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Income Taxes | 12 Months Ended
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Jun. 01, 2019
Income Tax Disclosure [Abstract] |
Income Taxes |
9. | INCOME TAXES
(Loss) income from continuing operations before income taxes included the following components (in thousands):
|  | Fiscal Year Ended |
|  | June 1, 2019 |  |  | June 2, 2018 |  |  | May 27, 2017 |
United States |  | $ | (9,971 | ) |  | $ | (211 | ) |  | $ | (8,150 | )
Foreign |  |  | 3,660 |  |  |  | 4,071 |  |  |  | 2,034 |
(Loss) income before income taxes |  | $ | (6,311 | ) |  | $ | 3,860 |  |  | $ | (6,116 | )
The provision for income taxes for fiscal 2019, fiscal 2018 and fiscal 2017 consisted of the following (in thousands):
|  | Fiscal Year Ended |
|  | June 1, 2019 |  |  | June 2, 2018 |  |  | May 27, 2017 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 33 |  |  | $ | — |  |  | $ | (117 | )
State |  |  | 3 |  |  |  | (12 | ) |  |  | 3 |
Foreign |  |  | 652 |  |  |  | 1,220 |  |  |  | 1,035 |
Total current |  | $ | 688 |  |  | $ | 1,208 |  |  | $ | 921 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (104 | ) |  | $ | 124 |  |  | $ | — |
State |  |  | — |  |  |  | — |  |  |  | — |
Foreign |  |  | 433 |  |  |  | 202 |  |  |  | (109 | )
Total deferred |  | $ | 329 |  |  | $ | 326 |  |  | $ | (109 | )
Income tax provision |  | $ | 1,017 |  |  | $ | 1,534 |  |  | $ | 812 |
The differences between income taxes at the U.S. federal statutory income tax rate of 21.0% for fiscal 2019, 29.2% for fiscal 2018 and 34.0% for fiscal 2017 and the reported income tax provision for fiscal 2019, fiscal 2018 and fiscal 2017 are summarized as follows:
|  | Fiscal Year Ended |
|  | June 1, 2019 |  |  | June 2, 2018 |  |  | May 27, 2017 |
Federal statutory rate |  |  | 21.0 | % |  |  | 29.2 | % |  |  | 34.0 | %
Effect of: |  |  |  |  |  |  |  |  |  |  |  |
State income taxes, net of federal tax benefit |  |  | 5.4 |  |  |  | 0.3 |  |  |  | 4.8 |
Deemed repatriation tax |  |  | — |  |  |  | (50.0 | ) |  |  | — |
Foreign income inclusion |  |  | — |  |  |  | — |  |  |  | (20.7 | )
Foreign taxes at other rates |  |  | (4.1 | ) |  |  | (0.1 | ) |  |  | 1.0 |
Permanent tax differences |  |  | (16.1 | ) |  |  | 6.7 |  |  |  | (0.5 | )
Deferred remeasurement |  |  | — |  |  |  | 45.1 |  |  |  | — |
Tax reserves |  |  | — |  |  |  | 3.6 |  |  |  | 0.9 |
Additional U.S. tax on undistributed foreign earnings |  |  | — |  |  |  | (12.5 | ) |  |  | 15.8 |
Change in valuation allowance for deferred tax assets |  |  | (22.8 | ) |  |  | 15.1 |  |  |  | (46.6 | )
Return to provision adjustments |  |  | (0.5 | ) |  |  | 0.1 |  |  |  | (2.0 | )
Closure of foreign audits |  |  | — |  |  |  | 2.2 |  |  |  | — |
Other |  |  | 1.0 |  |  |  | — |  |  |  | — |
Effective tax rate |  |  | (16.1 | )% |  |  | 39.7 | % |  |  | (13.3 | )%
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 June 1, 2019 and June 2, 2018. Significant components were as follows (in thousands):
|  | Fiscal Year Ended |
|  | June 1, 2019 |  |  | June 2, 2018 |
Deferred tax assets: |  |  |  |  |  |  |  |
NOL carryforwards - foreign and domestic |  | $ | 7,458 |  |  | $ | 7,883 |
Inventory valuations |  |  | 1,179 |  |  |  | 978 |
Goodwill |  |  | 1,578 |  |  | 294 |
Foreign tax credits |  |  | 1,782 |  |  |  | 465 |
Severance reserve |  |  | 188 |  |  | 119 |
Foreign capital loss |  |  | 1,129 |  |  |  | 1,143 |
Other |  |  | 1,737 |  |  |  | 1,632 |
Subtotal |  | $ | 15,051 |  |  | $ | 12,514 |
Valuation allowance - foreign and domestic |  |  | (11,706 | ) |  |  | (9,148 | )
Net deferred tax assets after valuation allowance |  | $ | 3,345 |  |  | $ | 3,366 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Accelerated depreciation |  | $ | (2,908 | ) |  | $ | (2,474 | )
Tax on undistributed earnings |  |  | (141 | ) |  |  | (274 | )
Other |  | 21 |  |  | 28 |
Subtotal |  | $ | (3,028 | ) |  | $ | (2,720 | )
Net deferred tax assets |  | $ | 317 |  |  | $ | 646 |
