XML 33 R18.htm IDEA: XBRL DOCUMENT

Income Taxes

12 Months Ended

May 31, 2020

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


(In thousands)	2020		2019		2018

U.S. operations	$	1,035,902	$	1,061,505	$	798,215
Foreign operations	22,389		40,894		42,786
	$	1,058,291	$	1,102,399	$	841,001

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


(In thousands)	2020		2019		2018

Current:
Federal	$	153,736	$	134,174	$	124,861
State and local	34,502		40,949		32,322
Foreign	6,985		9,882		15,103
	195,223		185,005		172,286
Deferred	(13,292)		34,759		(115,217)
	$	181,931	$	219,764	$	57,069

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)	2020		2019		2018

Income taxes at the U.S. federal statutory rate	$	222,258	$	231,503	$	245,322
Permanent differences ⁽¹⁾	(67,075)		(51,201)		(47,137)
State and local income taxes, net of federal benefit	25,294		31,687		24,783
Other ⁽²⁾	1,454		6,506		(4,451)
Impact of the Tax Cuts and Jobs 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)
	$	181,931	$	219,764	$	57,069

⁽¹⁾Primarily consists of the excess tax benefits related to stock-based compensation.

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

The components of deferred income taxes included on the consolidated balance sheets are as follows at May 31:


(In thousands)	2020		2019

Deferred tax assets:
Allowance for doubtful accounts	$	14,718	$	9,495
Inventory obsolescence	13,744		9,257
Insurance reserves	45,197		45,339
Stock-based compensation	78,802		77,697
Net operating loss and foreign related carry-forwards ⁽¹⁾	7,657		9,109
Treasury locks	39,046		5,806
Operating lease liabilities	42,191		—
Deferred compensation and other	73,562		48,922
	314,917		205,625
Valuation allowance	(6,411)		(7,308)
	308,506		198,317
Deferred tax liabilities:
Uniform and other rental items in service	189,787		194,939
Property and equipment	177,664		159,186
Service contracts and other intangible assets	207,610		210,531

Capitalized contract costs	77,741		70,228
Operating lease right-of-use assets	42,191		—
State taxes and other	2,092		1,612
	697,085		636,496
Net deferred tax liability	$	388,579	$	438,179

⁽¹⁾ The majority of these net operating losses and foreign related carryforwards have a five-year expiration period and generally expire in fiscal year 2021 to 2025.

Although realization is not assured, management has evaluated its deferred tax assets to determine whether a valuation allowance is required or should be adjusted. This evaluation considers, among other items, the nature, frequency and amount of recent losses, reversal periods of taxable temporary differences, duration of statutory periods and tax planning strategies. As a result of this analysis, management believes it is more likely than not that the recorded deferred tax assets, net of valuation allowances, will be realized.

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


(In thousands)	2020		2019

Balance at beginning of year	$	(7,308)	$	(11,302)

Subtractions ⁽¹⁾	897		3,994
Balance at end of year	$	(6,411)	$	(7,308)

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

Income taxes paid were $160.3 million, $173.2 million and $175.3 million for the fiscal years ended May 31, 2020, 2019 and 2018, respectively.

As of May 31, 2020 and 2019, there was $35.9 million and $37.3 million, respectively, in total unrecognized tax benefits, which, if recognized, would favorably impact Cintas' effective tax rate. Cintas recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense in the consolidated statements of income, which is consistent with the recognition of these items in prior reporting periods. The total amount accrued for interest and penalties as of May 31, 2020 and 2019, was $3.7 million and $2.8 million, respectively. Cintas records this tax liability in long-term accrued liabilities on the consolidated balance sheets, as appropriate.

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, 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
Additions for tax positions of the current year	3,976

Additions for tax positions of prior years	4,325
Settlements	(5,473)
Statute expirations	(6,873)
Balance at May 31, 2020	$	44,670

The majority of Cintas' operations are in North America. Cintas is required to file federal income tax returns, as well as state income tax returns in a majority of the domestic states and also in certain Canadian provinces. At times, Cintas is subject to audits in these jurisdictions. The audits, by nature, are sometimes complex and can require several years to resolve. The final resolution of any such tax audit could result in either a reduction in Cintas' accruals or an increase in its income tax provision, either of which could have an impact on the consolidated results of operation in any given period.

All U.S. federal income tax returns are closed to audit through fiscal 2016. Cintas is currently in various audits in certain foreign jurisdictions and certain domestic states. The years under foreign and domestic state audits cover fiscal years back to 2014. Based on the resolution of the various audits and other potential regulatory developments, it is expected that the balance of unrecognized tax benefits will not change for the fiscal year ending May 31, 2021.

Foreign Withholding Tax

The Company asserts that all foreign earnings will be indefinitely reinvested, with the exception of certain foreign investments in which earnings and cash generation are in excess of local needs. With the passage of tax reform in the U.S., dividends of earnings from non-US operations are generally no longer subject to US income tax. Cintas continues to analyze the estimated impact of the non-US income and withholding tax liabilities based on the source of these earnings, as well as the expected means through which those earnings may be taxed; however, the unrecorded tax is immaterial.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References + Details