Note 5 - Income Taxes

9 Months Ended

Feb. 26, 2017

5.	Income Taxes

The provision for income taxes for the

three

and

nine

months ended

February

26,

2017

was

$1.6

million and

$4.1

million, respectively. The effective tax rate for the

three

and

nine

months ended

February

26,

2017

was

31%

and

34%,

respectively. The effective tax rate for the

three

and

nine

months ended

February

26,

2017

was lower than the statutory federal income tax rate of

35%

primarily due to the domestic manufacturing deduction and research and development credits; partially offset by state taxes and non-deductible stock-based compensation expense.

The income tax benefit for the

three

and

nine

months ended Febr

uary

28,

2016

was

$12.5

million and

$9.8

million, respectively. The effective tax rate for the

three

and

nine

months ended

February

28,

2016

was

34%

and

37%

, respectively. The effective tax rate for the

first

nine

months of fiscal year

2016

was higher than the statutory federal income tax rate of

35%

primarily due to state taxes and non-deductible stock-based compensation expense; partially offset by the domestic manufacturing deduction and research and development credits.

Included in the effective tax rate for the

nine

months ended

February

28,

2016

is a

$12.5

million discrete tax benefit for the impairment of the GreenLine tradename.

As of

February

26,

2017

and

May

29,

2016,

the Company had unrecognized tax benefits of approximately

$918

,000

and

$842,0

00,

respectively. Included in the balance of unrecognized tax benefits as of

February

26,

2017

and

May

29,

2016

is approximately

$778

,000

and

$715,000,

respectively, of tax benefits that, if recognized, would result in an adjustment to the Company’s effective tax rate. In the

twelve

months following

February

26,

2017,

it is reasonably possible that approximately

$300,000

of other unrecognized tax benefits

may

be recognized.

During the

nine

months ended

February

26,

2017,

excess tax benefits related to stock-based compensation of

$80

,000

were reflected in the consolidated statements of comprehensive income as a component of income tax expense as a result of the early adoption of ASU

2016

09,

specifically related to the prospective application of excess tax benefits and tax deficiencies related to stock-based compensation. See Note

1–

Organization, Basis of Presentation, and Summary of Significant Accounting Policies for further discussion regarding the adoption of ASU

2016

09.

The Company has elected to

classify interest and penalties related to uncertain tax positions as a component of its provision for income taxes. The Company has accrued an insignificant amount of interest and penalties relating to the income tax on the unrecognized tax benefits as of

February

26,

2017

and

May

29,

2016

Due to tax attribute carryforwards, the Company is subject to examination for tax years

199

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.