Income Taxes

9 Months Ended

Feb. 28, 2025

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 7 — INCOME TAXES

The effective income tax benefit rate of (27.7%) for the three months ended February 28, 2025 compares to the effective income tax rate of 26.4% for the three months ended February 29, 2024. The effective tax rate of 14.7% for the nine months ended February 28, 2025 compares to the effective income tax rate of 25.5% for the nine months ended February 29, 2024.

The effective income tax rates for the three- and nine-month periods reflect variances from the 21% statutory rate due to the unfavorable impact of state and local income taxes, non-deductible business expenses, and the net tax on foreign subsidiary income resulting from the global intangible low-taxed income provisions, partially offset by tax benefits related to equity compensation and foreign tax credits.

Additionally, the effective tax rate for the current three- and nine-month periods ended February 28, 2025, reflect adjustments made to our deferred income taxes. During the current quarter we recorded a $22.1 million favorable adjustment for the reversal of valuation allowances on U.S. foreign tax credit carryforwards. This adjustment was based on our current estimate of the deferred tax assets for these credits that we expect to realize during the carryforward period. Further, during the nine-month period we reassessed certain of our income tax positions following developments in U.S. income tax case law. During the second quarter ended November 30, 2024, based on our analysis and interpretations at that time, we recorded a net favorable income tax adjustment of $21.8 million which reflected an increase in our deferred income tax assets for U.S. foreign tax credit carryforwards. The effective income tax rate for the nine-month period also reflects a favorable adjustment recorded during the first quarter of fiscal 2025 for incremental U.S. foreign tax credits associated with a distribution of historic foreign earnings that were previously not considered to be permanently reinvested. The distribution of such earnings was done in conjunction with the execution of global cash redeployment and debt optimization projects.

Our deferred tax liability for unremitted foreign earnings was adjusted to $4.1 million as of May 31, 2024. The $4.1 million represented our estimate of the net tax cost of remitting $285.6 million of foreign earnings that were not considered to be permanently reinvested. As of February 28, 2025, the amount of these earnings has changed to $154.2 million and we no longer have a tax liability associated with remitting these earnings. The reduction to the earnings amounts no longer permanently reinvested is due principally to distributions of such earnings during the year. We have not provided for foreign withholding or income taxes on the remaining foreign subsidiaries’ undistributed earnings because such earnings have been retained and reinvested by the subsidiaries as of February 28, 2025. Accordingly, no provision has been made for foreign withholding or income taxes, which may become payable if the remaining undistributed earnings of foreign subsidiaries were remitted to us as dividends.

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. While we continue to monitor P2 developments, we do not anticipate that P2 will have a material impact on our long-term financial position.