Income Taxes

12 Months Ended

May 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

NOTE H — INCOME TAXES

The provision for income taxes is calculated in accordance with ASC 740, which requires the recognition of deferred income taxes using the asset and liability method.

Income before income taxes as shown in the Consolidated Statements of Income is summarized below for the periods indicated.

Year Ended May 31,	2022		2021		2020
(In thousands)
United States	$	342,834	$	462,468	$	317,290
Foreign		263,965		205,970		90,474
Income Before Income Taxes	$	606,799	$	668,438	$	407,764

Provision (benefit) for income taxes consists of the following for the periods indicated:

Year Ended May 31,	2022			2021			2020
(In thousands)
Current:
U.S. federal	$	60,818		$	60,666		$	65,195
State and local		19,495			18,959			17,743
Foreign		59,087			65,125			31,894
Total Current		139,400			144,750			114,832
Deferred:
U.S. federal		(24,025	)		20,027			(19,212	)
State and local		2,489			3,878			(3,031	)
Foreign		(3,531	)		(3,717	)		10,093
Total Deferred		(25,067	)		20,188			(12,150	)
Provision for Income Taxes	$	114,333		$	164,938		$	102,682

The significant components of deferred income tax assets and liabilities as of May 31, 2022 and 2021 were as follows:

	2022			2021
(In thousands)
Deferred income tax assets related to:
Inventories	$	15,967		$	12,189
Accrued compensation and benefits		22,224			24,637
Accrued other expenses		21,782			28,511
Deferred income and other long-term liabilities		25,389			22,859
Credit and net operating and capital loss carryforwards		63,368			65,091
Net unrealized loss on securities		9,386			9,189
Pension and other postretirement benefits		15,699			34,180
Total Deferred Income Tax Assets		173,815			196,656
Less: valuation allowances		(30,509	)		(64,696	)
Net Deferred Income Tax Assets		143,306			131,960
Deferred income tax (liabilities) related to:
Depreciation		(91,227	)		(85,717	)
Amortization of intangibles		(112,349	)		(107,963	)
Unremitted foreign earnings		(3,002	)		(17,871	)
Total Deferred Income Tax (Liabilities)		(206,578	)		(211,551	)
Deferred Income Tax Assets (Liabilities), Net	$	(63,272	)	$	(79,591	)

At May 31, 2022, we had U.S. capital loss carryforwards of approximately $4.3 million, of which $3.7 million will expire if not used by the end of fiscal 2024, with the balance expiring if unused by the end of fiscal 2025. Also, as of May 31, 2022, we had foreign tax credit carryforwards of $35.8 million, which expire at various dates through fiscal 2032. Additionally, as of May 31, 2022, we had approximately $1.4 million of net tax benefits associated with state net operating loss carryforwards and state tax credit carryforwards, some of which expire at various dates beginning in fiscal 2023. Also, as of May 31, 2022, we had foreign net operating loss carryforwards of approximately $116.8 million, of which approximately $5.0 million will expire at various dates beginning in fiscal 2023 and approximately $111.8 million that have an indefinite carryforward period. Additionally, as of May 31, 2022, we had foreign capital loss carryforwards of approximately $23.8 million that can be carried forward indefinitely.

When evaluating the realizability of deferred income tax assets, we consider, among other items, whether a jurisdiction has experienced cumulative pretax losses and whether a jurisdiction will generate the appropriate character of income to recognize a deferred income tax asset. More specifically, if a jurisdiction experiences cumulative pretax losses for a period of three years, including the current fiscal year, or if a jurisdiction does not have sufficient income of the appropriate character in the relevant carryback or projected carryforward periods, we generally conclude that it is more likely than not that the respective deferred tax asset will not be realized unless factors such as expected operational changes, availability of prudent and feasible tax planning strategies, reversal of taxable temporary differences or other information exists that would lead us to conclude otherwise. If, after we have evaluated these factors, the deferred income tax assets are not expected to be realized within the carryforward or carryback periods allowed for that jurisdiction, we would conclude that a valuation allowance is required.

