INCOME TAXES

12 Months Ended

Jul. 31, 2020

The sources of earnings before income taxes are as follows:


	For the Fiscal Year Ended July 31,
	2020		2019		2018
United States	$	258,483	$	200,859	$	633,029
Foreign	14,413		(16,193)		—
Total	$	272,896	$	184,666	$	633,029

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


	For the Fiscal Year Ended July 31,
Income Taxes:	2020		2019		2018
U.S. Federal	$	49,494	$	48,757	$	166,402
U.S. state and local	9,891		5,921		21,025
Foreign	1,842		6,611		—
Total current expense	61,227		61,289		187,427
U.S. Federal	6,472		10,862		17,820
U.S. state and local	(197)		(36)		(2,369)
Foreign	(15,990)		(19,914)		—
Total deferred expense (benefit)	(9,715)		(9,088)		15,451
Total income tax expense	$	51,512	$	52,201	$	202,878

The Tax Cuts and Jobs Act (the "Tax Act") was signed into federal tax law on December 22, 2017. Under the Tax Act, the federal corporate income tax rate was reduced from 35.0% to 21.0% starting January 1, 2018, which resulted in the use of a blended federal corporate income tax rate of 26.9% for the Company’s 2018 fiscal year. The 21.0% rate is applicable to the entire year in both fiscal 2019 and 2020. As a result of other Tax Act changes, the Company’s income tax rate for fiscal 2019 was impacted by, among other items, the repeal of the domestic production activities deduction, the favorable tax benefit of the Foreign Derived Intangible Income provision and limitations on the deductibility of executive compensation. The Tax Act also included substantial changes to the taxation of foreign income which are applicable to the Company as a result of the acquisition of EHG during fiscal 2019. The Global Intangible Low Taxed Income ("GILTI") provision may also prospectively impact the Company’s income tax expense. Under the GILTI provision, a portion of the Company’s foreign earnings may be subject to U.S. taxation, offset by available foreign tax credits, subject to limitation. For both fiscal 2020 and fiscal 2019, the Company incurred no U.S. taxation related to the GILTI provision of the Tax Act.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act includes several changes impacting business, including, but not limited to, enhanced business interest deductibility, net operating loss ("NOL") carryback provisions, payroll tax deferral provisions and employee retention tax credits. The Company determined that the impacts of the CARES Act are not expected to be material to the Consolidated Financial Statements.

The differences between income tax expense at the federal statutory rate and the actual income tax expense are as follows:


	For the Fiscal Year Ended July 31,
	2020		2019		2018
Provision at federal statutory rate	$	57,308	$	38,779	$	170,095
Differences between U.S. federal statutory and foreign tax rates	(50,898)		1,478		—
Foreign currency remeasurement (gains) and losses	30,246		(12,942)		—
U.S. state and local income taxes, net of federal benefit	7,616		4,642		14,255
Nondeductible compensation	2,249		2,401		—
Nondeductible acquisition costs	—		3,031		—
Nondeductible foreign currency forward contract loss on acquisition	—		14,863		—
Federal income tax credits and incentives	(1,738)		(3,373)		(3,518)
Domestic production activities deduction	—		—		(16,175)
Change in uncertain tax positions	1,101		1,279		396
Effect of the U.S. Tax Act	—		—		38,620
Other	5,628		2,043		(795)
Total income tax expense	$	51,512	$	52,201	$	202,878

A summary of the deferred income tax balances is as follows:


	July 31,
	2020		2019
Deferred income tax asset (liability):
Inventory basis	$	1,000	$	807
Employee benefits	7,353		5,272
Self-insurance reserves	4,923		5,185
Accrued product warranties	53,586		62,563
Accrued incentives	4,316		6,144
Sales returns and allowances	1,027		1,516
Accrued expenses	6,733		3,617
Property, plant and equipment	(28,438)		(22,699)
Operating leases	9,110		—
Deferred compensation	15,876		15,247
Intangibles	(147,423)		(143,861)
Net operating loss and other carryforwards	32,877		15,725
Unrealized (gain)/loss	4,892		(4,546)
Unrecognized tax benefits	3,046		2,689
Other	4,558		2,759
Valuation allowance	(18,500)		(12,945)
Deferred income tax (liability), net	$	(45,064)	$	(62,527)

Deferred tax assets are reduced by a valuation allowance if, based upon available evidence, it is more likely than not that some, or all, of the deferred tax assets will not be realized. The valuation allowances recorded at July 31, 2020 and July 31, 2019 relate to certain foreign net operating loss carry forwards and other assets in foreign jurisdictions.

