Income Taxes (Tables)

12 Months Ended

May 31, 2019

Components of Income Before Income Taxes

Income before income taxes for continuing operations consists of the following components for the fiscal years ended May 31:



(In thousands)	2019		2018		2017

U.S. operations	$	1,061,505	$	798,215	$	673,055
Foreign operations	40,894		42,786		14,349
	$	1,102,399	$	841,001	$	687,404

Components of Income Taxes

Income tax expense (benefit) for continuing operations consists of the following components for the fiscal years ended May 31:



(In thousands)	2019		2018			2017

Current:
Federal	$	134,174	$	124,861		$	184,130
State and local	40,949		32,322			30,201
Foreign	9,882		15,103			6,996
	185,005		172,286			221,327
Deferred	34,759		(115,217		)	8,791
	$	219,764	$	57,069		$	230,118

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 for the fiscal years ended May 31:



(In thousands)	2019			2018			2017

Income taxes at the U.S. federal statutory rate	$	231,503		$	245,322		$	240,677
Permanent differences ⁽¹⁾	(51,201		)	(47,137		)	(29,414		)
State and local income taxes, net of federal benefit	31,687			24,783			19,210
Other ⁽²⁾	6,506			(4,451		)	(355		)
Impact of the Tax Act:
Deemed repatriation of non-U.S. earnings, net of foreign tax credits and other (collectively, transition tax)	153			9,768			—
Non-U.S. withholding taxes related to certain non-U.S. earnings subject to repatriation	690			4,363			—
Remeasurement of U.S. net deferred tax liabilities from 35% to 21%	426			(175,579		)	—
	$	219,764		$	57,069		$	230,118


⁽¹⁾	Includes the excess tax benefits related to share based compensation.


⁽²⁾	Primarily consists of adjustments for uncertain tax positions, tax credits 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 at May 31:



(In thousands)	2019			2018

Deferred tax assets:
Allowance for doubtful accounts	$	9,495		$	8,209
Inventory obsolescence	9,257			10,425
Insurance and contingencies	45,339			43,482
Stock-based compensation	77,697			64,376
Net operating loss and foreign related carry-forwards ⁽¹⁾	9,109			12,882
Treasury locks	5,806			—
Deferred compensation and other	48,922			37,319
	205,625			176,693
Valuation allowance	(7,308		)	(11,302		)
	198,317			165,391
Deferred tax liabilities:
Uniform and other rental items in service	194,939			170,157
Property and equipment	159,186			126,273
Service contracts and other intangible assets	210,531			215,455
Treasury locks	—			4,185
Capitalized contract costs	70,228			—
State taxes and other	1,612			1,902
	636,496			517,972
Net deferred tax liability	$	438,179		$	352,581


⁽¹⁾	The majority of these net operating losses and carryforwards have a five-year expiration period and generally expire in fiscal year 2020 to 2025

Summary of Valuation Allowance

The progression of the valuation allowance is as follows at May 31:



(In thousands)	2019			2018

Balance at beginning of year	$	(11,302	)	$	(18,088	)
Additions	—			(3,268		)
Subtractions ⁽¹⁾	3,994			10,054
Balance at end of year	$	(7,308	)	$	(11,302	)


⁽¹⁾	Primarily related to expiration of net operating loss carryforwards.

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, 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
Additions for tax positions of the current year	3,641
Additions for tax positions of prior years	10,239
Statute expirations	(1,812		)
Balance at May 31, 2019	$	48,715


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