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Income Taxes | 12 Months Ended
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May 28, 2022
Income Taxes [Abstract] |
Income Taxes | 9. Income Taxes The following table represents the current and deferred income tax expense (benefit) for federal, state and foreign income taxes attributable to operations (amounts in thousands):
|  | For the Years Ended
|  | May 28, |  | May 29, |  | May 30,
|  | 2022 |  | 2021 |  | 2020
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | 20,210 |  | $ | (19,790) |  | $ | 3,038
State |  |  | 4,131 |  |  | 3,256 |  |  | 1,302
Foreign |  |  | 2,464 |  |  | 1,769 |  |  | 1,686
|  |  | 26,805 |  |  | (14,765) |  |  | 6,026
Deferred: |  |  |  |  |  |  |  |  |
Federal |  |  | (5,838) |  |  | 13,509 |  |  | 874
State |  |  | 1,884 |  |  | (1,341) |  |  | 245
Foreign |  |  | (7,058) |  |  | 52 |  |  | (202)
|  |  | (11,012) |  |  | 12,220 |  |  | 917
Income tax expense (benefit) |  | $ | 15,793 |  | $ | (2,545) |  | $ | 6,943
Income before income tax expense (benefit) is as follows (amounts in thousands):
|  | For the Years Ended
|  | May 28, |  | May 29, |  | May 30,
|  | 2022 |  | 2021 |  | 2020
Domestic |  | $ | 68,416 |  | $ | 23,598 |  | $ | 36,148
Foreign |  |  | 14,552 |  |  | (914) |  |  | (920)
Income before income tax expense (benefit) |  | $ | 82,968 |  | $ | 22,684 |  | $ | 35,228
The income tax expense (benefit) differs from the amount that would result from applying the federal statutory rate as follows:)
|  | For the Years Ended
|  | May 28, |  | May 29, |  | May 30,
|  | 2022 |  | 2021 |  | 2020
Statutory tax rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State taxes, net of federal benefit |  | 5.7 |  |  | 9.0 |  |  | 3.6 |
Non-U.S. rate adjustments |  | 0.7 |  |  | 3.1 |  |  | 0.9 |
Stock-based compensation |  | 0.3 |  |  | 6.0 |  |  | 3.2 |
Valuation allowance |  | (6.5) |  |  | 7.8 |  |  | 4.1 |
Global Intangible Low-Taxed Income, net of credits |  | 0.3 |  |  | - |  |  | 0.9 |
Worthless stock deduction |  | (3.2) |  |  | - |  |  | (14.8) |
Worthless debt deduction |  | - |  |  | - |  |  | (2.6) |
FIN48 |  | - |  |  | 0.1 |  |  | 1.6 |
Permanent items |  | 1.0 |  |  | 0.8 |  |  | 2.0 |
Deferred tax impact of foreign rate changes |  | (0.2) |  |  | (1.9) |  |  | (0.2) |
Prior year true-ups |  | 0.1 |  |  | (3.8) |  |  | - |
Prior year interest and penalty |  | - |  |  | 3.1 |  |  | - |
Federal rate benefit on NOL carryback |  | (0.3) |  |  | (56.3) |  |  | - |
Other, net |  | 0.1 |  |  | (0.1) |  |  | - |
Effective tax rate |  | 19.0 | % |  | (11.2) | % |  | 19.7 | %
The impact of state taxes, net of federal benefit, and foreign income taxed at other than U.S. rates fluctuates year over year due to the changes in the mix of operating income and losses amongst the various states and foreign jurisdictions in which the Company operates. The current year rate benefitted from the improvement in operating results in the international entities, enabling us to utilize the benefits from historical net operating losses in certain foreign jurisdictions by reversing a $4.9 million valuation allowance in a specific European entity in the third quarter. We also recognized a $2.6 million benefit from the dissolution of our France entity. The components of the net deferred tax (liability) asset consist of the following (amounts in thousands):
|  | As of |  | As of
|  | May 28, |  | May 29,
|  | 2022 |  | 2021 (1)
Deferred tax assets: |  |  |  |  |  |
Allowance for doubtful accounts |  | $ | 335 |  | $ | 268
Accrued compensation |  |  | 5,113 |  |  | 4,567
Accrued expenses |  |  | 1,513 |  |  | 2,947
Lease liability |  |  | 5,482 |  |  | 8,025
Stock options and restricted stock |  |  | 4,150 |  |  | 4,435
Foreign tax credit |  |  | 557 |  |  | 557
Net operating losses |  |  | 16,550 |  |  | 16,931
State taxes |  |  | 254 |  |  | 210
Property and equipment |  |  | 356 |  |  | 410
Gross deferred tax asset |  |  | 34,310 |  |  | 38,350
Valuation allowance |  |  | (8,249) |  |  | (13,263)
Gross deferred tax asset, net of valuation allowance |  |  | 26,061 |  |  | 25,087
Deferred tax liabilities: |  |  |  |  |  |
ROU asset |  |  | (4,399) |  |  | (6,477)
Outside basis difference - Sweden investment |  |  | (259) |  |  | (259)
IRC Section 481(a) adjustment |  |  | (8,292) |  |  | (16,786)
Goodwill and intangibles |  |  | (19,273) |  |  | (18,256)
Net deferred tax liability |  | $ | (6,162) |  | $ | (16,691)
