Income Taxes

12 Months Ended

May 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Note N – Income Taxes

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

	2024			2023		2022
U.S. based operations	$	107,643		$	149,670	$	212,811
Non – U.S. based operations		(33,636	)		10,616		(2,162	)
Earnings before income taxes		74,007			160,286		210,649
Plus: net loss attributable to noncontrolling interests (1)		263			-		-
Earnings before income taxes attributable to controlling interest	$	74,270		$	160,286	$	210,649

(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:

	2024			2023			2022
Current
Federal	$	32,743		$	34,734		$	38,893
State and local		1,576			2,891			3,089
Foreign		1,666			3,988			136
Subtotal		35,985			41,613			42,118
Deferred
Federal		(3,751	)		(4,427	)		9,158
State and local		3,801			(1,943	)		2,558
Foreign		2,992			(708	)		(1,133	)
Subtotal		3,042			(7,078	)		10,583
Total	$	39,027		$	34,535		$	52,701

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

	2024			2023			2022
Federal statutory corporate income tax rate		21.0	%		21.0	%		21.0	%
State and local income taxes, net of federal tax benefit		3.5			0.6			2.7
Non-U.S. income taxes at other than federal statutory rate		0.5			0.7			(0.3	)
Excess benefit related to share-based payment awards		(2.7	)		(0.1	)		(0.1	)
Non-deductible executive compensation		4.9			2.1			2.1
Research and development tax credit		(0.2	)		(0.8	)		-
Non-deductible spin-off transaction costs		7.5			-			-
Non-deductible note receivable impairment		3.2			-			-
Tax impact of Sustainable Energy Solutions impairment and deconsolidation		11.1			-			-
Deferred state tax adjustment due to spin-off		4.2			-			-
Other		(0.4	)		(2.0	)		(0.4	)
Effective tax rate attributable to controlling interest		52.6	%		21.5	%		25.0	%

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 rate upon inclusion of net earnings attributable to noncontrolling interests was 52.7% for fiscal 2024. Net earnings attributable to noncontrolling interests are primarily a result of our acquisition of Halo in fiscal 2024. The earnings attributable to the noncontrolling interests in Halo do not generate tax expense to us since the investors in Halo’s operations are taxed directly based on the earnings attributable to them.

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 $3,467 as of May 31, 2024, 2023, and 2022, respectively. As of May 31, 2024, the total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate attributable to controlling interest was $2,739. 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, 2024, 2023 and 2022, we had accrued liabilities of $881, $556 and $311, respectively, for interest and penalties related to unrecognized tax benefits.

A tabular reconciliation of unrecognized tax benefits follows:

Balance at May 31, 2023	$	3,467
Increases - tax positions taken in prior years		-
Decreases - tax positions taken in prior years		-
Increases - current tax positions		-
Settlements		-
Lapse of statutes of limitations		-
Balance at May 31, 2024	$	3,467

Approximately $709 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 - 2021 and forward

•U.S. State and Local - 2020 and forward

•Portugal - 2020 and forward

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

	2024			2023
Deferred tax assets
Accounts receivable	$	850		$	590
Note receivable		2,346			-
Inventories		3,616			2,765
Accrued expenses		13,238			18,683
Net operating loss carry forwards		5,497			7,465
Stock-based compensation		3,508			1,838
Derivative contracts		303			438
Operating lease - ROU liability		4,595			5,731
Capital loss		10,110			-
Other		3,866			2,349
Total deferred tax assets		47,929			39,859
Valuation allowance for deferred tax assets		(7,083	)		(5,480	)
Net deferred tax assets		40,846			34,379
Deferred tax liabilities
Property, plant and equipment		(28,770	)		(27,970	)
Intangibles		(72,898	)		(68,998	)
Investment in affiliated companies, principally due    to undistributed earnings		(17,434	)		(11,212	)
Operating lease - ROU asset		(4,613	)		(5,654	)
Other		(1,281	)		(2,891	)
Total deferred tax liability		(124,996	)		(116,725	)
Net deferred tax liability	$	(84,150	)	$	(82,346	)

At May 31, 2024, 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 $3,861 that expire from fiscal 2026 to fiscal 2044.

The valuation allowance for deferred tax assets of $7,083 on May 31, 2024, 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, as well as a note receivable related to a Sustainable Energy Solutions investment.

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.