Note 11 - Income Taxes

12 Months Ended

Nov. 30, 2024

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 11: Income Taxes

Income before income taxes and income from equity method investments	2024			2023		2022
United States	$	(46,064	)	$	15,276	$	63,718
Non-U.S.		228,727			218,884		188,210
Total	$	182,663		$	234,160	$	251,928

Components of the provision for income tax expense (benefit)	2024			2023			2022
Current:
U.S. federal	$	14,150		$	18,347		$	12,181
State		4,104			5,529			3,389
Non-U.S.		92,721			87,449			63,750
		110,975			111,325			79,320
Deferred:
U.S. federal		(44,784	)		(100	)		8,150
State		(4,442	)		(4,111	)		(1,767	)
Non-U.S.		(5,368	)		(13,585	)		(8,517	)
		(54,594	)		(17,796	)		(2,134	)
Total	$	56,381		$	93,529		$	77,186

Reconciliation of effective income tax	2024			2023			2022
Tax at statutory U.S. federal income tax rate	$	38,359		$	49,174		$	52,760
State income taxes, net of federal benefit		(307	)		1,137			1,252
Foreign dividend repatriation		1,943			21,730			2,596
Foreign operations		13,232			12,558			1,868
Executive compensation over $1.0 million		1,690			784			2,847
Non-U.S. stock option expense		676			730			525
Change in valuation allowance		(1,800	)		725			3,187
Research and development tax credit		(1,460	)		(1,400	)		(927	)
Foreign-derived intangible income		(625	)		(2,665	)		(2,786	)
Global intangible low-taxed income		1,581			2,345			1,890
Provision to return		(1,595	)		1,336			840
Cross currency swap		-			-			7,020
Contingency reserve		3,416			5,951			5,909
Excess Tax Benefit Related to Stock Options & Restricted Stock		(3,083	)		(850	)		(2,016	)
Goodwill Impairment Related to Flooring		2,373			-			-
Other		1,981			1,974			2,221
Total income tax expense	$	56,381		$	93,529		$	77,186

¹ Foreign dividend repatriation line includes impact of withholding tax recorded on earnings that are no longer permanently reinvested.

Deferred income tax balances at each year-end related to:	2024			2023
Deferred tax assets:
Pension and other post-retirement benefit plans	$	4,318		$	5,306
Employee benefit costs		28,116			27,672
Foreign tax credit carryforward		7,555			6,538
Tax loss carryforwards		20,059			25,894
Leases		16,203			12,716
Hedging activity		11,688			18,638
Interest deduction limitation		57,233			37,519
Other		31,026			33,022
Gross deferred tax assets		176,198			167,305
Less: valuation allowance		(11,696	)		(15,595	)
Total net deferred tax assets		164,502			151,710
Deferred tax liability:
Depreciation and amortization		(187,897	)		(209,266	)
Pension and other post-retirement benefit plans		(58,119	)		(41,444	)
Undistributed earnings of non-U.S. subsidiaries		(4,933	)		(21,926	)
Leases		(15,948	)		(12,510	)
Total deferred tax liability		(266,897	)		(285,146	)
Net deferred tax liability	$	(102,395	)	$	(133,436	)

The difference between the change in the deferred tax liability on the balance sheet and the deferred tax provision is primarily related to the defined benefit pension plan adjustment and hedges recorded in accumulated other comprehensive income (loss) offset by liabilities established in purchase accounting.

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 $1,197,517 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 $68,380 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 $45,177 can be carried forward indefinitely, while the remaining $23,203 of tax losses must be utilized during 2025 to 2042.

The U.S. has a branch foreign tax credit carryforward of $4,351. 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.

	2024			2023
Balance at beginning of year	$	14,254		$	17,582
Tax positions related to the current year:
Additions		1,027			723
Tax positions related to prior years:
Additions		4,434			5,658
Reductions		(755	)		(965	)
Settlements		(775	)		(8,156	)
Lapses in applicable statutes of limitation		(2,595	)		(588	)
Balance at end of year	$	15,590		$	14,254

Included in the balance of unrecognized tax benefits as of  November 30, 2024 and December 2, 2023 are potential benefits of $12,431 and $10,338 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 30, 2024, we recognized a net benefit for interest and penalties of $658 relating to unrecognized tax benefits and had net accumulated accrued interest and penalties of $4,840 as of November 30, 2024. For the year ended December 2, 2023, we recognized a net benefit for interest and penalties of $824    relating to unrecognized tax benefits and had net accumulated accrued interest and penalties of $6,708 as of December 2, 2023.

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 2021 or Swiss income tax examination for years prior to 2022. During the fourth quarter of 2024, H.B. Fuller (China) Adhesives, Ltd. settled its 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.