Income Taxes

12 Months Ended

May 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note N – Income Taxes

Earnings before income taxes for the fiscal years ended May 31 included the following components:

(in thousands)	2022		2021		2020
U.S. based operations	$	470,248	$	897,601	$	99,493
Non – U.S. based operations		44,038		20,116		11,293
Earnings before income taxes		514,286		917,717		110,786
Less: Net earnings attributable to noncontrolling interests*		19,878		17,655		5,648
Earnings before income taxes attributable to controlling interest	$	494,408	$	900,062	$	105,138

* Net earnings attributable to noncontrolling interests are not taxable to us.

Significant components of income tax expense (benefit) for the fiscal years ended May 31 were as follows:

(in thousands)	2022			2021			2020
Current
Federal	$	79,674		$	160,903		$	20,739
State and local		8,704			6,018			1,713
Foreign		7,469			4,524			5,199
		95,847			171,445			27,651
Deferred
Federal		19,398			6,668			(2,350	)
State and local		2,576			(391	)		732
Foreign		(2,799	)		(1,455	)		309
		19,175			4,822			(1,309	)
	$	115,022		$	176,267		$	26,342

A reconciliation of the federal statutory corporate income tax rate to total tax provision follows:

	2022			2021			2020
Federal statutory corporate income tax rate		21.0	%		21.0	%		21.0	%
State and local income taxes, net of federal tax benefit		2.3			0.8			2.4
Non-U.S. income taxes at other than federal statutory rate		(0.9	)		(0.3	)		3.1
Excess benefit related to share-based payment awards		(0.2	)		(0.5	)		(1.2	)
Nondeductible executive compensation		0.9			0.6			1.1
Oil & Gas capital stock loss		-			(1.5	)		-
Other		0.2			(0.5	)		(1.3	)
Effective tax rate attributable to controlling interest		23.3	%		19.6	%		25.1	%

The above effective tax rate attributable to controlling interest excludes any impact from the inclusion of net earnings attributable to noncontrolling interests in our consolidated statements of earnings. The effective tax rates upon inclusion of net earnings attributable to noncontrolling interests were 22.4%, 19.2% and 23.8% for fiscal 2022, fiscal 2021 and fiscal 2020, respectively. Net earnings attributable to noncontrolling interests are primarily a result of our Samuel, WSP, Spartan, and TWB consolidated joint ventures. The earnings attributable to the noncontrolling interests in Samuel, WSP, Spartan and TWB’s U.S. operations do not generate tax expense to us since the investors in Samuel, WSP, Spartan and TWB’s U.S. operations are taxed directly based on the earnings attributable to them. The tax expense of TWB’s wholly-owned foreign corporations is reported in our consolidated tax expense.

Under applicable accounting guidance, a tax benefit may be recognized from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Any tax benefits recognized in our financial statements from such a position were measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

The total amount of unrecognized tax benefits was $4,706,000, $3,836,000, and $1,621,000 as of May 31, 2022, 2021 and 2020, respectively. As of May 31, 2022, the total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate attributable to controlling interest was $3,930,000. Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken, in a tax return, and the benefit recognized for accounting purposes. Accrued amounts of interest and penalties related to unrecognized tax benefits are recognized as part of income tax expense within our consolidated statements of earnings. As of May 31, 2022, 2021 and 2020, we had accrued liabilities of $367,000, $12,000 and $68,000, respectively, for interest and penalties related to unrecognized tax benefits.

A tabular reconciliation of unrecognized tax benefits follows:

(In thousands)
Balance at May 31, 2021	$	3,836
Decreases - tax positions taken in prior years		(513	)
Increases - current tax positions		1,436
Lapse of statutes of limitations		(53	)
Balance at May 31, 2022	$	4,706

Approximately $43,000 of the liability for unrecognized tax benefits is expected to be settled in the next twelve months due to the expiration of statutes of limitations in various tax jurisdictions and as a result of expected settlements with various tax jurisdictions. While it is expected that the amount of unrecognized tax benefits will change in the next twelve months, any change is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

The following is a summary of the tax years open to examination by major tax jurisdiction:

U.S. Federal –2019 and forward

U.S. State and Local –2018 and forward

Austria – 2020 and forward

Canada –2017 and forward

China – 2021 and forward

India – 2017 and forward

Mexico – 2008, 2009, 2016 and forward

Portugal – 2018 and forward

The components of our deferred tax assets and liabilities as of May 31 were as follows:

(in thousands)	2022			2021
Deferred tax assets
Accounts receivable	$	1,695		$	1,244
Inventories		6,291			4,946
Accrued expenses		28,981			24,714
Net operating loss carry forwards		8,178			9,907
Stock-based compensation		5,432			6,076
Operating lease - ROU liability		10,443			7,642
Other		1,588			2,309
Total deferred tax assets		62,608			56,838
Valuation allowance for deferred tax assets		(5,878	)		(9,124	)
Net deferred tax assets		56,730			47,714
Deferred tax liabilities
Property, plant and equipment		(127,859	)		(111,789	)
Investment in affiliated companies, principally due    to undistributed earnings		(28,274	)		(24,034	)
Operating lease - ROU asset		(10,354	)		(7,102	)
Derivative contracts		(412	)		(15,343	)
Other		(4,963	)		(3,197	)
Total deferred tax liability		(171,862	)		(161,465	)
Net deferred tax liability	$	(115,132	)	$	(113,751	)

At May 31, 2022, we had tax benefits for federal net operating loss carry forwards of $1,636,000 with no expiration date, tax benefits for state net operating loss carry forwards of $5,051,000 that expire from fiscal 2023 to the fiscal year ending May 31, 2042, and tax benefits for non-U.S. net operating loss carryforwards of $1,491,000 with no expiration date.

The valuation allowance for deferred tax assets of $5,878,000 on May 31, 2022, is associated primarily with the state net operating loss carry forwards and relates to our former Steel Processing facility in Decatur, Alabama, and our former Engineered Cabs facility in Tennessee.

Based on our history of profitability, the scheduled reversal of deferred tax liabilities, and taxable income projections, we have determined that it is more likely than not that the remaining deferred tax assets are otherwise realizable.