Entity information:
Income Taxes
 
Income before provision for income taxes is as follows:
 
 
For the year ended December 31,
 
For the Transition Period ended December 31,
 
For the year ended May 31,
 
2017
 
2016
 
2016
 
2015
(Loss) income before provision for income taxes from:
 
 
 
 
 

 
 

U.S. operations
$
(7,303
)
 
$
5,116

 
$
27,772

 
$
26,893

Foreign operations
7,077

 
10,365

 
10,643

 
(1,162
)
(Loss) Earnings before income taxes
$
(226
)
 
$
15,481

 
$
38,415

 
$
25,731


 
The provision for income taxes consists of the following:
 
 
For the year ended December 31,
 
For the Transition Period ended December 31,
 
For the year ended May 31,
 
2017
 
2016
 
2016
 
2015
Current
 
 
 
 
 

 
 

Federal
$
3,558

 
$
1,990

 
$
9,156

 
$
8,489

States and local
39

 
483

 
1,537

 
1,177

Foreign
3,131

 
3,569

 
3,672

 
1,493

Reserve for uncertain tax positions
71

 
(39
)
 
(529
)
 
(48
)
Total current
6,799

 
6,003

 
13,836

 
11,111

Deferred
 
 
 
 
 

 
 

Federal
(3,857
)
 
6

 
82

 
(145
)
States and local
(810
)
 
(28
)
 
(51
)
 
(126
)
Foreign
(437
)
 
(514
)
 
(557
)
 
(2,416
)
Total deferred
(5,104
)
 
(536
)
 
(526
)
 
(2,687
)
Net change in valuation allowance
247

 
403

 
455

 
1,316

Net deferred
(4,857
)
 
(133
)
 
(71
)
 
(1,371
)
Provision for income taxes
$
1,942

 
$
5,870

 
$
13,765

 
$
9,740


 
The provision for income taxes differs from the amount computed by applying the statutory federal tax rate to income tax as follows:
 
 
For the year ended December 31,
 
For the Transition period ended December 31,
 
2017
 
2016
Federal tax at statutory rate
$
(79
)
 
35.0
 %
 
$
5,418

 
35.0
 %
State taxes, net of federal benefit
(502
)
 
221.6
 %
 
296

 
1.9
 %
Foreign tax
217

 
(95.8
)%
 
(573
)
 
(3.7
)%
Contingent consideration
(63
)
 
27.7
 %
 
(4
)
 
—
 %
Permanent differences
377

 
(166.4
)%
 
373

 
2.4
 %
Transition tax, net of foreign tax credits
3,942

 
(1,741.4
)%
 
—

 
—
 %
Federal tax rate change due to the Tax Act
(1,956
)
 
864.0
 %
 
—

 
—
 %
Other
(241
)
 
106.5
 %
 
(43
)
 
(0.3
)%
Change in valuation allowance
247

 
(109.1
)%
 
403

 
2.6
 %
Total provision for income taxes
$
1,942

 
(857.9
)%
 
$
5,870

 
37.9
 %


On December 22, 2017, the United States enacted fundamental changes to the federal tax law following the passage of the Tax Act.

The Tax Act is complex and significantly changes the U.S. corporate tax system by, among other things, (a) reducing the federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017, (b) replacing the prior system of taxing corporations on foreign earnings of their foreign subsidiaries when the earnings are repatriated with a partial territorial tax system that provides a 100% dividends-received deduction (DRD) to domestic corporations for foreign-sourced dividends received from 10%-or-more owned foreign corporations, (c) subjecting certain unrepatriated foreign earnings to a mandatory one-time transition tax on post-1986 earnings and profits ("the transition tax"), and (d) further limiting a public entity's ability to deduct compensation in excess of $1 million for covered employees.

Our income tax expense for 2017 was $1.9 million. This amount reflects a net tax benefit of $2.3 million as a result of the Tax Act due to the remeasurement of federal deferred tax assets and liabilities from 35% to 21%. This amount also includes a charge of $3.9 million due to the transition tax. Additionally, we incurred a charge attributable to reducing our deferred tax assets by $0.3 million due to changes made to executive compensation rules pursuant to the Tax Act.


 
For the year ended May 31,
 
2016
 
2015
Federal tax at statutory rate
$
13,445

 
35.0
 %
 
$
9,006

 
35.0
 %
State taxes, net of federal benefit
966

 
2.5
 %
 
683

 
2.7
 %
Foreign tax
(610
)
 
(1.6
)%
 
(517
)
 
(2.0
)%
Contingent consideration
(425
)
 
(1.1
)%
 
(914
)
 
(3.6
)%
Permanent differences
245

 
0.6
 %
 
196

 
0.8
 %
Other
(311
)
 
(0.8
)%
 
(30
)
 
(0.1
)%
Change in valuation allowance
455

 
1.2
 %
 
1,316

 
5.1
 %
Total provision for income taxes
$
13,765

 
35.8
 %
 
$
9,740

 
37.9
 %

 
Deferred income tax attributes resulting from differences between financial accounting amounts and income tax basis of assets and liabilities are as follows:
 
December 31,
 
2017
 
2016
Deferred income tax assets
 
 
 
Allowance for doubtful accounts
$
838

 
$
969

Inventory
265

 
236

Intangible assets
2,255

 
2,529

Accrued expenses
2,560

 
5,157

Net operating loss carryforward
3,729

 
4,094

Capital lease obligations
1,004

 
1,140

Capital losses
463

 
719

Foreign tax credit carryover
618

 
—

Deferred share-based compensation
4,080

 
5,802

Other
484

 
285

Deferred income tax assets
16,296

 
20,931

Valuation allowance
(4,044
)
 
