Income Taxes

6 Months Ended

Dec. 26, 2021

Income Tax Disclosure [Abstract]

Income Taxes

13.  Income Taxes

The provision for income taxes and effective tax rate were as follows:

	For the Three Months Ended						For the Six Months Ended
	December 26, 2021			December 27, 2020			December 26, 2021			December 27, 2020
Provision for income taxes	$	3,185		$	5,112		$	7,598		$	3,933
Effective tax rate		77.4	%		40.6	%		44.2	%		26.5	%

U.S. Tax Law Change

On July 20, 2020, the U.S. Treasury issued and enacted final regulations related to global intangible low-tax income (“GILTI”) that allow certain U.S. taxpayers to elect to exclude foreign income that is subject to a high effective tax rate from their GILTI inclusions. The GILTI high-tax exclusion is an annual election and is retroactively available for tax years beginning after December 31, 2017. The three-month and six-month periods ended December 27, 2020 includes a discrete tax benefit of $359 and $5,148, respectively, related to the retroactive election.

Valuation Allowance

UNIFI regularly assesses whether it is more-likely-than-not that some portion or all of its deferred tax assets will not be realized.  UNIFI considers the scheduled reversal of taxable temporary differences, taxable income in carryback years, projected future taxable income and tax planning strategies in making this assessment.  Since UNIFI operates in multiple jurisdictions, the assessment is made on a jurisdiction-by-jurisdiction basis, taking into consideration the effects of local tax law.  The three-month and six-month period ended December 27, 2020 includes discrete tax expense of $26 and $2,153, respectively, for a change in valuation allowance related to the GILTI regulations enacted during that period.

Income Tax Expense

UNIFI’s provision for income taxes for the six months ended December 26, 2021 and December 27, 2020 was calculated by applying the estimated annual effective tax rate to year-to-date pre-tax book income and adjusting for discrete items that occurred during the period.

The effective tax rate for the three months ended December 26, 2021 was higher than the U.S. federal statutory rate primarily due to an increase in the valuation allowance for deferred tax assets, earnings taxed at higher rates in foreign jurisdictions, and deferred tax on unremitted earnings. The effective tax rate for the six months ended December 26, 2021 was higher than the U.S. federal statutory rate primarily due to an increase in the valuation allowance for deferred tax assets, earnings taxed at higher rates in foreign jurisdictions, and deferred tax on unremitted earnings.

The effective tax rate for the three months ended December 27, 2020 was higher than the U.S. federal statutory rate primarily due to current U.S. tax on GILTI. The effective tax rate for the six months ended December 27, 2020 was higher than the U.S. federal statutory rate primarily due to current U.S. tax on GILTI, the change in valuation allowance for deferred tax assets, and earnings taxed at higher rates in foreign jurisdictions. These rate impacts were partially offset by the retroactive GILTI high-tax exclusion for prior periods.

Unrecognized Tax Benefits

UNIFI regularly assesses the outcomes of both completed and ongoing examinations to ensure that its provision for income taxes is sufficient. Certain returns that remain open to examination have utilized carryforward tax attributes generated in prior tax years, including net operating losses, which could potentially be revised upon examination.