Supplemental disclosure of net deferred tax assets, excluding valuation allowance: |  |  |  |  |  |  |  |
Domestic |  | $ | 10,194 |  |  | $ | 7,394 |
Foreign |  | $ | 1,829 |  |  | $ | 2,401 |
Total |  | $ | 12,023 |  |  | $ | 9,795 |
As of June 1, 2019, we had approximately $3.1 million of net deferred tax assets related to federal net operating loss (“NOL”) carryforwards, compared to $3.4 million as of June 2, 2018. Net deferred tax assets related to domestic state NOL carryforwards amounted to approximately $3.9 million as of June 1, 2019, compared to $3.9 million as of June 2, 2018. Net deferred tax assets related to foreign NOL carryforwards as of June 1, 2019 totaled approximately $0.4 million with various or indefinite expiration dates. The amount of net deferred tax assets related to foreign NOL carryforwards was $0.6 million as of June 2, 2018. We also had a domestic net deferred tax asset of $1.8 million of foreign tax credit carryforwards as of June 1, 2019, compared to $0.5 million as of June 2, 2018. The changes in balances from prior year are generally due to the transition tax that was part of the Tax Cuts and Jobs Act for which the deemed inclusion on foreign earnings triggered additional foreign tax credit carryforwards that are available for future utilization. We did not have any alternative minimum tax credit carryforward as of June 1, 2019. We have historically determined that undistributed earnings of our foreign subsidiaries, to the extent of cash available, will be repatriated to the U.S. Due to the deemed repatriation tax, the untaxed outside basis difference for which the historic balance has primarily related has been reduced. The deferred tax liability on the outside basis difference is now primarily withholding tax on future dividend distributions. Accordingly, we have reduced the deferred tax liability from $0.3 million in fiscal 2018 to $0.2 million in fiscal 2019. 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 June 1, 2019. 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 subpart F and GILTI inclusions of our foreign earnings. 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 June 1, 2019, a valuation allowance of $11.7 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 June 2, 2018 in the amount of $2.6 million. We 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 valuation allowance also relates to deferred tax assets in foreign jurisdictions where historical taxable losses have been incurred. 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 $0.3 million, $0.5 million and $0.4 million, during fiscal 2019, fiscal 2018 and fiscal 2017, respectively. In the normal course of business, we are subject to examination by taxing authorities throughout the world. Generally, years prior to fiscal 2011 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 currently under examination in 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 2015 and the Netherlands beginning in fiscal 2013. The uncertain tax positions from continuing operations as of both June 1, 2019 and June 2, 2018 were $0.1 million. We record penalties and interest related to uncertain tax positions in the income tax expense line item within the Consolidated Statements of Comprehensive (Loss) Income. 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 June 1, 2019 or June 2, 2018. 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. The following table summarizes the activity related to the unrecognized tax benefits (in thousands):
|  | Fiscal Year Ended |
|  | June 1, 2019 |  |  | June 2, 2018 |
Unrecognized tax benefits, beginning of period |  | $ | 138 |  |  | $ | 1,883 |
Increase in positions taken in prior period |  |  | — |  |  |  | 138 |
Decrease in positions due to settlements |  |  | — |  |  |  | (1,883 | )
Currency translation adjustment |  |  | (8 | ) |  |  | — |
Unrecognized tax benefits, end of period |  | $ | 130 |  |  | $ | 138 |

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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