v3.24.2
Income Taxes
 12 Months Ended
May 25, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The following table represents the current and deferred income tax expense (benefit) for federal, state and foreign income taxes attributable to operations (in thousands):
For the Years Ended
May 25,
2024		May 27,
2023		May 28,
2022
Current:
Federal$3,245 $19,317 $20,210 
State1,422 6,323 4,131 
Foreign3,596 2,945 2,464 
8,263 28,585 26,805 
Deferred:
Federal935 (6,613)(5,838)
State273 (1,357)1,884 
Foreign(676)(2,356)(7,058)
532 (10,326)(11,012)
Income tax expense$8,795 $18,259 $15,793 

Income before income tax expense is as follows (in thousands):
For the Years Ended
May 25,
2024		May 27,
2023		May 28,
2022
Domestic$23,084 $60,835 $68,416 
Foreign6,745 11,783 14,552 
Income before income tax expense$29,829 $72,618 $82,968 
The income tax expense (benefit) differs from the amount that would result from applying the federal statutory rate as follows:
For the Years Ended
May 25,
2024		May 27,
2023		May 28,
2022
Statutory tax rate21.0  %21.0  %21.0  %
State taxes, net of federal benefit4.6 5.6 5.7 
Non-U.S. rate adjustments2.8 1.4 0.7 
Stock-based compensation2.2 (0.1)0.3 
Valuation allowance5.8 (1.7)(6.5)
U.S. international tax impact, net of credits
0.9 0.4 0.3 
Worthless stock deduction- - (3.2)
FIN480.2 0.1 - 
Contingent consideration (1)
(3.1)- - 
Section 986(c) foreign exchange loss (1)
(1.3)- - 
Capital loss carryforward (1)
(6.2)- - 
Permanent items2.5 0.3 1.0 
Tax impact of foreign rate changes0.2 (0.4)(0.2)
Return-to-provision & other adjustments(0.5)(1.6)0.1 
Other, net0.4 0.1 (0.2)
Effective tax rate29.5  %25.1  %19.0  %

(1)     Our current year rate primarily benefited from the nontaxable income on the reversal of CloudGo's contingent liability, a foreign exchange loss as a result of the repatriation of funds from our Japan subsidiary and the benefit of the capital loss carryforward, partially offset with a valuation allowance as a result of the pending sale of the Company’s Irvine building.

The impact of state taxes, net of federal benefit, and foreign income taxed at other than U.S. rates fluctuates year over year due to the changes in the mix of operating income and losses amongst the various states and foreign jurisdictions in which we operate. Our accounting policy is to recognize the U.S. tax effects of global intangible low-taxed income as a component of income tax expense in the period it arises.
The components of the net deferred tax asset (liability) consist of the following (in thousands):
As of
May 25,
2024		As of
May 27,
2023
Deferred tax assets:
Allowance for credit losses$482 $642 
Accrued compensation4,089 5,477 
Accrued expenses970 487 
Lease liability3,345 4,532 
Stock options and restricted stock3,870 4,599 
Foreign tax credit 477 431 
Net operating losses17,714 16,623 
Capital loss carryforwards
2,343 - 
State taxes113 354 
Property and equipment782 80 
Gross deferred tax asset34,185 33,225 
Valuation allowance(8,550)(6,514)
Gross deferred tax asset, net of valuation allowance25,635 26,711 
Deferred tax liabilities:
ROU asset(2,911)(3,998)
Outside basis difference - Sweden investment(262)(262)
Goodwill and intangibles(19,830)(18,886)
Net deferred tax asset$2,632 $3,565 
The Organisation for Economic Co-operation and Development ("OECD") has released an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules to reform international corporate taxation and introduce a new 15% global minimum tax applicable to large multinational corporations. Certain jurisdictions have enacted or substantively enacted the Pillar Two legislations. We have considered the applicability of such global implementations and determined that it does not have a material impact on our consolidated financial statements in fiscal 2024. We will continue to monitor and evaluate global implementation of Pillar Two legislations.

