INCOME TAXES
For the fiscal year ended July 29, 2017, income (loss) before income taxes consists of $211.5 million from U.S. operations and $2.9 million from foreign operations. For the fiscal year ended July 30, 2016, income before income taxes consists of $208.8 million from U.S. operations and $(0.6) million from foreign operations. For the fiscal year ended August 1, 2015, income before income taxes consists of $227.4 million from U.S. operations and $2.4 million from foreign operations.
Total federal and state income tax (benefit) expense consists of the following:
|
| | | | | | | | | | | |
| Current | | Deferred | | Total |
| (In thousands) |
Fiscal year ended July 29, 2017 | |
| | |
| | |
|
U.S. Federal | $ | 70,669 |
| | $ | (1,874 | ) | | $ | 68,795 |
|
State & Local | 14,653 |
| | (82 | ) | | 14,571 |
|
Foreign | 837 |
| | 65 |
| | 902 |
|
| $ | 86,159 |
| | $ | (1,891 | ) | | $ | 84,268 |
|
Fiscal year ended July 30, 2016 | |
| | |
| | |
|
U.S. Federal | $ | 57,157 |
| | $ | 11,383 |
| | $ | 68,540 |
|
State & Local | 12,718 |
| | 1,310 |
| | 14,028 |
|
Foreign | 101 |
| | (213 | ) | | (112 | ) |
| $ | 69,976 |
| | $ | 12,480 |
| | $ | 82,456 |
|
Fiscal year ended August 1, 2015 | |
| | |
| | |
|
U.S. Federal | $ | 60,848 |
| | $ | 13,209 |
| | $ | 74,057 |
|
State & Local | 14,119 |
| | 2,098 |
| | 16,217 |
|
Foreign | 729 |
| | 32 |
| | 761 |
|
| $ | 75,696 |
| | $ | 15,339 |
| | $ | 91,035 |
|
Total income tax expense (benefit) was different than the amounts computed using the United States statutory income tax rate of 35% applied to income before income taxes as a result of the following:
|
| | | | | | | | | | | |
| Fiscal year ended |
| July 29,
2017 |
| July 30,
2016 |
| August 1,
2015 |
| (In thousands) |
Computed "expected" tax expense | $ | 75,048 |
| | $ | 72,878 |
| | $ | 80,419 |
|
State and local income tax, net of Federal income tax benefit | 9,694 |
| | 9,412 |
| | 10,547 |
|
Non-deductible expenses | 1,951 |
| | 1,549 |
| | 1,551 |
|
Tax effect of share-based compensation | 29 |
| | 86 |
| | 165 |
|
General business credits | (915 | ) | | (135 | ) | | (365 | ) |
Other, net | (1,539 | ) | | (1,334 | ) | | (1,282 | ) |
Total income tax expense | $ | 84,268 |
| | $ | 82,456 |
| | $ | 91,035 |
|
The income tax expense (benefit) for the years ended July 29, 2017 , July 30, 2016 and August 1, 2015 was allocated as follows:
|
| | | | | | | | | | | |
| July 29,
2017 | | July 30,
2016 | | August 1,
2015 |
| (In thousands) |
Income tax expense | $ | 84,268 |
| | $ | 82,456 |
| | $ | 91,035 |
|
Stockholders' equity, difference between compensation expense for tax purposes and amounts recognized for financial statement purposes | 1,320 |
| | 83 |
| | (2,746 | ) |
Other comprehensive income | 3,222 |
| | (2,050 | ) | | (293 | ) |
| $ | 88,810 |
| | $ | 80,489 |
| | $ | 87,996 |
|
The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets and deferred tax liabilities at July 29, 2017 and July 30, 2016 are presented below:
|
| | | | | | | |
| July 29,
2017 | | July 30,
2016 |
| (In thousands) |
Deferred tax assets: | | | |
Inventories, principally due to additional costs inventoried for tax purposes | $ | 9,416 |
| | $ | 10,682 |
|
Compensation and benefits related | 35,482 |
| | 25,453 |
|
Accounts receivable, principally due to allowances for uncollectible accounts | 5,639 |
| | 4,734 |
|
Accrued expenses | 4,466 |
| | 7,519 |
|
Net operating loss carryforwards | 940 |
| | 1,059 |
|
Interest rate swap agreements | — |
| | 2,343 |
|
Other deferred tax assets | — |
| | 29 |
|
Total gross deferred tax assets | 55,943 |
| | 51,819 |
|
Less valuation allowance | — |
| | — |
|
Net deferred tax assets | $ | 55,943 |
| | $ | 51,819 |
|
Deferred tax liabilities: | | | |
Plant and equipment, principally due to differences in depreciation | $ | 59,414 |
| | $ | 62,030 |
|
Intangible assets | 53,633 |
| | 48,996 |
|
Interest rate swap agreements | 876 |
| | — |
|
Other | 218 |
| | 785 |
|
Total deferred tax liabilities | 114,141 |
| | 111,811 |
|
Net deferred tax liabilities | $ | (58,198 | ) | | $ | (59,992 | ) |
Current deferred income tax assets | $ | 40,635 |
| | $ | 35,228 |
|
Non-current deferred income tax liabilities | (98,833 | ) | | (95,220 | ) |
| $ | (58,198 | ) | | $ | (59,992 | ) |
In assessing the need to establish a valuation reserve for the recoverability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company considers relevant evidence, both positive and negative, to determine the need for a valuation allowance. Information evaluated includes the Company's financial position and results of operations for the current and preceding years, the availability of deferred tax liabilities and tax carrybacks, as well as an evaluation of currently available information about future years. As of July 29, 2017, the Company has sufficient taxable income in the federal carryback period and anticipates sufficient future taxable income over the periods in which the deferred tax assets are deductible. The Company also has the availability of future reversals of taxable temporary differences that are expected to generate taxable income in the future. Therefore, the ultimate realization of deferred tax assets for federal and state tax purposes appears more likely than not at July 29, 2017 and correspondingly no valuation allowance has been established.
At July 29, 2017, the Company had net operating loss carryforwards of approximately $2.6 million for federal income tax purposes. The federal carryforwards are subject to an annual limitation of approximately $0.3 million under Internal Revenue Code Section 382. The carryforwards expire at various times between fiscal years 2018 and 2028.
The Company and its subsidiaries file income tax returns in the United States federal jurisdiction and in various state jurisdictions. UNFI Canada files income tax returns in Canada and certain of its provinces. U.S. federal income tax examination years prior to 2014 have either statutorily or administratively been closed with the Internal Revenue Service, and with limited exception, the fiscal tax years that remain subject to examination by state jurisdictions range from the Company's fiscal 2013 to fiscal 2016.
The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense. For the fiscal year ended July 29, 2017, the net tax benefit realized in the consolidated statement of income was de minimis. For the fiscal year ended July 30, 2016, the net tax benefit realized by the Company in the consolidated statement of income was de minimis. For the fiscal year ended August 1, 2015, the Company recognized net tax benefits of $0.5 million in its consolidated statement of income.
The retained earnings of the Company's non-U.S. subsidiary that have not been subject to U.S. tax are $18.5 million at July 29, 2017. The Company considers these unremitted earnings to be indefinitely reinvested; therefore, we have not provided a deferred tax liability for any residual U.S. tax that may be due upon repatriation of these earnings. Because of the effect of U.S. foreign tax credits, it is not practicable to estimate the amount of tax that might be payable on these earnings in the event they no longer are indefinitely reinvested.