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Income Taxes | 12 Months Ended
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May 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | 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 |
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 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.
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.
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) | 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.
Income taxes paid were $173.2 million, $175.3 million and $269.6 million for the fiscal years ended May 31, 2019, 2018 and 2017, respectively. As of May 31, 2019 and 2018, there was $37.3 million and $26.9 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, 2019 and 2018, was $2.8 million and $1.8 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, 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.
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 2015. 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, 2020. The Tax Act In fiscal year 2018, the Company’s tax expense and effective tax rate was impacted by the enactment of the Tax Act in the United States on December 22, 2017, which provided for a reduction of the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018 and required companies to pay a one-time transition tax on earnings of foreign subsidiaries. The Tax Act also included provisions that were expected to offset some of the benefit of the U.S. corporate tax rate reduction, including the repeal of the deduction for domestic production activities and the expansion of the limitation on the deduction of certain executive compensation. In addition, the Tax Act altered the landscape of taxation of non-U.S. operations and provided immediate deductions for certain new investments, among other provisions. As a result of the statutory rate reduction to 21% during fiscal year 2018, the Company recorded an income tax benefit of $175.6 million related to the remeasurement of its deferred taxes and additional tax expense of $9.8 million relating to the Tax Act’s transition tax liability. The Company considered the effects of the Tax Act to be provisional pursuant to the guidance in SEC Staff Accounting Bulletin No. 118, primarily due to lack of implementation guidance at the balance sheet date related to among other items the state tax impacts of federal tax reform, which resulted in the use of estimates to compute the future blended tax rate. During the third quarter of fiscal 2019, Cintas finalized the accounting for the tax effects of the Tax Act. The Company recorded $0.4 million and $0.2 million to income tax expense as an adjustment to the provisional amounts recorded as of fiscal 2018 relating to the deferred tax remeasurement and transition tax liability, respectively. Cintas also analyzed and recorded the impact of the Tax Act on executive compensation, the foreign derived intangible income deduction and global intangible low-taxed income and determined that the impact was immaterial for the year ended May 31, 2019. Cintas has elected to account for Global Intangible Low-Taxed Income (GILTI) as a current-period expense when incurred. Therefore, the Company has not recorded deferred taxes for basis differences expected to reverse in future periods. Foreign Withholding Tax In fiscal 2018, Cintas revised its position regarding unrepatriated foreign earnings to a partially reinvested assertion. 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 the Tax Act, dividends of earnings from non-U.S. operations are generally no longer subject to U.S. income tax. Cintas continues to analyze and adjust the estimated impact of the non-U.S. 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. Cintas has accrued a withholding tax estimate of $0.7 million related to fiscal 2019 earnings that are not deemed to be permanently reinvested. The unrecognized tax liability associated with the operations in which Cintas asserts permanent reinvestment is $5.4 million as of May 31, 2019. We will continue to monitor all foreign earnings and profits we believe to be permanently reinvested in foreign operations.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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