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Income Taxes | 12 Months Ended
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Jun. 01, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The components of (loss) earnings before income taxes are as follows:
(In millions) | 2024 |  | 2023 |  | 2022
Domestic | $ | (24.8) |  |  | $ | (90.3) |  |  | $ | (142.4) |
Foreign | 124.5 |  |  | 141.7 |  |  | 133.8 |
Total | $ | 99.7 |  |  | $ | 51.4 |  |  | $ | (8.6) |
The provision (benefit) for income taxes consists of the following:
(In millions) | 2024 |  | 2023 |  | 2022
Current: | Domestic - Federal | $ | 10.8 |  |  | $ | 4.2 |  |  | $ | (3.8) |
| Domestic - State | 7.4 |  |  | 2.2 |  |  | 0.2 |
| Foreign | 34.6 |  |  | 42.3 |  |  | 38.1 |
|  | 52.8 |  |  | 48.7 |  |  | 34.5 |
Deferred: | Domestic - Federal | (22.2) |  |  | (32.5) |  |  | (12.2) |
| Domestic - State | (6.5) |  |  | (4.4) |  |  | (5.0) |
| Foreign | (9.4) |  |  | (7.3) |  |  | (6.2) |
|  | (38.1) |  |  | (44.2) |  |  | (23.4) |
Total income tax provision | $ | 14.7 |  |  | $ | 4.5 |  |  | $ | 11.1 |
The following table represents a reconciliation of income taxes at the United States statutory rate of 21% with the effective tax rate as follows:
(In millions) | 2024 |  | 2023 |  | 2022
Income taxes computed at the United States Statutory rate | $ | 20.9 |  |  | $ | 10.8 |  |  | $ | (1.8) |
Increase (decrease) in taxes resulting from: |  |  |  |  |
State and local income taxes, net of federal income tax benefit | 0.4 |  |  | (1.0) |  |  | (4.0) |
Non-deductible officers' compensation | 1.1 |  |  | 0.9 |  |  | 5.3 |
Foreign-derived intangible income | (2.4) |  |  | (1.7) |  |  | — |
Foreign-based company income | 3.8 |  |  | 5.1 |  |  | 3.1 |
Global intangible low-taxed income | 8.1 |  |  | 9.4 |  |  | 15.2 |
Foreign statutory rate differences | 3.1 |  |  | 2.3 |  |  | 4.1 |
Research and development incentives | (7.1) |  |  | (4.0) |  |  | (4.8) |
Federal return to provision adjustments | (1.8) |  |  | (4.1) |  |  | (0.6) |
Foreign return to provision adjustments | (2.5) |  |  | 1.1 |  |  | (0.9) |
Foreign tax credit | (12.1) |  |  | (15.6) |  |  | (8.8) |
Foreign withholding taxes and other miscellaneous foreign taxes | 1.1 |  |  | 1.2 |  |  | 2.4 |
Change in valuation allowance against deferred tax assets | 2.5 |  |  | 1.3 |  |  | 0.4 |
Other, net | (0.4) |  |  | (1.2) |  |  | 1.5 |
Income tax expense | $ | 14.7 |  |  | $ | 4.5 |  |  | $ | 11.1 |
Effective tax rate | 14.8 | % |  | 8.8 | % |  | (130.1) | %
The tax effects and types of temporary differences that give rise to significant components of the deferred tax assets and liabilities at June 1, 2024 and June 3, 2023, are as follows:
(In millions) | 2024 |  | 2023
Deferred tax assets: |  |  |
Compensation-related accruals | $ | 16.5 |  |  | $ | 15.2 |
Capitalized research and experimental costs | 32.4 |  |  | 17.6 |
Accrued pension and post-retirement benefit obligations | 1.3 |  |  | 0.4 |
Deferred revenue | 6.1 |  |  | 5.6 |
Inventory related | 13.4 |  |  | 16.1 |
Other reserves and accruals | 9.4 |  |  | 10.9 |
Warranty | 16.8 |  |  | 18.0 |
State and local tax net operating loss carryforwards and credits | 5.7 |  |  | 4.7 |
Federal net operating loss carryforward | 3.0 |  |  | 5.2 |
Federal and state nondeductible interest expense carryforward | 18.7 |  |  | 7.9 |
Foreign tax net operating loss carryforwards and credits | 18.0 |  |  | 14.2 |
Lease liability | 96.6 |  |  | 109.6 |
Other | 6.4 |  |  | 5.8 |
Subtotal | 244.3 |  |  | 231.2 |
Valuation allowance | (15.4) |  |  | (12.7) |
Total | $ | 228.9 |  |  | $ | 218.5 |
Deferred tax liabilities: |  |  |
Book basis in property in excess of tax basis | $ | 55.1 |  |  | $ | 64.0 |
