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Income Taxes
 12 Months Ended
May 31, 2023
Income Taxes
6.
Income Taxes

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

 

 

Year ended May 31

 

 

 

2023

 

 

2022

 

 

2021

 

U.S.

 

$

(85,681

)

 

$

38,554

 

 

$

55,753

 

Foreign

 

 

63,639

 

 

 

21,653

 

 

 

19,515

 

 

$

(22,042

)

 

$

60,207

 

 

$

75,268

 

 

The provision for income taxes consists of the following:

 

 

Year ended May 31

 

 

 

2023

 

 

2022

 

 

2021

 

Current

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

Federal

 

$

8,674

 

 

$

8,579

 

 

$

6,981

 

Change in tax-related uncertainties

 

 

278

 

 

 

3

 

 

 

(75

)

State

 

 

1,616

 

 

 

2,406

 

 

 

2,147

 

Foreign

 

 

9,490

 

 

 

5,140

 

 

 

4,875

 

Total Current

 

 

20,058

 

 

 

16,128

 

 

 

13,928

 

Deferred

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

Federal

 

 

(17,406

)

 

 

(3,721

)

 

 

479

 

State

 

 

(1,865

)

 

 

(356

)

 

 

44

 

Foreign

 

 

41

 

 

 

(151

)

 

 

(65

)

Total Deferred

 

 

(19,230

)

 

 

(4,228

)

 

 

458

 

Provision for Income Taxes

 

$

828

 

 

$

11,900

 

 

$

14,386

 

 

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

 

 

 

2023

 

 

2022

 

 

2021

 

Tax at U.S. statutory rate

 

$

(4,629

)

 

$

12,643

 

 

$

15,806

 

Permanent differences

 

 

325

 

 

 

179

 

 

 

292

 

Global intangible low-taxed income (GILTI)

 

 

6,482

 

 

 

1,501

 

 

 

2,064

 

Foreign derived intangible income deduction (FDII)

 

 

(643

)

 

 

(1,308

)

 

 

(1,210

)

Foreign rate differential

 

 

(3,742

)

 

 

215

 

 

 

669

 

Subpart F income

 

 

152

 

 

 

397

 

 

 

628

 

Tax-effect from stock-based compensation

 

 

1,946

 

 

 

(462

)

 

 

(2,651

)

Provision for state income taxes, net of federal benefit

 

 

18

 

 

 

1,517

 

 

 

1,601

 

Non-deductible acquisition expenses

 

 

7,187

 

 

 

—

 

 

 

—

 

Tax credits

 

 

(6,709

)

 

 

(2,527

)

 

 

(3,298

)

Impact of tax rate changes

 

 

—

 

 

 

583

 

 

 

(75

)

Change in tax-related uncertainties

 

 

278

 

 

 

3

 

 

 

55

 

Changes in valuation allowances

 

 

355

 

 

 

85

 

 

 

—

 

Research expenditures deduction

 

 

(365

)

 

 

(112

)

 

 

—

 

Other

 

 

173

 

 

 

(814

)

 

 

505

 

Income Tax Expense

 

$

828

 

 

$

11,900

 

 

$

14,386

 

 

Foreign tax credits, primarily offsetting taxes associated with Subpart F and GILTI income, were $5,324, $1,747, and $2,753 in fiscal years 2023, 2022, and 2021, respectively. The Company’s research and development credits were $1,385, $780, and $545 in fiscal years 2023, 2022, and 2021, 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

 

 

 

2023

 

 

2022

 

Deferred income tax liabilities

 

 

 

 

 

 

Indefinite and long-lived assets

 

$

(369,500

)

 

$

(22,709

)

Right of use asset

 

 

(1,834

)

 

 

(344

)

Prepaid expenses

 

 

(1,480

)

 

 

(884

)

 

 

(372,814

)

 

 

(23,937

)

Deferred income tax assets

 

 

 

 

 

 

Interest expense not currently deductible

 

 

5,782

 

 

 

—

 

Research and experimentation capitalization

 

 

5,868

 

 

 

—

 

Stock options

 

 

2,192

 

 

 

2,085

 

Inventories and accounts receivable

 

 

3,219

 

 

 

2,044

 

Tax loss carryforwards

 

 

3,909

 

 

 

561

 

Lease liability

 

 

1,899

 

 

 

382

 

Accrued expenses and other

 

 

1,981

 

 

 

2,422

 

 

 

24,850

 

 

 

7,494

 

Valuation allowance

 

 

(2,110

)

 

 

(568

)

Net deferred income tax liabilities

 

$

(350,074

)

 

$

(17,011

)

 

 

 

 

 

 

Net deferred income tax assets (jurisdictional)

 

$

3,353

 

 

$

575

 

Net deferred income tax liabilities (jurisdictional)

 

 

(353,427

)

 

 

(17,586

)

Net deferred income tax liabilities

 

$

(350,074

)

 

$

(17,011

)

 

The Company has the following net operating loss carryforwards:

 

 

 

As of May 31, 2023

 

 

Expiry

U.S.

 

$

218

 

 

2037

Foreign

 

 

13,362

 

 

2024 to Indefinite

 

$

13,580

 

 

 

 

Valuation allowances against certain deferred tax assets are established based on management’s determination of a more likely than not standard that the tax benefits will not be realized.

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 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 Company’s policy is to recognize both accrued interest expense and penalties related to unrecognized tax benefits in income tax expense. The amount of interest and penalties included in the unrecognized tax benefits reserve was $145 at May 31, 2023, $69 at May 31, 2022, and $65 at May 31, 2021. Of the total unrecognized tax benefits at May 31, 2023 and 2022, $1,087 and $808, respectively, comprise unrecognized tax positions that would, if recognized, affect our effective tax rate.

The reconciliation of our unrecognized tax benefits is as follows:

 

 

Year ended May 31

 

 

 

2023

 

 

2022

 

 

2021

 

Beginning balance

 

$

741

 

 

$

764

 

 

$

762

 

Increase/(decrease) related to prior periods

 

 

2

 

 

 

(75

)

 

 

(182

)

Increase related to current period

 

 

479

 

 

 

147

 

 

 

184

 

Lapses of applicable statute of limitations

 

 

(276

)

 

 

(95

)

 

 

—

 

Ending balance

 

$

946

 

 

$

741

 

 

$

764

 

 

The Company is no longer subject to examination by the Internal Revenue Service for fiscal year 2019 and preceding years.

As of May 31, 2023, the Company has approximately $153 million of undistributed earnings in its foreign subsidiaries. Approximately $41 million of these earnings are no longer considered permanently reinvested. The incremental tax cost to repatriate these earnings to the US is immaterial. The Company has not provided deferred taxes on approximately $112 million of undistributed earnings from non-U.S. subsidiaries as of May 31, 2023 which are indefinitely reinvested in operations. Based on historical experience, as well as management’s future plans, earnings from these subsidiaries will continue to be re-invested indefinitely for future expansion and working capital needs. On an annual basis, we evaluate the current business environment and whether any new events or other external changes might require future evaluation of the decision to indefinitely re-invest these foreign earnings. It is not practical to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely.