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Income Taxes
12 Months Ended
Jul. 01, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

13. Income Taxes

The determination of the Company’s overall effective tax rate requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. The effective tax rate reflects the income earned and taxed in various federal, state, and foreign jurisdictions. Tax law changes, increases and decreases in temporary and permanent differences between book and tax

items, tax credits, and the Company’s change in income in each jurisdiction all affect the overall effective tax rate. It is the Company’s practice to recognize interest and penalties related to uncertain tax positions in income tax expense.

Income tax expense (benefit) for fiscal 2023, fiscal 2022 and fiscal 2021 consisted of the following:

 

(In millions)

 

For the fiscal
year ended
July 1, 2023

 

 

For the fiscal
year ended
July 2, 2022

 

 

For the fiscal
year ended
July 3, 2021

 

Current income tax expense (benefit):

 

 

 

 

 

 

 

 

 

Federal

 

$

95.3

 

 

$

38.2

 

 

$

(10.6

)

State

 

 

28.8

 

 

 

10.6

 

 

 

3.4

 

Foreign

 

 

2.7

 

 

 

1.0

 

 

 

-

 

Total current income tax expense (benefit)

 

 

126.8

 

 

 

49.8

 

 

 

(7.2

)

Deferred income tax expense (benefit):

 

 

 

 

 

 

 

 

 

Federal

 

 

17.8

 

 

 

1.0

 

 

 

19.9

 

State

 

 

2.3

 

 

 

4.4

 

 

 

1.3

 

Foreign

 

 

(0.1

)

 

 

(0.6

)

 

 

-

 

Total deferred income tax expense

 

 

20.0

 

 

 

4.8

 

 

 

21.2

 

Total income tax expense (benefit), net

 

$

146.8

 

 

$

54.6

 

 

$

14.0

 

 

The Company’s effective income tax rate for continuing operations for fiscal 2023, fiscal 2022 and fiscal 2021 was 27.0%, 32.7%, and 25.6%, respectively. Actual income tax expense (benefit) differs from the amount computed by applying the applicable U.S. federal statutory corporate income tax rate of 21% in fiscal 2023, fiscal 2022, and fiscal 2021 to earnings before income taxes as follows:

 

(In millions)

 

For the fiscal
year ended
July 1, 2023

 

 

For the fiscal
year ended
July 2, 2022

 

 

For the fiscal
year ended
July 3, 2021

 

Federal income tax expense computed at statutory rate

 

$

114.2

 

 

$

35.1

 

 

$

11.5

 

Increase (decrease) in income taxes resulting from:

 

 

 

 

 

 

 

 

 

State income taxes, net of federal income tax benefit

 

 

25.3

 

 

 

13.1

 

 

 

4.1

 

Foreign taxes

 

 

2.5

 

 

 

 

 

 

 

Non-deductible expenses and other

 

 

6.9

 

 

 

9.6

 

 

 

2.1

 

 Net Operating Loss Carryback - Rate Differential

 

 

 

 

 

 

 

 

(2.1

)

Stock-based compensation

 

 

(1.2

)

 

 

(1.9

)

 

 

(1.5

)

Other

 

 

(0.9

)

 

 

(1.3

)

 

 

(0.1

)

Total income tax expense, net

 

$

146.8

 

 

$

54.6

 

 

$

14.0

 

 

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 carryforwards. Temporary differences and carry-forwards that created significant deferred tax assets and liabilities were as follows:

 

(In millions)

 

As of
July 1, 2023

 

 

As of
July 2, 2022

 

Deferred tax assets:

 

 

 

 

 

 

Allowance for doubtful accounts

 

$

9.3

 

 

$

8.7

 

Inventories

 

 

4.1

 

 

 

7.4

 

Accrued employee benefits

 

 

2.0

 

 

 

26.9

 

Insurance reserves

 

 

4.5

 

 

 

3.6

 

Net operating loss carry-forwards

 

 

8.5

 

 

 

10.3

 

Stock-based compensation

 

 

8.7

 

 

 

10.1

 

Lease obligations

 

 

132.9

 

 

 

137.2

 

Tax credit carry-forwards

 

 

3.5

 

 

 

4.0

 

Other assets

 

 

7.1

 

 

 

6.7

 

Total gross deferred tax assets

 

 

180.6

 

 

 

214.9

 

Less: Valuation allowance

 

 

(2.1

)

 

 

(2.6

)

Total net deferred tax assets

 

 

178.5

 

 

 

212.3

 

Deferred tax liabilities:

 

 

 

 

 

 

Property, plant, and equipment

 

 

310.7

 

 

 

307.8

 

 Right of use assets

 

 

131.4

 

 

 

140.5

 

Other comprehensive income

 

 

4.9

 

 

 

3.9

 

Basis difference in intangible assets

 

 

93.9

 

 

 

102.3

 

Inventories

 

 

82.6

 

 

 

81.3

 

Branch Taxes

 

 

1.0

 

 

 

0.7

 

Other Liabilities

 

 

0.2

 

 

 

0.1

 

Total deferred tax liabilities

 

 

624.7

 

 

 

636.6

 

Total net deferred income tax liability

 

$

446.2

 

 

$

424.3

 

 

The Company has taken current and future expirations into consideration when evaluating the need for valuation allowances against deferred tax assets. A valuation allowance is provided when it is more likely than not that all or a portion of the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. State net operating loss carry-forwards generally expire in fiscal years 2023 through 2042. Certain state net operating losses generated in fiscal year 2021 and after have an indefinite carry-forward period. For the fiscal years ending July 1, 2023 and July 2, 2022 the Company established a valuation allowance of $2.1 million and $2.6 million, respectively, net of federal tax benefit, against deferred tax assets related to certain net operating loss and state tax credit carry-forwards which are not likely to be realized due to limitations on utilization.

The Company records a liability for Uncertain Tax Positions in accordance with FASB ASC 740-10-25, Income Taxes—General—Recognition. Included in the balances as of July 1, 2023 and July 2, 2022, is $0.3 million and $0.4 million, respectively, of unrecognized tax benefits that could affect the effective tax rate for continuing operations. The balance in unrecognized tax benefits relates primarily to state tax issues and non-deductible expenses. The Company does not anticipate that changes in the amount of unrecognized tax benefits over the next twelve months will have a significant impact on its results of operations or financial position.

As of July 1, 2023, substantially all federal, state and local, and foreign income tax matters have been concluded for years prior to fiscal year 2014. The Internal Revenue Service commenced an audit with respect to the loss for fiscal year ended June 27, 2020 and the carryback to the prior five tax years. The audit was ongoing at the end of fiscal 2023.