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Note 7 - Income Taxes | 12 Months Ended
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May 29, 2016
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
7 . | Income Taxes
The provision for income taxes consisted of the following (in thousands):
|  | Year ended |  |  | Year ended |  |  | Year ended |
|  | May 29, 2016 |  |  | May 31, 2015 |  |  | May 25, 2014 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 2,382 |  |  | $ | 3,480 |  |  | $ | 4,785 |
State |  |  | (82 | ) |  |  | 43 |  |  |  | 157 |
Foreign |  |  | 83 |  |  |  | 71 |  |  |  | 56 |
Total |  |  | 2,383 |  |  |  | 3,594 |  |  |  | 4,998 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (9,177 | ) |  |  | 3,789 |  |  |  | 5,059 |
State |  |  | (610 | ) |  |  | 363 |  |  |  | 526 |
Total |  |  | (9,787 | ) |  |  | 4,152 |  |  |  | 5,585 |
Income tax (benefit)/expense |  | $ | (7,404 | ) |  | $ | 7,746 |  |  | $ | 10,583 |
The actual provision for income taxes differs from the statutory U.S. federal income tax rate of 35% for all year presented as follows (in thousands):
|  | Year Ended May 29, 2016 |  |  | Year Ended May 31, 2015 |  |  | Year Ended May 25, 2014 |
Provision at U.S. statutory rate of 35% |  | $ | (6,666 | ) |  | $ | 7,451 |  |  | $ | 10,405 |
State income taxes, net of federal benefit |  |  | (504 | ) |  |  | 566 |  |  |  | 711 |
Change in valuation allowance |  |  | 6 |  |  |  | 353 |  |  |  | 99 |
Tax credits |  |  | (156 | ) |  |  | (375 | ) |  |  | (378 | )
Domestic manufacturing deduction |  |  | (307 | ) |  |  | (369 | ) |  |  | (406 | )
Stock-based compensation |  |  | 173 |  |  |  | 142 |  |  |  | (47 | )
Other |  |  | 50 |  |  |  | (22 | ) |  |  | 199 |
Total |  | $ | (7,404 | ) |  | $ | 7,746 |  |  | $ | 10,583 |
The Company is in an income tax benefit position in fiscal year 2016 primarily due to the Company's $34.0 million impairment of its GreenLine tradename (see Note 1), which resulted in an overall net loss before taxes for fiscal year 2016. Whereas in fiscal years 2015 and 2014, the Company was in an overall net income before tax position and thus in an income tax expense position. The effective tax rate for fiscal year 2016 increased from 36% to 39% in comparison to fiscal year 2015 primarily due to the effect of the impairment of GreenLine tradename. The decrease in income tax expense in fiscal year 2015 compared to fiscal year 2014 was primarily due to a 28% decrease in net income before taxes. Significant components of deferred tax assets and liabilities consisted of the following (in thousands):
|  | May 29, 2016 |  |  | May 31, 2015 |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 3,030 |  |  | $ | 3,415 |
Accruals and reserves |  |  | 1,836 |  |  |  | 1,964 |
Stock-based compensation |  |  | 1,436 |  |  |  | 662 |
Research and AMT credit carryforwards |  |  | 468 |  |  |  | 515 |
Other |  |  | 926 |  |  |  | 966 |
Gross deferred tax assets |  |  | 7,696 |  |  |  | 7,522 |
Valuation allowance |  |  | (1,240 | ) |  |  | (1,234 | )
Net deferred tax assets |  |  | 6,456 |  |  |  | 6,288 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Basis difference in investment in non-public company |  |  | (11,125 | ) |  |  | (10,753 | )
Depreciation and amortization |  |  | (9,758 | ) |  |  | (7,186 | )
Goodwill and other indefinite life intangibles |  |  | (8,015 | ) |  |  | (20,578 | )
Deferred tax liabilities |  |  | (28,898 | ) |  |  | (38,517 | )
Net deferred tax liabilities |  | $ | (22,442 | ) |  | $ | (32,229 | )
As of May 29, 2016, the Company had federal, California, Indiana, and other state net operating loss carryforwards of approximately $7.3 million, $413,000, $6.5 million, and $13.0 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 $413,000 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 $1.3 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 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 an insignificant amount in fiscal year 2016. 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 29 , 201 6 |  |  | May 31 , 201 5 |  |  | May 25, 2014 |
Unrecognized tax benefits – beginning of the period |  | $ | 987 |  |  | $ | 1,035 |  |  | $ | 998 |
Gross increases – tax positions in prior period |  |  | 1 |  |  |  | 17 |  |  |  | 7 |
Gross decreases – tax positions in prior period |  |  | (223 | ) |  |  | (141 | ) |  |  | (48 | )
Gross increases – current-period tax positions |  |  | 77 |  |  |  | 76 |  |  |  | 78 |
Unrecognized tax benefits – end of the period |  | $ | 842 |  |  | $ | 987 |  |  | $ | 1,035 |
As of May 29, 2016, the total amount of net unrecognized tax benefits was $842,000, of which, $715,000, if recognized, would affect the effective tax rate. 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. 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 29, 2016, May 31, 2015 and May 25, 2014. In the twelve months succeeding May 29, 2016, it is reasonably possible that approximately $300,000 of other unrecognized tax benefits may be recognized. 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=65882285&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=65882285&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=65882285&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=65882285&loc=d3e32537-109319 + Details
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