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Income Taxes | 12 Months Ended
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May 31, 2014
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The components of income (loss) before income tax provision for the years ended May 31 are as follows:
| 2014 |  | 2013 |  | 2012
| (in thousands)
(Loss) income before tax provision: |  |  |  |  |
US | $ | 5,839 |  |  | $ | (2,670 | ) |  | $ | (5,151 | )
Non-US | 541 |  |  | 2,027 |  |  | (131 | )
| $ | 6,380 |  |  | $ | (643 | ) |  | $ | (5,282 | )
Income tax (benefit) provision analyzed by category and by statement of operations classification for the years ended May 31 is summarized as follows:
| 2014 |  | 2013 |  | 2012
| (in thousands)
Current |  |  |  |  |
Federal | $ | (133 | ) |  | $ | (1,622 | ) |  | $ | 448 |
State and local | 99 |  |  | (52 | ) |  | (19 | )
Non U.S. | 157 |  |  | 468 |  |  | 18 |
| 123 |  |  | (1,206 | ) |  | 447 |
Deferred | 3,169 |  |  | 1,175 |  |  | (635 | )
| $ | 3,292 |  |  | $ | (31 | ) |  | $ | (188 | )
The significant components of deferred income tax (benefit) expense from operations for the years ended May 31 consist of the following:
| 2014 |  | 2013 |  | 2012
| (in thousands)
Deferred tax expense (benefit) | $ | 1,996 |  |  | $ | 1,175 |  |  | $ | (1,722 | )
Impact of NYS tax reform legislation | 1,173 |  |  | — |  |  | — |
Net operating loss carryforward | — |  |  | — |  |  | 1,087 |
| $ | 3,169 |  |  | $ | 1,175 |  |  | $ | (635 | )
Temporary differences that give rise to deferred tax assets and liabilities are summarized as follows:
| May 31, 2014 |  | May 31, 2013
| (in thousands)
Deferred tax assets |  |  |
Net operating loss carryforward | $ | 48,331 |  |  | $ | 47,098 |
Stock-based compensation | 4,851 |  |  | 4,813 |
Federal and state R&D tax credit carryforward | 1,249 |  |  | 490 |
Inventories | 875 |  |  | 1,713 |
State tax credits | — |  |  | 1,326 |
Expenses incurred not currently deductible | 1,379 |  |  | 880 |
Capital loss carryforwards | — |  |  | 95 |
Deferred revenue | 154 |  |  | 1,147 |
Gross deferred tax asset | 56,839 |  |  | 57,562 |
Deferred tax liabilities |  |  |
Excess tax over book depreciation and amortization | 42,061 |  |  | 39,252 |
Impairment of long-lived assets | — |  |  | — |
| 42,061 |  |  | 39,252 |
Valuation Allowance | (1,532 | ) |  | (712 | )
Net deferred tax asset | $ | 13,246 |  |  | $ | 17,598 |
At May 31, 2014, we had approximately $164.9 million of remaining Federal net operating loss carryforwards and $32.7 million of state net operating loss carryforwards (“NOL”). Approximately $161.5 million of our Federal net operating loss was generated by acquired companies and are subject to Internal Revenue Code (“IRC”) Section 382 limitations which are expected to significantly limit our ability to utilize these net operating losses on an annual basis. As a result of our IRC Section 382 analyses, it is estimated that approximately $26.1 million of remaining Federal net operating losses and $13.0 million of state net operating losses will expire prior to utilization. The gross deferred income tax asset (“DTA”) related to the NOL reflects these limitations. In order to ensure the realizability of our deferred tax assets, we need to generate $10.0 million of taxable income for each year from 2015 to 2023 and then $6.5 million of taxable income per year until 2033. If we are unable to meet these minimum taxable income levels, the deferred tax assets may still be utilized in future years if we can make up previous year taxable income short falls prior to the expiration of net operating loss carryforwards. We have determined that we have sufficient existing levels of pre-tax earnings to generate sufficient taxable income to realize the net deferred tax assets recorded on our balance sheets. In order to support the realizability of our net deferred tax asset, we projected our pre-tax income utilizing a combination of historical and projected results. Utilizing this projected pre-tax income, we have projected taxable income taking into consideration existing levels of permanent differences including stock option exercise deductions and non-deductible expenses and the reversal of significant temporary differences. Our Federal net operating loss carryforwards as of May 31, 2014 after considering IRC Section 382 limitations are $138.8 million. The expiration of the Federal net operating loss carryforwards are as follows: $30.7 million between 2017 and 2026 and $108.0 million between 2027 and 2033. Our state net operating loss carryforwards as of May 31, 2014 after considering remaining IRC Section 382 limitations are $19.8 million which expire in various years from 2015 to 2033. At May 31, 2014, we had a net deferred income tax asset of $13.2 million, after recording a valuation allowance of $1.5 million. The valuation allowance increased by $0.8 million in 2014 and decreased by $0.5 million in 2013. The 2014 change relates to the true-up of our fully reserved capital losses and state tax credits and net operating losses from our fiscal 2013 tax filings. The 2013 change relates to the use of fully reserved capital losses and the expiration of fully reserved state tax credits. The valuation allowance recorded against the deferred tax assets relates to state tax credits, capital losses and state NOLs that management has estimated will more likely than not expire before they are expected to be utilized. Our consolidated income tax provision has differed from the amount that would be provided by applying the U.S. Federal statutory income tax rate to our income before income taxes for the following reasons:
