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Income Taxes | 12 Months Ended
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May 31, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The components of income (loss) before income tax (benefit) expense for the years ended May 31 are as follows:
| 2018 |  | 2017 |  | 2016
(in thousands) |
Income (loss) before tax expense: |  |  |  |  |
U.S. | $ | 6,274 |  |  | $ | 8,825 |  |  | $ | (4,444 | )
Non-U.S. | 1,191 |  |  | 1,022 |  |  | 1,191 |
| $ | 7,465 |  |  | $ | 9,847 |  |  | $ | (3,253 | )
Income tax (benefit) expense is comprised of the following:
| 2018 |  | 2017 |  | 2016
(in thousands) |
Current |  |  |  |  |
Federal | $ | (148 | ) |  | $ | — |  |  | $ | 34 |
State and local | 152 |  |  | 141 |  |  | 103 |
Non U.S. | 73 |  |  | 270 |  |  | 217 |
| 77 |  |  | 411 |  |  | 354 |
Deferred | (8,947 | ) |  | 4,428 |  |  | 39,983 |
Income tax (benefit) expense | $ | (8,870 | ) |  | $ | 4,839 |  |  | $ | 40,337 |
Temporary differences that give rise to deferred tax assets and liabilities are summarized as follows:
| May 31, 2018 |  | May 31, 2017
(in thousands) |
Deferred tax assets |  |  |
Net operating loss carryforward | $ | 33,880 |  |  | $ | 55,975 |
Stock-based compensation | 2,421 |  |  | 2,653 |
Federal and state R&D tax credit carryforward | 3,644 |  |  | 2,548 |
Inventories | 1,550 |  |  | 2,407 |
Expenses incurred not currently deductible | 1,714 |  |  | 6,522 |
Accrued liabilities | 277 |  |  | 1,289 |
Gross deferred tax asset | 43,486 |  |  | 71,394 |
Deferred tax liabilities |  |  |
Excess tax over book depreciation and amortization | 34,044 |  |  | 49,158 |
| 34,044 |  |  | 49,158 |
Valuation Allowance | (26,607 | ) |  | (48,348 | )
Net deferred tax liability (1) | $ | (17,165 | ) |  | $ | (26,112 | )
(1) Net deferred tax liability is inclusive of a non-U.S. $0.08 million deferred tax asset that is included in other assets on the Company's balance sheet for the year ended May 31, 2018. The net deferred tax liability as of May 31, 2018 and 2017 principally relates to tax amortization of intangibles that have an indefinite reversal period for book purposes, also known as a “naked credit deferred tax liability”, that cannot be considered as a source of income to recover the deferred tax asset. The Company's Federal net operating loss carryforwards as of May 31, 2018 after considering IRC Section 382 limitations are $157.8 million. The expiration of the Federal net operating loss carryforwards are as follows: $28.8 million between 2018 and 2023 and $129.0 million between 2027 and 2037. The Company's state net operating loss carryforwards as of May 31, 2018 after considering remaining IRC Section 382 limitations are $19.1 million which expire in various years from 2018 to 2038. On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“Tax Reform Act”). The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system, expanding the tax base and imposing a tax deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate federal income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The Company’s estimated fiscal 2018 blended U.S. federal statutory corporate income tax rate of 28.6% was applied in the computation of the income tax provision for the year ended May 31, 2018 and represents the average rate between the pre-enactment U.S. federal statutory corporate tax rate of 35% and the post-enactment U.S. federal statutory corporate tax rate of 21% thereafter. In December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (SAB 118), which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Reform Act. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year that begins on the date of enactment of December 22, 2017. The Company has elected to apply the measurement period guidance provided in SAB 118. The final impact of the Tax Reform Act may differ from the estimates reported due to, among other things, changes in interpretations and assumptions made by us, additional guidance that may be issued by the U.S. Department of the Treasury and actions that we may take as a result. The Company has estimated the provision for incomes taxes in accordance with the Tax Reform Act and guidance available as of the date of this filing and as a result recorded a provisional amount of one-time income tax benefit of $9.3 million in the third quarter of fiscal year 2018, the period in which the legislation was enacted. This estimate has not changed as of May 31, 2018. Due to various uncertainties as described above, the Company has not completed its accounting for certain tax impacts of the Act. A discussion of the most significant impacts of tax law changes under the Act for which the accounting is incomplete is as follows: The Company is required to record deferred tax assets and liabilities based on the enacted tax rates at which they are expected to reverse in the future. The Company has remeasured its deferred tax positions as of December 31, 2017 at the new enacted tax rate, resulting in a decrease to it net deferred tax assets and a corresponding decrease to its valuation allowance, with no net impact to tax expense. The Company recorded an income tax benefit of approximately $9.3 million due to the revaluation of the naked credit deferred tax liability. The Tax Reform Act changed the NOL carryover rules and created a new limitation on their use. NOLs created in fiscal 2018 and beyond may be carried forwarded indefinitely in any year. As a result, the Company’s naked credit deferred tax liability can now be considered as a source of income to recover indefinite lived