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Income Taxes | 12 Months Ended
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May 31, 2020
Income Taxes |
6. | Income Taxes
Income before income taxes by source consists of the following amounts:
|  | Year ended May 31 |
(in thousands) |  | 2020 |  |  | 2019 |  |  | 2018 |
U.S. |  | $ | 62,329 |  |  | $ | 58,479 |  |  | $ | 62,310 |
Foreign |  |  | 9,976 |  |  |  | 14,480 |  |  |  | 11,155 |
|  | $ | 72,305 |  |  | $ | 72,959 |  |  | $ | 73,465 |
The provision for income taxes consists of the following:
|  | Year ended May 31 |
(in thousands) |  | 2020 |  |  | 2019 |  |  | 2018 |
Current |  |  |  |  |  |  |  |  |  |  |  |
Domestic |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 6,886 |  |  | $ | 7,173 |  |  | $ | 9,715 |
Uncertain tax provision |  |  | 269 |  |  |  | 13 |  |  |  | (963 | )
State |  |  | 1,262 |  |  |  | 1,265 |  |  |  | 1,377 |
Foreign |  |  | 2,475 |  |  |  | 3,758 |  |  |  | 3,066 |
Deferred |  |  |  |  |  |  |  |  |  |  |  |
Domestic |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 1,964 |  |  |  | 1,031 |  |  |  | (1,981 | )
State |  |  | 195 |  |  |  | 98 |  |  |  | (355 | )
Foreign |  |  | (221 | ) |  |  | (555 | ) |  |  | (609 | )
Provision for Income Taxes |  | $ | 12,830 |  |  | $ | 12,783 |  |  | $ | 10,250 |
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) |  | 2020 |  |  | 2019 |  |  | 2018 |
Tax at U.S. statutory rate |  | $ | 15,184 |  |  | $ | 15,321 |  |  | $ | 21,459 |
Permanent differences |  |  | 360 |  |  |  | (56 | ) |  |  |  |
Section 199 domestic production deduction |  |  | — |  |  |  | — |  |  |  | (1,167 | )
Global intangible low-taxed income (GILTI) |  |  | 438 |  |  |  | 840 |  |  |  | — |
Foreign derived intangible income deduction (FDII) |  |  | (1,120 | ) |  |  | (1,531 | ) |  |  | — |
Foreign rate differential |  |  | (182 | ) |  |  | 495 |  |  |  | (461 | )
Subpart F income |  |  | 634 |  |  |  | 842 |  |  |  | 816 |
Tax benefits on stock-based compensation |  |  | (1,998 | ) |  |  | (2,586 | ) |  |  | (4,816 | )
Changes in tax contingencies - Increase/(Release) |  |  | 269 |  |  |  | 13 |  |  |  | (1,035 | )
Provision for state income taxes, net of federal benefit |  |  | 1,412 |  |  |  | 1,251 |  |  |  | 975 |
Remeasurement of deferred taxes |  |  | — |  |  |  | — |  |  |  | (6,022 | )
Transition tax on foreign earnings and profits |  |  | — |  |  |  | — |  |  |  | 1,223 |
Tax c redits |  |  | (1,417 | ) |  |  | (1,726 | ) |  |  | (1,151 | )
Other |  |  | (750 | ) |  |  | (80 | ) |  |  | 429 |
Tax Expense |  | $ | 12,830 |  |  | $ | 12,783 |  |  | $ | 10,250 |
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 $2.0 million in fiscal 2020, 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 $945,000, $1,296,000 and $791,000 in fiscal years 2020, 2019 and 2018, respectively. The Company’s U.S. research and development credits were $472,000, $430,000 and $422,000 in fiscal years 2020, 2019 and 2018, respectively. 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) |  | 2020 |  |  | 2019 |
Deferred income tax liabilities |  |  |  |  |  |  |  |
Indefinite and long-lived assets |  | $ | (20,867 | ) |  | $ | (18,963 | )
Prepaid expenses |  |  | (795 | ) |  |  | (586 | )
|  |  | (21,662 | ) |  |  | (19,549 | )
Deferred income tax assets |  |  |  |  |  |  |  |
Stock o ptions |  |  | 1,479 |  |  |  | 1,497 |
Inventories and accounts receivable |  |  | 1,336 |  |  |  | 1,315 |
Tax loss carryforwards |  |  | 484 |  |  |  | 417 |
Accrued expenses and other |  |  | 657 |  |  |  | 1,109 |
Less: Valuation a llowance |  |  | (419 | ) |  |  | (407 | )
|  |  | 3,537 |  |  |  | 3,931 |
Net deferred income tax liabilities |  | $ | (18,125 | ) |  | $ | (15,618 | )
The Company has the following net operating loss carryforwards:
|  | As of |  |  |  |
Jurisdiction |  | May 31, 2020 |  |  | Expiry |
U.S. |  | $ | 408 |  |  |  | 2037 to indefinite |
Foreign |  |  | 1,354 |  |  |  | 2024 to 2039 |
|  | $ | 1,762 |  |  |  |  |
We are subject to income taxes in the U.S. (federal and state) and in num e rous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. The reconciliation of our tax uncertainties is as follows:
|  | Year ended May 31 |
(in thousands) |  | 2020 |  |  | 2019 |  |  | 2018 |
Beginning balance |  | $ | 611 |  |  | $ | 598 |  |  | $ | 1,633 |
Increase/(decrease) related to prior periods |  |  | 56 |  |  |  | (106 | ) |  |  | (1,157 | )
Increase to current period |  |  | 213 |  |  |  | 119 |  |  |  | 122 |
Ending balance |  | $ | 880 |  |  | $ | 611 |  |  | $ | 598 |
The Company is no longer subject to examination by the Internal Revenue Service for fiscal year 2016 and preceding years.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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