INCOME TAXES

3 Months Ended

Aug. 30, 2024

INCOME TAXES

INCOME TAXES

6. INCOME TAXES  

The following table provides details of income taxes:

	Three Months Ended
	August 30,			August 31,
(In thousands)	2024			2023
Income before provision for income taxes	$	814		$	4,690
Provision for income taxes		154			16
Effective tax rate		18.9	%		0.3	%

The Company’s effective tax rate varies from the U.S. federal statutory rate of 21% primarily due to the R&D credits available to apply against federal and California income and the tax expense from stock-based compensation. During interim periods, tax expenses are accrued for jurisdictions that are anticipated to be profitable for fiscal 2025.

The determination of income taxes for the three months ended August 30, 2024 and August 31, 2023 was based on the Company’s estimated annual effective tax rate. Tax expense for the three months ended August 30, 2024 was primarily due to tax expense related to U.S. and profitable foreign subsidiaries. Tax expense for the three months ended August 31, 2023 was primarily due to profitable foreign subsidiaries. Provision for income taxes for the three months ended August 31, 2023 did not included tax expense related to U.S. operations due to a valuation allowance. The Company maintained a full valuation allowance on all the U.S. net deferred tax assets through the first nine months of fiscal 2024. In the fourth quarter of fiscal 2024, the Company concluded that the valuation allowance related to the U.S. federal and state deferred tax assets was no longer required due to existence of sufficient positive evidence to support that it is more likely than not that its deferred tax assets are realizable. A significant income tax benefit of $21.9 million was recognized due to release of a valuation allowance in the fourth quarter of fiscal 2024.

As of August 30, 2024, deferred tax assets, net decreased $2.4 million to $18.4 million from $20.8 million at May 31, 2024 primarily due to the intangible assets acquired from Incal through a common stock acquisition, which created a deferred tax liability. None of the intangible assets are expected to be deductible for U.S. federal income tax purposes since the transaction for income tax purposes is treated as a stock acquisition, rather than an asset acquisition for financial accounting purposes.

 The Company accounts for uncertain tax positions consistent with authoritative guidance. The guidance prescribes a “more likely than not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income taxes.