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Note 8 - Income Taxes | 12 Months Ended
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May. 31, 2015
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | 8 . Income Taxes The provision for income taxes consisted of the following (in thousands):
|  | Year ended |  |  | Year ended |  |  | Year ended |
Current: |  | May 31, 2015 |  |  | May 25, 2014 |  |  | May 26, 2013 |
Federal |  | $ | 3,480 |  |  | $ | 4,785 |  |  | $ | 2,808 |
State |  |  | 43 |  |  |  | 157 |  |  |  | (18 | )
Foreign |  |  | 71 |  |  |  | 56 |  |  |  | 56 |
Total |  |  | 3,594 |  |  |  | 4,998 |  |  |  | 2,846 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 3,789 |  |  |  | 5,059 |  |  |  | 6,218 |
State |  |  | 363 |  |  |  | 526 |  |  |  | 388 |
Total |  |  | 4,152 |  |  |  | 5,585 |  |  |  | 6,606 |
Income tax expense |  | $ | 7,746 |  |  | $ | 10,583 |  |  | $ | 9,452 |
The actual provision for income taxes differs from the statutory U.S. federal income tax rate as follows (in thousands):
|  | Year Ended May 31, 2015 |  |  | Year Ended May 25, 2014 |  |  | Year Ended May 26, 2013 |
Provision at U.S. statutory rate (1) |  | $ | 7,451 |  |  | $ | 10,405 |  |  | $ | 11,214 |
State income taxes, net of federal benefit |  |  | 566 |  |  |  | 711 |  |  |  | 731 |
Change in valuation allowance |  |  | 353 |  |  |  | 99 |  |  |  | 370 |
Tax-exempt interest |  |  | — |  |  |  | — |  |  |  | — |
Tax credit carryforwards |  |  | (375 | ) |  |  | (378 | ) |  |  | (801 | )
Domestic manufacturing deduction |  |  | (369 | ) |  |  | (406 | ) |  |  | (172 | )
Change in value of contingent consideration |  |  | — |  |  |  | — |  |  |  | (1,450 | )
Other |  |  | 120 |  |  |  | 152 |  |  |  | (440 | )
Total |  | $ | 7,746 |  |  | $ | 10,583 |  |  | $ | 9,452 |
(1) Statutory rate was 35% for fiscal years 2015, 2014 and 2013. The decrease in income tax expense in fiscal year 2015 compared to fiscal year 2014 was primarily due to a 28% decrease in income before taxes. The increase in income tax expense in fiscal year 2014 compared to fiscal year 2013 is primarily due to the benefit received in fiscal year 2013 related to the change in value of contingent consideration, the absence of which increased the effective tax rate from 30% in fiscal year 2013 to 36% in fiscal year 2014 partially offset by a 7% decrease in net income before taxes. The effective tax rates for fiscal year 2015 differ from the statutory federal income tax rate of 35% as a result of several factors, including state taxes, valuation allowance on the impairment of the investment in Aesthetic Sciences Corporation, and non-deductible stock-based compensation expense; partially offset by the domestic manufacturing deduction and state and federal research and development credits. The effective tax rates for fiscal year 2014 differ from the statutory federal income tax rate of 35% as a result of several factors, including state taxes, non-deductible stock-based compensation expense, disqualified dispositions of incentive stock options, domestic manufacturing deduction, the benefit of federal and state research and development credits, and the change in valuation allowance. The effective tax rates for fiscal year 2013 differ from the statutory federal income tax rate of 35% as a result of several factors, including state taxes, change in value of contingent consideration, non-deductible stock-based compensation expense, disqualified dispositions of incentive stock options, domestic manufacturing deduction, the benefit of federal and state research and development credits, and the change in valuation allowance. Significant components of deferred tax assets and liabilities consisted of the following (in thousands):
|  | May 31, 2015 |  |  | May 25, 2014 |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 3,415 |  |  | $ | 3,630 |
Accruals and reserves |  |  | 1,964 |  |  |  | 1,746 |
Stock-based compensation |  |  | 662 |  |  |  | 723 |
Research and AMT credit carryforwards |  |  | 515 |  |  |  | 495 |
Other |  |  | 966 |  |  |  | 545 |
Gross deferred tax assets |  |  | 7,522 |  |  |  | 7,139 |
Valuation allowance |  |  | (1,234 | ) |  |  | (881 | )
Net deferred tax assets |  |  | 6,288 |  |  |  | 6,258 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Basis difference in investment in non-public company |  |  | (10,753 | ) |  |  | (9,270 | )
Depreciation and amortization |  |  | (7,186 | ) |  |  | (5,705 | )
