| 13. | Income Taxes |
Income tax expense for fiscal 2017, fiscal 2016 and fiscal 2015 consisted of the following:
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(In millions) |
For the fiscal year ended July 1, 2017 |
For the fiscal year ended July 2, 2016 |
For the fiscal year ended June 27, 2015 |
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Current income tax expense: |
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Federal |
$ | 45.8 | $ | 40.2 | $ | 40.7 | ||||||
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State |
9.3 | 6.4 | 5.5 | |||||||||
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Total current income tax expense |
55.1 | 46.6 | 46.2 | |||||||||
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Deferred income tax expense (benefit): |
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Federal |
3.6 | (1.1 | ) | (7.5 | ) | |||||||
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State |
2.7 | 0.7 | 1.4 | |||||||||
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Total deferred income tax benefit |
6.3 | (0.4 | ) | (6.1 | ) | |||||||
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Total income tax expense, net |
$ | 61.4 | $ | 46.2 | $ | 40.1 | ||||||
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The Company’s effective income tax rate for continuing operations for fiscal 2017, fiscal 2016, and fiscal 2015 is 39.0%, 40.3%, and 41.5%, respectively. Actual income tax expense differs from the amount computed by applying the applicable U.S. federal corporate income tax rate of 35% to earnings before income taxes as follows:
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(In millions) |
For the fiscal year ended July 1, 2017 |
For the fiscal year ended July 2, 2016 |
For the fiscal year ended June 27, 2015 |
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Federal income tax expense computed at statutory rate |
$ | 55.2 | $ | 40.0 | $ | 33.8 | ||||||
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Increase (decrease) in income taxes resulting from: |
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State income taxes, net of federal income tax benefit |
7.5 | 4.8 | 4.2 | |||||||||
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Non-deductible expenses and other |
3.4 | 2.7 | 2.1 | |||||||||
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Stock-based Compensation |
(4.7 | ) | (1.3 | ) | — | |||||||
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Total income tax expense, net |
$ | 61.4 | $ | 46.2 | $ | 40.1 | ||||||
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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 carry-forwards. Temporary differences and carry-forwards that created significant deferred tax assets and liabilities were as follows:
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(In millions) |
As of July 1, 2017 |
As of July 2, 2016 |
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Deferred tax assets: |
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Allowance for doubtful accounts |
$ | 4.0 | $ | 3.7 | ||||
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Inventories |
7.0 | 6.1 | ||||||
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Accrued employee benefits |
9.8 | 9.6 | ||||||
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Self-insurance reserves |
2.5 | 3.3 | ||||||
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Net operating loss carry-forwards |
4.2 | 5.4 | ||||||
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Stock-based compensation |
12.0 | 8.6 | ||||||
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Deferred rent |
1.0 | 1.0 | ||||||
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Other comprehensive income |
— | 3.7 | ||||||
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Other assets |
2.6 | 3.3 | ||||||
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Total gross deferred tax assets |
43.1 | 44.7 | ||||||
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Less: Valuation allowance |
— | (0.1 | ) | |||||
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Total net deferred tax assets |
43.1 | 44.6 | ||||||
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Deferred tax liabilities: |
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Property, plant, and equipment |
86.8 | 75.5 | ||||||
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Other comprehensive income |
1.5 | — | ||||||
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Basis difference in intangible assets |
51.1 | 41.2 | ||||||
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Prepaid expenses |
6.5 | 8.9 | ||||||
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Other |
0.2 | 0.1 | ||||||
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Total deferred tax liabilities |
146.1 | 125.7 | ||||||
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Total net deferred income tax liability |
$ | 103.0 | $ | 81.1 | ||||
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The state net operating loss carry-forwards expire in years 2017 through 2037. The Company believes that it is more likely than not that all remaining deferred tax assets will be realized.
The Company records a liability for Uncertain Tax Positions in accordance with FASB ASC 740-10-25, Income Taxes—General—Recognition. The following table summarizes the activity related to unrecognized tax benefits:
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(In millions) |
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Balance as of June 28, 2014 |
$ | 0.7 | ||
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Increases due to current year positions |
0.2 | |||
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Expiration of statutes of limitations |
— | |||
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Balance as of June 27, 2015 |
0.9 | |||
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Increases due to current year positions |
— | |||
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Settlements with taxing authorities |
(0.1 | ) | ||
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Expiration of statutes of limitations |
(0.4 | ) | ||
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Balance as of July 2, 2016 |
0.4 | |||
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Increases due to current year positions |
0.5 | |||
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Increases due to prior years positions |
0.6 | |||
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Expiration of statutes of limitations |
(0.2 | ) | ||
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Balance as of July 1, 2017 |
$ | 1.3 | ||
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Included in the balance as of July 1, 2017 and July 2, 2016, is $1.3 million ($1.2 million net of federal tax benefit) and $0.4 million ($0.3 million net of federal tax benefit), respectively, of unrecognized tax benefits that could affect the effective tax rate for continuing operations. The balance in unrecognized tax benefits relates primarily to transfer pricing and state tax issues.
As of July 1, 2017, substantially all federal, state and local, and foreign income tax matters have been concluded for years through 2013. It is reasonably possible that a decrease of $0.1 million in the balance of unrecognized tax benefits may occur within the next twelve months because of statute of limitations expirations, $0.1 million of which, if recognized, would affect the effective tax rate.
It is the Company’s practice to recognize interest and penalties related to uncertain tax positions in income tax expense. Less than $0.1 million (less than $0.1 million net of federal tax benefit) was accrued for interest related to uncertain tax positions as of July 1, 2017 and July 2, 2016. Net interest expense of less than $0.1 million (less than $0.1 million net of federal benefit) was recognized in tax expense for fiscal 2017, fiscal 2016, and fiscal 2015.