Note 9 - Income Taxes

6 Months Ended

Dec. 01, 2015

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 9 – INCOME TAXES

Under Accounting Standards Codification 740 (“ASC 740”), companies are required to apply their estimated annual tax rate on a year-to-date basis in each interim period. Under ASC 740, companies should not apply the estimated annual tax rate to interim financial results if the estimated annual tax rate is not reliably predictable. In this situation, the interim tax rate should be based on the actual year-to-date results. Due to changes in our projections, which have fluctuated as we work through our brand repositioning, a reliable projection of our annual effective rate has been difficult to determine. As such, we recorded a tax provision for the 13 and 26 weeks ended December 1, 2015 and December 2, 2014 based on the actual year-to-date results, in accordance with ASC 740.

We regularly evaluate the need for a valuation allowance for deferred tax assets by assessing whether it is more likely than not that we will realize the deferred tax assets in the future.  A valuation allowance assessment is performed each reporting period, with any additions or adjustments reflected in earnings in the period of assessment.  In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets for each jurisdiction. Our valuation allowance for deferred tax assets totaled $73.0 million and $62.8 million as of December 1, 2015 and June 2, 2015, respectively.

We recorded a tax benefit of $0.2 million and $1.2 million for the 13 and 26 weeks ended December 1, 2015, respectively, compared to a tax benefit of $0.6 million and $3.2 million for the 13 and 26 weeks ended December 2, 2014. Included in our $3.2 million tax benefit for the 26 weeks ended December 2, 2014 was a benefit of $3.2 million representing an immaterial prior period correction to our deferred tax asset valuation allowance.

We had a gross liability for unrecognized tax benefits, exclusive of accrued interest and penalties, of $4.8 million and $3.9 million, respectively, as of December 1, 2015 and June 2, 2015, of which $4.0 million and $3.3 million, respectively, was reclassified against our deferred tax assets. As of December 1, 2015 and June 2, 2015, the total amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate was $3.1 million and $2.4 million, respectively. The liability for unrecognized tax benefits as of December 1, 2015 includes $0.4 million related to tax positions for which it is reasonably possible that the total amounts could change within the next twelve months based on the outcome of examinations and negotiations with tax authorities.

Interest and penalties related to unrecognized tax benefits are recognized as components of income tax expense. As of December 1, 2015 and June 2, 2015, we had accrued $0.5 million and $0.4 million, respectively, for the payment of interest and penalties.

At December 1, 2015, we are no longer subject to U.S. federal income tax examinations by tax authorities for fiscal years prior to 2011, and with few exceptions, we are no longer subject to state and local examinations by tax authorities prior to fiscal year 2012.