Intangible assets | 189.7 |  |  | 196.3 |
Interest rate swap | 15.2 |  |  | 14.1 |
Right of use lease assets | 85.3 |  |  | 99.1 |
Withholding taxes on planned repatriation of foreign earnings | 3.7 |  |  | 5.8 |
Other | 4.4 |  |  | 2.3 |
Total | $ | 353.4 |  |  | $ | 381.6 |
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 June 1, 2024, the Company had state and local tax NOL carry-forwards of $83.6 million, the state tax benefit of which is $5.0 million, which have expiration periods from 1 year to an unlimited term. The Company also had state credits with a state tax benefit of $0.7 million, which expire in 2 to 5 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 $1.3 million. At June 1, 2024, the Company had federal NOL carry-forwards of $14.3 million, the tax benefit of which is $3.0 million, which have expiration periods from 5 years to an unlimited term. For financial statement purposes, the NOL carry-forwards have been recognized as deferred tax assets. At June 1, 2024, the Company had federal deferred assets of $1.3 million, the tax benefit of which is $0.3 million, which is related to an investment in a foreign joint venture. For financial statement purposes, the assets have been recognized as deferred tax assets, subject to a valuation allowance of $0.3 million. At June 1, 2024, the Company had foreign net operating loss carry-forwards of $62.4 million, the tax benefit of which is $16.1 million, which have expiration periods from 4 years to an unlimited term. The Company also had foreign tax credits with a tax benefit of $1.9 million which have expiration periods from 6 to 12 years. For financial statement purposes, the NOL carry-forwards and foreign tax credits have been recognized as deferred tax assets, subject to a valuation allowance of $13.0 million. At June 1, 2024, the Company had foreign deferred assets of $3.1 million, the tax benefit of which is $0.8 million, which is related to various deferred taxes in Canada, Belgium and Ireland 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 $114.9 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 $3.7 million. A significant portion of this cash was previously taxed under the U.S. Tax Cut and Jobs Act either as one-time U.S. tax liability on undistributed foreign earnings or GILTI. The Company intends to remain indefinitely reinvested in the remaining undistributed earnings outside the U.S, which was $347.5 million on June 1, 2024. Determination 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 May 28, 2022 | $ | 2.3 |
Increases related to prior year income tax positions | 0.1 |
Decreases related to lapse of applicable statute of limitations | (0.6) |
Decreases related to settlements | (0.2) |
Balance at June 3, 2023 | $ | 1.6 |
Increases related to current year income tax positions | 0.2 |
Decreases related to lapse of applicable statute of limitations | (0.3) |
Balance at June 1, 2024 | $ | 1.5 |
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) | June 1, 2024 |  | June 3, 2023 |  | May 28, 2022 |  |
Interest and penalty (income) expense | $ | 0.1 |  |  | $ | (0.2) |  |  | $ | — |  |  |
Liability for interest and penalties | $ | 0.8 |  |  | $ | 0.7 |  |  | $ | 0.9 |  |  |
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. The Company has partially closed the audits of fiscal year 2022 and fiscal year 2023 with the Internal Revenue Service under the Compliance Assurance Process (CAP). Knoll’s federal consolidated returns related to calendar years 2019, 2020, and short period 2021 have also been selected for examination by the Internal Revenue Service. 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 2019.

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