Income Taxes

12 Months Ended

May 31, 2021

6.	Income Taxes

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


	Year ended May 31
(in thousands)	2021		2020		2019
U.S.	$	55,753	$	62,329	$	58,479
Foreign		19,515		9,976		14,480

	$	75,268	$	72,305	$	72,959

The provision for income taxes consists of the following:


	Year ended May 31
(in thousands)	2021			2020			2019
Current
Domestic
Federal	$	6,981		$	6,886		$	7,173
Change in tax-related uncertainties		(75	)		269			13
State		2,147			1,262			1,265
Foreign		4,875			2,475			3,758
Deferred
Domestic
Federal		479			1,964			1,031
State		44			195			98
Foreign		(65	)		(221	)		(555	)

Provision for Income Taxes	$	14,386		$	12,830		$	12,783

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)	2021			2020			2019
Tax at U.S. statutory rate	$	15,806		$	15,184		$	15,321
Permanent differences		292			360			(56	)
Global intangible low-taxed income (GILTI)		2,064			438			840
Foreign derived intangible income deduction (FDII)		(1,210	)		(1,120	)		(1,531	)
Foreign rate differential		669			(182	)		495
Subpart F income		628			634			842
Tax benefits on stock-based compensation		(2,651	)		(1,998	)		(2,586	)
Changes in tax contingencies—Increase/(Release)		(76	)		269			13
Provision for state income taxes, net of federal benefit		1,601			1,412			1,251
Tax Credits		(3,298	)		(1,417	)		(1,726	)
Other		561			(750	)		(80	)

Tax Expense	$	14,386		$	12,830		$	12,783

Foreign tax credits, primarily offsetting taxes associated with Subpart F and GILTI income, were $2,753,000, $945,000 and $1,296,000 in fiscal years 2021, 2020 and 2019, respectively. The Company’s research and development credits were $545,000, $472,000 and $430,000 in fiscal years 2021, 2020 and 2019, 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)	2021			2020
Deferred income tax liabilities
Indefinite and long-lived assets	$	(25,072	)	$	(20,867	)
Prepaid expense s		(721	)		(795	)

		(25,793	)		(21,662	)
Deferred income tax assets
Stock options		1,106			1,479
Inventories and accounts receivable		2,081			1,336
Tax loss carryforwards		662			484
Accrued expenses and other		568			657
Less: valuation allowances		(541	)		(419	)

		3,876			3,537

Net deferred income tax liabilities	$	(21,917	)	$	(18,125	)

The Company has the following net operating loss carryforwards:


(in thousands)	As of
Jurisdiction	5/31/2021		Expiry
U.S.	$	345		2037 to indefinite
Foreign		1,938		2024 to 2039

	$	2,283

We are subject to income taxes in the U.S. (federal and state) and in numerous 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

x-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 circumsta

ces, 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-related uncertainties is as follows:


	Year ended May 31
(in thousands)	2021			2020		2019
Beginning balance	$	880		$	611	$	598
Increase/(decrease) related to prior periods		(272	)		56		(106	)
Increase related to current perio d		197			213		119

Ending balance	$	805		$	880	$	611

The Company is no longer subject to examination by the Internal Revenue Service for fiscal year 201

and preceding years.

- 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.

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