The Company has made an accounting policy election to treat income tax expense incurred due to the GILTI provision as a current year tax expense in the period in which a related income tax liability is incurred. For both fiscal 2020 and 2019, the Company incurred no income tax expense related to the GILTI provision.

With the exception of foreign subsidiary investment basis differences not attributable to unrepatriated foreign earnings, we consider all of our undistributed earnings of our foreign subsidiaries, as of July 31, 2020, to not be indefinitely reinvested outside of the United States. As of July 31, 2020, the related income tax cost of the repatriation of foreign earnings is not material. Additionally, the Company has no unrecorded deferred tax liabilities related to the investment in foreign subsidiaries at July 31, 2020.

As of July 31, 2020, the Company has $3,474 of U.S. state tax credit carry forwards that expire from fiscal 2027-2030 of which the Company expects to realize prior to expiration. At July 31, 2020, the Company had $73,751 of gross NOL carry forwards in certain foreign jurisdictions that will expire from fiscal 2023 to indefinite carryforward, of which $48,741 has been fully reserved with a valuation allowance and the remaining amount the Company expects to realize. In addition, the Company has $4,721 of gross U.S. state tax NOL carryforwards that expire from fiscal 2021-2040 that the Company does not expect to realize and therefore has been fully reserved with a valuation allowance.

The benefits of tax positions reflected on income tax returns but whose outcome remains uncertain are only recognized for financial accounting purposes if they meet minimum recognition thresholds. The total amount of unrecognized tax benefits that, if recognized, would have impacted the Company’s effective tax rate were $11,606 for fiscal 2020, $11,332 for fiscal 2019 and $10,491 for fiscal 2018.

Changes in the unrecognized tax benefit during fiscal years 2020, 2019 and 2018 were as follows:


	2020		2019		2018
Beginning balance	$	13,848	$	13,004	$	12,671
Tax positions related to prior years:
Additions	73		—		353
Reductions	(129)		(263)		(2,203)
Tax positions related to current year:
Additions	1,966		2,062		3,629
Settlements	—		(773)		(192)
Lapses in statute of limitations	(1,520)		(918)		(1,254)
Tax positions acquired from EHG	—		736		—
Ending balance	$	14,238	$	13,848	$	13,004

It is the Company’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in income tax expense. The total amount of liabilities accrued for interest and penalties related to unrecognized tax benefits as of July 31, 2020 and July 31, 2019 were $2,516 and $1,758, respectively. The total amount of interest and penalties expense recognized in the Consolidated Statements of Income and Comprehensive Income for the fiscal years ended July 31, 2020, July 31, 2019 and July 31, 2018 were $544, $454 and $203, respectively.

The total unrecognized tax benefits above, along with the related accrued interest and penalties, are reported within the liability section of the Consolidated Balance Sheets. A portion of the unrecognized tax benefits is classified as short-term and is included in the “Income and other taxes” line of the Consolidated Balance Sheets, while the remainder is classified as a long-term liability.

The components of total unrecognized tax benefits are summarized as follows:


	July 31,
	2020		2019
Unrecognized tax benefits	$	14,238	$	13,848
Reduction to unrecognized tax benefits which offset tax credit and loss carryforwards	(809)		(1,916)
Accrued interest and penalties	2,516		1,758
Total unrecognized tax benefits	$	15,945	$	13,690

Short-term, included in “Income and other taxes”	$	3,180	$	2,891
Long-term	12,765		10,799
Total unrecognized tax benefits	$	15,945	$	13,690

The Company anticipates a decrease of approximately $5,000 in unrecognized tax benefits and $1,300 in interest during fiscal 2021 from expected settlements or payments of uncertain tax positions and lapses of the applicable statutes of limitations. Actual results may differ from these estimates.

The Company files income tax returns in the U.S. federal jurisdiction and in many U.S. state and foreign jurisdictions. The Company is currently under exam by certain U.S. state tax authorities for the fiscal years ended July 31, 2015 through July 31, 2017. The Company believes it has adequately reserved for its exposure to additional payments for uncertain tax positions in its liability for unrecognized tax benefits.

The major tax jurisdictions we file in, with the years still subject to income tax examinations, are listed below:


Major Tax Jurisdiction						Tax Years Subject to Exam

United States – Federal						Fiscal 2017 – Fiscal 2019

United States – State						Fiscal 2017 – Fiscal 2019

Germany						Fiscal 2016 – Fiscal 2018

France						Fiscal 2017 – Fiscal 2019

Italy						Fiscal 2015 – Fiscal 2019

United Kingdom						Fiscal 2018 – Fiscal 2019

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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