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Income Taxes | 12 Months Ended
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May 30, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law in the United States. The effects of the Act included the reduction of the federal corporate income tax rate from 35 percent to 21 percent and a new participation exemption system of taxation on foreign earnings, among other provisions. In accordance with Staff Accounting Bulletin 118, for the year ended June 2, 2018, the Company recorded a provisional tax benefit of $3.1 million from the impact of the Act, primarily related to the one-time U.S. tax liability on certain undistributed foreign earnings and the remeasurement of current and deferred tax liabilities. Subsequently, as the U.S. Treasury Department issued additional guidance, the Company recorded adjustments to the provisional tax benefit. During the year ended June 1, 2019, the Company completed its accounting for all the effects of the Act and recorded adjustments to the provisional amounts primarily for the one-time U.S. tax liability on certain undistributed foreign earnings and also an adjustment related to foreign tax credits to increase the income tax benefit from the Act by $1.0 million. For tax years beginning after December 31, 2017, the Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The Company elected to account for tax expense related to GILTI in the year the tax is incurred. The components of (loss) earnings before income taxes are as follows:
(In millions) | 2020 |  | 2019 |  | 2018
Domestic | $ | (75.6 | ) |  | $ | 136.2 |  |  | $ | 121.6 |
Foreign | 62.2 |  |  | 58.9 |  |  | 46.5 |
Total | $ | (13.4 | ) |  | $ | 195.1 |  |  | $ | 168.1 |
The provision (benefit) for income taxes consists of the following:
(In millions) | 2020 |  | 2019 |  | 2018
Current: Domestic - Federal | $ | 12.0 |  |  | $ | 19.0 |  |  | $ | 30.2 |
Domestic - State | 5.7 |  |  | 6.4 |  |  | 4.3 |
Foreign | 13.3 |  |  | 12.9 |  |  | 10.7 |
| 31.0 |  |  | 38.3 |  |  | 45.2 |
Deferred: Domestic - Federal | (16.8 | ) |  | 1.0 |  |  | (4.1 | )
Domestic - State | (3.9 | ) |  | (0.2 | ) |  | 0.1 |
Foreign | (4.3 | ) |  | 0.5 |  |  | 1.2 |
| (25.0 | ) |  | 1.3 |  |  | (2.8 | )
Total income tax provision | $ | 6.0 |  |  | $ | 39.6 |  |  | $ | 42.4 |
The following table represents a reconciliation of income taxes at the United States statutory rate of 21% for 2020 and 2019, and 29.1% for 2018 with the effective tax rate as follows:
(In millions) | 2020 |  | 2019 |  | 2018
Income taxes computed at the United States Statutory rate | $ | (2.8 | ) |  | $ | 41.0 |  |  | $ | 49.0 |
Increase (decrease) in taxes resulting from: |  |  |  |  |
State and local income taxes, net of federal income tax benefit | 1.4 |  |  | 4.9 |  |  | 3.3 |
Non-deductible goodwill impairment | 17.1 |  |  | — |  |  | — |
Gain on consolidation of equity method investments | (5.5 | ) |  | — |  |  | — |
Remeasurement of U.S. deferred tax assets and liabilities due to the Tax Act | — |  |  | (0.2 | ) |  | (8.9 | )
U.S. tax liability on undistributed foreign earnings due to the Tax Act | — |  |  | (2.6 | ) |  | 9.0 |
Foreign-derived intangible income | (1.4 | ) |  | (3.1 | ) |  | — |
Global intangible low-taxed income | 5.9 |  |  | 6.9 |  |  | — |
Foreign statutory rate differences | 0.7 |  |  | 1.9 |  |  | (4.0 | )
Manufacturing deduction under the American Jobs Creation Act of 2004 | — |  |  | — |  |  | (2.7 | )
Research and development credit | (4.4 | ) |  | (5.3 | ) |  | (4.2 | )
Foreign offshore income claim | (1.7 | ) |  | (0.7 | ) |  | — |
Foreign tax credit | (5.8 | ) |  | (5.7 | ) |  | (2.4 | )
Foreign withholding taxes and other miscellaneous foreign taxes | 2.7 |  |  | 0.8 |  |  | 1.9 |
Other, net | (0.2 | ) |  | 1.7 |  |  | 1.4 |
Income tax expense | $ | 6.0 |  |  | $ | 39.6 |  |  | $ | 42.4 |
Effective tax rate | (44.9 | )% |  | 20.3 | % |  | 25.2 | %
The tax effects and types of temporary differences that give rise to significant components of the deferred tax assets and liabilities at May 30, 2020 and June 1, 2019, are as follows:
(In millions) | 2020 |  | 2019
Deferred tax assets: |  |  |
Compensation-related accruals | $ | 14.2 |  |  | $ | 13.1 |
Accrued pension and post-retirement benefit obligations | 9.6 |  |  | 7.2 |
Deferred revenue | 3.7 |  |  | 6.1 |
Inventory related | 3.9 |  |  | 1.2 |
Other reserves and accruals | 7.9 |  |  | 8.1 |
Warranty | 14.0 |  |  | 12.3 |
State and local tax net operating loss carryforwards and credits | 2.5 |  |  | 2.5 |
Federal net operating loss carryforward | 1.2 |  |  | 1.4 |
Foreign tax net operating loss carryforwards and credits | 8.4 |  |  | 9.1 |
Accrued step rent and tenant reimbursements | 0.7 |  |  | 4.2 |
Interest rate swap | 6.1 |  |  | 0.3 |
Lease liability | 52.5 |  |  | — |
Other | 6.9 |  |  | 4.7 |
Subtotal | 131.6 |  |  | 70.2 |
Valuation allowance | (10.6 | ) |  | (10.4 | )
Total | $ | 121.0 |  |  | $ | 59.8 |
Deferred tax liabilities: |  |  |
Book basis in property in excess of tax basis | $ | 32.0 |  |  | $ | 26.6 |
Intangible assets | 43.6 |  |  | 34.6 |
Right of use lease assets | 44.7 |  |  | — |
Other | 3.4 |  |  | 2.4 |
Total | $ | 123.7 |  |  | $ | 63.6 |
