Note 11 - Income Taxes

12 Months Ended

Jun. 28, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

11.

Income Taxes

Significant components of the income tax provision are as follows:

	Years ended
	June 28, 2020			June 30, 2019			July 1, 2018
	(in thousands)
Current provision:
Federal	$	14,727		$	2,809		$	3,385
State		4,383			2,710			1,514
Foreign		-			-			-
Current income tax expense		19,110			5,519			4,899
Deferred provision (benefit):
Federal		(62	)		3,138			(9,331	)
State		(204	)		(427	)		1,648
Foreign		-			(13	)		15
Deferred income tax expense (benefit)		(266	)		2,698			(7,668	)
Income tax expense (benefit)	$	18,844		$	8,217		$	(2,769	)

A reconciliation of the U.S. federal statutory tax rate to the Company's effective tax rate is as follows:

	Years ended
	June 28, 2020			June 30, 2019			July 1, 2018
Tax at U.S. statutory rates		21.0	%		21.0	%		28.0	%
State income taxes, net of federal tax benefit		4.5			4.4			5.7
Valuation allowance change		(0.3	)		(0.3	)		2.6
Non-deductible compensation		1.1			0.7			-
Excess tax benefit from stock-based compensation		(1.0	)		(4.4	)		(1.6	)
Domestic production deduction		-			-			(2.0	)
Tax credits		(1.1	)		(1.8	)		(2.5	)
Tax Act impact on deferred tax balance (1)		-			-			(32.0	)
Return to provision		(0.3	)		(1.0	)		(5.8	)
Other, net		0.3			0.5			0.3
Effective tax rate		24.2	%		19.1	%		(7.3	)%

( 1 ) On  December 22, 2017,  the U.S. government enacted comprehensive tax legislation pursuant to the Tax Cuts and Jobs Act (the “Tax Act”), which significantly revised the ongoing U.S. corporate income tax law by lowering the U.S. federal corporate income tax rate from  35%  to  21%.  Due to the Company's fiscal year end, the lower income tax rate was phased in, resulting in a U.S. statutory federal rate of approximately  28%  for the Company's fiscal year ended  July 1, 2018,  and  21%  for the fiscal years ended June 30, 2019 and June 28, 2020. As a result of the Tax Act, the Company recorded a deferred tax benefit of $12.2 million during the fiscal year ended July 1, 2018, related to the change in deferred tax liabilities.   Shortly after the Tax Act was enacted, the SEC Staff issued Staff Accounting Bulletin 118, “Income Tax Implications of the Tax Cuts and Jobs Act” (“SAB 118” ), which provided guidance on accounting for the Tax Act's impact. SAB 118 provided a measurement period during which a company acting in good faith may complete the accounting for the impacts of the Tax Act. We completed the assessment of the income tax effects of the Tax Act in the second quarter of fiscal 2019, with no adjustments recorded to the provisional amounts.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's deferred income tax assets (liabilities) are as follows:

	Years ended
	June 28, 2020			June 30, 2019
	(in thousands)
Deferred income tax assets:
Loss and credit carryforwards	$	10,530		$	10,955
Accrued expenses and reserves		4,676			3,866
Stock-based compensation		2,190			1,798
Deferred compensation		2,455			2,150
Operating lease liability		17,551			-
Gross deferred income tax assets		37,402			18,769
Less: Valuation allowance		(9,681	)		(9,872	)
Deferred tax assets, net		27,721			8,897
Deferred income tax liabilities:
Other intangibles		(15,337	)		(14,664	)
Tax in excess of book depreciation		(24,336	)		(23,131	)
Operating lease right-of-use asset		(16,680	)
Deferred tax liabilities		(56,353	)		(37,795	)
Net deferred income tax liabilities	$	(28,632	)	$	(28,898	)

A valuation allowance is provided when it is more likely than 

not

 that some portion, or all, of the deferred tax assets will 

not

 be realized. The Company has established valuation allowances, primarily for certain state and all foreign net operating losses as well as federal and state capital loss carryforwards. The Company does 

not

 expect to utilize the federal and state capital loss carryforward prior to expiration and has therefore provided for a full valuation allowance. At 

June 28, 2020, 

the Company's total federal and state capital loss carryforwards were 

$26.9

 million, which if 

not

 utilized, will expire in fiscal 

2022.

 The Company's foreign net operating loss carryforwards were 

$3.9

 million, which if 

not

 utilized, will begin to expire in fiscal 

2034.

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various foreign countries. The Company is currently undergoing its U.S. federal examination for fiscal 

2017,

 however, fiscal

2018

 and fiscal

2019

remain subject to U.S. federal examination. Due to ongoing state examinations and nonconformity with the U.S. federal statute of limitations for assessment, certain states remain open from fiscal 

2016.

 The Company's foreign income tax filings from fiscal 

2015

 forward are open for examination by its respective foreign tax authorities, mainly Canada, Brazil, and the United Kingdom. 

The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. At 

June 28, 2020, 

the Company has an unrecognized tax benefit, including accrued interest and penalties, of approximately 

$1.4

 million. The Company believes that 

$1.0

million of the unrecognized tax positions will be resolved over the next 

twelve

 months.