Total valuation allowances of approximately $30.5 million and $64.7 million have been recorded as of May 31, 2022 and 2021, respectively. These recorded valuation allowances relate primarily to U.S. capital losses, state net operating losses and certain foreign net operating losses, and net foreign deferred tax assets. The year-over-year decrease in valuation allowances includes a $21.3 million reversal attributable to U.S. foreign tax credit carryforwards and a $5.6 million reversal related to certain Non-U.S. tax loss carryforwards. Additionally, certain U.S. capital loss carryforwards which were offset by a valuation allowance expired as of May 31, 2022.

The following table reconciles income tax expense (benefit) computed by applying the U.S. statutory federal income tax rate against income (loss) before income taxes to the provision (benefit) for income taxes:

Year Ended May 31,	2022			2021			2020
(In thousands, except percentages)
Income tax expense at the U.S. statutory federal income tax rate	$	127,428		$	140,372		$	85,630
Foreign rate differential and other foreign tax adjustments		6,278			11,942			3,433
State and local income taxes, net		20,393			18,625			11,651
Impact of GILTI provisions		1,709			1,598			3,051
Nondeductible business expense		532			616			2,005
Valuation allowance		(32,720	)		(4,389	)		14,008
Deferred tax liability for unremitted foreign earnings		(10,686	)		5,348			(5,527	)
Changes in unrecognized tax benefits		(1,682	)		(1,847	)		1,292
Equity-based compensation		(1,776	)		(8,651	)		(5,162	)
FY19 GILTI impact of issued regulations		-			-			(4,348	)
Other		4,857			1,324			(3,351	)
Provision for Income Tax Expense	$	114,333		$	164,938		$	102,682
Effective Income Tax Rate		18.8	%		24.7	%		25.2	%

Uncertain income tax positions are accounted for in accordance with ASC 740. The following table summarizes the activity related to unrecognized tax benefits:

(In millions)	2022			2021			2020
Balance at June 1	$	7.5		$	9.0		$	8.1
Additions for tax positions of prior years		-			-			2.0
Reductions for tax positions of prior years		(1.7	)		(1.8	)		(0.9	)
Foreign currency translation		(0.1	)		0.3			(0.2	)
Balance at May 31	$	5.7		$	7.5		$	9.0

The total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, was $5.6 million at May 31, 2022, $7.0 million at May 31, 2021 and $8.6 million at May 31, 2020.

We recognize interest and penalties related to unrecognized tax benefits in income tax expense. At May 31, 2022, 2021 and 2020, the accrual for interest and penalties was $3.2 million, $2.9 million and $2.9 million, respectively. Unrecognized tax benefits, including interest and penalties, have been classified as other long-term liabilities unless expected to be paid in one year.

We file income tax returns in the United States and in various state, local and foreign jurisdictions. With limited exceptions, we are subject to federal, state and local, or non-U.S. income tax examinations by tax authorities for fiscal 2015 through 2022. We are currently under examination, or have been notified of an upcoming tax examination, for various non-U.S. and domestic state and local jurisdictions. Although it is possible that certain tax examinations could be resolved during the next 12 months, the timing and outcomes are uncertain.

Our deferred tax liability for unremitted foreign earnings was $3.0 million as of May 31, 2022, which represents our estimate of the tax cost associated with the deemed remittance of $431.4 million of foreign earnings that are not considered to be permanently reinvested.

We have not provided for U.S. income taxes or foreign withholding taxes on the remaining $1.4 billion of foreign unremitted earnings because such earnings have been retained and reinvested by the foreign subsidiaries as of May 31, 2022. Accordingly, no provision has been made for U.S. income taxes or foreign withholding taxes, which may become payable if the remaining unremitted earnings of foreign subsidiaries were distributed to the United States. Due to the uncertainties and complexities involved in the various options for repatriation of foreign earnings, it is not practical to calculate the deferred taxes associated with the remaining foreign earnings.