Income Taxes

12 Months Ended

Jun. 30, 2019

Income Taxes and Tax Reform:

Components of income (loss) before income taxes consists of the following (in thousands):



	2019			2018			2017
U.S.	$	(73,878	)	$	(5,350	)	$	66,555
Foreign	5,780			16,451			13,106
Total	$	(68,098	)	$	11,101		$	79,661

The provision (credit) for income taxes consists of the following (in thousands):



	2019			2018			2017
Current
Federal	$	(1,488	)	$	(12,072	)	$	7,333
State	1,473			(4,413		)	933
Foreign	4,469			3,556			4,429
	4,454			(12,929		)	12,695
Deferred
Federal	$	(16,855	)	$	31,235		$	8,156
State	(2,653		)	4,462			583
Foreign	1,039			(347		)	1,577
	(18,469		)	35,350			10,316
Total	$	(14,015	)	$	22,421		$	23,011

A reconciliation of the U.S. statutory tax rates to the effective tax rates on income follows:



	2019		2018		2017
U.S. Statutory Rate	21.0	%	28.0	%	35.0	%
State Taxes, Net of Federal Tax Benefit	4.0	%	3.7	%	1.5	%
Impact of Foreign Operations and Tax Rates	0.2	%	(2.5	)%	(2.1	)%
Valuation Allowance	(8.6	)%	6.7	%	5.3	%
Changes to Unrecognized Tax Benefits	(2.8	)%	1.3	%	(4.5	)%
U.S. Manufacturers Deduction	—	%	—	%	(2.4	)%
Research & Development Credit (1)	9.9	%	(25.2	)%	(3.1	)%
Return to Provision Adjustment	(0.3	)%	15.6	%	(0.4	)%
U.S. Tax Reform (2)	(1.4	)%	189.9	%	—	%
Impact of Joint Venture Business Optimization	(0.6	)%	4.5	%	—	%
Worthless Stock Loss	—	%	(10.8	)%	—	%
Warehouse Charitable Contribution	—	%	(9.5	)%	—	%
Other, Net	(0.8	)%	0.2	%	(0.4	)%
Effective Tax Rate	20.6	%	201.9	%	28.9	%

(1) "Research & Development Credit” in fiscal 2019 includes incremental credit of $4.0 million for qualified costs associated with the Company's business optimization projects.

(2) This amount consists of impacts from the Tax Act including an expense in 2018 resulting from the re-measurement of deferred tax assets and liabilities for the US corporate tax rate reduction of approximately $13.8 million and an expense related to the inclusion of foreign earnings of approximately $7.3 million in 2018 and $1.0 million in 2019.

The components of deferred income taxes were as follows (in thousands):



Long-Term Asset (Liability):	2019			2018
Difference Between Book and Tax Related to:
Pension Cost	$	22,425		$	14,570
Accumulated Depreciation	(57,073		)	(53,103		)
Intangibles	(34,883		)	(34,166		)
Accrued Employee Benefits	34,982			34,108
Postretirement Health Care Obligation	6,300			7,275
Inventory	11,396			10,710
Warranty	11,351			10,842
Payroll & Workers Compensation Accruals	4,828			6,474
Valuation Allowance	(35,271		)	(28,537		)
Net Operating Loss/Credit Carryforwards	70,953			39,849
Other Accrued Liabilities	7,414			6,205
Miscellaneous	548			(2,359		)
Deferred Income Tax Asset (Liability)	$	42,970		$	11,868

Total deferred tax assets were $170.2 million and $130.1 million as of June 30, 2019 and July 1, 2018, respectively. Total deferred tax liabilities were $127.2 million and $118.0 million as of June 30, 2019 and July 1, 2018, respectively. During fiscal 2019, the total valuation allowance increased by $6.7 million.

Deferred tax assets were generated during the current year as a result of foreign income tax loss carryforwards in the amount of $4.6 million. At June 30, 2019, there are $11.4 million of foreign income tax loss carryforwards, consisting of $9.1 million that have no expiration date, and $2.3 million that will expire within the next 5 to 10 years. A deferred tax asset of $59.5 million exists at June 30, 2019 related to federal and state income tax losses and federal and state tax credit carryforwards, consisting of $19.2 million that have no expiration date, and $40.3 million that will expire between 2019 and 2039. Realization of the deferred tax assets are contingent upon generating sufficient taxable income prior to expiration of these carryforwards. At June 30, 2019, a valuation allowance of $12.4 million is recorded for the foreign deferred tax assets which the Company believes are unlikely to be realized in the future. In addition, a valuation allowance of $22.8 million is recorded related to state tax credits that are unlikely to be realized.

The change to the gross unrecognized tax benefits of the Company during the fiscal years ended June 30, 2019, July 1, 2018, and July 3, 2016 is reconciled as follows:

Unrecognized Tax Benefits (in thousands):



	2019			2018			2017
Beginning Balance	$	5,899		$	5,986		$	10,922
Changes based on tax positions related to prior year	—			—			(861		)
Additions based on tax positions related to current year	2,382			981			461
Settlements with taxing authorities	—			—			(4,437		)
Lapse of statute of limitations	(1,306		)	(1,068		)	(99		)
Ending Balance	$	6,975		$	5,899		$	5,986

As of June 30, 2019, gross unrecognized tax benefits that, if recognized, would impact the effective tax rate were $6.7 million. There is a reasonable possibility that approximately $0.4 million of the liability for uncertain tax positions may be settled within the next twelve months due to the resolution of audits or expiration of statutes of limitations.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The total expense (income) recognized for fiscal years 2019, 2018 and 2017 was $0.1 million, $(0.2) million, and $(0.2) million, respectively.

As of June 30, 2019 and July 1, 2018, the Company had $0.9 million and $0.8 million, respectively, accrued for the payment of interest and penalties.

At June 30, 2019 and July 1, 2018, the liability for uncertain tax positions, inclusive of interest and penalties, was $7.8 million and $6.7 million, respectively, which is recorded as an other long-term liability within the Consolidated Balance Sheets.

Income tax returns are filed in the U.S., state, and foreign jurisdictions and related audits occur on a regular basis. In the U.S., the Company is no longer subject to U.S. federal income tax examinations before fiscal 2015. The Company is also currently under audit by the IRS, and various state and foreign jurisdictions. The Company is no longer subject to tax examinations before fiscal 2009 in its major foreign jurisdictions.