Income Taxes

12 Months Ended

Jul. 02, 2022

Income Tax Disclosure [Abstract]

Income Taxes

13. Income Taxes

The determination of the Company’s overall effective tax rate requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. The effective tax rate reflects the income earned and taxed in various federal, state, and foreign jurisdictions. Tax law changes, increases and decreases in temporary and permanent differences between book and tax items, tax credits, and the Company’s change in income in each jurisdiction all affect the overall effective tax rate.

Income tax expense (benefit) for fiscal 2022, fiscal 2021 and fiscal 2020 consisted of the following:

(In millions)	For the fiscal year ended July 2, 2022			For the fiscal year ended July 3, 2021			For the fiscal year ended June 27, 2020
Current income tax expense (benefit):
Federal	$	38.2		$	(10.6	)	$	(119.6	)
State		10.6			3.4			1.0
Foreign		1.0			-			-
Total current income tax expense (benefit)		49.8			(7.2	)		(118.6	)
Deferred income tax expense (benefit):
Federal		1.0			19.9			24.9
State		4.4			1.3			(14.4	)
Foreign		(0.6	)		-			-
Total deferred income tax expense		4.8			21.2			10.5
Total income tax expense (benefit), net	$	54.6		$	14.0		$	(108.1	)

The Company’s effective income tax rate for continuing operations for fiscal 2022, fiscal 2021 and fiscal 2020 was 32.7%, 25.6%, and 48.6%, respectively. Actual income tax expense (benefit) differs from the amount computed by applying the applicable U.S. federal statutory corporate income tax rate of 21% in fiscal 2022, fiscal 2021, and fiscal 2020 to earnings before income taxes as follows:

(In millions)	For the fiscal year ended July 2, 2022			For the fiscal year ended July 3, 2021			For the fiscal year ended June 27, 2020
Federal income tax expense (benefit) computed at statutory rate	$	35.1		$	11.5		$	(46.7	)
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal income tax benefit		13.1			4.1			(10.7	)
Non-deductible expenses and other		9.6			2.1			2.0
Net Operating Loss Carryback - Rate Differential		-			(2.1	)		(46.3	)
Stock-based compensation		(1.9	)		(1.5	)		(4.6	)
Other		(1.3	)		(0.1	)		(1.8	)
Total income tax expense (benefit), net	$	54.6		$	14.0		$	(108.1	)

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), which provides relief to taxpayers affected by COVID-19, was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures designed to mitigate the economic effects of COVID-19. In fiscal years 2021 and 2020, the Company recognized a tax benefit of $2.1 million and $46.3 million, respectively, related to the carry-back of the fiscal year 2020 net operating loss to tax years with a statutory rate of 35% compared to the current statutory rate of 21%.

Deferred income taxes are recorded based upon the tax effects of differences between the financial statement and tax bases of assets and liabilities and available tax loss and credit carryforwards. Temporary differences and carry-forwards that created significant deferred tax assets and liabilities were as follows:

(In millions)	As of July 2, 2022			As of July 3, 2021
Deferred tax assets:
Allowance for doubtful accounts	$	8.7		$	6.5
Inventories		-			8.0
Accrued employee benefits		23.2			18.2
Insurance reserves		3.6			3.4
Net operating loss carry-forwards		10.3			21.4
Stock-based compensation		10.1			8.6
Basis difference in intangible assets		-			18.2
Other comprehensive income		-			1.8
Lease obligations		137.2			66.6
Tax credit carry-forwards		4.0			2.5
Prepaid expenses		3.7			0.3
Other assets		6.7			4.4
Total gross deferred tax assets		207.5			159.9
Less: Valuation allowance		(2.6	)		(0.7	)
Total net deferred tax assets		204.9			159.2
Deferred tax liabilities:
Property, plant, and equipment		307.8			234.4
Right of use assets		140.5			65.2
Other comprehensive income		3.9			-
Basis difference in intangible assets		102.3			-
Inventories		74.0			-
Other Liabilities		0.7			-
Total deferred tax liabilities		629.2			299.6
Total net deferred income tax liability	$	424.3		$	140.4

Net deferred tax liabilities increased by $272.6 million primarily related to fair value and other adjustments made in purchase accounting. We have taken current and future expirations into consideration when evaluating the need for valuation allowances against deferred tax assets. A valuation allowance is provided when it is more likely than not that all or a portion of the deferred tax assets will not be realized. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. State net operating loss carry-forwards generally expire in fiscal years 2023 through 2042. Certain state net operating losses generated in fiscal year 2021 and after have an indefinite carry-forward period. For the fiscal years ending July 2, 2022 and July 3, 2021 the Company established a valuation allowance of $2.6 million and $0.7 million, respectively, net of federal tax benefit, against deferred tax assets related to certain net operating loss and state tax credit carry-forwards which are not likely to be realized due to limitations on utilization.

The Company records a liability for Uncertain Tax Positions in accordance with FASB ASC 740-10-25, Income Taxes—General—Recognition. Included in the balances as of July 2, 2022 and July 3, 2021, is $0.4 million and $0.3 million, respectively, of unrecognized tax benefits that could affect the effective tax rate for continuing operations. The balance in unrecognized tax benefits relates primarily to state tax issues and non-deductible expenses. The Company does not anticipate that changes in the amount of unrecognized tax benefits over the next twelve months will have a significant impact on its results of operations or financial position.

As of July 2, 2022, substantially all federal, state and local, and foreign income tax matters have been concluded for years prior to fiscal year 2014. The Internal Revenue Service commenced an audit with respect to the loss for fiscal year ended June 27, 2020 and the carryback to the prior 5 tax years. The audit was ongoing at the end of the fiscal year.

It is the Company’s practice to recognize interest and penalties related to uncertain tax positions in income tax expense. Approximately $0.1 million and $0.1 million was accrued for interest related to uncertain tax positions as of July 2, 2022 and July 3, 2021, respectively. Less than $0.1 million was recognized in interest expense for fiscal 2022 and net interest income of approximately $0.3 million was recognized in interest expense for fiscal 2021.