Goodwill and other indefinite life intangibles |  |  | (20,578 | ) |  |  | (19,360 | )
Deferred tax liabilities |  |  | (38,517 | ) |  |  | (34,335 | )
Net deferred tax liabilities |  | $ | (32,229 | ) |  | $ | (28,077 | )
As of May 31, 2015, the Company had federal, California, Indiana, and other state net operating loss carryforwards of approximately $7.8 million, $0.8 million, $6.6 million, and $13.3 million respectively. These losses expire in different periods through 2032, if not utilized. Such net operating losses consist of excess tax benefits from employee stock option exercises and have not been recorded in the Company’s deferred tax assets. The Company will record approximately $500,000 of the gross California net operating loss to additional paid in capital as and when such excess tax benefits are ultimately realized. The Company acquired additional net operating losses through the acquisition of GreenLine. Utilization of these acquired net operating losses in a specific year is limited due to the “change in ownership” provision of the Internal Revenue Code of 1986 and similar state provisions. The net operating losses presented above for federal and state purposes is net of any such limitation. The Company has California research and development tax credits carryforwards of approximately $1.6 million. The research and development tax credit carryforwards have an unlimited carryforward period for California purposes. Certain tax credit carryovers are attributable to excess tax benefits from employee stock option exercises and have not been recorded in the Company’s deferred tax assets. The Company will record $1.1 million of the gross California research and development credit to additional paid in capital as and when such excess tax benefits are ultimately realized. Valuation allowances are reviewed each period on a tax jurisdiction by jurisdiction basis to analyze whether there is sufficient positive or negative evidence to support a change in judgment about the realizability of the related deferred tax assets. Based on this analysis and considering all positive and negative evidence, the Company determined that a valuation allowance of $1.2 million should be recorded as a result of uncertainty around the utilization of certain state net operating losses and a book impairment loss on the Company's investment in Aesthetic Sciences as it is more likely than not that a portion of the deferred tax asset will not be realized in the foreseeable future. The valuation allowance increased by $353,000 in fiscal year 2015 primarily due to uncertainty around the utilization of certain state net operating losses and credits. The accounting for uncertainty in income taxes recognized in an enterprise’s financial statements prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and the derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|  | As of |
|  | May 31 , 201 5 |  |  | May 25 , 201 4 |  |  | May 26 , 201 3 |
Unrecognized tax benefits – beginning of the period |  | $ | 1,035 |  |  | $ | 998 |  |  | $ | 766 |
Gross increases – tax positions in prior period |  |  | 17 |  |  |  | 7 |  |  |  | 103 |
Gross decreases – tax positions in prior period |  |  | (141 | ) |  |  | (48 | ) |  |  | — |
Gross increases – current-period tax positions |  |  | 76 |  |  |  | 78 |  |  |  | 129 |
Lapse of statute of limitations |  |  | — |  |  |  | — |  |  |  | — |
Unrecognized tax benefits – end of the period |  | $ | 987 |  |  | $ | 1,035 |  |  | $ | 998 |
As of May 31, 2015, the total amount of net unrecognized tax benefits was $987,000, of which, $800,000, if recognized, would affect the effective tax rate. As of May 25, 2014, the total amount of net unrecognized tax benefits was $1.0 million, of which, $817,000, if recognized, would affect the effective tax rate. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The total amount of penalties and interest was not material as of May 31, 2015 and May 25, 2014. Additionally, the Company does not expect its unrecognized tax benefits to change materially within the next twelve months. Due to tax attribute carryforwards, the Company is subject to examination for tax years 1997 forward for U.S. tax purposes. The Company is also subject to examination in various state jurisdictions for tax years 1998 forward, none of which were individually material.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 + Details
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