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Income Taxes | 12 Months Ended
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May 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income before income taxes for continuing operations consists of the following components:
(In thousands) | 2017 |  | 2016 |  | 2015
U.S. operations | $ | 673,055 |  |  | $ | 685,167 |  |  | $ | 622,502 |
Foreign operations | 14,349 |  |  | 20,148 |  |  | 18,054 |
| $ | 687,404 |  |  | $ | 705,315 |  |  | $ | 640,556 |
Income tax expense for continuing operations consists of the following components:
(In thousands) | 2017 |  | 2016 |  | 2015
Current: |  |  |  |  |
Federal | $ | 194,130 |  |  | $ | 279,134 |  |  | $ | 199,360 |
State and local | 27,197 |  |  | 25,428 |  |  | 24,733 |
| 221,327 |  |  | 304,562 |  |  | 224,093 |
Deferred | 8,791 |  |  | (47,852 | ) |  | 13,910 |
| $ | 230,118 |  |  | $ | 256,710 |  |  | $ | 238,003 |
Reconciliation of income tax expense for continuing operations using the statutory rate and actual income tax expense is as follows:
(In thousands) | 2017 |  | 2016 |  | 2015
Income taxes at the U.S. federal statutory rate | $ | 240,677 |  |  | $ | 246,881 |  |  | $ | 224,360 |
State and local income taxes, net of federal benefit | 19,210 |  |  | 16,339 |  |  | 16,308 |
Other (1) | (29,769 | ) |  | (6,510 | ) |  | (2,665 | )
| $ | 230,118 |  |  | $ | 256,710 |  |  | $ | 238,003 |
(1) The Other category in fiscal 2017 is primarily associated with $29.4 million excess tax benefit for share based compensation under the adoption of ASU 2016-09. The components of deferred income taxes included on the consolidated balance sheets are as follows:
(In thousands) | 2017 |  | 2016
Deferred tax assets: |  |  |
Allowance for doubtful accounts | $ | 7,707 |  |  | $ | 7,416 |
Inventory obsolescence | 16,096 |  |  | 13,702 |
Insurance and contingencies | 54,489 |  |  | 42,717 |
Stock-based compensation | 73,027 |  |  | 45,720 |
Net operating loss and foreign related carry-forwards (1) | 37,814 |  |  | 17,883 |
Treasury locks | — |  |  | 12,055 |
Other | 25,891 |  |  | 8,100 |
| 215,024 |  |  | 147,593 |
Valuation allowance | (18,088 | ) |  | (17,047 | )
| 196,936 |  |  | 130,546 |
Deferred tax liabilities: |  |  |
In service inventory | 210,766 |  |  | 172,704 |
Property | 126,872 |  |  | 93,784 |
Intangibles | 290,049 |  |  | 104,585 |
Treasury locks | 6,435 |  |  | — |
State taxes and other | 32,142 |  |  | 18,948 |
| 666,264 |  |  | 390,021 |
Net deferred tax liability | $ | 469,328 |  |  | $ | 259,475 |
(1) During fiscal 2017, the net operating loss increased primarily due to the G&K acquisition. The net operating loss related to the G&K acquisition is expected to be utilized by fiscal 2018 and will expire in 2037. Although realization is not assured, 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:
(In thousands) | 2017 |  | 2016
Balance at beginning of year | $ | (17,047 | ) |  | $ | (14,690 | )
Additions | (1,667 | ) |  | (3,437 | )
Subtractions | 626 |  |  | 1,080 |
Balance at end of year | $ | (18,088 | ) |  | $ | (17,047 | )
Income taxes paid were $269.6 million, $452.6 million and $236.7 million for the fiscal years ended May 31, 2017, 2016 and 2015, respectively. Undistributed earnings of foreign subsidiaries were approximately $214.8 million, $117.2 million and $147.1 million as of May 31, 2017, 2016 and 2015, respectively, for which deferred taxes have not been provided. Such earnings are considered to be permanently reinvested in Cintas' foreign subsidiaries. If such earnings were repatriated, additional tax expense may result. The current calculation of such additional taxes is not practicable. As of May 31, 2017 and 2016, there was $12.6 million and $12.9 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, 2017 and 2016, was $0.9 million and $1.1 million, respectively. Cintas records this tax liability as current and long-term accrued liabilities on the consolidated balance sheets, as appropriate. In the normal course of business, Cintas provides for uncertain tax positions and the related interest, and adjusts its unrecognized tax benefits and accrued interest accordingly. Unrecognized tax benefits did not change in fiscal 2017 and increased in fiscal 2016 and fiscal 2015 by $0.8 million and $1.4 million, respectively. Accrued interest decreased by $0.2 million in fiscal 2017 and increased by $0.2 million in both fiscal 2016 and 2015. 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, 2014 | $ | 13,062 |
Additions for tax positions of prior years | 4,001 |
Settlements | (48 | )
Statute expirations | (1,603 | )
Balance at May 31, 2015 | $ | 15,412 |
Additions for tax positions of prior years | 3,259 |
Settlements | (48 | )
Statute expirations | (2,092 | )
Balance at May 31, 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 |
(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. On September 13, 2013, the U.S. Department of the Treasury and the Internal Revenue Service released final tangible property regulations under Sections 162(a) and 263(a) of the Internal Revenue Code regarding amounts paid to improve tangible property and acquire or produce tangible property, as well as proposed regulations regarding the disposition of property. The effective date of the final regulations was for Cintas' fiscal year ended May 31, 2015, and there was not a material impact on the consolidated financial statements for any period presented. 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 2013. 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 2012. 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, 2018.

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- 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 Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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