Income Taxes

6 Months Ended

Nov. 25, 2023

Income Taxes [Abstract]

Income Taxes

8. Income Taxes

For the three months ended November 25, 2023 and November 26, 2022, the Company’s income tax expense was $3.8 million, an effective tax rate of 43.4%, and $5.9 million, an effective tax rate of 25.2%, respectively. For the six months ended November 25, 2023 and November 26, 2022, the Company’s income tax expense was $5.8 million, an effective tax rate of 42.1%, and $12.9 million, an effective tax rate of 26.6%, respectively. The higher effective tax rate in the second quarter of fiscal 2024 was attributed primarily to a nonrecurring increase in forfeiture of stock options, coupled with a capitalization of acquisition related costs for tax purposes. Additionally, the lower effective tax rate in three months ended November 26, 2022 resulted from a number of one-time tax benefits recognized and a larger pretax income base lowering the tax expense ratio.

The Company operates in an international environment. Accordingly, the consolidated effective tax rate is a composite rate reflecting the earnings (losses) in various locations and the applicable tax rates in those jurisdictions, and fluctuations in the consolidated effective tax rate year over year, are due to the changes in the mix of operating income and losses amongst the various jurisdictions in which the Company operates.

For the three months ended November 25, 2023 and November 26, 2022, the Company recognized a tax benefit of approximately $1.0 million and $1.1 million, 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 Employee Stock Purchase Plan (“ESPP”). For the six months ended November 25, 2023 and November 26, 2022, the Company recognized a tax benefit of approximately $1.2 million and $1.7 million, 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’s total liability for unrecognized gross tax benefits, including accrued interest and penalties, was $1.0 million as of both November 25, 2023 and May 27, 2023, which, if ultimately recognized, would impact the effective tax rate in future periods. The unrecognized tax benefits are included in other long-term liabilities in the Consolidated Balance Sheets. None of the unrecognized tax benefits are short-term liabilities as the Company does not anticipate any cash payments within 12 months to settle the liability.