NOTE H — INCOME TAXES

The provision for income taxes is calculated in accordance with ASC 740, "Income Taxes," which requires the recognition of deferred income taxes using the asset and liability method.

As of May 31, 2026, we had foreign tax credit carryforwards of $31.2 million, which expire at various dates through fiscal 2036, and $25.9 million of U.S. capital loss carryforwards which expire in fiscal 2031. Additionally, as of May 31, 2026, we had approximately $62.8 million of U.S. interest deduction carryforward attributes that have an indefinite carryforward period.

As of May 31, 2026, we had foreign net operating losses of approximately $119.5 million and interest deduction carryforwards of approximately $85.7 million, totaling approximately $205.2 million. Of these carryforward amounts, approximately $14.6 million will expire at various dates beginning in fiscal 2027 and approximately $190.6 million have an indefinite carryforward period. Additionally, as of May 31, 2026, we had foreign capital loss carryforwards of approximately $26.2 million that can be carried forward indefinitely.

When evaluating the realizability of deferred income tax assets, we consider, among other items, whether a jurisdiction has experienced cumulative pretax losses and whether a jurisdiction will generate the appropriate character of income to recognize a deferred income tax asset. More specifically, if a jurisdiction experiences cumulative pretax losses for a period of three years, including the current fiscal year, or if a jurisdiction does not have sufficient income of the appropriate character in the relevant carryback or projected carryforward periods, we generally conclude that it is more likely than not that the respective deferred tax asset will not be realized unless factors such as expected operational changes, availability of prudent and feasible tax planning strategies, reversal of taxable temporary differences or other information exists that would lead us to conclude otherwise. If, after we have evaluated these factors, the deferred income tax assets are not expected to be realized within the carryforward or carryback periods allowed for that jurisdiction, we would conclude that a valuation allowance is required.

Total valuation allowances approximating $77.3 and $49.2 million have been recorded as of May 31, 2026 and 2025, respectively. These recorded valuation allowances relate primarily to certain foreign net operating losses, U.S. and foreign interest deduction carryforwards, U.S. foreign tax credit and capital loss carryforwards and other net foreign deferred tax assets.

The fiscal 2025 provision for income taxes includes incremental benefits of the U.S. deduction for foreign derived intangible income and the foreign tax rate differential associated with certain global capital structure initiatives. Additionally, during fiscal 2025, following developments in U.S. tax case law, we assessed certain of our income tax positions and recorded a deferred tax adjustment totaling $43.9 million, which represents an increase to our deferred income tax assets for U.S. foreign tax credit carryforwards.

The total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, at May 31, 2026, 2025 and 2024 was $1.5 million, $1.6 million and $4.4 million, respectively.

We recognize interest and penalties related to unrecognized tax benefits in income tax expense. At May 31, 2026, 2025 and 2024, the accrual for interest and penalties was $0.7 million, $0.6 million and $3.0 million, respectively. Unrecognized tax benefits, including interest and penalties, have been classified as other long-term liabilities unless expected to be paid in one year.

We file income tax returns in the United States and in various state, local and foreign jurisdictions. With limited exceptions, we are subject to federal, state and local, or non-U.S. income tax examinations by tax authorities for fiscal 2019 through 2027. Our fiscal 2023 U.S. federal income tax return is currently under examination. Additionally, we are currently under examination, or have been notified of an upcoming tax examination, for various non-U.S. and domestic state and local jurisdictions.

As of May 31, 2026, we have approximately $171.6 million of unremitted foreign earnings that are not considered to be permanently reinvested. There is a $0.4 million deferred income tax liability associated with these earnings.

We have not provided for U.S. income taxes or foreign withholding taxes on the remaining foreign unremitted earnings because such earnings have been retained and reinvested by the foreign subsidiaries as of May 31, 2026. Accordingly, no provision has been made for U.S. income taxes or foreign withholding taxes, which may become payable if the remaining unremitted earnings of foreign subsidiaries were distributed to the United States. Due to the uncertainties and complexities involved in the various options for repatriation of foreign earnings, it is not practical to calculate the deferred taxes associated with the remaining foreign earnings.

On July 4, 2025, the One Big Beautiful Bill Act (the “Act”) was enacted in the U.S. The Act includes significant changes to corporate income tax provisions. Included in the Act are certain changes including immediate expensing for most business assets acquired and the elimination of the requirement to capitalize and amortize domestic R&D expenditures. Additionally, the Act provided taxpayers an election to accelerate amortization deductions for prior year R&D expenditures. The fiscal 2026 provision for income taxes reflects the Company’s intent to elect to accelerate such amortization deductions.