Additionally, we are continuing to monitor new guidance with regard to the new corporate alternative minimum tax ("CAMT") and its applicability. We have considered the applicability of the CAMT and determined that it does not have a material impact on our consolidated financial statements in fiscal 2024.

The Company recognized a tax benefit of approximately $1.3 million, $2.1 million and $2.0 million for the years ended May 25, 2024, May 27, 2023 and May 28, 2022, respectively, associated with the exercise of nonqualified stock options, vesting of restricted stock awards, restricted stock units, and disqualifying dispositions by employees of shares acquired under the ESPP.
The Company has tax-effected foreign net operating loss carryforwards of $17.3 million ($69.7 million on a gross basis), tax-effected state net operating loss carryforwards of $0.4 million, capital loss carryforwards of $2.3 million, and foreign tax credit carryforwards of $0.5 million. The state net operating loss carryforwards will expire beginning in fiscal 2033, the capital loss carryforwards will expire in fiscal 2028, and the foreign tax credits will expire beginning in fiscal 2025. The following table summarizes the foreign net operating losses expiration periods (in thousands):
Expiration PeriodsAmount of Net Operating Losses
Fiscal Years Ending:
2026$21 
2027 and beyond1,111 
Unlimited68,560 
Total$69,692 
The following table summarizes the activity in the Company’s valuation allowance accounts (in thousands):
Beginning
Balance		Charged to
Operations		Currency
Rate
Changes		Ending
Balance
Years Ended:
May 28, 2022$13,263 $(3,152)$(1,862)$8,249 
May 27, 2023$8,249 $(1,343)$(392)$6,514 
May 25, 2024$6,514 $1,964 $72 $8,550 

Realization of deferred tax assets is dependent upon generating sufficient future taxable income of the appropriate character. Management believes that it is more likely than not that all remaining deferred tax assets will be realized through future taxable earnings or alternative tax strategies.

We repatriated $10.2 million from our Japan subsidiary during the year ended May 25, 2024. Remaining unremitted earnings as of May 25, 2024 in our Japan subsidiary are intended to be indefinitely reinvested in our Japan subsidiary's operations and growth. Going forward, the indefinite reversal criteria will apply only to the portion of our Japan subsidiary’s unremitted earnings that are needed for its ongoing operations and growth. Deferred income taxes have not been provided on the undistributed earnings of approximately $31.6 million from the Company's foreign subsidiaries as of May 25, 2024 since these amounts are intended to be indefinitely reinvested in foreign operations. If the earnings of the Company's foreign subsidiaries were to be distributed, management estimates that the income tax impact would be immaterial as a result of the transition tax and federal dividends received deduction for foreign source earnings provided under the US Tax Cuts and Jobs Act of 2017.
The following table summarizes the activity related to the gross unrecognized tax benefits (in thousands):
For the Years Ended
May 25,
2024		May 27,
2023		May 28,
2022
Unrecognized tax benefits, beginning of year$962 $908 $872 
Gross increases-tax positions in prior period71 54 36 
Unrecognized tax benefits, end of year$1,033 $962 $908 
The Company’s total liability for unrecognized gross tax benefits was $1.0 million, $1.0 million and $0.9 million as of May 25, 2024, May 27, 2023 and May 28, 2022, respectively, which, if ultimately recognized, any differences in assessment or non-assessment would impact the effective tax rate in future periods. The unrecognized tax benefits are included in long-term liabilities in the Consolidated Balance Sheets. None of the unrecognized tax benefits are short-term liabilities as management does not anticipate any cash payments within 12 months to settle the liability.
The Company’s major income tax jurisdiction is the U.S., with federal statutes of limitations remaining open for fiscal 2020 and thereafter. For states within the U.S. in which the Company does significant business, the Company remains subject to examination for fiscal 2020 and thereafter. Most major foreign jurisdictions remain open for fiscal years ended 2019 and thereafter.
The Company recognizes interest and penalties related to unrecognized tax benefits as a part of its provision for income taxes. During the fiscal years ended May 25, 2024, May 27, 2023 and May 28, 2022, the Company accrued interest of $71,000, $54,000 and $36,000, respectively, as a component of the liability for unrecognized tax benefits.