The future tax benefits of net operating loss (NOL) carry-forwards and foreign tax credits are recognized to the extent that realization of these benefits is considered more likely than not. The Company bases this determination on the expectation that related operations will be sufficiently profitable or various tax planning strategies will enable the Company to utilize the NOL carry-forwards and/or foreign tax credits. To the extent that available evidence about the future raises doubt about the realization of these tax benefits, a valuation allowance is established. At May 30, 2020, the Company had state and local tax NOL carry-forwards of $22.0 million, the state tax benefit of which is $1.2 million, which have various expiration periods from 1 to 21 years. The Company also had state credits with a state tax benefit of $1.3 million, which expire in 2 to 6 years. For financial statement purposes, the NOL carry-forwards and state tax credits have been recognized as deferred tax assets, subject to a valuation allowance of $1.6 million. At May 30, 2020, the Company had federal NOL carry-forwards of $5.9 million, the tax benefit of which is $1.2 million, which expire in 9 years. For financial statement purposes, the NOL carry-forwards have been recognized as deferred tax assets. At May 30, 2020, the Company had federal deferred assets of $2.3 million, the tax benefit of which is $0.5 million, which is related to investments in various foreign joint ventures. For financial statement purposes, the assets have been recognized as deferred tax assets, subject to a valuation allowance of $0.5 million. At May 30, 2020, the Company had foreign net operating loss carry-forwards of $37.7 million, the tax benefit of which is $8.4 million, which have expiration periods from 8 years to an unlimited term. For financial statement purposes, the NOL carry-forwards have been recognized as deferred tax assets, subject to a valuation allowance of $7.7 million. At May 30, 2020, the Company had foreign deferred assets of $4.2 million, the tax benefit of which is $0.8 million, which is related to various deferred taxes in Hong Kong and Brazil as well as buildings in the United Kingdom. For financial statement purposes, the assets have been recognized as deferred tax assets, subject to a valuation allowance of $0.8 million. The Company intends to repatriate $29.1 million in cash held in certain foreign jurisdictions and as such has recorded a deferred tax liability related to foreign withholding taxes on these future dividends received in the U.S. from foreign subsidiaries of $1.8 million. A significant portion of this cash was previously taxed under the U.S. Tax Cut and Jobs Act (TCJA) one-time U.S. tax liability on undistributed foreign earnings. The Company intends to remain indefinitely reinvested in the remaining undistributed earnings outside the U.S, which was $221.5 million on May 30, 2020. D etermination of the total amount of unrecognized deferred income tax on the remaining undistributed earnings of foreign subsidiaries is not practicable. The components of the Company's unrecognized tax benefits are as follows:
(In millions) |
Balance at June 2, 2018 | $ | 3.2 |
Increases related to current year income tax positions | 0.4 |
Increases related to prior year income tax positions | 0.1 |
Decreases related to prior year income tax positions | (0.4 | )
Decreases related to lapse of applicable statute of limitations | (0.3 | )
Decreases related to settlements | (1.1 | )
Balance at June 1, 2019 | $ | 1.9 |
Increases related to current year income tax positions | 0.3 |
Decreases related to prior year income tax positions | (0.1 | )
Decreases related to lapse of applicable statute of limitations | (0.2 | )
Balance at May 30, 2020 | $ | 1.9 |
The Company's effective tax rate would have been affected by the total amount of unrecognized tax benefits had this amount been recognized as a reduction to income tax expense. The Company recognizes interest and penalties related to unrecognized tax benefits through Income tax expense in its Consolidated Statements of Comprehensive Income. Interest and penalties and the related liability, which are excluded from the table above, were as follows for the periods indicated:
(In millions) | May 30, 2020 |  | June 1, 2019 |  | June 2, 2018
Interest and penalty expense (income) | $ | 0.1 |  |  | $ | (0.3 | ) |  | $ | 0.1 |
Liability for interest and penalties | $ | 0.8 |  |  | $ | 0.7 |  |  |
The Company is subject to periodic audits by domestic and foreign tax authorities. Currently, the Company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next 12 months as a result of new positions that may be taken on income tax returns, settlement of tax positions and the closing of statutes of limitation. It is not expected that any of the changes will be material to the Company's Consolidated Statements of Comprehensive Income. During the year, the Company has partially closed the audit of fiscal 2019 with the Internal Revenue Service under the Compliance Assurance Process (CAP). The audit of fiscal 2018 also remains partially closed. For the majority of the remaining tax jurisdictions, the Company is no longer subject to state and local, or non-U.S. income tax examinations by tax authorities for fiscal years before 2017.

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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