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Taxes | 12 Months Ended
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May 31, 2018
Income Tax And Non Income Tax Disclosure [Abstract] |
Taxes | TAXES The components of Earnings (loss) from continuing operations before income taxes for the fiscal years ended May 31 were:
| 2018 |  | 2017 |  | 2016
United States | $ | (18.4 | ) |  | $ | 78.7 |  |  | $ | 62.1 |
Non-United States | 16.9 |  |  | 9.2 |  |  | 6.6 |
Total | $ | (1.5 | ) |  | $ | 87.9 |  |  | $ | 68.7 |
The provision for income taxes from continuing operations for the fiscal years ended May 31 consisted of the following components:
| 2018 |  | 2017 |  | 2016
Current |  |  |  |  |  |  |  |
Federal | $ | (3.6 | ) |  | $ | 8.3 |  |  | $ | (4.0 | )
State and local | 0.7 |  |  | 1.8 |  |  | 4.1 |
Non-United States | 4.9 |  |  | 5.4 |  |  | 4.1 |
Total Current | $ | 2.0 |  |  | $ | 15.5 |  |  | $ | 4.2 |
Deferred |  |  |  |  |  |  |  |
Federal | $ | 5.0 |  |  | $ | 17.7 |  |  | $ | 19.2 |
State and local | (3.5 | ) |  | 2.2 |  |  | 1.8 |
Non-United States | — |  |  | — |  |  | (0.5 | )
Total Deferred | $ | 1.5 |  |  | $ | 19.9 |  |  | $ | 20.5 |
Total Current and Deferred | $ | 3.5 |  |  | $ | 35.4 |  |  | $ | 24.7 |
Tax Reform On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law resulting in a significant change in the framework for U.S. corporate taxes. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. As a result, the Company's income tax benefit for the period ended May 31, 2018 includes expense related to the re-measurement of the Company's U.S. deferred tax balances of $5.7, based upon the Company's estimate of the amount and timing of future income taxes and related deductions. The Act requires the Company to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets, as defined by the Act, and 8.0% on the remaining earnings. The Company does not expect to incur a one-time transition tax on earnings of foreign subsidiaries. The re-measurement of the Company's U.S. deferred tax balances, any transition tax and interpretation of the new law is provisional subject to clarifications of the new legislation and final calculations. Any future changes to the Company’s provisional estimates, related to Act, will be reflected as a change in estimate in the period in which the change in estimate is made in accordance with ASU 2018-05 Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 allows for a measurement period of up to one year after the enactment date of the Act to finalize the recording of the related tax impacts. Effective Tax Rate Reconciliation A reconciliation of the significant differences between the effective income tax rate and the federal statutory rate on Earnings (loss) from continuing operations before income taxes for the fiscal years ended May 31 was as follows:
| 2018 |  | 2017 |  | 2016
Computed federal statutory provision | 29.2 | % |  | 35.0 | % |  | 35.0 | %
State income tax provision, net of federal income tax benefit | 37.1 |  |  | 3.3 |  |  | 3.7 |
Difference in effective tax rates on earnings of foreign subsidiaries | (1.3 | ) |  | 0.0 |  |  | 1.2 |
Charitable contributions | 28.6 |  |  | (0.3 | ) |  | (0.4 | )
Tax credits | 42.8 |  |  | (0.5 | ) |  | (0.3 | )
Valuation allowances | 68.1 |  |  | 0.1 |  |  | (0.7 | )
Uncertain Positions | 110.3 |  |  | 2.9 |  |  | 3.9 |
Remeasurement of deferred tax balances | (371.3 | ) |  | — |  |  | — |
Permanent Differences | (177.6 | ) |  | (0.3 | ) |  | (6.0 | )
Other - net | 0.8 |  |  | 0.1 |  |  | (0.4 | )
Effective tax rates | (233.3 | )% |  | 40.3 | % |  | 36.0 | %
Total provision for income taxes | $ | 3.5 |  |  | $ | 35.4 |  |  | $ | 24.7 |
The effective tax rate for the fiscal year ended May 31, 2018 was impacted by the loss from continuing operations before income taxes of $1.5 which included a pre-tax change of $57.3 related to the settlement of the Company's domestic defined benefit pension plan. The effective tax rate change was driven by the Act and the re-measurement of the Company's U.S. deferred tax balances resulting in additional tax provision of $5.7. Unremitted Earnings The Company assesses foreign investment levels periodically to determine if all or a portion of the Company’s investments in foreign subsidiaries are indefinitely invested. Any required adjustment to the income tax provision would be reflected in the period that the Company changes this assessment. As of May 31, 2018, there have been no changes to this assessment. Deferred Taxes The significant components for deferred income taxes for the fiscal years ended May 31 were as follows:
| 2018 |  | 2017
Deferred tax assets: |  |  |  |  |
Tax uniform capitalization | $ | 9.6 |  |  | $ | 9.5 |
Prepublication expenses | 0.7 |  |  | 7.8 |
