v3.26.1
Income Taxes
 12 Months Ended
May 31, 2026
Income Tax Disclosure [Abstract]  
Income Taxes

Note 14 – Income Taxes

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

 

(In millions)

 

2026

 

 

2025

 

 

2024

 

U.S.-based operations

 

$

47.3

 

 

$

114.6

 

 

$

166.3

 

Non-U.S.-based operations

 

 

(40.2

)

 

 

33.5

 

 

 

49.9

 

Earnings before income taxes

 

 

7.1

 

 

 

148.1

 

 

 

216.2

 

Less: Net earnings (loss) attributable to noncontrolling interests

 

 

(21.4

)

 

 

8.6

 

 

 

15.4

 

Earnings before income taxes attributable to controlling interest

 

$

28.5

 

 

$

139.5

 

 

$

200.8

 

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

 

(In millions)

 

2026

 

 

2025

 

 

2024

 

Current

 

 

 

 

 

 

 

 

 

Federal

 

$

21.2

 

 

$

24.6

 

 

$

25.3

 

State and local

 

 

7.3

 

 

 

3.3

 

 

 

6.3

 

Foreign

 

 

1.9

 

 

 

4.0

 

 

 

13.4

 

Subtotal

 

 

30.4

 

 

 

31.9

 

 

 

45.0

 

Deferred

 

 

 

 

 

 

 

 

 

Federal

 

 

(7.3

)

 

 

0.4

 

 

 

4.7

 

State and local

 

 

(0.9

)

 

 

0.2

 

 

 

(0.8

)

Foreign

 

 

(2.2

)

 

 

(3.7

)

 

 

(2.8

)

Subtotal

 

 

(10.4

)

 

 

(3.1

)

 

 

1.1

 

Total

 

$

20.0

 

 

$

28.8

 

 

$

46.1

 

 

The Company adopted ASU 2023-09 in fiscal 2026 on a prospective basis. A reconciliation of the federal statutory corporate income tax rate to total tax provision for the prior three fiscal years follows:

 

 

2026

 

(In millions)

 

Amount

 

 

Percent

 

Income tax at U.S. federal statutory tax rate

 

$

1.5

 

 

 

21.0

%

State and local income taxes, net of federal (1)

 

 

3.0

 

 

 

42.4

 

Foreign tax effects:

 

 

 

 

 

 

Canada

 

 

 

 

 

 

Tax credits

 

 

(2.7

)

 

 

(37.9

)

Nondeductible goodwill impairment

 

 

0.9

 

 

 

13.4

 

Foreign currency translation and rate effects

 

 

0.7

 

 

 

9.5

 

Other

 

 

(0.1

)

 

 

(1.1

)

China

 

 

 

 

 

 

Nondeductible goodwill impairment

 

 

0.5

 

 

 

7.5

 

Other

 

 

-

 

 

 

(0.4

)

Germany

 

 

 

 

 

 

Changes in valuation allowances

 

 

7.7

 

 

 

108.3

 

Other

 

 

(0.4

)

 

 

(5.7

)

India

 

 

 

 

 

 

Nondeductible goodwill impairment

 

 

0.3

 

 

 

4.7

 

Other

 

 

0.2

 

 

 

1.8

 

Italy

 

 

 

 

 

 

Nondeductible goodwill impairment

 

 

3.0

 

 

 

42.3

 

Foreign currency translation and rate effects

 

 

(0.7

)

 

 

(9.2

)

Opening balance sheet adjustments

 

 

(0.6

)

 

 

(8.4

)

Other

 

 

-

 

 

 

0.7

 

Mexico

 

 

 

 

 

 

Foreign currency translation and rate effects

 

 

(6.7

)

 

 

(93.8

)

Nondeductible goodwill impairment

 

 

1.2

 

 

 

16.9

 

Nondeductible wages

 

 

0.5

 

 

 

7.2

 

Other

 

 

0.1

 

 

 

0.7

 

Switzerland

 

 

 

 

 

 

Foreign currency translation and rate effects

 

 

2.5

 

 

 

35.6

 

Changes in valuation allowances

 

 

(1.5

)

 

 

(21.0

)

Amended return net operating loss adjustment

 

 

1.4

 

 

 

19.3

 

Opening balance sheet adjustments

 

 

0.9

 

 

 

12.3

 

Nondeductible goodwill impairment

 

 

0.5

 

 

 

7.2

 

Other

 

 

-

 

 

 

0.2

 

Other

 

 

0.4

 

 

 

