Income Taxes

12 Months Ended

May 31, 2019

6.	Income Taxes

Income before income taxes by source consists of the following amounts:

	Year ended May 31
(in thousands)	2019		2018		2017
U.S.	$	58,479	$	62,310	$	55,171
Foreign		14,480		11,155		11,502
	$	72,959	$	73,465	$	66,673

The provision for income taxes consists of the following:

	Year ended May 31
(in thousands)	2019		2018			2017
Current:
U.S. Taxes	$	8,451	$	10,129		$	20,259
Foreign		3,758		3,066			2,514
Deferred		574		(2,945	)		(73	)
Provision for Income Taxes	$	12,783	$	10,250		$	22,700

The reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense is as follows:

	Year ended May 31
(in thousands)	2019			2018			2017
Tax at U.S. statutory rate	$	15,321		$	21,459		$	23,336
Section 199 domestic production deduction		—			(1,167	)		(1,057	)
Global intangible low-taxed income (GILTI)		840			—			—
Foreign derived intangible income deduction (FDII)		(1,531	)		—			—
Foreign rate differential		495			(461	)		(1,247	)
Subpart F income		842			816			996
Tax benefits on stock-based compensation		(2,586	)		(4,816	)		(535	)
FIN 48 reserve adjustments		13			(1,035	)		576
Provision for state income taxes, net of federal benefit		1,251			975			972
Remeasurement of deferred taxes		—			(6,022	)		—
Transition tax on foreign earnings and profits		—			1,223			—
Tax credits		(1,726	)		(1,151	)		(1,213	)
Other		(136	)		429			872
	$	12,783		$	10,250		$	22,700

On June 1, 2017, the Company adopted ASU No. 2016-09—Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies the accounting for share-based payments to employees. The guidance requires the recognition of the income effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid-in capital pools. The guidance also allows for a policy election to account for forfeitures as they occur, rather than on an estimated basis, and requires that excess tax benefits be classified as an operating activity on the Statement of Cash Flows. The adoption of this ASU decreased income tax expense by $2.6 million in fiscal 2019 and by

4.8

million in fiscal

2018

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the U.S. Tax Act) was signed into law, making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from

35% to 21%

for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The U.S. Tax Act also includes a provision to tax global intangible low-taxed income (GILTI) of foreign subsidiaries and a deduction for foreign derived intangible income (FDII), both of which became effective for the Company beginning June 1, 2018.

In fiscal 2018, the Company recorded a net benefit of $4.8 million related to the U.S. Tax Act, due to the impact of the reduction in the tax rate on deferred tax assets and liabilities of

6.0

million, partially offset by

$1.2

million of one-time transition tax on the deemed repatriation of foreign earnings. In fiscal 2019, the Company finalized its calculation of these amounts and recorded immaterial adjustments to income tax expense; the Company also recorded expense of $840,000 related to GILTI and a tax benefit of $1.5 million related to FDII.

Foreign tax credits, primarily offsetting taxes associated with Subpart F and GILTI income, were $1,296,000, $791,000 and $729,000 in fiscal years 2019, 2018 and 2017, respectively. The Company’s U.S. R & D credit was $430,000 in fiscal 2019 and $422,000 in fiscal years 2018 and 2017.

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of our deferred income tax liabilities and assets are as follows:

	Year ended May 31
(in thousands)	2019			2018
Deferred income tax liabilities
Indefinite and long-lived assets	$	(18,963	)	$	(17,503	)
Prepaid expenses		(586	)		(573	)
		(19,549	)		(18,076	)
Deferred income tax assets
Stock Options		1,497			1,489
Inventories and accounts receivable		1,315			1,593
Tax loss carryforwards		417			134
Valuation allowance on tax loss carryforwards		(407)			—
Accrued expenses and other		1,109			757
		3,931			3,973
Net deferred income tax liabilities	$	(15,618	)	$	(14,103	)

The Company is no longer subject to examination by the Internal Revenue Service for 2016 and earlier tax years.