-INCOME TAXES

The components of income (loss) before income tax provision for the years ended May 31 are as follows:



	2016			2015			2014
	(in thousands)
(Loss) income before tax provision:
US	$	(4,444	)	$	(8,965	)	$	4,645
Non-US	1,191			834			541
	$	(3,253	)	$	(8,131	)	$	5,186

Income tax (benefit) provision analyzed by category and by statement of operations classification for the years ended May 31 is summarized as follows:



	2016		2015			2014
	(in thousands)
Current
Federal	$	34	$	(242	)	$	(133	)
State and local	103		205			99
Non U.S.	217		417			157
	354		380			123
Deferred	39,983		(5,123		)	2,716
Income tax (benefit) provision	$	40,337	$	(4,743	)	$	2,839

The significant components of deferred income tax (benefit) expense from operations for the years ended May 31 consist of the following:



	2016			2015			2014
	(in thousands)
Net effect of temporary differences	$	133		$	(1,916	)	$	1,543
Adjustments for beginning-of-the-year valuation allowance balance for changes in circumstances	40,418			—			—
Impact of NYS tax reform legislation	—			—			1,173
Net operating loss carryforward	(568		)	(3,207		)	—
	$	39,983		$	(5,123	)	$	2,716

Temporary differences that give rise to deferred tax assets and liabilities are summarized as follows:



	May 31, 2016			May 31, 2015
	(in thousands)
Deferred tax assets
Net operating loss carryforward	$	52,593		$	52,025
Stock-based compensation	4,135			4,468
Federal and state R&D tax credit carryforward	2,145			1,646
Inventories	4,535			2,808
Expenses incurred not currently deductible	3,018			2,107
Accrued liabilities	339			114
Gross deferred tax asset	66,765			63,168
Deferred tax liabilities
Excess tax over book depreciation and amortization	46,240			42,988
	46,240			42,988
Valuation Allowance	(42,209		)	(1,791		)
Net deferred tax asset (liability)	$	(21,684	)	$	18,389

Our Federal net operating loss carryforwards as of May 31, 2016 after considering IRC Section 382 limitations are $151.7 million. The expiration of the Federal net operating loss carryforwards are as follows: $29.8 million between 2017 and 2023 and $121.9 million between 2027 and 2036.

Our state net operating loss carryforwards as of May 31, 2016 after considering remaining IRC Section 382 limitations are $30.8 million which expire in various years from 2016 to 2036.

As a result of certain realization requirements of ASC 718, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets as of May 31, 2016 and 2015 that arose directly from tax deductions related to equity compensation greater than compensation recognized for financial reporting. Equity will be increased by $0.4 million if and when such excess tax benefits are ultimately realized.

At May 31, 2016, we had a net deferred income tax liability of $21.7 million, after recording a valuation allowance of $42.2 million. The valuation allowance increased by $40.4 million in 2016.

While the net deferred tax asset at May 31, 2016 before the valuation allowance was $19.9 million, the Company was required to record a valuation allowance of $40.4 million due to deferred tax liabilities related to intangibles of $20.5 million that have an indefinite reversal period and can not be used to support the deferred tax asset.

A valuation allowance is provided if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company’s analysis of the need for a valuation allowance considered that the Company has incurred a cumulative loss in the U.S. over the three year period ending May 31, 2016. A majority of the cumulative loss has been caused by the charges associated with the product recall and discontinuance and the impairment of fixed and intangible assets recorded in the quarter end February 28, 2015, From the time when the Company initially incurred a three year cumulative loss in the quarter ended February 28, 2015, and in each subsequent quarter through the quarter ended February 28, 2016, the Company could still demonstrate a recent history of core earnings , and had anticipated a return to profitability for the full fiscal year 2016. However, in the quarter ended May 31, 2016 the Company did not return to profitability for the full fiscal year and could no longer demonstrate a recent history of core earnings. Consequently after careful consideration and weighing of all the available positive and negative evidence, the weight given to the three year cumulative loss and lack of a recent history of core earnings was difficult to overcome and a full valuation allowance related to the U.S. deferred tax assets was established. Management will continue to reevaluate the positive and negative evidence at each reporting period and if future results as projected in the U.S. and our tax planning strategies are favorable, the valuation allowance may be removed, which could have a favorable material impact on our results of operations in the period in which it is recorded.

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:



	2016			2015			2014
	(in thousands)
Income tax (benefit) provision at statutory tax rate of 35%	$	(1,139	)	$	(2,845	)	$	1,814
Effect of graduated tax rates	33			81			(51		)
State income taxes, net of Federal tax benefit	(215		)	(21		)	111
Impact of Non US operations	(162		)	133			(27		)
Research and development tax credit	(499		)	(604		)	(236		)
Meals and entertainment	329			—			—
Nondeductible interest on contingent payments	262			265			540
Nontaxable gain on revaluation of contingent consideration liability	(170		)	(3,102		)	(1,734		)
Tax law changes	—			(454		)	1,173
Adjustment to beginning of year valuation allowance	40,685			—			—
Effect of elimination of stock compensation APIC pool	739			1,253			440
Nondeductible stock-based compensation	—			—			176
Other nondeductible expenses	207			498			384
Over (under) accrual of prior year Federal and state taxes	356			38			249
Other	(89		)	15			—
Income tax (benefit) expense	$	40,337		$	(4,743	)	$	2,839

The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits, all of which, if recognized, would impact the effective tax rate.



	2016		2015		2014
	(in thousands)
Unrecognized tax benefits balance at June 1	$	—	$	—	$	—
Increase in gross amounts of tax positions related to prior years	899		—		—
Decrease in gross amounts of tax positions related to prior years	—		—		—
Increase in gross amounts of tax positions related to current year	—		—		—
Decrease due to settlements with tax authorities	—		—		—
Decrease due to lapse in statute of limitations	—		—		—
Unrecognized tax benefits balance at May 31	$	899	$	—	$	—

The table above includes unrecognized tax benefits associated with the calculation of limitations placed on the utilization of tax attributes related to an acquired company. If recognized, $0.1 million of the balance of unrecognized tax benefits as of May 31, 2016 would affect the effective tax rate and the balance of $0.8 million would result in adjustments to other tax accounts.

We recognize interest and penalties related to unrecognized tax benefits within its global operations as a component of income tax expense. There are no accrued interest and penalties recognized in the consolidated balance sheet as of May 31, 2016 and May 31, 2015.

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.

Fiscal years 2012 through 2016 remain open to examination by the various tax authorities. New York State is currently auditing AngioDynamic's franchise tax filings for 2011 through 2013. 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 $4.6 million, and are intended to remain indefinitely invested in foreign operations. Accordingly, no taxes have been provided on these earnings at May 31, 2016. 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.