4.7

 

Effects of cross-borders tax laws

 

 

 

 

 

 

Global intangible low-taxed income

 

 

1.3

 

 

 

18.3

 

Foreign-derived intangible income

 

 

(1.0

)

 

 

(14.8

)

Tax credits

 

 

(0.2

)

 

 

(2.8

)

Nontaxable or nondeductible items:

 

 

 

 

 

 

Nondeductible goodwill impairment

 

 

4.1

 

 

 

58.5

 

Tax effect of income attributable to noncontrolling interests

 

 

(3.1

)

 

 

(43.6

)

Nondeductible executive compensation

 

 

2.8

 

 

 

39.0

 

Share-based compensation

 

 

(1.1

)

 

 

(14.9

)

Nondeductible transaction costs

 

 

0.7

 

 

 

10.3

 

Meals and entertainment costs

 

 

0.5

 

 

 

7.1

 

Nondeductible fringe benefit

 

 

0.4

 

 

 

4.9

 

Changes in unrecognized tax benefits

 

 

1.8

 

 

 

26.0

 

Other adjustments:

 

 

 

 

 

 

Interest and penalties related to unrecognized tax benefits

 

 

0.8

 

 

 

11.6

 

Tax on unremitted foreign earnings

 

 

0.3

 

 

 

4.3

 

Other

 

 

0.1

 

 

 

0.6

 

Effective tax rate

 

$

20.0

 

 

 

282.7

%

 

 
(1)
State and local taxes in Illinois, Michigan, and Kentucky make up the majority (greater than 50%) of the tax effect in this category.

 

 

2025

 

 

2024

 

Federal statutory corporate income tax rate

 

 

21.0

%

 

 

21.0

%

Non-U.S. income taxes at other than federal statutory rate

 

 

(4.6

)

 

 

0.6

 

State and local income taxes, net of federal tax benefit

 

 

1.9

 

 

 

2.2

 

Nondeductible executive compensation

 

 

1.8

 

 

 

0.6

 

Other

 

 

0.5

 

 

 

(1.4

)

Effective tax rate attributable to controlling interest

 

 

20.6

%

 

 

23.0

%

 

The above effective tax rate attributable to controlling interest excludes any impact from the inclusion of net earnings attributable to noncontrolling interests in the Company’s consolidated and combined statements of earnings for fiscal 2025 and 2024. The effective tax rates upon inclusion of net earnings attributable to noncontrolling interests are 19.4% and 21.3% for fiscal 2025 and fiscal 2024, respectively. Net earnings attributable to noncontrolling interests are a result of the Company’s consolidated joint ventures. The net earnings attributable to the noncontrolling interests in the U.S. operations of the Company’s consolidated joint ventures do not generate tax expense to the Company since the investors are taxed directly based on the earnings attributable to the investors. The tax expense of TWB’s wholly owned foreign subsidiaries and the Sitem Group is reported in the consolidated and combined income tax expense.

The Company recognizes the benefit of a tax position only when it is more likely than not that the position will be sustained upon examination by the relevant taxing authority, including the resolution of any related appeals or litigation, based on the technical merits of the position. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

A tabular reconciliation of unrecognized tax benefits follows:

 

(In millions)

 

2026

 

 

2025

 

 

2024

 

Balance at beginning of year

 

$

-

 

 

$

0.2

 

 

$

1.2

 

Gross increases related to tax positions taken in prior years

 

 

2.3

 

 

 

-

 

 

 

-

 

Gross decreases related to tax positions taken in prior years

 

 

-

 

 

 

-

 

 

 

(1.0

)

Gross increases related to tax positions taken in current year

 

 

0.3

 

 

 

-

 

 

 

-

 

Reductions due to lapse of applicable statutes of limitations

 

 

-

 

 

 

(0.2

)

 

 

-

 

Balance at end of year

 

$

2.6

 

 

$

-

 

 

$

0.2

 

 

At May 31, 2026, the Company had $2.6 million of gross unrecognized tax benefits. If recognized, approximately $2.1 million would affect the Company’s effective tax rate. The amount of unrecognized tax benefits that would affect the Company’s effective tax rate if recognized was not material at May 31, 2025, and 2024.

 

During the fiscal year ended May 31, 2026, the Company recognized $0.4 million of interest expense and $0.4 million of penalties in income tax expense related to uncertain tax positions. At May 31, 2026, the Company had accrued $0.4 million of interest and $0.4 million of penalties related to uncertain tax positions in the consolidated balance sheet. Interest and penalties recognized in income tax expense and accrued in the consolidated balance sheet were not material at May 31, 2025, and 2024.

