Note 11 - Income Taxes

12 Months Ended

Nov. 27, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 11: Income Taxes

Income before income taxes and income from equity method investments	2021		2020		2019
United States	$	14,989	$	20,328	$	31,796
Non-U.S.		201,861		138,028		141,032
Total	$	216,850	$	158,356	$	172,828

Components of the provision for income tax expense (benefit)	2021			2020			2019
Current:
U.S. federal	$	10,310		$	5,243		$	9,122
State		2,265			1,320			3,294
Non-U.S.		57,801			56,542			47,848
		70,376			63,105			60,264
Deferred:
U.S. federal		(6,891	)		(4,709	)		(432	)
State		(350	)		(4,111	)		125
Non-U.S.		(102	)		(12,364	)		(10,549	)
		(7,343	)		(21,184	)		(10,856	)
Total	$	63,033		$	41,921		$	49,408

Reconciliation of effective income tax	2021			2020			2019
Tax at statutory U.S. federal income tax rate	$	45,539		$	33,255		$	36,294
State income taxes, net of federal benefit		1,444			(2,104	)		2,785
Foreign dividend repatriation		1,104			900			825
Foreign operations		19,673			(563	)		8,712
Executive compensation over $1.0 million		2,507			1,420			1,661
Non-U.S. stock option expense		575			358			425
Change in valuation allowance		(9,572	)		5,925			1,097
Research and development tax credit		(993	)		(906	)		(802	)
Foreign-derived intangible income		(2,617	)		(1,396	)		(2,240	)
Global intangible low-taxed income		2,334			1,932			2,029
Provision to return		1,122			1,704			(3,271	)
Cross currency swap		3,931			(6,748	)		2,677
Contingency reserve		(2,139	)		8,287			(957	)
Other		125			(143	)		173
Total income tax expense	$	63,033		$	41,921		$	49,408

Deferred income tax balances at each year-end related to:	2021			2020
Deferred tax assets:
Pension and other post-retirement benefit plans	$	12,118		$	16,385
Employee benefit costs		26,799			24,538
Foreign tax credit carryforward		7,309			6,905
Tax loss carryforwards		24,071			31,495
Leases		8,590			7,133
Hedging activity		2,623			12,906
Interest deduction limitation		12,428			6,343
Other		27,410			30,178
Gross deferred tax assets		121,348			135,883
Less: valuation allowance		(11,341	)		(21,843	)
Total net deferred tax assets		110,007			114,040
Deferred tax liability:
Depreciation and amortization		(207,726	)		(220,379	)
Pension and other post-retirement benefit plans		(36,042	)		(14,968	)
Leases		(8,524	)		(7,194	)
Total deferred tax liability		(252,292	)		(242,541	)
Net deferred tax liability	$	(142,285	)	$	(128,501	)

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 and floating-to-fixed hedges recorded in accumulated other comprehensive income (loss).

Valuation allowances primarily relate to foreign net operating loss carryforwards and branch foreign tax credit carryforwards where the future potential benefits do not meet the more-likely-than-not realization test. The decrease in the valuation allowance is primarily related to a decrease in foreign net operating losses for which the Company does not expect to receive a full 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 $1,044,206 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 $85,273 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 $63,592 can be carried forward indefinitely, while the remaining $21,680 of tax losses must be utilized during 2022 to 2039.

The U.S. has a branch foreign tax credit carryforward of $3,994. 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.  We do not anticipate that the total unrecognized tax benefits will change significantly within the next twelve months.

	2021			2020
Balance at beginning of year	$	14,569		$	8,946
Tax positions related to the current year:
Additions		401			579
Tax positions related to prior years:
Additions		1,323			7,400
Reductions		(950	)		(283	)
Settlements		(161	)		(747	)
Lapses in applicable statutes of limitation		(1,901	)		(1,326	)
Balance at end of year	$	13,281		$	14,569

Included in the balance of unrecognized tax benefits as of  November 27, 2021 and November 28, 2020 are potential benefits of $8,888 and $9,125 respectively, 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 27, 2021, we recognized a net benefit for interest and penalties of $703 relating to unrecognized tax benefits and had net accumulated accrued interest and penalties of $2,817 as of November 27, 2021. For the year ended November 28, 2020, we recognized a net benefit for interest and penalties of $2,378 relating to unrecognized tax benefits and had net accumulated accrued interest and penalties of $3,520 as of November 28, 2020.

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 2018 or Swiss income tax examination for years prior to 2018. 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 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.