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INCOME TAXES | 12 Months Ended
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May. 30, 2015
INCOME TAXES |
8. | INCOME TAXES
Income (loss) before income taxes includes the following components (in thousands):
| Fiscal Year Ended
| May 30, 2015 |  | May 31, 2014 |  | June 1, 2013
United States | $ | (9,287 | ) |  | $ | (1,399 | ) |  | $ | (2,716 | )
Foreign | 2,293 |  |  | 747 |  |  | 3,358 |
Income (loss) before income taxes | $ | (6,994 | ) |  | $ | (652 | ) |  | $ | 642 |
The provision (benefit) for income taxes for fiscal 2015, 2014, and 2013 consists of the following (in thousands):
| Fiscal Year Ended
| May 30, 2015 |  | May 31, 2014 |  | June 1, 2013
Current: |  |  |  |  |
Federal | $ | (326 | ) |  | $ | 214 |  |  | $ | (974 | )
State | 14 |  |  | 1 |  |  | 56 |
Foreign | 191 |  |  | 601 |  |  | 970 |
Total current | $ | (121 | ) |  | $ | 816 |  |  | $ | 52 |
Deferred: |  |  |  |  |
Federal | $ | (1,964 | ) |  | $ | (585 | ) |  | $ | (213 | )
State | 530 |  |  | (169 | ) |  | 151 |
Foreign | 89 |  |  | (369 | ) |  | 170 |
Total deferred | $ | (1,345 | ) |  | $ | (1,123 | ) |  | $ | 108 |
Income tax provision (benefit) | $ | (1,466 | ) |  | $ | (307 | ) |  | $ | 160 |
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 2015, 2014, and 2013 are summarized as follows:
| Fiscal Year Ended
| May 30, 2015 |  | May 31, 2014 |  | June 1, 2013
Federal statutory rate | 34.0 | % |  | 34.0 | % |  | 34.0 | %
Effect of: |  |  |  |  |
State income taxes, net of federal tax benefit | 5.3 |  |  | 14.1 |  |  | (14.5 | )
Foreign income inclusion | (1.6 | ) |  | (10.2 | ) |  | 24.7 |
Foreign taxes at other rates | 4.4 |  |  | (4.4 | ) |  | (44.6 | )
Permanent tax differences | (0.5 | ) |  | (3.9 | ) |  | 3.2 |
Intercompany items | 2.2 |  |  | (11.0 | ) |  | — |
Compensation items | — |  |  | (12.7 | ) |  | — |
Tax reserves | 0.8 |  |  | (7.2 | ) |  | (23.5 | )
Additional U.S. tax on undistributed foreign earnings | (0.5 | ) |  | 37.6 |  |  | 33.8 |
Net increase in valuation allowance for deferred tax assets | (27.3 | ) |  | (3.4 | ) |  | 18.1 |
Additional benefit for carryback of current year federal loss | — |  |  | — |  |  | (6.1 | )
Return to provision adjustments | 4.0 |  |  | 15.3 |  |  | — |
Other | 0.1 |  |  | (1.2 | ) |  | (0.2 | )
Effective tax rate | 20.9 | % |  | 47.0 | % |  | 24.9 | %
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 30, 2015 and May 31, 2014. Significant components are as follows (in thousands):
| Fiscal Year Ended
| May 30, 2015 |  | May 31, 2014
Deferred tax assets: |  |  |
NOL carryforwards - foreign and domestic | $ | 5,960 |  |  | $ | 3,405 |
Inventory valuations | 1,060 |  |  | 1,130 |
Goodwill | 1,031 |  |  | 989 |
Foreign tax credits | 322 |  |  | — |
Severance reserve | — |  |  | 367 |
Foreign capital loss | 1,073 |  |  | 1,093 |
Other | 1,983 |  |  | 2,753 |
Subtotal | $ | 11,429 |  |  | $ | 9,737 |
Valuation allowance - foreign and domestic | (5,158 | ) |  | (4,070 | )
Net deferred tax assets after valuation allowance | $ | 6,271 |  |  | $ | 5,667 |
Deferred tax liabilities: |  |  |
Accelerated depreciation | $ | (218 | ) |  | $ | (317 | )
Tax on undistributed earnings | (4,813 | ) |  | (7,031 | )
Other | (202 | ) |  | (659 | )
Subtotal | $ | (5,233 | ) |  | $ | (8,007 | )
Net Deferred tax assets (liabilities) | $ | 1,038 |  |  | $ | (2,340 | )
Supplemental disclosure of deferred tax assets (liabilities) information: |  |  |
Domestic | $ | 3,477 |  |  | $ | (1,797 | )
Foreign | $ | 2,710 |  |  | $ | 3,527 |
Total | $ | 6,187 |  |  | $ | 1,730 |
