Note 12 - Income Taxes

12 Months Ended

Nov. 30, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 12: Income Taxes

Income before income taxes and income from equity method investments	2019		2018		2017
United States	$	31,796	$	19,388	$	(33,273	)
Non-U.S.		141,032		137,338		93,872
Total	$	172,828	$	156,726	$	60,599

Components of the provision for income tax expense (benefit)	2019			2018			2017
Current:
U.S. federal	$	9,122		$	9,652		$	444
State		3,294			1,597			21
Non-U.S.		47,848			37,980			29,557
		60,264			49,229			30,022
Deferred:
U.S. federal		(432	)		(50,115	)		(7,653	)
State		125			(197	)		(1,414	)
Non-U.S.		(10,549	)		(5,273	)		(11,145	)
		(10,856	)		(55,585	)		(20,212	)
Total	$	49,408		$	(6,356	)	$	9,810

Reconciliation of effective income tax	2019			2018			2017
Statutory U.S. federal income tax rate	$	36,294		$	34,605		$	21,210
State income taxes, net of federal benefit		2,785			1,148			(959	)
Foreign dividend repatriation		2,854			1,258			276
Foreign operations		8,712			(3,253	)		(9,565	)
Impact of option valuation		-			330			(1,381	)
Interest income not taxable in the U.S.		-			-			(626	)
Executive compensation over $1 million		1,661			611			-
Change in valuation allowance		1,097			5,213			(3,694	)
Research and development tax credit		(802	)		(982	)		(647	)
Section 199 manufacturing deduction		-			(319	)		-
Foreign-derived intangible income		(2,240	)		-			-
Cross currency swap		2,677			-			-
Royal Adhesives transaction costs		-			-			2,271
Transition tax		-			42,007			-
Dividends received deduction		-			(8,484	)		-
Deferred tax rate change		-			(79,488	)		-
Other		(3,630	)		998			2,925
Total income tax expense (benefit)	$	49,408		$	(6,356	)	$	9,810

Deferred income tax balances at each year-end related to:	2019			2018
Deferred tax assets:
Employee benefit costs	$	32,621		$	19,617
Foreign tax credit carryforward		2,175			1,809
Tax loss carryforwards		26,427			27,532
Other		29,518			20,865
Gross deferred tax assets		90,741			69,823
Less: valuation allowance		(14,986	)		(14,129	)
Total net deferred tax assets		75,755			55,694
Deferred tax liability:
Depreciation and amortization		(224,248	)		(242,877	)
Total deferred tax liability		(224,248	)		(242,877	)
Net deferred tax liability	$	(148,493	)	$	(187,183	)

The difference between the change in the deferred tax assets in the balance sheet and the deferred tax provision is primarily due to the defined benefit pension plan adjustment recorded in accumulated other comprehensive income (loss).

Valuation allowances principally relate to foreign net operating loss carryforwards where the future potential benefits do not meet the more-likely-than-not realization test. The increase in the valuation allowance relates primarily to current year net operating losses of which the company does not expect to receive a tax benefit.

Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those deferred tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more-likely-than-not to be realized. We believe it is more-likely-than-not that, reversal of deferred tax liabilities and forecasted income, will be sufficient to fully recover the net deferred tax assets not already offset by a valuation allowance. In the event that all or part of the gross deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made.

U.S. income taxes have not been provided on approximately $765,842 of undistributed earnings of non-U.S. subsidiaries. We intend to indefinitely reinvest these undistributed earnings. Cash available in the United States has historically been sufficient and we expect it will continue to be sufficient to fund U.S. cash flow requirements. In the event these earnings are later distributed to the U.S., such distributions would likely result in additional U.S. tax.

While non-U.S. operations have been profitable overall, there are cumulative tax losses of $94,378 in various countries. These tax losses can be carried forward to offset the income tax liabilities on future income in these countries. Cumulative tax losses of $52,914 can be carried forward indefinitely, while the remaining $41,464 of tax losses must be utilized during 2020 to 2037. The company also has $2,118 of tax effected losses in various states.

The U.S. has a branch foreign tax credit carryforward of $2,175. A valuation allowance has been recorded against this foreign tax credit carryforward to reflect that this amount is not more-likely-than-not to be realized.

The table below sets forth the changes to our gross unrecognized tax benefit as a result of uncertain tax positions, excluding accrued interest, for the fiscal years ended November 30, 2019, and excluding accrued interest for the fiscal year ended December 1, 2018.  We do not anticipate that the total unrecognized tax benefits will change significantly within the next twelve months.

	2019			2018
Balance at beginning of year	$	8,420		$	8,887
Tax positions related to the current year:
Additions		684			622
Tax positions related to prior years:
Additions		3,077			1,625
Reductions		(1,484	)		(763	)
Settlements		(105	)		(15	)
Lapses in applicable statutes of limitation		(1,646	)		(1,936	)
Balance at end of year	$	8,946		$	8,420

Included in the balance of unrecognized tax benefits as of November 30, 2019, are potential benefits of $6,755 that, if recognized, would affect the effective tax rate.

We report accrued interest and penalties related to unrecognized tax benefits in income tax expense. For the year ended November 30, 2019, we recognized a net benefit for interest and penalties of $59 relating to unrecognized tax benefits and had net accumulated accrued interest and penalties of $1,142 as of November 30, 2019. For the year ended December 1, 2018, we recognized a net benefit for interest and penalties of $571 relating to unrecognized tax benefits and had net accumulated accrued interest and penalties of $1,190 as of December 1, 2018.

We are subject to U.S. federal income tax as well as income tax in numerous state and foreign jurisdictions. We are no longer subject to U.S. federal tax examination for years prior to 2013 or Swiss income tax examination for years prior to 2013. During 2015, the U.S. tax authorities opened an audit for the years ended December 1, 2012 and November 30, 2013. These audits have been principally settled but remain open only for matters to be addressed by the U.S., Canada and Mexican authorities in competent authority. During the second quarter of 2016, H.B. Fuller (China) Adhesives, Ltd. was notified of a transfer pricing audit covering the calendar years 2005 through 2014. We are in various stages of examination and appeal in several states and other foreign jurisdictions. Although the final outcomes of these examinations cannot currently be determined, we believe that we have recorded adequate liabilities with respect to these examinations.