Inventory reserves | 15.0 |  |  | 24.6 |
Allowance for doubtful accounts | 2.2 |  |  | 3.3 |
Other reserves | 16.9 |  |  | 26.0 |
Postretirement, post employment and pension obligations | 7.1 |  |  | 12.5 |
Tax carryforwards | 26.9 |  |  | 24.1 |
Other - net | 13.7 |  |  | 14.8 |
Gross deferred tax assets | $ | 92.1 |  |  | $ | 122.6 |
Valuation allowance | (25.1 | ) |  | (24.8 | )
Total deferred tax assets | $ | 67.0 |  |  | $ | 97.8 |
Deferred tax liabilities: |  |  |  |  |
Prepaid expenses | (0.4 | ) |  | (0.4 | )
Depreciation and amortization | (41.4 | ) |  | (43.7 | )
Total deferred tax liability | $ | (41.8 | ) |  | $ | (44.1 | )
Total net deferred tax assets | $ | 25.2 |  |  | $ | 53.7 |
Total net deferred tax assets of $25.2 at May 31, 2018 and $53.7 at May 31, 2017, respectively, are reported in noncurrent assets. For the year ended May 31, 2018, the valuation allowance increased by $0.3 and for the year ended May 31, 2017, the valuation allowance decreased by $1.6. The valuation allowance is based on the Company’s assessment that it is more likely than not that certain deferred tax assets will not be realized in the foreseeable future. The valuation allowance at May 31, 2018 relates to the Company's total foreign operating loss carryforwards of $110.2, principally in the UK, which do not expire and other operating loss carryforwards in Puerto Rico and Canada. The benefits of uncertain tax positions are recorded in the financial statements only after determining a more likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities, in which case such benefits are included in long-term income taxes payable, reduced by the associated federal deduction for state taxes and non-U.S. tax credits, and may also include other long-term tax liabilities that are not uncertain but have not yet been paid. The interest and penalties related to these uncertain tax positions are recorded as part of the Company’s income tax expense and constitute part of Other noncurrent liabilities on the Company’s Consolidated Balance Sheets. The total amount of unrecognized tax benefits at May 31, 2018, 2017 and 2016 were $10.1, excluding $1.8 accrued for interest and penalties, $14.1, excluding $1.7 accrued for interest and penalties, and $17.9, excluding $2.3 accrued for interest and penalties, respectively. Of the total amount of unrecognized tax benefits at May 31, 2018, 2017 and 2016, $10.1, $14.1 and $17.0, respectively, would impact the Company’s effective tax rate. During the years presented, the Company recognized interest and penalties related to unrecognized tax benefits in the provision for taxes in the Consolidated Financial Statements. The Company recognized an expense of $0.1, a benefit of $0.6, and an expense of $0.5 for the years ended May 31, 2018, 2017 and 2016, respectively. The table below presents a reconciliation of the unrecognized tax benefits for the fiscal years indicated:
Gross unrecognized benefits at May 31, 2015 | $ | 17.3 |
Decreases related to prior year tax positions | (6.2 | )
Increase related to prior year tax positions | 4.3 |
Increases related to current year tax positions | 5.4 |
Settlements during the period | (2.9 | )
Lapse of statute of limitation | — |
Gross unrecognized benefits at May 31, 2016 | $ | 17.9 |
Decreases related to prior year tax positions | (6.3 | )
Increase related to prior year tax positions | 0.1 |
Increases related to current year tax positions | 3.0 |
Settlements during the period | (0.6 | )
Lapse of statute of limitation | — |
Gross unrecognized benefits at May 31, 2017 | $ | 14.1 |
Decreases related to prior year tax positions | (2.6 | )
Increase related to prior year tax positions | 0.4 |
Increases related to current year tax positions | 0.5 |
Settlements during the period | (1.9 | )
Lapse of statute of limitation | (0.4 | )
Gross unrecognized benefits at May 31, 2018 | $ | 10.1 |
Unrecognized tax benefits for the Company decreased by $4.0 for the year ended May 31, 2018 and decreased by $3.8 for the year ended May 31, 2017. Although the timing of the resolution and/or closure on audits is uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next twelve months. However, given the number of years remaining subject to examination and the number of matters being examined, the Company is unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits. The Company, including its domestic subsidiaries, files a consolidated U.S. income tax return, and also files tax returns in various states and other local jurisdictions. Also, certain subsidiaries of the Company file income tax returns in foreign jurisdictions. In the fourth quarter of fiscal 2018, the Company reached a settlement with the Internal Revenue Service related to the audit of fiscal 2014. The Company is