Worthington Steel, Inc. Income Taxes Disclosure
Note 13 – Income Taxes
Earnings before income taxes for the prior three fiscal years included the following components:
(In millions) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
U.S. based operations |
|
$ |
114.6 |
|
|
$ |
166.3 |
|
|
$ |
102.7 |
|
Non – U.S. based operations |
|
|
33.5 |
|
|
|
49.9 |
|
|
|
26.0 |
|
Earnings before income taxes |
|
|
148.1 |
|
|
|
216.2 |
|
|
|
128.7 |
|
Less: Net earnings attributable to noncontrolling interests (1) |
|
|
8.6 |
|
|
|
15.4 |
|
|
|
12.6 |
|
Earnings before income taxes attributable to controlling interest |
|
$ |
139.5 |
|
|
$ |
200.8 |
|
|
$ |
116.1 |
|
Significant components of income tax expense (benefit) for the prior three fiscal years were as follows:
(In millions) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Current |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
24.6 |
|
|
$ |
25.3 |
|
|
$ |
26.9 |
|
State and local |
|
|
3.3 |
|
|
|
6.3 |
|
|
|
4.2 |
|
Foreign |
|
|
4.0 |
|
|
|
13.4 |
|
|
|
7.6 |
|
Subtotal |
|
|
31.9 |
|
|
|
45.0 |
|
|
|
38.7 |
|
Deferred |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
0.4 |
|
|
|
4.7 |
|
|
|
(8.6 |
) |
State and local |
|
|
0.2 |
|
|
|
(0.8 |
) |
|
|
(0.6 |
) |
Foreign |
|
|
(3.7 |
) |
|
|
(2.8 |
) |
|
|
(0.5 |
) |
Subtotal |
|
|
(3.1 |
) |
|
|
1.1 |
|
|
|
(9.7 |
) |
Total |
|
$ |
28.8 |
|
|
$ |
46.1 |
|
|
$ |
29.0 |
|
A reconciliation of the federal statutory corporate income tax rate to total tax provision for the prior three fiscal years follows:
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Federal statutory corporate income tax rate |
|
|
21.0 |
% |
|
|
21.0 |
% |
|
|
21.0 |
% |
Non-U.S. income taxes at other than federal statutory rate |
|
|
(4.6 |
) |
|
|
0.6 |
|
|
|
1.7 |
|
State and local income taxes, net of federal tax benefit |
|
|
1.9 |
|
|
|
2.2 |
|
|
|
2.2 |
|
Nondeductible executive compensation |
|
|
1.8 |
|
|
|
0.6 |
|
|
|
1.7 |
|
Other |
|
|
0.5 |
|
|
|
(1.4 |
) |
|
|
(1.6 |
) |
Effective tax rate attributable to controlling interest |
|
|
20.6 |
% |
|
|
23.0 |
% |
|
|
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 the Company’s consolidated and combined statements of earnings. The effective tax rates upon inclusion of net earnings attributable to noncontrolling interests were 19.4%, 21.3% and 22.5% for fiscal 2025, fiscal 2024 and fiscal 2023, 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 is reported in the consolidated and combined income tax expense.
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 the Company’s 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.
A tabular reconciliation of unrecognized tax benefits follows:
(In millions) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Balance at beginning of the year |
|
$ |
0.2 |
|
|
$ |
1.2 |
|
|
$ |
1.2 |
|
Decreases - tax positions taken in prior years |
|
|
- |
|
|
|
(1.0 |
) |
|
|
- |
|
Increases - current tax positions |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Settlements |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Lapse of statutes of limitations |
|
|
(0.2 |
) |
|
|
- |
|
|
|
- |
|
Balance at the end of the year |
|
$ |
- |
|
|
$ |
0.2 |
|
|
$ |
1.2 |
|
During the fiscal year ended May 31, 2025, $0.2 million reserve was released due to a lapse in the statute of limitations. The amount of unrecognized tax benefits for the years ended May 31, 2024 and 2023, that, if recognized would affect the effective tax rate, was not material. During the fiscal year ended May 31, 2025, 2024, and 2023, the Company recognized an immaterial amount of tax-related interest on unrecognized tax benefits. Management estimates the reasonably possible changes to unrecognized tax benefits during the next twelve months to be immaterial and is currently unaware of any issues under review that would result in significant additional payments, accruals, or other material deviations to this estimate.
The following is a summary of the tax years open to examination by major tax jurisdiction:
The components of the Company’s deferred tax assets and liabilities as of May 31 were as follows:
(In millions) |
|
2025 |
|
|
2024 |
|
||
Deferred tax assets |
|
|
|
|
|
|
||
Accounts receivable |
|
$ |
1.9 |
|
|
$ |
1.8 |
|
Inventories |
|
|
2.8 |
|
|
|
2.8 |
|
Accrued expenses |
|
|
7.1 |
|
|
|
9.2 |
|
Net operating loss carry forwards |
|
|
4.5 |
|
|
|
2.8 |
|
Stock-based compensation |
|
|
2.5 |
|
|
|
1.9 |
|
Operating lease liability |
|
|
4.2 |
|
|
|
4.4 |
|
Derivative contracts |
|
|
- |
|
|
|
0.2 |
|
Other |
|
|
2.4 |
|
|
|
1.5 |
|
Deferred tax assets before valuation allowance |
|
|
25.4 |
|
|
|
24.6 |
|
Less: Valuation allowance |
|
|
- |
|
|
|
- |
|
Total deferred tax assets |
|
|
25.4 |
|
|
|
24.6 |
|
|
|
|
|
|
|
|
||
Deferred tax liabilities |
|
|
|
|
|
|
||
Property, plant and equipment |
|
|
(28.2 |
) |
|
|
(28.7 |
) |
Investment in affiliated company, principally due to undistributed earnings |
|
|
(8.7 |
) |
|
|
(10.5 |
) |
Operating lease - ROU assets |
|
|
(3.8 |
) |
|
|
(4.2 |
) |
Prepaid expenses |
|
|
(0.8 |
) |
|
|
- |
|
Derivative contracts |
|
|
(0.4 |
) |
|
|
- |
|
Other |
|
|
(0.7 |
) |
|
|
(0.6 |
) |
Total deferred tax liability |
|
|
(42.6 |
) |
|
|
(44.0 |
) |
Net deferred tax asset (liability) |
|
$ |
(17.2 |
) |
|
$ |
(19.4 |
) |
At May 31, 2025, the Company had tax benefits for non-U.S. net operating loss carryforwards of $4.4 million that begin expiring in fiscal 2033 and U.S. net operating loss carryforwards of $0.1 million that begin expiring in fiscal 2043.
Based on the Company’s history of profitability, the scheduled reversal of deferred tax liabilities, and taxable income projections, the Company has determined that it is more likely than not that the remaining deferred tax assets are otherwise realizable.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Jul 29, 2025 | Showing above |
| 2024 | Aug 2, 2024 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.