The following is a summary of the tax years open to examination by major tax jurisdiction:

•
U.S. Federal – 2020, 2022 and forward
•
U.S. State and Local – 2021 and forward
•
Canada – 2022 and forward
•
China – 2023 and forward
•
France – 2022 and forward
•
Germany – 2023 and forward
•
India – 2021 and forward
•
Italy – 2020 and forward
•
Mexico – 2021 and forward
•
Slovakia – 2020 and forward
•
Switzerland – 2025 and forward.

The components of the Company’s deferred tax assets and liabilities as of May 31 were as follows:

 

(In millions)

 

2026

 

 

2025

 

Deferred tax assets

 

 

 

 

 

 

Accounts receivable

 

$

0.7

 

 

$

1.9

 

Inventories

 

 

3.3

 

 

 

2.8

 

Accrued expenses

 

 

10.6

 

 

 

7.1

 

Net operating loss carry forwards

 

 

21.6

 

 

 

4.5

 

Stock-based compensation

 

 

2.7

 

 

 

2.5

 

Operating lease liability

 

 

4.7

 

 

 

4.2

 

Tax credit carryforwards

 

 

2.2

 

 

 

-

 

Other

 

 

3.4

 

 

 

2.4

 

Deferred tax assets before valuation allowance

 

 

49.2

 

 

 

25.4

 

Less: Valuation allowance

 

 

(11.0

)

 

 

-

 

Total deferred tax assets

 

 

38.2

 

 

 

25.4

 

 

 

 

 

 

 

Deferred tax liabilities

 

 

 

 

 

 

Property, plant and equipment

 

 

(44.2

)

 

 

(28.2

)

Investment in affiliated company, principally due to undistributed earnings

 

 

(9.1

)

 

 

(8.7

)

Operating lease – ROU assets

 

 

(3.6

)

 

 

(3.8

)

Prepaid expenses

 

 

(0.7

)

 

 

(0.8

)

Derivative contracts

 

 

(0.6

)

 

 

(0.4

)

Other

 

 

(0.9

)

 

 

(0.7

)

Total deferred tax liability

 

 

(59.1

)

 

 

(42.6

)

Net deferred tax asset (liability)

 

$

(20.9

)

 

$

(17.2

)

 

At May 31, 2026, the Company had taxable temporary differences related to investments in certain foreign subsidiaries and foreign corporate joint ventures for which no deferred tax liability was recognized because the temporary differences are considered indefinitely reinvested. Determination of the amount of the related unrecognized deferred tax liability is not practicable.

 

At May 31, 2026, the Company had tax benefits for non-U.S. net operating loss carryforwards of $21.5 million that begin expiring in fiscal 2030 and U.S. net operating loss carryforwards of $0.1 million that begin expiring in fiscal 2043.

During fiscal 2026, the Company recorded valuation allowances of $11.0 million, including $3.3 million related to acquired entities and $7.7 million related to current-year changes in management’s assessment of realizability. The valuation allowances relate to deferred tax assets in Switzerland, Slovakia, Germany, and Pennsylvania, consisting primarily of net operating loss carryforwards, interest carryforward, and other deductible temporary differences. Management evaluated positive and negative evidence, including recent operating results, projected future taxable income, reversal of taxable temporary differences, and available tax-planning strategies.

As part of the Company’s adoption of ASU 2023-09 in fiscal 2026 on a prospective basis, a reconciliation of income taxes paid in fiscal 2026 is as follows:

 

(In millions)

 

2026

 

U.S. Federal

 

$

29.9

 

U.S. State

 

 

5.1

 

Non-U.S.

 

 

 

Canada

 

 

4.8

 

Other

 

 

2.8

 

Income Taxes paid, net of refunds received

 

$

42.6

 

Income taxes paid, net in fiscal 2025 and fiscal 2024 were $26.2 million and $37.6 million(1), respectively.

 

 
(1)
The amount of cash paid for income taxes paid, net of refunds, in fiscal 2024 for the period prior to the Separation was not distinguishable for the Company. These amounts were combined with the Former Parent. Due to the legal organizational structure, capital structure, and income tax compliance requirements, the amounts for the Company were indivisible from those that were included with the Former Parent. The amounts disclosed for income taxes paid, net of refunds represent all distinguishable amounts, which includes domestic taxes paid after the Separation and foreign taxes paid for the entire fiscal year.