As of May 30, 2015, we had approximately $3.0 million of federal net operating loss (“NOL”) carryforwards. Domestic state NOL carryforwards amounted to approximately $2.4 million. Foreign NOL carryforwards totaled approximately $0.6 million with various or indefinite expiration dates. We also have $0.3 million of foreign tax credit carryforwards as of May 30, 2015. We do not have any alternative minimum tax credit carryforward as of May 30, 2015. 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 $4.8 million and $7.0 million as of May 30, 2015 and May 31, 2014, respectively, on foreign earnings of $37.2 million and $41.3 million, respectively. In addition, as of May 30, 2015, $33.7 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 practicable 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 30, 2015. Such objective evidence limits the ability to consider subjective evidence such as future income projections. We considered other positive evidence in determining the need for a valuation allowance in the U.S. including the repatriation of foreign earnings which we do not consider permanently reinvested in certain of our foreign subsidiaries. The weight of this positive evidence is not sufficient to outweigh other negative evidence in evaluating our need for a valuation allowance in the U.S. jurisdiction. On the basis of this evaluation, as of May 30, 2015, a valuation allowance of $5.2 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 foreign jurisdictions where historical taxable losses have been incurred. We also recorded a valuation allowance for all domestic federal and state net deferred tax assets considering the significant cumulative losses in the U.S. jurisdiction, the reversal of the deferred tax liability for foreign earnings, and no forecast of additional U.S. income. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are 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. Income taxes paid, including foreign estimated tax payments, were $0.5 million, $2.1 million, and $1.7 million during fiscal 2015, 2014, and 2013, 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 2008, 2009, 2010, and 2011). Our primary foreign tax jurisdictions are Germany and the Netherlands. We have tax years open in Germany beginning in fiscal 2008 and the Netherlands beginning in fiscal 2009. The uncertain tax positions as of May 30, 2015 and May 31, 2014, totaled $2.0 million and $0.2 million, respectively. Unrecognized tax benefits of $0.1 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 30, 2015 |  | May 31, 2014
Unrecognized tax benefits, beginning of period | $ | 161 |  |  | $ | 32 |
Increase due to currency translation | — |  |  | 7 |
Increase in positions taken in prior period | 2,000 |  |  | 163 |
Increase in positions taken in current period | — |  |  | — |
Decrease in positions due to settlements | (161 | ) |  | — |
Decrease related to the expiration of statute of limitations | — |  |  | (41 | )
Unrecognized tax benefits, end of period | $ | 2,000 |  |  | $ | 161 |
Unrecognized tax benefits for continuing and discontinued operations are as follows (in thousands):
| Fiscal Year Ended
| May 30, 2015 |  | May 31, 2014
Continuing operations | $ | 117 |  |  | $ | 66 |
Discontinuing operations (1) | 1,883 |  |  | 95 |
| $ | 2,000 |  |  | $ | 161 |
(1) Relates to an amended state income tax return 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. We have not recorded a liability for interest and penalties as of May 30, 2015, and less than $0.1 million, of interest and penalties was recorded during May 31, 2014. 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 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 2: 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 Reference 3: 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 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 SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 + Details
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