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Income Taxes | 12 Months Ended
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Jun. 24, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | 14. Income Taxes Components of Income Before Income Taxes The components of income before income taxes consist of the following:
|  | For the Fiscal Year Ended |
|  | June 24, 2018 |  |  | June 25, 2017 |  |  | June 26, 2016 |
United States |  | $ | (7,852 | ) |  | $ | 2,689 |  |  | $ | 21,679 |
Foreign |  |  | 38,063 |  |  |  | 40,586 |  |  |  | 26,564 |
Income before income taxes |  | $ | 30,211 |  |  | $ | 43,275 |  |  | $ | 48,243 |
Components of (Benefit) Provision for Income Taxes (Benefit) provision for income taxes consists of the following:
|  | For the Fiscal Year Ended |
|  | June 24, 2018 |  |  | June 25, 2017 |  |  | June 26, 2016 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (4,918 | ) |  | $ | (6,082 | ) |  | $ | 1,545 |
State |  |  | (416 | ) |  |  | (130 | ) |  |  | 764 |
Foreign |  |  | 9,639 |  |  |  | 10,224 |  |  |  | 6,781 |
Total current tax expense |  |  | 4,305 |  |  |  | 4,012 |  |  |  | 9,090 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (5,315 | ) |  |  | 6,602 |  |  |  | 6,304 |
State |  |  | (872 | ) |  |  | 162 |  |  |  | 255 |
Foreign |  |  | 391 |  |  |  | 122 |  |  |  | (576 | )
Total deferred tax expense |  |  | (5,796 | ) |  |  | 6,886 |  |  |  | 5,983 |
(Benefit) provision for income taxes |  | $ | (1,491 | ) |  | $ | 10,898 |  |  | $ | 15,073 |
On December 22, 2017, the U.S. government enacted comprehensive tax legislation H.R. 1, formerly known as the Tax Cuts and Jobs Act. H.R. 1 includes significant changes to existing tax law, including a permanent reduction to the U.S. federal corporate income tax rate from 35% to 21%, a one-time mandatory deemed repatriation of foreign earning and profits (the “toll charge”), deductions, credits and business-related exclusions. The permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% was effective January 1, 2018. When a U.S. federal tax rate change occurs during a fiscal year, taxpayers are required to compute a weighted daily average rate for the fiscal year of enactment. As a result of H.R. 1, UNIFI has calculated a U.S. federal corporate income tax rate of 28.27% for its fiscal 2018 tax year. Staff Accounting Bulletin (“SAB”) No. 118 was issued to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to finalize the calculations for certain income tax effects of H.R. 1. In accordance with SAB No. 118, in the quarter ended December 24, 2017, we made reasonable estimates and recorded provisional amounts as described below. Under the transitional provisions of SAB No. 118, we have a one-year measurement period to complete the accounting for the initial tax effects of H.R. 1. We are still in the process of completing that accounting. UNIFI revalued its measurable deferred tax balances based upon the new tax rate at which the temporary differences and carryforwards are expected to reverse. UNIFI recorded a tax benefit of approximately $4,297 as a result of the net change in deferred tax balances. This benefit includes a $203 measurement period adjustment to the provisional deferred rate change benefit previously disclosed, which created an effective rate increase of 0.7%. The accounting for this income tax effect of H.R. 1 is provisional, and includes estimates that may change based on further analysis performed during the one-year measurement period. With respect to the toll charge, UNIFI has recorded a provisional charge of $3,901, net of foreign tax credits, based on the following estimates: (i) earnings and profits of foreign jurisdictions, and (ii) the finalization of taxes paid in foreign jurisdictions, and related foreign tax credits. Additionally, the estimates have been made based on UNIFI’s interpretation of H.R. 1. The U.S. Treasury has indicated in Notice 2018-07 and Notice 2018-26 that it expects to issue further guidance to clarify certain technical aspects of H.R. 1, which could impact UNIFI’s computations and provisional amounts recorded. This charge includes a $2,301 measurement period adjustment to the provisional toll charge previously disclosed, which created an effective rate increase of 7.6%. UNIFI has recorded all known and estimable impacts of H.R. 1 that are effective for fiscal 2018. Future adjustments to the provisional numbers will be recorded as discrete adjustments to income tax expense in the period in which those adjustments become estimable and/or are finalized. UNIFI continues to review the anticipated impacts of the global intangible low-taxed income (“GILTI”), foreign derived intangible income (“FDII”) deduction, and base erosion anti-abuse tax (“BEAT”), which are not effective until fiscal 2019. UNIFI has not recorded any impact associated with either GILTI, FDII or BEAT. Utilization of Net Operating Loss Carryforwards Domestic deferred tax expense for fiscal 2018 includes the utilization of federal net operating loss (“NOL”) carryforwards of $843. Foreign deferred tax expense includes the utilization of NOL carryforwards of $773, $756 and $0 for fiscal 2018, 2017 and 2016, respectively. State deferred tax expense includes the utilization of NOL carryforwards of $116, $26 and $42 for fiscal 2018, 2017 and 2016, respectively. Effective Tax Rate Reconciliation from the federal statutory tax rate to the effective tax rate is as follows:
|  | For the Fiscal Year Ended |
|  | June 24, 2018 |  |  | June 25, 2017 |  |  | June 26, 2016 |
Federal statutory tax rate |  |  | 28.3 | % |  |  | 35.0 | % |  |  | 35.0 | %
Foreign income taxed at different rates |  |  | (2.4 | ) |  |  | (10.2 | ) |  |  | (7.7 | )
Repatriation of foreign earnings and withholding taxes |  |  | 1.8 |  |  |  | 1.4 |  |  |  | (1.0 | )
Repatriation of foreign earnings due to tax reform |  |  | 23.9 |  |  |  | — |  |  |  | — |
Revaluation of U.S. deferred balances due to tax reform |  |  | (14.2 | ) |  |  | — |  |  |  | — |
Change in valuation allowance |  |  | (12.9 | ) |  |  | (0.5 | ) |  |  | (3.7 | )
Foreign tax credits |  |  | (11.0 | ) |  |  | — |  |  |  | — |
Domestic production activities deduction |  |  | 0.5 |  |  |  | 2.0 |  |  |  | (0.5 | )
Research and other credits |  |  | (1.8 | ) |  |  | (5.1 | ) |  |  | 4.8 |
State income taxes, net of federal tax benefit |  |  | (3.9 | ) |  |  | 0.2 |  |  |  | 1.5 |
Change in uncertain tax positions |  |  | (15.1 | ) |  |  | 1.8 |  |  |  | 1.2 |
Nondeductible compensation |  |  | 1.6 |  |  |  | — |  |  |  | — |
Nondeductible expenses and other |  |  | 0.3 |  |  |  | 0.6 |  |  |  | 1.6 |
Effective tax rate |  |  | (4.9 | )% |  |  | 25.2 | % |  |  | 31.2 | %
The effective tax rate for fiscal 2018 benefited from, among other things, (i) the release of uncertain tax positions due to settlement with tax authorities, (ii) the deferred tax benefit resulting from the revaluation of UNIFI’s domestic deferred tax balances for the lower U.S. statutory rate (including valuation allowances on domestic deferred tax assets), (iii) the release of a valuation allowance on certain NOLs outside the U.S. consolidated group that are now able to be utilized and (iv) a reduction in the valuation allowance related to foreign NOLs utilized in fiscal 2018. These benefits were partially offset by (a) the one-time deemed mandatory repatriation of foreign earnings, net of foreign tax credits, (b) withholding taxes on repatriation of foreign earnings and (c) nondeductible compensation. The effective tax rate for fiscal 2017 benefited from, among other things, (i) a lower overall effective tax rate for UNIFI’s foreign earnings (reflecting free-trade zone sales in El Salvador and lower statutory tax rates in both Brazil and China), (ii) increased research and development credits, (iii) a decrease in the valuation allowance reflecting the recognition of lower taxable income versus book income for UNIFI’s investment in PAL (for which UNIFI maintains a full valuation allowance) and (iv) a reduction in the valuation allowance related to foreign NOLs utilized in 2017. These benefits were partially offset by (a) a reduction in the domestic production activities deduction due to the carryback of certain losses, (b) an increase in uncertain tax positions and (c) withholding taxes on repatriation of foreign earnings. The effective tax rate for fiscal 2016 benefited from, among other things, (i) a lower overall effective tax rate for UNIFI’s foreign earnings (reflecting free-trade zone sales in El Salvador and lower statutory tax rates in both Brazil and China), (ii) a decrease in the valuation allowance reflecting the recognition of lower taxable income versus book income for UNIFI’s investment in PAL (for which UNIFI maintains a full valuation allowance) and (iii) a reduction in the valuation allowance related to foreign tax credits utilized in fiscal 2016. These benefits were partially offset by (a) utilization of foreign tax credits, (b) an increase in the valuation allowance for NOLs, including Renewables, for which no tax benefit could be recognized, (c) state and local taxes net of the assumed federal benefit and (d) an increase in uncertain tax positions. Deferred Income Taxes The significant components of UNIFI’s deferred tax assets and liabilities consist of the following:
|  | June 24, 2018 |  |  | June 25, 2017 |
