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INCOME TAXES | 12 Months Ended
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May 27, 2017
Income Tax Disclosure [Abstract] |
INCOME TAXES |
9. | INCOME TAXES
Loss from continuing operations before income taxes includes the following components (in thousands):
|  | Fiscal Year Ended |
|  | May 27, 2017 |  |  | May 28, 2016 |  |  | May 30, 2015 |
United States |  | $ | (8,150 | ) |  | $ | (7,274 | ) |  | $ | (9,287 | )
Foreign |  |  | 2,034 |  |  |  | 1,054 |  |  |  | 2,293 |
Loss before income taxes |  | $ | (6,116 | ) |  | $ | (6,220 | ) |  | $ | (6,994 | )
The provision (benefit) for income taxes for fiscal 2017, 2016, and 2015 consists of the following (in thousands):
|  | Fiscal Year Ended |
|  | May 27, 2017 |  |  | May 28, 2016 |  |  | May 30, 2015 |
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | (117 | ) |  | $ | — |  |  | $ | (326 | )
State |  |  | 3 |  |  |  | 17 |  |  |  | 14 |
Foreign |  |  | 1,035 |  |  |  | 441 |  |  |  | 191 |
Total current |  | $ | 921 |  |  | $ | 458 |  |  | $ | (121 | )
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | — |  |  | $ | — |  |  | $ | (1,964 | )
State |  |  | — |  |  |  | — |  |  |  | 530 |
Foreign |  |  | (109 | ) |  |  | 88 |  |  |  | 89 |
Total deferred |  | $ | (109 | ) |  | $ | 88 |  |  | $ | (1,345 | )
Income tax provision (benefit) |  | $ | 812 |  |  | $ | 546 |  |  | $ | (1,466 | )
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 2017, 2016, and 2015 are summarized as follows:
|  | Fiscal Year Ended |
|  | May 27, 2017 |  |  | May 28, 2016 |  |  | May 30, 2015 |
Federal statutory rate |  |  | 34 | % |  |  | 34 | % |  |  | 34 | %
Effect of: |  |  |  |  |  |  |  |  |  |  |  |
State income taxes, net of federal tax benefit |  |  | 4.8 |  |  |  | 4.2 |  |  |  | 5.3 |
Foreign income inclusion |  |  | (20.7 | ) |  |  | (0.4 | ) |  |  | (1.6 | )
Foreign taxes at other rates |  |  | 1.0 |  |  |  | 0.6 |  |  |  | 4.4 |
Permanent tax differences |  |  | (0.5 | ) |  |  | (0.8 | ) |  |  | (0.5 | )
Intercompany items |  |  | — |  |  |  | — |  |  |  | 2.2 |
Tax reserves |  |  | 0.9 |  |  |  | (6.0 | ) |  |  | 0.8 |
Additional U.S. tax on undistributed foreign earnings |  |  | 15.8 |  |  |  | (32.7 | ) |  |  | (0.5 | )
Net increase in valuation allowance for deferred tax assets |  |  | (46.6 | ) |  |  | (11.4 | ) |  |  | (27.3 | )
Return to provision adjustments |  |  | (2.0 | ) |  |  | 3.9 |  |  |  | 4.0 |
Other |  |  | — |  |  |  | (0.2 | ) |  |  | 0.1 |
Effective tax rate |  |  | (13.3 | )% |  |  | (8.8 | )% |  |  | 20.9 | %
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 27, 2017 and May 28, 2016. Significant components are as follows (in thousands):
|  | Fiscal Year Ended |
|  | May 27, 2017 |  |  | May 28, 2016 |
Deferred tax assets: |  |  |  |  |  |  |  |
NOL carryforwards - foreign and domestic |  | $ | 7,870 |  |  | $ | 9,089 |
Inventory valuations |  |  | 1,141 |  |  |  | 1,141 |
Goodwill |  |  | 325 |  |  |  | 798 |
Foreign tax credits |  |  | 3,808 |  |  |  | 304 |
Severance reserve |  |  | 227 |  |  |  | 34 |
Foreign capital loss |  |  | 1,142 |  |  |  | 1,079 |
Other |  |  | 2,048 |  |  |  | 2,167 |
Subtotal |  | $ | 16,561 |  |  | $ | 14,612 |
Valuation allowance - foreign and domestic |  |  | (8,557 | ) |  |  | (5,871 | )
Net deferred tax assets after valuation allowance |  | $ | 8,004 |  |  | $ | 8,741 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Accelerated depreciation |  | $ | (1,356 | ) |  | $ | (973 | )
Tax on undistributed foreign earnings |  |  | (5,738 | ) |  |  | (6,702 | )
Other |  |  | 35 |  |  |  | (175 | )
Subtotal |  | $ | (7,059 | ) |  | $ | (7,850 | )
Net deferred tax assets |  | $ | 945 |  |  | $ | 891 |
Supplemental disclosure of deferred tax assets : |  |  |  |  |  |  |  |
Domestic |  | $ | 6,937 |  |  | $ | 4,190 |
Foreign |  | $ | 2,565 |  |  | $ | 2,549 |
Total |  | $ | 9,502 |  |  | $ | 6,739 |