| 2014 |  | 2013 |  | 2012
| (in thousands)
Income tax (benefit) provision | $ | 3,292 |  |  | $ | (31 | ) |  | $ | (188 | )
Effect of Graduated tax rates | 64 |  |  | (6 | ) |  | (53 | )
State income taxes, net of Federal tax benefit | (122 | ) |  | (88 | ) |  | (158 | )
State income tax credits, net of Federal tax benefit | — |  |  | 23 |  |  | 69 |
Impact of Non US operations | 27 |  |  | 228 |  |  | (46 | )
Tax-exempt interest | — |  |  | 2 |  |  | 4 |
Research and development tax credit | 236 |  |  | 142 |  |  | 115 |
Domestic Production Activities deduction | — |  |  | — |  |  | 71 |
Nondeductible acquisition costs | — |  |  | (110 | ) |  | (1,144 | )
Nondeductible interest on contingent payments | (540 | ) |  | (130 | ) |  | — |
Nontaxable gain on revaluation of contingent consideration liability | 1,698 |  |  | — |  |  | — |
Tax law change | (1,173 | ) |  | — |  |  | — |
Effect of elimination of ASC 718 APIC pool | (440 | ) |  | — |  |  | — |
Nondeductible stock-based compensation | (176 | ) |  | (108 | ) |  | (125 | )
Other nondeductible expenses | (384 | ) |  | (336 | ) |  | (336 | )
Overaccrual (underaccrual) of prior year Federal and state taxes | (249 | ) |  | 10 |  |  | 138 |
Fully reserved capital losses | — |  |  | 179 |  |  | (208 | )
Other | — |  |  | — |  |  | 12 |
Income tax (benefit) provision at statutory tax rate of 35% | $ | 2,233 |  |  | $ | (225 | ) |  | $ | (1,849 | )
During the twelve months ended May 31, 2014, we did not recognize any tax liabilities related to uncertain tax positions. Due to our unrecognized tax benefit being zero upon adoption, with no change since adoption, no “tabular reconciliation” of the total amount of unrecognized tax benefits at the beginning and end of the period is being presented. We recognize interest and penalties related to unrecognized tax benefits within our global operations as a component of income tax expense. There were no accrued interest and penalties recognized in the consolidated balance sheet as of May 31, 2014 and May 31, 2013. We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world. The Internal Revenue Service (“IRS”) completed an examination of our federal income tax returns for fiscal years 2006 and 2007 in February 2009 which did not result in a material impact on our results of operations or financial position. During fiscal year 2012, New York State completed an examination of our New York State Franchise Tax returns for fiscal years 2005 to 2008. In relation to this examination, income tax expense in fiscal 2011 includes an out-of-period benefit of $300,000 to correct an error that originated in prior years related to certain state tax credits. We assessed the impact of this adjustment on the 2011 year and all prior periods and determined that the cumulative effect of the adjustments was not material to the full year 2011 and did not result in a material misstatement to any previously issued annual or quarterly financial statements. Additionally, as a result of the audit, we were able to claim state tax credits of $210,000 that are recorded in fiscal year 2012. Fiscal years 2011 through 2014 remain open to examination by the various tax authorities. New York State is currently auditing Navilyst’s franchise tax filings for 2009 through 2011, we do not anticipate any material adjustments will result. We analyzed filing positions in all of the Federal and state jurisdictions where we are required to file income taxes, as well as all open tax years in these jurisdictions and believe that our income tax filing positions and deductions will be sustained on audit and we do not anticipate any adjustments will result in a material adverse effect on our financial condition, results of operations or cash flows. We do not anticipate that the amount of unrecognized tax benefits will significantly change in the next twelve months. The accumulated undistributed earnings of the Company’s foreign operations were approximately $4 million, and are intended to remain permanently invested in foreign operations. Accordingly, no taxes have been provided on these earnings at May 31, 2014. If these earnings were distributed, the Company would be subject to both foreign withholding taxes and U.S. income taxes that may not be fully offset by foreign tax credits. A reasonable estimate of the deferred tax liability on these earnings is not practicable at this time

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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