routinely audited by various tax authorities and the fiscal 2015 through fiscal 2018 tax years remain open. Non-income Taxes The Company is subject to tax examinations for sales-based taxes. A number of these examinations are ongoing and, in certain cases, have resulted in assessments from taxing authorities. The Company assesses sales tax contingencies for each jurisdiction in which it operates, considering all relevant facts including statutes, regulations, case law and experience. Where a sales tax liability in respect to a jurisdiction is probable and can be reliably estimated for such jurisdiction, the Company has made accruals for these matters which are reflected in the Company’s Consolidated Financial Statements. These amounts are included in the Consolidated Financial Statements in Selling, general and administrative expenses. Future developments relating to the foregoing could result in adjustments being made to these accruals. On June 21, 2018, the U.S. Supreme Court issued its opinion in South Dakota v. Wayfair, Inc. et. al., reversing prior precedent, in particular Quill Corp. v. North Dakota (1992), which held that states could not constitutionally require retailers to collect and remit sales or use taxes in respect to mail order or internet sales made to residents of a state in the absence of the retailer having a physical presence in the taxing state. As a result, the Company will now have an obligation, at least on a going forward basis, to collect and remit sales and use taxes, primarily in respect to sales made through its school book clubs channel, as well as certain sales made through its ecommerce internet sites, to residents in states that the Company has not previously remitted sales or use taxes based on its having no physical presence in such states. In the majority opinion, several factors were discussed in support of the Court’s reasoning that the collection of sales and use taxes from out-of-state retailers did not constitute an undue burden on interstate commerce, including the fact that South Dakota did not require retroactive application of its statute. However, the question of retroactive application, as well as certain other factors noted in the opinion will be subject to how the states, on a state-by-state basis, interpret and apply the Court’s decision in their implementation of their respective state laws or regulations addressing the collection of sales and use taxes from out-of-state retailers. As a result, how the decision will affect the Company will depend on the positions taken by the states, on a state-by-state basis, relating to the retroactive application of the obligation to collect such taxes, as well as other factors noted in the opinion. The Company is not in a position at this time to determine or estimate the probable effect of the Court’s decision. However, depending on the positions taken by the respective states, the number of states taking such positions and the time periods for retroactive application, as well as the treatment by the states of other factors noted in the Court’s opinion, the Company could be significantly impacted by the states’ interpretations and applications of the Court’s decision. As of May 31, 2018, the Company’s school book clubs channel was remitting sales taxes in ten states. Any on-going or future litigation with states relating to sales and use taxes could be impacted favorably or unfavorably by the Court’s decision in future fiscal periods. The State of Wisconsin has assessed Scholastic Book Fairs, Inc. (“SBF”), a wholly owned subsidiary of the Company, $5.4, exclusive of penalties and interest, for sales tax in fiscal years 2003 through 2014. Based upon the facts and circumstances and the relevant laws in the State of Wisconsin, the Company does not believe these assessments are merited and has elected to litigate these assessments. While the Company believes it will prevail in this litigation and accordingly has not recognized a liability for these assessments, the results of litigation cannot be assured and it is reasonably possible that SBF could be found liable for all or a portion of the amounts assessed.

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- Definition Description containing the entire income tax and non-income tax disclosure. Examples 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 carry forward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carry back, and tax uncertainties information. Also, includes disclosure relating to non-income taxes such as sales based taxes etc. This element may be used as a single block of text to encapsulate the entire disclosure including data and tables. + References No definition available. + Details
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