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INCOME TAXES | 12 Months Ended
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May 31, 2014
INCOME TAXES |
8. | INCOME TAXES
Income (loss) before income taxes includes the following components (in thousands):
| Fiscal Year Ended
| May 31, 2014 |  | June 1, 2013 |  | June 2, 2012
United States | $ | (1,399 | ) |  | $ | (2,716 | ) |  | $ | 982 |
Foreign | 747 |  |  | 3,358 |  |  | 6,674 |
Income before income taxes | $ | (652 | ) |  | $ | 642 |  |  | $ | 7,656 |
The provision (benefit) for income taxes for fiscal 2014, 2013, and 2012 consists of the following (in thousands):
| Fiscal Year Ended
| May 31, 2014 |  | June 1, 2013 |  | June 2, 2012
Current: |  |  |  |  |
Federal | $ | 214 |  |  | $ | (974 | ) |  | $ | 950 |
State | 1 |  |  | 56 |  |  | 2 |
Foreign | 601 |  |  | 970 |  |  | 1,156 |
Total current | $ | 816 |  |  | $ | 52 |  |  | $ | 2,108 |
Deferred: |  |  |  |  |
Federal | $ | (585 | ) |  | $ | (213 | ) |  | $ | (2,392 | )
State | (169 | ) |  | 151 |  |  | — |
Foreign | (369 | ) |  | 170 |  |  | (50 | )
Total deferred | $ | (1,123 | ) |  | $ | 108 |  |  | $ | (2,442 | )
Income tax provision (benefit) | $ | (307 | ) |  | $ | 160 |  |  | $ | (334 | )
The differences between income taxes at the U.S. federal statutory income tax rate of 34% and the reported income tax provision (benefit) for fiscal 2014, 2013, and 2012 are summarized as follows:
| Fiscal Year Ended
| May 31, 2014 |  | June 1, 2013 |  | June 2, 2012
Federal statutory rate | 34.0 | % |  | 34.0 | % |  | 34.0 | %
Effect of: |  |  |  |  |
State income taxes, net of federal tax benefit | 14.1 |  |  | (14.5 | ) |  | 0.1 |
Foreign income inclusion | (10.2 | ) |  | 24.7 |  |  | 5.1 |
Foreign taxes at other rates | (4.4 | ) |  | (44.6 | ) |  | (17.5 | )
Permanent tax differences | (3.9 | ) |  | 3.2 |  |  | 1.2 |
Intercompany items | (11.0 | ) |  | — |  |  | — |
Compensation items | (12.7 | ) |  | — |  |  | — |
Tax reserves | (7.2 | ) |  | (23.5 | ) |  | (1.6 | )
Additional U.S. tax on undistributed foreign earnings | 37.6 |  |  | 33.8 |  |  | (25.4 | )
Net increase in valuation allowance for deferred tax assets | (3.4 | ) |  | 18.1 |  |  | — |
Additional benefit for carryback of current year federal loss | — |  |  | (6.1 | ) |  | — |
Return to provision adjustments | 15.3 |  |  | — |  |  | — |
Other | (1.2 | ) |  | (0.2 | ) |  | (0.3 | )
Effective tax rate | 47.0 | % |  | 24.9 | % |  | (4.4 | %)
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Our deferred tax assets and liabilities reflect continuing operations as of May 31, 2014 and June 1, 2013. Significant components are as follows (in thousands):
| Fiscal Year Ended
| May 31, 2014 |  | June 1, 2013
Deferred tax assets: |  |  |
NOL carryforwards - foreign and domestic | $ | 3,405 |  |  | $ | 3,086 |
Inventory valuations | 1,130 |  |  | 935 |
Goodwill | 989 |  |  | 1,050 |
Severance reserve | 367 |  |  | 200 |
Foreign capital loss | 1,093 |  |  | 1,093 |
Other | 2,753 |  |  | 2,638 |
Subtotal | $ | 9,737 |  |  | $ | 9,002 |
Valuation allowance - foreign and domestic | (4,070 | ) |  | (4,201 | )
Net deferred tax assets after valuation allowance | $ | 5,667 |  |  | $ | 4,801 |
Deferred tax liabilities: |  |  |
Accelerated depreciation | $ | (317 | ) |  | $ | (309 | )
Tax on undistributed earnings | (7,031 | ) |  | (6,820 | )
Other | (659 | ) |  | (1,065 | )
Subtotal | $ | (8,007 | ) |  | $ | (8,194 | )
Net Deferred tax assets (liabilities) | $ | (2,340 | ) |  | $ | (3,393 | )
Supplemental disclosure of deferred tax assets (liabilities) information: |  |  |
Domestic | $ | (1,797 | ) |  | $ | (2,108 | )
Foreign | $ | 3,527 |  |  | $ | 2,916 |