As of May 27, 2017, we had approximately $4.2 million of net deferred tax assets related to federal net operating loss (“NOL”) carryforwards, compared to $5.7 million as of May 28, 2016. Net deferred tax assets related to domestic state NOL carryforwards amounted to approximately $3.0 million, compared to $2.7 million during fiscal 2016. Net deferred tax assets related to foreign NOL carryforwards totaled approximately $0.7 million with various or indefinite expiration dates. The amount of net deferred tax assets related to foreign NOL carryforwards was $0.6 million for fiscal 2016. We also have a domestic net deferred tax asset of $3.8 million of foreign tax credit carryforwards as of May 27, 2017, compared to $0.3 million as of May 28, 2016. The changes in balances from prior year for the federal NOL carryforwards was driven by current year taxable losses which was offset by income that was generated from a dividend from Richardson Electronics China during the first quarter of fiscal 2017. The dividend also drove the increase in the foreign tax credit carryforward. We do not have any alternative minimum tax credit carryforward as of May 27, 2017. 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 $5.7 million and $6.7 million as of May 27, 2017 and May 28, 2016, respectively, on foreign earnings of $39.5 million and $48.7 million, respectively. The decrease year over year primarily relates to the realization of income from the Richardson Electronics China dividend which was previously accounted for at May 28, 2016 as part of our undistributed earnings liability for foreign subsidiaries. In addition, as of May 27, 2017, $6.4 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 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 27, 2017. 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. As of May 27, 2017, a valuation allowance of $8.5 million has been established to record only the portion of the deferred tax asset that will more likely than not be realized. There has been an increase in the valuation allowance from May 28, 2016 in the amount of $2.6 million. 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 $0.4 million, $0.7 million, and $0.5 million, during fiscal 2017, 2016, and 2015, respectively. In the normal course of business, we are subject to examination by taxing authorities throughout the world. Generally, years prior to fiscal 2007 are closed for examination under the statute of limitation for U.S. federal, U.S. state and local, or non-U.S. tax jurisdictions. We are under examination in the state of Illinois for fiscal years 2011 through 2013. We are currently under examination in Germany (fiscal 2011 through 2014) 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 2011 and the Netherlands beginning in fiscal 2011. The uncertain tax positions from continuing operations as of May 27, 2017 and May 28, 2016, totaled $0.0 million and $0.1 million, respectively. We record penalties and interest relating to uncertain tax positions in the income tax expense line item within the unaudited consolidated statements of comprehensive loss. It is not expected that there will be a change in the unrecognized tax benefits within the next 12 months for which an amount can be determined. The following table summarizes the activity related to the unrecognized tax benefits (in thousands):
|  | Fiscal Year Ended |
|  | May 27, 2017 |  |  | May 28, 2016 |
Unrecognized tax benefits, beginning of period |  | $ | 2,000 |  |  | $ | 2,000 |
Increase in positions taken in prior period |  |  | 75 |  |  |  | 299 |
Decrease in positions due to settlements |  |  | (75 | ) |  |  | — |
Decrease related to the expiration of statute of limitations |  |  | (117 | ) |  |  | (299 | )
Unrecognized tax benefits, end of period |  | $ | 1,883 |  |  | $ | 2,000 |
Unrecognized tax benefits for continuing and discontinued operations are as follows (in thousands):
|  | Fiscal Year Ended |
|  | May 27, 2017 |  |  | May 28, 2016 |
Continuing operations |  | $ | — |  |  | $ | 117 |
Discontinued operations (1) |  |  | 1,883 |  |  |  | 1,883 |
|  | $ | 1,883 |  |  | $ | 2,000 |
(1) | Relates to an amended Illinois state income tax return related to the sale of RFPD.

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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 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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