Note 6 - Income Taxes

9 Months Ended

Feb. 28, 2016

6.	Income Taxes

The income tax benefit for the three and nine months ended February 28, 2016 was $12.5 million and $9.8 million, respectively. The effective tax rate for the nine months ended February 28, 2016, 2015 was 37%, compared to 36% for the first nine months ended March 1, 2015. The effective tax rate for the first nine months of fiscal year 2016 was higher than the statutory federal income tax rate of 35% primarily due to state taxes and non-deductible stock-based compensation expense; partially offset by the domestic manufacturing deduction and research and development credits.

Included in the effective tax rate for the nine months ended February 28, 2016 is a $12.5 million discrete tax benefit for the impairment of the GreenLine trademark.

As of February 28, 2016 and May 31, 2015, the Company had unrecognized tax benefits of approximately $860,000 and $1.0 million, respectively. Included in the balance of unrecognized tax benefits as of February 28, 2016 and May 31, 2015 is approximately $727,000 and $800,000, respectively, of tax benefits that, if recognized, would result in an adjustment to the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly within the next twelve months.

The Company has elected to classify interest and penalties related to uncertain tax positions as a component of its provision for income taxes. The Company has accrued an insignificant amount of interest and penalties relating to the income tax on the unrecognized tax benefits as of February 28, 2016 and May 31, 2015.

Due to tax attribute carryforwards, the Company is subject to examination for tax years 1997 forward for U.S. tax purposes. The Company is also subject to examination in various state jurisdictions for tax years 1998 and forward, none of which were individually significant.