Note 14 - Income Taxes

9 Months Ended

Feb. 28, 2013

Income Tax Disclosure [Text Block]

14. INCOME TAXES

As a result of the Acquisition, the Company had a short tax year that coincided with the Predecessor period ending August 19, 2011. As such, the income tax provision for the Predecessor period reflects the income tax results that were expected to be reported on the short period return ending August 19, 2011. For fiscal 2013 and the Successor fiscal 2012 period, the Company estimated its annual effective rate based on projected taxable income for the remainder of the year, adjusting as necessary for discrete events occurring in a particular period. The effective tax rate is applied to pre-tax book income to arrive at a tax provision for the period.

The effective tax rate for the nine month period ended February 28, 2013, the Successor period from August 20, 2011 through February 29, 2012, and the Predecessor period from June 1, 2011 through August 19, 2011 was 37.3%, 38.5% and (72.6)%, respectively.  The difference between the federal statutory rate and the effective tax rate for the 2013 period was primarily due to lower foreign income tax rates, discrete tax items recognized during the current fiscal year as a result of changes in enacted tax laws, and the expiration of the statute of limitations for the benefits associated with uncertain tax positions. The difference between the federal statutory rate and the effective tax rate for the 79 day period ending August 19, 2011 (the Predecessor fiscal 2012 period) primarily relates to the income taxes associated with the repatriation of foreign earnings in excess of foreign tax credits earned, the non-deductibility of certain transaction costs, and state income taxes.

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. In accounting for the Acquisition, the Company recorded deferred tax liabilities of approximately $291.9 million associated with acquired intangible assets that have no income tax basis. These liabilities are offset by deferred tax assets primarily associated with net operating losses and tax credit carry-forwards. Net deferred long-term tax liabilities total $227.0 million at February 28, 2013.

In connection with the preparation of the consolidated income tax return of Holdings, certain deductions incurred in connection with the Acquisition were reflected in the Company’s taxable income (loss).  The tax benefit of $0.7 million arising from these deductions is included in deferred tax liabilities and was treated as additional contributed capital by the Company.

In the Predecessor periods, the Company considered its investment in foreign subsidiaries to be permanently invested. Accordingly, no deferred tax liabilities were provided for its investments in foreign subsidiaries. Subsequent to the Acquisition, the Company no longer considers itself to be permanently reinvested with respect to its accumulated and unrepatriated earnings as well as the future earnings of each foreign subsidiary. Accordingly, the Company has recorded a deferred tax liability associated with its accumulated and unrepatriated earnings through the Acquisition Date and will provide for deferred taxes on future earnings of its foreign subsidiaries. The Company continues to consider its investment in each foreign subsidiary in excess of its accumulated and unrepatriated earnings to be permanently reinvested and thus has not recorded a deferred tax liability on that amount.