Note 13. Income Taxes

12 Months Ended

May 31, 2011

Income Tax Disclosure [Text Block]

13. INCOME TAXES

Sources of income before income taxes are summarized below (in thousands):

	Year Ended May 31,
	2011		2010		2009
Domestic Operations	$	105,060	$	105,181	$	107,843
Foreign Operations		25,570		20,031		9,138
Income before income taxes	$	130,630	$	125,212	$	116,981

The provision for income taxes is summarized as follows (in thousands):

	Year Ended May 31,
	2011			2010 (1)		2009
Current:
Federal	$	26,542		$	28,815	$	33,347
Foreign		7,718			6,080		4,606
State		6,102			2,796		2,851
		40,362			37,691		40,804
Deferred:
Federal		3,551			4,134		91
Foreign		263			279		(626	)
State		(2,873	)		525		529
		941			4,938		(6	)
Provision for income taxes	$	41,303		$	42,629	$	40,798
(1) Certain prior year expenses have been reclassified to conform to current year presentation.

Deferred income taxes reflect the net tax effects of: (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes; and (b) operating loss and credit carry-forwards.  Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.  Based on assessments of all available evidence including, but not limited to, the operating history and lack of profitability of certain subsidiaries, the Company is uncertain as to the ability to realize the subsidiaries’ net operating loss carry-forwards and tax benefits and, as a result, deferred tax valuation allowances have been recorded against these deferred tax assets in the following jurisdictions:   Belgium, $1.4 million and France, $1.1 million.  The net operating loss carry-forwards for France and Belgium do not expire; the federal operating loss carry-forwards for BioArray of $24.3 begin to expire in 2026; certain state operating loss carry-forwards for BioArray expire beginning in 2013; and credit carry-forwards of $2.2 million for BioArray expire beginning in 2021.

Due to a recent law change in New Jersey income tax apportionment factors, the Company experienced a positive adjustment of approximately $2.3 million to our deferred tax liability that was established on the acquisition of BioArray. Additionally, in fiscal 2011, the Company wrote off approximately $3.9 of net operating loss carry-forwards which were fully reserved in previous years.  For the year ended May 31, 2011, the Company has no valuation allowances recorded against state deferred tax assets since all states with net operating losses carried forward are in a net deferred tax liability position, and the Company has scheduled the reversal of deferred tax liabilities to occur before the potential expiration of state net operating loss carry-forwards that exist as of May 31, 2011.

The tax effects of significant items comprising the Company’s net deferred tax assets at May 31, 2011 and 2010 are as follows (in thousands):

	Year Ended May 31,
	2011			2010
Deferred tax liabilities:
Intangibles	$	(19,282	)	$	(23,007	)
Property, Plant & Equipment		(4,931	)		(2,075	)
Prepaids and other		(346	)		(457	)
Deferred tax assets:
Reserves not currently deductible		4,376			4,191
Deferred revenue		2,923			4,027
Compensation expense		5,617			4,190
Operating loss carry-forwards		11,580			19,291
Credit carry-forwards		2,736			2,770
Other		6,187			5,081
Uniform capitalization		603			684
		9,463			14,695
Valuation allowance		(2,467	)		(6,716	)
Net deferred tax assets	$	6,996		$	7,979

Deferred taxes are not provided for temporary differences of approximately $59.9 million, $43.3 million and $31.3 million as of May 31, 2011, 2010 and 2009, respectively, representing cumulative earnings of non-U.S. subsidiaries that are intended to be permanently reinvested. Computation of the potential deferred tax liability associated with these undistributed earnings is not practicable.

The Company’s effective tax rate differs from the federal statutory rate as follows:

	Year Ended May 31,
	2011		2010	2009
Federal statutory tax rate		35%	35%	35%
State income taxes, net of federal tax benefit		-	3	3
Production activity deduction		(2)	(2)	(2)
Change in analysis of uncertain income tax positions		-	(1)	-
Other		(1)	(1)	(1)
Effective tax rate		32%	34%	35%

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits, which is included in income taxes payable on the balance sheet, for the years ended May 31, 2011 and 2010 in (thousands):

Unrecognized tax benefit - June 1, 2010	$	8,093
Gross increases in unrecognized tax benefits as a result of tax positions taken during a prior period		-
Gross decreases in unrecognized tax benefits as a result of tax positions taken during a prior period		-
Gross increases in unrecognized tax benefits as a result of tax positions taken during current period		2,107
Gross decreases in unrecognized tax benefits as a result of tax positions taken during current period		-
Decrease in unrecognized tax benefits relating to settlements with taxing authorities		-
Reductions to unrecognized tax benefits as a result of the applicable statute of limitations		(434	)
Unrecognized tax benefit - May 31, 2011	$	9,766

The total balance of unrecognized tax benefits that would affect the effective tax rate, if recognized, is $3.6 million as of May 31, 2011.  The unrecognized tax benefit is reflected as a current liability as it is likely to require payment during the twelve-month period ending May 31, 2012.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. The Company as of May 31, 2011, has recognized a liability for interest of $0.9 million. The Company has not recognized any accrued penalties since adoption of the update to ASC 740, “Income Taxes.”

The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. The Company’s tax years for the fiscal years ended May 31, 2010, May 31, 2009 and May 31, 2008 remain subject to examination by U.S. tax authorities.