NOLs. Consequently, the Company has offset certain of its naked credit deferred tax liability against its deferred tax assets resulting in a reduction in the valuation allowance and a $3.0 million benefit in the year ended May 31, 2018. The Tax Reform Act imposes a one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiaries’ earnings. Based on the information available as of December 31, 2017, the Company estimated undistributed foreign earnings of approximately $4.9 million. The taxable income arising from this deemed repatriation is expected to result in the utilization of net operating loss carryforwards and other tax credits, offset by changes in the valuation allowance, resulting in no net impact to tax expense. The Tax Reform Act also creates a new requirement that certain income earned by foreign subsidiaries (“GILTI”), must be included in U.S. gross income. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current period expense when incurred. The Company has not yet adopted an accounting policy. The other provisions of the Tax Reform Act are not expected to have a material impact on the Company's financial statements. The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighted the evidence based on its objectivity. Evidence the Company considered included its history of net operating losses, which resulted in the Company recording a full valuation allowance for its deferred tax assets in fiscal 2016 and each year thereafter. The Company was marginally profitable (pretax and adjusted for permanent items) on a cumulative basis for the three years ended May 31, 2018, but substantially all of that profitability was achieved during 2018. Based on the review of all available evidence, the Company determined that it has not yet attained a sustained level of profitability and the objectively verifiable negative evidence outweighed the positive evidence and therefore the Company has provided a valuation allowance for the full amount, with the exception of the naked credit deferred tax liability, of its net deferred tax asset as of May 31, 2018. The decrease in the valuation allowance during fiscal 2018 was principally due to the impact of tax reform as discussed above. The Company will continue to assess the level of the valuation allowance required. If sufficient positive evidence exists in future periods to support a release of some or all of the valuation allowance, such a release would likely have a material impact on the Company’s results of operations. The Company's consolidated income tax expense has differed from the amount that would be provided by applying the U.S. Federal statutory income tax rate to the Company's income before income taxes for the following reasons:
| Year ended May 31,
| 2018 |  | 2017 |  | 2016
(in thousands) |
Income tax (benefit) expense at statutory tax rate of 28.6%, 35.0% and 35.0%, respectively | $ | 2,136 |  |  | $ | 3,447 |  |  | $ | (1,139 | )
Effect of graduated tax rates | — |  |  | (98 | ) |  | 33 |
State income taxes, net of Federal tax benefit | 120 |  |  | (22 | ) |  | (215 | )
Impact of Non-U.S. operations | (288 | ) |  | 403 |  |  | (162 | )
Research and development tax credit | (951 | ) |  | (403 | ) |  | (499 | )
Impact of tax reform | 10,912 |  |  | — |  |  | — |
Meals and entertainment | 242 |  |  | 266 |  |  | 329 |
Non-deductible interest on contingent payments | — |  |  | 174 |  |  | 262 |
Non-taxable gain on revaluation of contingent consideration liability | — |  |  | (5,576 | ) |  | (170 | )
Change in valuation allowance | (21,741 | ) |  | 6,139 |  |  | 40,685 |
Effect of elimination of stock compensation APIC pool | — |  |  | 1,380 |  |  | 739 |
IPR&D intangible write-off | — |  |  | (1,224 | ) |  | — |
Other | 700 |  |  | 353 |  |  | 474 |
Income tax (benefit) expense | $ | (8,870 | ) |  | $ | 4,839 |  |  | $ | 40,337 |
The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits:
| Year ended May 31,
| 2018 |  | 2017 |  | 2016
(in thousands) |
Unrecognized tax benefits balance at June 1 | $ | 899 |  |  | $ | 899 |  |  | $ | — |
Increase in gross amounts of tax positions related to prior years | — |  |  | — |  |  | 899 |
Decrease in gross amounts of tax positions related to prior years due to U.S. tax reform | (287 | ) |  | — |  |  | — |
Decrease due to lapse in statute of limitations | (148 | ) |  | — |  |  | — |
Unrecognized tax benefits balance at May 31 | $ | 464 |  |  | $ | 899 |  |  | $ | 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 $0.5 million would result in adjustments to other tax accounts. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. There are no accrued interest and penalties recognized in the consolidated balance sheet as of May 31, 2018 and May 31, 2017. The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world. Fiscal years 2015 through 2018 remain open to examination by the various tax authorities. The Company does 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 amounted to $4.9 million and $5.3 million at May 31, 2018 and 2017, respectively. These earnings are considered indefinitely reinvested. Beginning in 2018, except for GILTI, the Company will no longer record United States federal income tax on its share of the income of its foreign subsidiaries, nor will it record a benefit for foreign tax credits related to that income. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to withholding taxes payable, where applicable, to foreign countries, but would have no further federal income tax liability.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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