Undistributed earnings

[Table of Contents](#i988317c7021a4a8fa66f2208a2958f7e_10)The Company’s ability to realize deferred tax assets is dependent on its ability to generate future taxable income. Accordingly, the Company has established a valuation allowance in taxable jurisdictions where the utilization of the tax assets is uncertain. Additional timing differences or future tax losses may occur which could warrant a need for establishing additional valuation allowances against certain deferred tax assets. During fiscal year 2022, the Company recorded a $4.2 million increase in valuation allowances primarily due to additional operating losses generated in foreign jurisdictions unlikely to be realized.   
As of July 31, 2022 and 2021, the Company had foreign operating losses of $29.9 million and $24.4 million, respectively. The foreign operating losses, subject to certain limitations, usually can be carried forward indefinitely. However, these losses are subject to valuation allowance based on realizability. The valuation allowance for the fiscal year ended July 31, 2022 and 2021 was $29.2 million and $25.0 million, respectively, which are primarily related to operating losses in certain foreign jurisdictions.   
The following table summarizes the activities related to the Company’s unrecognized tax benefits resulting from uncertain tax positions.

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | July 31, |
| (In thousands) |  | 2022 |  | 2021 |  | 2020 |
| Beginning balance |  | $ | 47,061  |  |  | $ | 36,123  |  |  | $ | 27,537  |  |
| Increases related to current year tax positions |  | 14,809  |  |  | 13,122  |  |  | 8,196  |  |
| Prior year tax positions: |  |   |  |   |  |   |
| Increases recognized during the period |  | 1,393  |  |  | 8,782  |  |  | 6,390  |  |
| Decreases recognized during the period |  | (2,163) |  |  | (5,749) |  |  | (1,603) |  |
| Cash settlements during the period |  | (3,524) |  |  | (3,261) |  |  | (1,182) |  |
| Lapse of statute of limitations |  | (1,822) |  |  | (1,956) |  |  | (3,215) |  |
| Ending balance |  | $ | 55,754  |  |  | $ | 47,061  |  |  | $ | 36,123  |  |

  
As of July 31, 2022 and 2021, if recognized, the portion of liabilities for unrecognized tax benefits resulting from uncertain tax positions that would favorably affect the Company’s effective tax rate was $44.2 million and $37.8 million, respectively. It is possible that the amount of unrecognized tax benefits will change in the next twelve months, due to tax legislation updates or future audit outcomes; however, an estimate of the range of the possible change cannot be made at this time.  
The Company recognizes interest and penalties related to income tax matters in income tax expense. As of July 31, 2022, 2021 and 2020, the Company had accrued interest and penalties related to unrecognized tax benefits of $8.9 million, $7.2 million and $8.9 million, respectively.  
The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company is currently under examination by certain taxing authorities in the U.S. for fiscal years between 2016 and 2019. At this time, the Company does not believe that the outcome of any examination will have a material impact on the Company’s consolidated results of operations and financial position.  
The Act significantly lowered the additional federal income tax upon the repatriation of undistributed earnings generated by our foreign subsidiaries. As the Company determined these undistributed foreign earnings along with any additional outside basis differences were indefinitely reinvested as of July 31, 2022, no deferred tax was therefore provided. The undistributed earnings, as of July 31, 2022, were estimated to be approximately $300.0 million. The Company believes it is not practicable to estimate the amount of deferred tax liability related to the entire outside basis differences due to the complexity of the calculation and the uncertainty regarding assumptions necessary to compute the tax. However, the Company would not anticipate any significant tax liability associated with the repatriation of the undistributed earnings.  
  
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