(3,896
)
Net deferred income tax assets
12,252

 
17,035

Deferred income tax liabilities
 
 
 
Property and equipment
(6,893
)
 
(8,655
)
Goodwill
(6,578
)
 
(13,586
)
Intangible assets
(5,972
)
 
(5,051
)
Other
(6
)
 
(11
)
Deferred income tax liabilities
(19,449
)
 
(27,303
)
Net deferred income taxes
$
(7,197
)
 
$
(10,268
)

 
As of December 31, 2017, the Company had federal net operating loss carry forwards (NOLs) in the amount of approximately $0.2 million which may be utilized subject to limitation under Internal Revenue Code section 382. The federal NOLs expire at various times from 2031 to 2033. In addition, as of December 31, 2017, the Company had state and foreign NOLs of $38.4 million and $11.0 million, respectively. The state NOLs expire at various times from 2020 to 2037. Approximately $0.7 million of the foreign NOLs expire at various times from 2022 to 2037, while the remainder of the Company's foreign NOLs do not expire.

In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. Valuation allowances are provided when management believes the Company's deferred tax assets are not recoverable based on an assessment of estimated future taxable income that incorporates ongoing, prudent and feasible tax planning strategies. At December 31, 2017 and December 31, 2016, the Company has a valuation allowance of approximately $4.0 million and $3.9 million, respectively, primarily against certain state and foreign NOLs, capital losses generated by the disposals of certain foreign subsidiaries and other specific deferred tax assets. The increase of $0.1 million is primarily attributable to a $0.2 million increase in against state deferred tax assets and a net $0.1 million decrease in federal valuation allowance attributable to the Tax Act. Except for those deferred tax assets subject to the valuation allowance, management believes that it will realize all deferred tax assets as a result of sufficient future taxable income in each tax jurisdiction in which the Company has deferred tax assets.
 
The following table summarizes the changes in the Company’s gross unrecognized tax benefits, excluding interest and penalties:
 
For the year ended December 31,
 
For the Transition Period ended December 31,
 
2017
 
2016
Balance at beginning of period
$
267

 
$
303

Additions for tax positions related to the current fiscal period
11

 
8

Additions for tax positions related to prior years
188

 
—

Decreases for tax positions related to prior years
—

 
(11
)
Impact of foreign exchange fluctuation
10

 
—

Settlements
(198
)
 
—

Reductions related to the expiration of statutes of limitations
(122
)
 
(33
)
Balance at end of period
$
156

 
$
267


 
The Company has recorded the unrecognized tax benefits in other long-term liabilities in the consolidated balance sheets. As of December 31, 2017 and December 31, 2016, there were approximately $0.2 million and $0.3 million of unrecognized tax benefits, respectively, including penalties and interest that if recognized would favorably affect the effective tax rate. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense and are not significant for the year ended December 31, 2017, the transition period ended December 31, 2016 and the fiscal years ended May 31, 2016 and 2015. The Company anticipates a decrease to its unrecognized tax benefits of less than $0.1 million excluding interest and penalties within the next 12 months.
 
The Company is subject to taxation in the United States and various states and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years ending before May 31, 2015 and generally is no longer subject to state, local or foreign income tax examinations by tax authorities for years ending before May 31, 2014.
 
Net income (loss) of foreign subsidiaries was $4.1 million, $6.9 million, $7.5 million and $(0.8) million for the year ended December 31, 2017, the transition period ended December 31, 2016, fiscal 2016 and 2015, respectively. Generally, it has been our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. As previously noted, the Tax Act made significant changes to the taxation of undistributed earnings, requiring that all previously untaxed earnings and profits of our controlled foreign operations be subjected to the transition tax. Since these earnings have now been subjected to U.S. federal tax they would only be potentially subject to limited other taxes, including foreign withholding and certain state taxes. As of December 31, 2017, the Company has not recognized U.S. tax expense on its undistributed international earnings or losses of its foreign subsidiaries since it intends to indefinitely reinvest the earnings outside the United States.

The Company considers the accounting of the effects of the Tax Act to be estimates. The provisional amounts recorded are based on the Company’s current interpretation and understanding of the Tax Act and may change as the Company receives additional clarification and implementation guidance and finalizes their analysis of all impacts and positions with regard to the Tax Act. The Company will continue to gather and evaluate the data and guidance to refine the income tax impact of the Tax Act. The effect of the change in federal corporate tax rate from 35% to 21% is subject to change based on resolution of estimates used in determining the amounts of deferred tax assets and liabilities that were remeasured. Our calculation of the transition tax is subject to further refinement as more information is gathered from our foreign subsidiaries, estimates used in the calculation are resolved, and as states provide guidance on how the transition tax may or may not apply in their respective jurisdictions. The reduction of the deferred tax asset related to executive compensation may be changed based upon actual 2018 compensation as compared to our projections of compensation that may be limited. Finally, the Tax Act also imposes a minimum tax on certain foreign subsidiaries deemed to be in excess of a routine return based on tangible asset investment, which is designed to discourage income shifting by subjecting certain foreign intangibles and other income to current U.S. tax. Effective for tax years beginning after 2017, U.S. shareholders of certain foreign corporations are subject to current U.S. tax on their global intangible low-taxes income (GILTI). We have not yet evaluated our potential liability, if any, under the minimum tax for GILTI in 2018 or future years. Accordingly, we have not yet made an accounting policy election either to account for these effects in the future period when the tax arises or to recognize them as part of the deferred taxes. Pursuant to SAB 118, the Company will complete the accounting for the tax effects of all of the provisions of the Tax Act within the required measurement period not to extend beyond one year from the enactment date.