Income Taxes (Tables)

12 Months Ended

May 31, 2018

Components of Income Before Income Taxes

Income before income taxes for continuing operations consists of the following components:



(In thousands)	2018		2017		2016

U.S. operations	$	798,215	$	673,055	$	685,167
Foreign operations	42,786		14,349		20,148
	$	841,001	$	687,404	$	705,315

Components of Income Taxes

Income tax expense (benefit) for continuing operations consists of the following components:



(In thousands)	2018			2017		2016

Current:
Federal	$	137,601		$	187,134	$	272,663
State and local	19,582			27,197		25,428
Foreign	15,103			6,996		6,471
	172,286			221,327		304,562
Deferred	(115,217		)	8,791		(47,852		)
	$	57,069		$	230,118	$	256,710

Reconciliation of Income Tax Expense Using the Statutory Rate and Actual Income Tax Expense

Reconciliation of income tax expense for continuing operations using the statutory rate and actual income tax expense is as follows:



(In thousands)	2018			2017			2016

Income taxes at the U.S. federal statutory rate	$	245,322		$	240,677		$	246,881
Permanent differences ⁽¹⁾	(47,137		)	(29,414		)	—
State and local income taxes, net of federal benefit	24,783			19,210			16,339
Other ⁽²⁾	(4,451		)	(355		)	(6,510		)
Impact of the Tax Act:
Deemed repatriation of non-U.S. earnings, net of foreign tax credits and other (collectively, transition tax)	9,768			—			—
Non-U.S. withholding taxes related to certain non-U.S. earnings subject to repatriation	4,363			—			—
Remeasurement of U.S. net deferred tax liabilities from 35% to 21%	(175,579		)	—			—
	$	57,069		$	230,118		$	256,710

⁽¹⁾ Includes the impact of ASU 2016-09.

⁽²⁾ Primarily consists of adjustments for uncertain tax positions, deferred adjustments and return to provision adjustments.

Components of Deferred Income Taxes

The components of deferred income taxes included on the consolidated balance sheets are as follows:



(In thousands)	2018			2017

Deferred tax assets:
Allowance for doubtful accounts	$	6,955		$	7,707
Inventory obsolescence	8,668			16,096
Insurance and contingencies	36,727			54,489
Stock-based compensation	53,532			73,027
Net operating loss and foreign related carry-forwards ⁽¹⁾	11,910			37,814
Deferred compensation and other	31,093			25,891
	148,885			215,024
Valuation allowance	(11,302		)	(18,088		)
	137,583			196,936
Deferred tax liabilities:
Uniform and other rental items in service	143,580			210,766
Property and equipment	115,712			126,872
Service contracts and other intangible assets	183,000			290,049
Treasury locks	3,545			6,435
State taxes and other	44,327			32,142
	490,164			666,264
Net deferred tax liability	$	352,581		$	469,328

⁽¹⁾ The decrease in fiscal 2018 from fiscal 2017 is primarily due to the utilization of the net operating loss related to the G&K acquisition in fiscal 2017. The majority of these net operating losses have a five-year expiration period.

Summary of Valuation Allowance

The progression of the valuation allowance is as follows:



(In thousands)	2018			2017

Balance at beginning of year	$	(18,088	)	$	(17,047	)
Additions	(3,268		)	(1,667		)
Subtractions ⁽¹⁾	10,054			626
Balance at end of year	$	(11,302	)	$	(18,088	)

⁽¹⁾ Primarily related to expiration of net operating loss carryforwards and application of the Tax Act.

Reconciliation of Beginning and Ending Amount of Gross Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of the gross unrecognized tax benefits (exclusive of interest and penalties) is as follows:



(In thousands)

Balance at June 1, 2016	$	16,531
Additions from G&K acquisition ⁽¹⁾	2,084
Additions for tax positions of prior years	2,520
Settlements ⁽²⁾	(1,044		)
Statute expirations	(2,734		)
Balance at May 31, 2017	$	17,357
Additions for tax positions of the current year	10,164
Additions from G&K acquisition ⁽¹⁾	6,394
Additions for tax positions of prior years	5,675
Statute expirations	(2,943		)
Balance at May 31, 2018	$	36,647

⁽¹⁾ Increase in unrecognized tax benefit associated with unrecognized benefits assumed in the G&K acquisition.

⁽²⁾ Decrease in unrecognized tax benefit associated with the settlement of a fiscal 2012 Internal Revenue Service audit.