Income Taxes

12 Months Ended

May 31, 2024

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,	2024		2023		2022
(In thousands)
United States	$	625,167	$	557,401	$	342,834
Foreign		162,670		91,981		263,965
Income Before Income Taxes	$	787,837	$	649,382	$	606,799

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

Year Ended May 31,	2024			2023			2022
(In thousands)
Current:
U.S. federal	$	109,869		$	91,749		$	60,818
State and local		31,996			25,972			19,495
Foreign		62,168			45,694			59,087
Total Current		204,033			163,415			139,400
Deferred:
U.S. federal		(2,263	)		16,969			(24,025	)
State and local		618			4,359			2,489
Foreign		(3,993	)		(15,092	)		(3,531	)
Total Deferred		(5,638	)		6,236			(25,067	)
Provision for Income Taxes	$	198,395		$	169,651		$	114,333

The significant components of deferred income tax assets and liabilities as of May 31, 2024 and 2023 were as follows:

	2024			2023
(In thousands)
Deferred income tax assets related to:
Inventories	$	17,772		$	18,811
Accrued compensation and benefits		17,649			18,331
Accrued other expenses		19,058			21,037
Deferred income and other long-term liabilities		31,204			30,239
Credit, net operating, interest and capital loss carryforwards		87,590			75,366
Net unrealized loss on securities		-			3,373
Research and development		33,076			17,360
Pension and other postretirement benefits		-			11,813
Total Deferred Income Tax Assets		206,349			196,330
Less: valuation allowances		(30,021	)		(30,033	)
Net Deferred Income Tax Assets		176,328			166,297
Deferred income tax (liabilities) related to:
Depreciation		(132,007	)		(123,421	)
Amortization of intangibles		(125,553	)		(116,763	)
Unremitted foreign earnings		(4,055	)		(990	)
Net unrealized gain on securities		(1,305	)		-
Pension and other postretirement benefits		(1,108	)		-
Total Deferred Income Tax (Liabilities)		(264,028	)		(241,174	)
Deferred Income Tax Assets (Liabilities), Net	$	(87,700	)	$	(74,877	)

As of May 31, 2024, we had foreign tax credit carryforwards of $38.3 million, which expire at various dates through fiscal 2034. Additionally, as of May 31, 2024, we had approximately $0.7 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 2025.

As of May 31, 2024, we had foreign net operating losses of approximately $95.0 million and interest deduction carryforwards of approximately $74.1 million, totaling approximately $169.1 million. Of these carryforward amounts, approximately $17.2 million will expire at various dates beginning in fiscal 2025 and approximately $151.9 million have an indefinite carryforward period. Additionally, as of May 31, 2024, we had foreign capital loss carryforwards of approximately $24.1 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 approximating $30.0 million have been recorded as of May 31, 2024 and 2023, respectively. These recorded valuation allowances relate primarily to certain foreign interest expense deductions and 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,	2024			2023			2022
(In thousands, except percentages)
Income tax expense at the U.S. statutory federal income tax rate	$	165,446		$	136,370		$	127,428
Foreign rate differential and other foreign tax adjustments		4,342			1,535			6,278
State and local income taxes, net		28,000			22,017			20,393
Impact of GILTI provisions		3,548			4,217			1,709
Nondeductible business expense		1,944			1,257			532
Valuation allowance		(754	)		1,199			(32,720	)
Deferred tax liability for unremitted foreign earnings		3,658			-			(10,686	)
Changes in unrecognized tax benefits		2,209			(3,334	)		(1,682	)
Equity-based compensation		(5,496	)		(3,482	)		(1,776	)
Nondeductible goodwill impairment		-			7,264			-
Other		(4,502	)		2,608			4,857
Provision for Income Tax Expense	$	198,395		$	169,651		$	114,333
Effective Income Tax Rate		25.2	%		26.1	%		18.8	%

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)	2024			2023			2022
Balance at June 1	$	2.9		$	5.7		$	7.5
Additions for tax positions of prior years		3.4			0.1			-
Reductions for tax positions of prior years		(1.4	)		(2.8	)		(1.7	)
Settlements		(0.5	)		-			-
Foreign currency translation		-			(0.1	)		(0.1	)
Balance at May 31	$	4.4		$	2.9		$	5.7

The total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, at May 31, 2024, 2023 and 2022 was $4.4 million, $2.9 million and $5.6 million, respectively.

We recognize interest and penalties related to unrecognized tax benefits in income tax expense. At May 31, 2024, 2023 and 2022, the accrual for interest and penalties was $3.0 million, $2.2 million and $3.2 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 2024. 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 $4.1 million as of May 31, 2024, which represents our estimate of the net tax cost associated with the deemed remittance of $285.6 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, 2024. 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.

The Organization for Economic Co-operation and Development (OECD) has proposed a framework comprised of rules and models, collectively referred to as Pillar Two (P2), that are designed to ensure that certain multi-national enterprises pay a minimum tax rate of 15% on reported profits arising in each jurisdiction where they operate. Although the OECD provided a framework for applying the minimum tax, individual countries have and may continue to enact P2 rules that are different than the OECD framework. Generally, P2 will have first effect for us in fiscal 2026. While we continue to monitor P2 developments, we do not anticipate that P2 will have a material impact on our long-term financial position.