(1) Prior year amounts have been reclassified and presented separately for the impact from lease liability and ROU asset to be comparable with the current year presentation. There is no change in the resulting net deferred tax liability as reported in the prior year. In March 2020, the CARES Act was enacted into law. The CARES Act made various tax law changes, including among other things (i) enacting technical corrections so that qualified improvement property can be immediately expensed under IRC Section 168(k) and (ii) allowing federal net operating losses (“NOLs”) incurred in calendar year 2018 to 2020 (the Company’s fiscal years 2019, 2020 and 2021) to be carried back to the five preceding taxable years. The NOL carryback is intended to generate tax benefits at higher tax rates in the carryback periods. As part of the Company’s tax planning strategies, management made certain changes related to the capitalization of fixed assets effective in fiscal 2021. The strategy allowed the Company to carry back the net operating losses of fiscal 2021 to fiscal years 2016 to 2018. The Company recognized a discrete tax benefit of $12.8 million in the fourth quarter of fiscal 2021, and subsequently an additional $0.2 million in the fourth quarter of fiscal 2022 after the fiscal year 2021 federal tax return was filed. The Company had a net income tax receivable of $34.0 million as of May 28, 2022 and $36.1 million as of May 29, 2021, respectively. We expect to receive our tax refund in the first half of fiscal 2023. The tax benefit associated with the exercise of nonqualified stock options and disqualifying dispositions by employees of shares acquired pursuant to incentive stock options or under the Company’s ESPP reduced income taxes payable by $2.0 million and $0.4 million for the years ended May 28, 2022 and May 29, 2021, respectively. The Company has foreign net operating loss carryforwards of $64.3 million and foreign tax credit carryforwards of $0.6 million. The foreign tax credits will expire beginning in fiscal 2023. The following table summarizes the net operating loss expiration periods (amounts in thousands):
Expiration Periods | Amount of Net Operating Losses
Fiscal Years Ending: |
2025 | $ | 42
2026 |  | 450
2027 |  | 699
2028-2031 |  | 669
Unlimited |  | 62,407
Total | $ | 64,267
The following table summarizes the activity in the Company’s valuation allowance accounts (amounts in thousands):
|  |  |  |  |  |  |  | Currency |  |  |
|  | Beginning |  | Charged to |  | Rate |  | Ending
|  | Balance |  | Operations |  | Changes |  | Balance
Years Ended: |  |  |  |  |  |  |  |  |  |  |  |
May 30, 2020 |  | $ | 13,190 |  | $ | (1,919) |  | $ | (202) |  | $ | 11,069
May 29, 2021 |  | $ | 11,069 |  | $ | 951 |  | $ | 1,243 |  | $ | 13,263
May 28, 2022 |  | $ | 13,263 |  | $ | (3,152) |  | $ | (1,862) |  | $ | 8,249
Realization of deferred tax assets is dependent upon generating sufficient future taxable income. Management believes that it is more likely than not that all remaining deferred tax assets will be realized through future taxable earnings or alternative tax strategies. Deferred income taxes have not been provided on the undistributed earnings of approximately $27.3 million from the Company’s foreign subsidiaries as of May 28, 2022 since these amounts are intended to be indefinitely reinvested in foreign operations. If the earnings of the Company’s foreign subsidiaries were to be distributed, management estimates that the income tax impact would be immaterial as a result of the transition tax and federal dividends received deduction for foreign source earnings provided under the US Tax Cuts and Jobs Act of 2017. The following table summarizes the activity related to the gross unrecognized tax benefits (amounts in thousands):
|  | For the Years Ended
|  | May 28, |  | May 29,
|  | 2022 |  | 2021
Unrecognized tax benefits, beginning of year |  | $ | 872 |  | $ | 848
Gross increases -tax positions in prior period |  |  | 36 |  |  | 24
Gross increases-tax positions in current period |  |  | - |  |  | -
Unrecognized tax benefits, end of year |  | $ | 908 |  | $ | 872
The Company’s total liability for unrecognized gross tax benefits was $908,000 and $872,000 as of May 28, 2022 and May 29, 2021, respectively, which, if ultimately recognized, would impact the effective tax rate in future periods. The unrecognized tax benefits are included in long-term liabilities in the Consolidated Balance Sheets. None of the unrecognized tax benefits are short-term liabilities due to the closing of the statute of limitations. The Company’s major income tax jurisdiction is the U.S., with federal statutes of limitations remaining open for fiscal 2019 and thereafter. For states within the U.S. in which the Company does significant business, the Company remains subject to examination for fiscal 2018 and thereafter. Major foreign jurisdictions in Europe remain open for fiscal years ended 2017 and thereafter. The Company recognizes interest and penalties related to unrecognized tax benefits as a part of its provision for income taxes. During the fiscal years ended May 28, 2022 and May 29, 2021, the Company accrued for interest of $36,000 and $24,000, respectively, as a component of the liability for unrecognized tax benefits.

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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