3. RESTATEMENT

During the second quarter of fiscal 2012, in connection with an ongoing IRS examination, we determined that a deduction taken on our fiscal year 2006 federal tax return was taken in error. As a result, the tax impact of the Net Operating Loss ("NOL") carry forward from fiscal 2006 was overstated by approximately $2.1 million. The NOL from fiscal 2006 was fully utilized and the reversal of all associated valuation allowances was recorded in our results from discontinued operations during fiscal 2011. The deferred tax asset related to the NOL was fully reserved prior to the fourth quarter of fiscal 2011.

The Securities and Exchange Commission (the "SEC" or "Commission") Staff Accounting Bulletin 108 ("SAB 108") provides guidance on quantifying and evaluating the materiality of errors. SAB 108 requires that a company considers the "iron curtain" and the "rollover" approach when quantifying misstatement amounts. Under the rollover approach, the error is quantified as the amount by which the current year income statement is misstated. The iron curtain approach quantifies the error using both a balance sheet and an income statement approach and evaluates whether either of these approaches results in quantifying a misstatement that is material, considering all relevant quantitative and qualitative factors.

Materiality was also assessed from a qualitative perspective based on whether it was probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item. We do not believe the effect of this error would have changed or influenced the judgment of a reasonable person.

We have performed an analysis of this error using both the rollover and iron curtain methods and have concluded that this error is material to our current period's financial statements and immaterial to fiscal 2011 financial statements. Accordingly, we will restate our fiscal 2011 financial statements to correct the error in fiscal 2012 Form 10-K. This error did not impact the financial statements prior to fiscal 2011, as the NOL was fully reserved prior to the fourth quarter of fiscal 2011. During the second quarter of fiscal 2012, we recorded an entry to reduce our retained earnings and increase our discontinued liabilities by $2.1 million to correct the error on the balance sheet.

During the first nine months of fiscal 2012, the effect on retained earnings and net income were as follows (in thousands):


	Effect on			Effect on
	Retained			Net
	Earnings			Income
Recording of prior year's income tax expense	$	(2,126	)	$	—
Income tax effect on the above	$	—		$	—

Net SAB 108 Effect	$	(2,126	)	$	—

The understatement of our income tax accrual as of our fiscal year ended May 28, 2011, affected our consolidated balance sheet as follows (in thousands):


	As Reported		Restated
Discontinued Liabilities	$	13,771	$	15,897
Retained Earnings	$	101,053	$	98,927

The understatement of income tax expense for our fiscal year ended May 28, 2011, affected our consolidated statement of operations as follows (in thousands, except per share data):


	As Reported		Restated
Income from discontinued operations, net of tax	$	88,092	$	85,966
Net Income	$	90,074	$	87,948
Income from discontinued operations per diluted share	$	4.84	$	4.72
Net Income per diluted share	$	4.95	$	4.83