Income Taxes

12 Months Ended

May 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

NOTE H — INCOME TAXES

The provision for income taxes is calculated in accordance with ASC 740, "Income Taxes," 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,	2023		2022		2021
(In thousands)
United States	$	557,401	$	342,834	$	462,468
Foreign		91,981		263,965		205,970
Income Before Income Taxes	$	649,382	$	606,799	$	668,438

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

Year Ended May 31,	2023			2022			2021
(In thousands)
Current:
U.S. federal	$	91,749		$	60,818		$	60,666
State and local		25,972			19,495			18,959
Foreign		45,694			59,087			65,125
Total Current		163,415			139,400			144,750
Deferred:
U.S. federal		16,969			(24,025	)		20,027
State and local		4,359			2,489			3,878
Foreign		(15,092	)		(3,531	)		(3,717	)
Total Deferred		6,236			(25,067	)		20,188
Provision for Income Taxes	$	169,651		$	114,333		$	164,938

The significant components of deferred income tax assets and liabilities as of May 31, 2023 and 2022 were as follows:

	2023			2022
(In thousands)
Deferred income tax assets related to:
Inventories	$	18,811		$	15,967
Accrued compensation and benefits		18,331			22,224
Accrued other expenses		21,037			21,782
Deferred income and other long-term liabilities		30,239			25,389
Credit and net operating and capital loss carryforwards		75,366			63,368
Net unrealized loss on securities		3,373			9,386
Research and development		17,360			-
Pension and other postretirement benefits		11,813			15,699
Total Deferred Income Tax Assets		196,330			173,815
Less: valuation allowances		(30,033	)		(30,509	)
Net Deferred Income Tax Assets		166,297			143,306
Deferred income tax (liabilities) related to:
Depreciation		(123,421	)		(91,227	)
Amortization of intangibles		(116,763	)		(112,349	)
Unremitted foreign earnings		(990	)		(3,002	)
Total Deferred Income Tax (Liabilities)		(241,174	)		(206,578	)
Deferred Income Tax Assets (Liabilities), Net	$	(74,877	)	$	(63,272	)

As of May 31, 2023, we had foreign tax credit carryforwards of $31.8 million, which expire at various dates through fiscal 2032. Additionally, as of May 31, 2023, we had approximately $3.2 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 2024.

As of May 31, 2023, we had foreign net operating loss carryforwards of approximately $148.2 million, of which approximately $37.5 million will expire at various dates beginning in fiscal 2024 and approximately $110.7 million that have an indefinite carryforward period. Additionally, as of May 31, 2023, we had foreign capital loss carryforwards of approximately $23.5 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 $30.0 million and $30.5 million have been recorded as of May 31, 2023 and 2022, respectively. These recorded valuation allowances relate primarily to U.S. capital losses, certain foreign net operating losses, certain state net operating losses, and net foreign deferred tax assets.

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,	2023			2022			2021
(In thousands, except percentages)
Income tax expense at the U.S. statutory federal income tax rate	$	136,370		$	127,428		$	140,372
Foreign rate differential and other foreign tax adjustments		1,535			6,278			11,942
State and local income taxes, net		22,017			20,393			18,625
Impact of GILTI provisions		4,217			1,709			1,598
Nondeductible business expense		1,257			532			616
Valuation allowance		1,199			(32,720	)		(4,389	)
Deferred tax liability for unremitted foreign earnings		-			(10,686	)		5,348
Changes in unrecognized tax benefits		(3,334	)		(1,682	)		(1,847	)
Equity-based compensation		(3,482	)		(1,776	)		(8,651	)
Nondeductible goodwill impairment		7,264			-			-
Other		2,608			4,857			1,324
Provision for Income Tax Expense	$	169,651		$	114,333		$	164,938
Effective Income Tax Rate		26.1	%		18.8	%		24.7	%

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)	2023			2022			2021
Balance at June 1	$	5.7		$	7.5		$	9.0
Additions for tax positions of prior years		0.1			-			-
Reductions for tax positions of prior years		(2.8	)		(1.7	)		(1.8	)
Foreign currency translation		(0.1	)		(0.1	)		0.3
Balance at May 31	$	2.9		$	5.7		$	7.5

The total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, at May 31, 2023, 2022 and 2021 was $2.9 million, $5.6 million and $7.0 million, respectively.

We recognize interest and penalties related to unrecognized tax benefits in income tax expense. At May 31, 2023, 2022 and 2021, the accrual for interest and penalties was $2.2 million, $3.2 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 2017 through 2023. 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 $1.0 million as of May 31, 2023, which represents our estimate of the net tax cost associated with the deemed remittance of $204.6 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 $1.2 billion of foreign unremitted earnings because such earnings have been retained and reinvested by the foreign subsidiaries as of May 31, 2023. 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.