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Income Taxes
 12 Months Ended
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.