INCOME TAXES

12 Months Ended

Jun. 28, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

Income before income taxes consists of the following:

	Fiscal Years Ended
	June 28, 2023		June 29, 2022		June 30, 2021
Domestic	$	87.8	$	113.5	$	146.7
Foreign	3.0		1.7		(1.5)
Income before income taxes	$	90.8	$	115.2	$	145.2

The (Benefit) Provision for income taxes and effective tax rate consists of the following:

	Fiscal Years Ended
	June 28, 2023			June 29, 2022			June 30, 2021
Current income tax (benefit) expenses:
Federal	$	12.2		$	5.8		$	11.6
State	6.8			3.7			14.4
Foreign	0.2			(0.3)			0.0
Total current income tax expenses	19.2			9.2			26.0
Deferred income tax (benefit) expenses:
Federal	(29.5)			(15.7)			(9.4)
State	(2.0)			3.7			(3.0)
Foreign	0.5			0.4			0.0
Total deferred income tax (benefit) expenses	(31.0)			(11.6)			(12.4)
(Benefit) Provision for income taxes	$	(11.8)		$	(2.4)		$	13.6
Effective tax rate	(13.0)		%	(2.1)		%	9.4		%

A reconciliation between the reported (Benefit) Provision for income taxes and the amount computed by applying the statutory Federal income tax rate to Income before income taxes is as follows:

	Fiscal Years Ended
	June 28, 2023		June 29, 2022		June 30, 2021
Income tax expense at statutory rate	$	19.0	$	24.2	$	30.5
FICA and other tax credits	(34.6)		(32.9)		(24.7)
State income taxes, net of Federal benefit	4.7		6.2		7.8
Stock based compensation tax shortfall (windfall)	0.8		(0.7)		(2.3)
Other	(1.7)		0.8		2.3
(Benefit) Provision for income taxes	$	(11.8)	$	(2.4)	$	13.6

Our federal statutory tax rate for fiscal 2023, fiscal 2022 and fiscal 2021 was 21.0%.

Deferred Tax and Allowances

The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:

	June 28, 2023		June 29, 2022
Deferred income tax assets:
Lease liabilities	$	451.5	$	337.3
Gift cards	9.2		9.9
Insurance reserves	13.7		11.6
Stock-based compensation	9.5		11.6
Federal credit carryover	59.5		41.1
Net operating losses	4.2		3.7
State credit carryover	2.1		2.5
Restructure charges and impairments	2.1		2.3
Payroll tax deferral	—		6.8
Other, net	9.7		8.0
Less: Valuation allowance	(4.3)		(5.8)
Total deferred income tax assets	557.2		429.0
Deferred income tax liabilities:
Lease assets	421.9		307.1
Goodwill and other amortization	23.2		23.3
Depreciation and capitalized interest on property and equipment	0.7		17.8
Prepaid expenses	17.3		16.9
Other, net	0.7		1.4
Total deferred income tax liabilities	463.8		366.5
Deferred income taxes, net	$	93.4	$	62.5

As of June 28, 2023, we have deferred tax assets of $5.3 million reflecting the benefit of state loss carryforwards, before federal benefit and valuation allowance, which expire at various dates between 2024 and 2043. We have deferred tax assets of $59.5 million of federal and $2.6 million of state tax credits, before federal benefit and valuation allowance, which expire at various dates between 2024 and 2043. The recognized deferred tax asset for the state loss carryforwards, net of valuation allowance, is $2.3 million and the federal tax credits is $59.5 million. $5.7 million of the federal credit carryover is limited by Section 382 of the Internal Revenue Code.

The valuation allowance is $4.3 million at the end of fiscal 2023 to recognize certain deductions and tax credits management believes are more-likely-than-not to not be realized. In assessing whether a deferred tax asset will be

realized, we consider the likelihood of the realization, and the reversal of existing taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income, as of June 28, 2023, we believe it is more-likely-than-not that we will realize the benefits of the deferred tax assets, net of the existing valuation allowances.

Unrecognized Tax Benefits

A reconciliation of unrecognized tax benefits are as follows:

	June 28, 2023		June 29, 2022
Balance at beginning of year	$	3.7	$	4.3
Additions based on tax positions related to the current year	0.4		0.3
Additions (Decreases) based on tax positions related to prior years	0.1		(0.1)
Settlements with tax authorities	—		(0.8)
Expiration of statute of limitations	(1.4)		0.0
Balance at end of year	$	2.8	$	3.7

The total amount of unrecognized tax benefits, excluding interest and penalties, which would affect income tax expenses if resolved in our favor was $2.2 million and $2.9 million as of June 28, 2023 and June 29, 2022, respectively. We do not expect any material changes to our liability for uncertain tax positions in the next 12 months.

We recognize accrued interest and penalties related to unrecognized tax benefits in (Benefit) Provision for income taxes in the Consolidated Statements of Comprehensive Income. As of June 28, 2023, we had $0.2 million ($0.2 million net of a $0.0 million Federal deferred tax benefit) of interest and penalties accrued, compared to $0.5 million ($0.4 million net of a $0.1 million Federal deferred tax benefit) as of June 29, 2022.

Our income tax returns are subject to examination by taxing authorities in the jurisdictions in which we operate. The periods subject to examination for our federal return are fiscal 2022 to fiscal 2024, and fiscal 2020 to fiscal 2022 for our Canadian returns. State income tax returns are generally subject to examination for a period of three to five years from date return is filed. We have various state income tax returns in the process of examination or settlements. Our federal returns for fiscal 2022 to 2024 are currently under examination through the Internal Revenue Service: Compliance Assurance Process (CAP) program. There are no unrecorded liabilities associated with these examinations.