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Income Taxes
 12 Months Ended
Jul. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes
Note 8. Income Taxes
The components of earnings before income taxes were as follows (in millions):
Year Ended July 31,
202320222021
U.S.$178.0 $132.8 $114.1 
Foreign290.7 305.6 266.9 
Total$468.7 $438.4 $381.0 
The components of the provision for income taxes were as follows (in millions):
Year Ended July 31,
202320222021
Current
Federal$38.1 $17.4 $13.2 
State7.3 4.9 3.9 
Foreign79.8 84.7 82.9 
Total current125.2 107.0 100.0 
Deferred
Federal(13.3)2.8 (1.9)
State(1.8)(0.3)(0.2)
Foreign(0.2)(3.9)(3.8)
Total deferred(15.3)(1.4)(5.9)
Total provision for income taxes$109.9 $105.6 $94.1 
The reconciliation of the U.S. statutory federal income tax rate with the effective income tax rate was as follows:
Year Ended July 31,
202320222021
U.S. statutory federal income tax rate21.0 %21.0 %21.0 %
State income taxes0.9 0.9 0.8 
Foreign operations3.8 3.6 4.4 
Global Intangible Low Tax Income0.2 0.3 0.6 
Foreign Derived Intangible Income(1.6)(0.6)(0.7)
Research and development credit(0.7)(0.6)(0.7)
Change in unrecognized tax benefits— (0.8)0.2 
Tax benefits on stock-based compensation (0.7)(0.5)(1.0)
Other0.5 0.8 0.1 
Effective income tax rate23.4 %24.1 %24.7 %
The tax effects of temporary differences that give rise to deferred tax assets and liabilities were as follows (in millions):
July 31,
20232022
Deferred tax assets
Accrued expenses$12.2 $11.6 
Compensation and retirement plans24.7 26.4 
Capitalization of R&D costs17.6 — 
Net operating loss (NOL) and tax credit carryforwards15.1 6.4 
Operating lease assets15.0 11.6 
Other6.2 6.4 
Gross deferred tax assets90.8 62.4 
Valuation allowance(6.4)(3.4)
Deferred tax assets, net of valuation allowance84.4 59.0 
Deferred tax liabilities
Depreciation and amortization(79.5)(57.0)
Operating lease liabilities(15.1)(11.6)
Other(4.2)(2.4)
Deferred tax liabilities(98.8)(71.0)
Net deferred tax liability$(14.4)$(12.0)
The activity in the NOL and tax credit valuation allowances was as follows (in millions):
Year Ended July 31,
202320222021
Balance as of beginning of year$(3.4)$(4.6)$(8.1)
Additions charged to costs and expenses(3.0)(0.9)(0.8)
Deductions from reserves— 2.1 4.3 
Balance as of end of year$(6.4)$(3.4)$(4.6)

As of July 31, 2023, the Company had deferred tax assets related to U.S. federal foreign tax credits of $3.9 million, related to state research and development credits of $3.6 million and related to foreign operating loss carryovers of $7.1 million. The U.S. federal tax credits will expire after 10 years, the state portion after one to 20 years and the foreign portion has an indefinite carryover period. As of July 31, 2023, the Company had provided $6.4 million for a valuation allowance against certain of these deferred tax assets based on management’s determination it is more likely than not the tax benefits related to these assets will not be realized.
As of July 31, 2023, the total undistributed earnings of the Company’s non-U.S. subsidiaries were $1.3 billion, of which $943.6 million were 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 provides for foreign withholding taxes payable upon future dividend distributions of the earnings not considered indefinitely reinvested annually. For the year ended July 31, 2023, the Company recognized a tax charge of $3.6 million related to these foreign withholding taxes. The remaining $355.1 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 related to the U.S. Tax Cuts and Jobs Act of 2017 on undistributed earnings was accrued in fiscal 2018 and it is payable over an eight year period. The portion not due within 12 months classified in non-current income taxes payable on the Consolidated Balance Sheets as of July 31, 2023 was $39.8 million.
The reconciliation of the beginning and ending amount of gross unrecognized tax benefits was as follows (in millions):
Year Ended July 31,
202320222021
Balance as of beginning of year$15.2 $18.7 $16.9 
Additions for tax positions of the current year2.5 2.7 4.7 
Additions for tax positions of prior years— — 2.7 
Reductions for tax positions of prior years0.1 (1.1)(1.0)
Reductions due to lapse of applicable statute of limitations(2.8)(5.1)(4.6)
Balance as of end of year$15.0 $15.2 $18.7 
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income taxes in the Consolidated Statements of Earnings. As of July 31, 2023 and 2022, accrued interest and penalties on a gross basis were $1.7 million and $1.1 million, respectively. During the year ended July 31, 2023, the Company recognized interest expense, net of tax benefit, of $0.7 million. If the Company were to prevail on all unrecognized tax benefits recorded, substantially all the unrecognized tax benefits would benefit the effective tax rate. With an average statute of limitations of five years, up to $4.0 million of the unrecognized tax benefits could potentially expire in the next 12 months, unless extended by an audit.
The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The U.S. Internal Revenue Service has completed examinations of the Company’s U.S. federal income tax returns through fiscal 2019. With few exceptions, the Company is no longer subject to state and foreign income tax examinations by tax authorities for years before fiscal 2018.
The Company believes it is remote that any adjustment necessary to the reserve for income taxes for the next 12 months will be material. However, it is possible the ultimate resolution of audits or disputes may result in a material change to the Company’s reserve for income taxes, although the quantification of such potential adjustments cannot be made at this time.