire from 2017 to 2029.

The valuation allowance decreased by $34 during the fiscal year ended July 31, 2011 and increased by $1,840 during the fiscal year ended July 31, 2010. If realized or 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 income before income taxes to the total income tax expense is as follows:


	Years Ended July 31,
	2011			2010			2009
Tax at statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit		0.0	%		0.6	%		1.6	%
International rate differential		(6.3	)%		(9.8	)%		(8.6	)%
Non-creditable withholding taxes		0.8	%		1.8	%		—
Rate variances arising from foreign subsidiary distributions		(6.5	)%		(2.6	)%		(3.4	)%
Adjustments to tax accruals and reserves		3.8	%		(0.5	)%		5.8	%
Research and development tax credits		(1.1	)%		(0.3	)%		(1.5	)%
Other, net		(1.1	)%		0.9	%		(1.0	)%

Effective tax rate		24.6	%		25.1	%		27.9	%

The Company is eligible for tax holidays on the earnings of certain subsidiaries in Asia, including China, India, Thailand, and the Philippines. The benefits realized as a result of these tax holidays reduced the consolidated effective tax rate by approximately 1.5%, 2.3%, and 3.3% during the years ended July 31, 2011, 2010, and 2009, respectively. These tax holidays are in the process of expiring and are anticipated to be fully exhausted by March 31, 2014.

Uncertain Tax Positions

On August 1, 2007, the Company adopted guidance regarding uncertain tax positions. The guidance requires application of a “more likely than not” threshold to the recognition and derecognition of tax positions.

A reconciliation of unrecognized tax benefits (excluding interest and penalties) is as follows:


Balance at July 31, 2008	$	16,017
Additions based on tax positions related to the current year		2,526
Additions for tax positions of prior years(1)		4,056
Reductions for tax positions of prior years		(934	)
Lapse of statute of limitations		(944	)
Settlements with tax authorities		60
Cumulative Translation Adjustments and other		(1,319	)

Balance at July 31, 2009	$	19,462

Additions based on tax positions related to the current year		1,989
Additions for tax positions of prior years		3,934
Reductions for tax positions of prior years		(6,672	)
Lapse of statute of limitations		(194	)
Settlements with tax authorities		(1,054	)
Cumulative Translation Adjustments and other		203

Balance at July 31, 2010	$	17,668

Additions based on tax positions related to the current year		5,147
Additions for tax positions of prior years		2,387
Reductions for tax positions of prior years		(291	)
Lapse of statute of limitations		(2,803	)
Settlements with tax authorities		(728	)
Cumulative Translation Adjustments and other		963

Balance at July 31, 2011	$	22,343


(1)		Includes acquisitions.

With the exception of Cumulative Translation Adjustments, the entire amount of unrecognized tax benefits, if recognized, would affect the Company’s effective income tax rate.

The Company recognizes interest and penalties related to unrecognized tax benefits within the provision for income taxes on the consolidated statements of income.

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. During the years ended July 31, 2011, 2010, and 2009, the Company recognized a $990 reduction in interest expense, and a $33 and $427 increase in interest expense, respectively, and $500, $780 and $414 of penalties, respectively, related to the reserve for uncertain tax positions, net of amounts reversing due to reductions for tax positions of prior years, statute of limitations, and settlements. At July 31, 2011 and 2010, the Company had $1,507 and $2,473, 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, 2011 and 2010, the Company had $2,229 and $1,592, respectively, accrued for penalties on unrecognized tax benefits.

The Company estimates that it is reasonably possible that the unrecognized tax benefits may be reduced by $2,351 within twelve months as a result of the resolution of worldwide tax matters, tax audit settlements, and/or statute expirations.

During the year ended July 31, 2011, the Company recognized tax benefits associated with certain international and domestic tax positions being resolved and the lapse of statutes of limitations.

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’09 — F’11
France		F’08 — F’11
Germany		F’03 — F’11
United Kingdom		F’09 — F’11

Unremitted Earnings

The Company does not provide for U.S. deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that have been reinvested indefinitely. These earnings relate to ongoing operations and at July 31, 2011, were approximately $455,812. These earnings have been reinvested in non-U.S. business operations and the Company does not intend to repatriate these earnings to fund U.S. operations. It is not practicable to determine the income tax liability that would be payable if such earnings were not indefinitely reinvested.