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Note 8 - Income Taxes | 12 Months Ended
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May 28, 2017
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 |
|  | May 28, 2017 |  |  | May 29, 2016 |  |  | May 31, 2015 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 1,690 |  |  | $ | 2,382 |  |  | $ | 3,480 |
State |  |  | 57 |  |  |  | (82 | ) |  |  | 43 |
Foreign |  |  | 82 |  |  |  | 83 |  |  |  | 71 |
Total |  |  | 1,829 |  |  |  | 2,383 |  |  |  | 3,594 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 2,244 |  |  |  | (9,177 | ) |  |  | 3,789 |
State |  |  | 262 |  |  |  | (610 | ) |  |  | 363 |
Total |  |  | 2,506 |  |  |  | (9,787 | ) |  |  | 4,152 |
Income tax expense (benefit) |  | $ | 4,335 |  |  | $ | (7,404 | ) |  | $ | 7,746 |
The actual provision for income taxes differs from the statutory U.S. federal income tax rate of 35% for all years presented as follows (in thousands):
|  | Year Ended |
|  | May 28, 2017 |  |  | May 29, 2016 |  |  | May 31, 2015 |
Provision at U.S. statutory rate of 35% |  | $ | 5,224 |  |  | $ | (6,666 | ) |  | $ | 7,451 |
State income taxes, net of federal benefit |  |  | 325 |  |  |  | (504 | ) |  |  | 566 |
Change in valuation allowance |  |  | 85 |  |  |  | 6 |  |  |  | 353 |
Tax credits |  |  | (834 | ) |  |  | (156 | ) |  |  | (375 | )
S tock-based compensation |  |  | (365 | ) |  |  | 173 |  |  |  | 142 |
Domestic manufacturing deduction |  |  | (243 | ) |  |  | (307 | ) |  |  | (369 | )
Other |  |  | 143 |  |  |  | 50 |  |  |  | (22 | )
Total |  | $ | 4,335 |  |  | $ | (7,404 | ) |  | $ | 7,746 |
Significant components of deferred tax assets and liabilities consisted of the following (in thousands):
|  | Year Ended |
|  | May 28, 2017 |  |  | May 29, 2016 |
Deferred tax assets: |  |  |  |  |  |  |  |
Accruals and reserves |  | $ | 3,242 |  |  | $ | 1,836 |
Net operating loss carryforwards |  |  | 2,766 |  |  |  | 3,030 |
Stock-based compensation |  |  | 2,032 |  |  |  | 1,436 |
Research and AMT credit carryforwards |  |  | 1,050 |  |  |  | 468 |
Other |  |  | 661 |  |  |  | 926 |
Gross deferred tax assets |  |  | 9,751 |  |  |  | 7,696 |
Valuation allowance |  |  | (1,325 | ) |  |  | (1,240 | )
Net deferred tax assets |  |  | 8,426 |  |  |  | 6,456 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Basis difference in investment in non-public company |  |  | (11,495 | ) |  |  | (11,125 | )
Goodwill and other indefinite life intangibles |  |  | (11,119 | ) |  |  | (8,015 | )
Depreciation and amortization |  |  | (10,393 | ) |  |  | (9,758 | )
Deferred tax liabilities |  |  | (33,007 | ) |  |  | (28,898 | )
Net deferred tax liabilities |  | $ | (24,581 | ) |  | $ | (22,442 | )
The increase in the income tax expense for fiscal year 2017 was primarily due the Company’s overall net income before tax position in fiscal year 2017 in comparison to an income tax benefit position in fiscal year 2016, which was primarily due to the Company’s $34 million impairment of its GreenLine trade name in fiscal year 2016, which resulted in an overall net loss before taxes for fiscal year 2016. Additionally, the effective tax rate for fiscal year 2017 decreased to 29% from 39% in fiscal year 2016. During the fiscal year ended May 28, 2017, excess tax benefits related to stock-based compensation of $19 2,000 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. The Company elected to early adopt the new guidance of ASU 2016 - 09, Compensation – Stock Compensation (Topic 718 ) : Improvements to Employee Share-Based Payments Accounting , in the quarter beginning May 30, 2016. Accordingly the primary effects of the adoption are as follows: ( 1 ) using a modified retrospective application, the Company recorded unrecognized excess tax benefits of $549 ,000 as a cumulative-effect adjustment, which increased retained earnings, and reduced deferred taxes by the same, ( 2 ) using a modified retrospective application, the Company has elected to recognize forfeitures as they occur and recorded a $200 ,000 increase to additional paid in capital, a $126 ,000 reduction to retained earnings, and a $74 ,000 reduction to deferred taxes to reflect the incremental stock-based compensation expense, net of the related tax impacts, that would have been recognized in prior years under the modified guidance, and ( 3 ) $150,000 and $463,000 in excess tax benefits from stock-based compensation was reclassified from cash flows from financing activities to cash flows from operating activities for the fiscal years ended May 29, 2016 and May 31, 2015, respectively, in the Consolidated Statements of Cash Flows. As of May 2 8, 2017, the Company had federal, Indiana, and other state net operating loss carryforwards of approximately $6.8 million, $5.7 million, and $3.0 million respectively. These losses expire in different periods through 2032 if not utilized. The Company acquired additional net operating losses through the acquisition of GreenLine in 2012. 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 $1.2 million. The research and development tax credit carryforwards have an unlimited carryforward period for California purposes. 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 $1.3 million should be recorded as a result of uncertainty around the utilization of certain state net operating losses, and a capital 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 an immaterial amount from the prior year 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 28 , 2017 |  |  | May 29, 2016 |  |  | May 31, 2015 |
Unrecognized tax benefits – beginning of the period |  | $ | 842 |  |  | $ | 987 |  |  | $ | 1,035 |
Gross increases – tax positions in prior period |  |  | 11 |  |  |  | 1 |  |  |  | 17 |
Gross decreases – tax positions in prior period |  |  | (90 | ) |  |  | (223 | ) |  |  | (141 | )
Gross increases – current-period tax positions |  |  | 93 |  |  |  | 77 |  |  |  | 76 |
Lapse of statute of limitations |  |  | (319 | ) |  |  | — |  |  |  | — |
Unrecognized tax benefits – end of the period |  | $ | 537 |  |  | $ | 842 |  |  | $ | 987 |
As of May 28, 2017, the total amount of net unrecognized tax benefits was $537 ,000, of which $419 ,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 28, 2017. Additionally, the Company expects its unrecognized tax benefits to decrease by approximately $215 ,000 within the next 12 months . Due to tax attribute carryforwards, the Company is subject to examination for tax years 2013 forward for U.S. tax purposes. The Company is also subject to examination in various state ju risdictions 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 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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