As of May 31, 2014, we had no domestic federal net operating loss (“NOL”) carryforwards. Domestic state NOL carryforwards amounted to approximately $2.3 million. Foreign NOL carryforwards totaled approximately $1.1 million with various or indefinite expiration dates. We also had no alternative minimum tax credit carryforward or foreign tax credit carryforwards as of May 31, 2014. We have historically determined that certain undistributed earnings of our foreign subsidiaries, to the extent of cash available, will be repatriated to the U.S. Accordingly, we have provided a deferred tax liability totaling $7.0 million and $6.8 million as of May 31, 2014 and June 1, 2013, respectively, on foreign earnings of $41.3 million. In addition, as of May 31, 2014, $45.4 million of cumulative positive earnings of some of our foreign subsidiaries are still considered permanently reinvested pursuant to ASC 740-30, Income Taxes - Other Considerations or Special Areas (“ASC 740-30”). Due to various tax attributes that are continuously changing, it is not practical to determine what, if any, tax liability might exist if such earnings were to be repatriated. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant component of objective evidence evaluated was the cumulative income or loss incurred in each jurisdiction over the three-year period ended May 31, 2014. On the basis of this evaluation, as of May 31, 2014, a valuation allowance of $4.1 million has been established to record only the portion of the deferred tax asset that will more likely than not be realized. The valuation allowance relates to deferred tax assets in jurisdictions where historical taxable losses have been incurred, and domestic state NOL carryforwards related to jurisdictions where the utilization of NOLs have been suspended. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth. Our future U.S. federal, state, and foreign effective tax rates are expected to be closer to 34.0%, 3.8%, and 27.3%, respectively. Income taxes paid, including foreign estimated tax payments, were $2.1 million, $1.7 million, and $40.1 million during fiscal 2014, 2013, and 2012, respectively. In the normal course of business, we are subject to examination by taxing authorities throughout the world. Generally, years prior to fiscal 2005 are closed for examination under the statute of limitation for U.S. federal, state or local, or non-U.S. tax jurisdictions. We are also currently under examination in Germany (fiscal 2009, 2010, and 2011), Italy (fiscal 2011), and Thailand (fiscal 2008 through 2011). Our primary foreign tax jurisdictions are Germany and the Netherlands. We have tax years open in Germany beginning in fiscal 2007 and the Netherlands beginning in fiscal 2008. The uncertain tax positions as of May 31, 2014 and June 1, 2013, totaled $0.2 million and less than $0.1 million, respectively. Unrecognized tax benefits of $0.2 million would affect our effective tax rate if recognized. The following table summarizes the activity related to the unrecognized tax benefits (in thousands):
| Fiscal Year Ended
| May 31, 2014 |  | June 1, 2013
Unrecognized tax benefits, beginning of period | $ | 32 |  |  | $ | 1,750 |
Increase (decrease) due to currency translation | 7 |  |  | 2 |
Increase in positions taken in prior period | 163 |  |  | — |
Increase in positions taken in current period | — |  |  | 99 |
Decrease in positions due to settlements | — |  |  | (1,779 | )
Decrease related to the expiration of statute of limitations | (41 | ) |  | (40 | )
Unrecognized tax benefits, end of period | $ | 161 |  |  | $ | 32 |
Unrecognized tax benefits for continuing and discontinued operations are as follows (in thousands):
| Fiscal Year Ended
| May 31, 2014 |  | June 1, 2013
Continuing operations | $ | 66 |  |  | $ | 17 |
Discontinuing operations | 95 |  |  | 15 |
| $ | 161 |  |  | $ | 32 |
We record penalties and interest relating to uncertain tax positions in the income tax expense line item within the Consolidated Statements of Comprehensive Income (Loss). Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheets. As of May 31, 2014 and June 1, 2013, we recorded a liability for interest and penalties of $0.1 million and less than $0.1 million, respectively. It is not expected that there will be a change in the unrecognized tax benefits due to the expiration of various statutes of limitations within the next 12 months.

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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 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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