Income Taxes

12 Months Ended

May 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note N – Income Taxes

Earnings before income taxes for the prior three fiscal years included the following components:

(In thousands)	2023		2022		2021
U.S. based operations	$	308,719	$	470,248	$	897,601
Non – U.S. based operations		36,649		44,038		20,116
Earnings before income taxes		345,368		514,286		917,717
Less: Net earnings attributable to noncontrolling interests (1)		12,642		19,878		17,655
Earnings before income taxes attributable to controlling interest	$	332,726	$	494,408	$	900,062

(1)Net earnings attributable to noncontrolling interests are not taxable to us.

Significant components of income tax expense (benefit) for the prior three fiscal years were as follows:

(In thousands)	2023			2022			2021
Current
Federal	$	69,919		$	79,674		$	160,903
State and local		7,774			8,704			6,018
Foreign		14,033			7,469			4,524
Subtotal		91,726			95,847			171,445
Deferred
Federal		(9,682	)		19,398			6,668
State and local		(2,122	)		2,576			(391	)
Foreign		(3,724	)		(2,799	)		(1,455	)
Subtotal		(15,528	)		19,175			4,822
Total	$	76,198		$	115,022		$	176,267

A reconciliation of the federal statutory corporate income tax rate to total tax provision for the prior three fiscal years follows:

	2023			2022			2021
Federal statutory corporate income tax rate		21.0	%		21.0	%		21.0	%
State and local income taxes, net of federal tax benefit		1.7			2.3			0.8
Non-U.S. income taxes at other than federal statutory rate		0.9			(0.9	)		(0.3	)
Excess benefit related to share-based payment awards		(0.2	)		(0.2	)		(0.5	)
Nondeductible executive compensation		1.1			0.9			0.6
Oil & Gas capital stock loss		-			-			(1.5	)
Other		(1.6	)		0.2			(0.5	)
Effective tax rate attributable to controlling interest		22.9	%		23.3	%		19.6	%

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 22.1%, 22.4% and 19.2% for fiscal 2023, fiscal 2022 and fiscal 2021, 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 $4,663, $4,706 and $3,836 as of May 31, 2023, 2022 and 2021, respectively. As of May 31, 2023, the total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate attributable to controlling interest was $3,896. 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, 2023, 2022 and 2021, we had accrued liabilities of $621, $367 and $12, respectively, for interest and penalties related to unrecognized tax benefits.

A tabular reconciliation of unrecognized tax benefits follows:

(In thousands)
Balance at May 31, 2022	$	4,706
Increases - tax positions taken in prior years		-
Decreases - tax positions taken in prior years		-
Increases - tax positions taken in prior years		-
Increases - current tax positions		-
Settlements		-
Lapse of statutes of limitations		(43	)
Balance at May 31, 2023	$	4,663

Approximately $9 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 - 2020 and forward

•U.S. State and Local - 2019 and forward

•Austria - 2020 and forward

•Canada - 2018 and forward

•China - 2021 and forward

•India - 2017 and forward

•Mexico - 2008, 2009, 2018 and forward

•Portugal - 2019 and forward

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

(In thousands)	2023			2022
Deferred tax assets
Accounts receivable	$	1,929		$	1,695
Inventories		6,195			6,291
Accrued expenses		30,157			28,981
Net operating loss carry forwards		10,700			8,178
Stock-based compensation		6,226			5,432
Derivative contracts		2,242			-
Operating lease - ROU liability		8,390			10,443
Other		2,523			1,588
Total deferred tax assets		68,362			62,608
Valuation allowance for deferred tax assets		(5,480	)		(5,878	)
Net deferred tax assets		62,882			56,730
Deferred tax liabilities
Property, plant and equipment		(60,771	)		(58,433	)
Intangibles		(69,175	)		(69,426	)
Investment in affiliated companies, principally due    to undistributed earnings		(23,073	)		(28,274	)
Operating lease - ROU asset		(8,091	)		(10,354	)
Derivative contracts		-			(412	)
Other		(3,221	)		(4,963	)
Total deferred tax liability		(164,331	)		(171,862	)
Net deferred tax liability	$	(101,449	)	$	(115,132	)

At May 31, 2023, we had tax benefits for federal net operating loss carry forwards of $1,636, with no expiration date, tax benefits for state net operating loss carry forwards of $4,640 that expire from fiscal 2024 to no expiration date, and tax benefits for non-U.S. net operating loss carryforwards of $ 4,424 that expire from fiscal 2032 to no expiration date.

The valuation allowance for deferred tax assets of $5,480 on May 31, 2023, 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.