Deferred tax assets: |  |  |  |  |  |  |  |
Investments, including unconsolidated affiliates |  | $ | 5,429 |  |  | $ | 7,737 |
State tax credits |  |  | 411 |  |  |  | 338 |
Accrued liabilities and valuation reserves |  |  | 2,829 |  |  |  | 3,952 |
NOL carryforwards |  |  | 10,008 |  |  |  | 7,854 |
Intangible assets, net |  |  | 2,089 |  |  |  | 3,932 |
Incentive compensation plans |  |  | 2,130 |  |  |  | 2,487 |
Foreign tax credits |  |  | 5,430 |  |  |  | 789 |
Capital loss carryforward |  |  | 1,105 |  |  |  | 1,746 |
Research credit carryforward |  |  | — |  |  |  | 1,115 |
Other items |  |  | 2,226 |  |  |  | 5,224 |
Total gross deferred tax assets |  |  | 31,657 |  |  |  | 35,174 |
Valuation allowance |  |  | (15,143 | ) |  |  | (17,957 | )
Net deferred tax assets |  |  | 16,514 |  |  |  | 17,217 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
PP&E |  |  | (20,153 | ) |  |  | (26,417 | )
Other |  |  | (736 | ) |  |  | (63 | )
Total deferred tax liabilities |  |  | (20,889 | ) |  |  | (26,480 | )
Net deferred tax liabilities |  | $ | (4,375 | ) |  | $ | (9,263 | )
Deferred Income Taxes - Valuation Allowance In assessing its ability to realize deferred tax assets, UNIFI considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. 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 account the effects of local tax law. The balances and activity for UNIFI’s deferred tax valuation allowance are as follows:
|  | For the Fiscal Year Ended |
|  | June 24, 2018 |  |  | June 25, 2017 |  |  | June 26, 2016 |
Balance at beginning of year |  | $ | (17,957 | ) |  | $ | (13,550 | ) |  | $ | (15,606 | )
Decrease (increase) in valuation allowance |  |  | 2,814 |  |  |  | (4,407 | ) |  |  | 2,056 |
Balance at end of year |  | $ | (15,143 | ) |  | $ | (17,957 | ) |  | $ | (13,550 | )
Components of UNIFI’s deferred tax valuation allowance are as follows:
|  | For the Fiscal Year Ended |
|  | June 24, 2018 |  |  | June 25, 2017 |  |  | June 26, 2016 |
Investment in a former domestic unconsolidated affiliate |  | $ | (3,942 | ) |  | $ | (6,269 | ) |  | $ | (6,418 | )
Equity-method investment in PAL |  |  | (1,580 | ) |  |  | (1,520 | ) |  |  | (2,102 | )
Certain losses carried forward (1) |  |  | (1,562 | ) |  |  | (5,924 | ) |  |  | (5,030 | )
State NOLs |  |  | (169 | ) |  |  | (108 | ) |  |  | — |
Other foreign NOLs |  |  | (2,460 | ) |  |  | (3,347 | ) |  |  | — |
Foreign tax credits |  |  | (5,430 | ) |  |  | (789 | ) |  |  | — |
Total deferred tax valuation allowance |  | $ | (15,143 | ) |  | $ | (17,957 | ) |  | $ | (13,550 | )
(1) | Certain U.S. NOLs and capital losses outside the U.S. consolidated tax filing group.
During fiscal 2018, UNIFI’s valuation allowance decreased by $2,814. The decrease consisted of (i) the release of a $3,808 valuation allowance on NOLs outside the U.S. consolidated tax filing group that are now able to be utilized, (ii) a decrease of $3,433 related to U.S. deferred tax assets to reflect the lower federal ending deferred tax rate and (iii) a decrease of $917 related to foreign NOLs utilized in 2018. The decrease was partially offset by (a) an increase of $4,640 related to foreign tax credit carryforwards for which no benefit can be realized and (b) an increase of $635 related to UNIFI’s investment in PAL due to the timing of PAL’s taxable income versus book income. During fiscal 2017, UNIFI’s valuation allowance increased by $4,407. The increase consisted primarily of (i) $4,241 of foreign losses and (ii) $789 of foreign tax credit carryforwards for which no benefit can be recognized. The increase was partially offset by a net decrease of $582 related to UNIFI’s investment in PAL due to the timing of PAL’s taxable income versus book income. During fiscal 2016, UNIFI’s valuation allowance decreased by $2,056. The decrease consisted primarily of (i) a decrease of $1,159 related to UNIFI’s investment in PAL due to the timing of PAL’s taxable income versus book income and (ii) the utilization of $1,680 of foreign tax credits. The decrease was partially offset by a net increase of $858 related to UNIFI’s investment in Renewables and related NOLs as a result of its continued losses. Recognized Tax Benefits A reconciliation of beginning and ending gross amounts of unrecognized tax benefits is as follows:
|  | For the Fiscal Year Ended |
|  | June 24, 2018 |  |  | June 25, 2017 |  |  | June 26, 2016 |
Balance at beginning of year |  | $ | 5,236 |  |  | $ | 4,532 |  |  | $ | 4,029 |
Gross increases related to current period tax positions |  |  | 324 |  |  |  | 473 |  |  |  | 110 |
Gross (decreases) increases related to tax positions in prior periods |  |  | (119 | ) |  |  | 711 |  |  |  | 1,058 |
Gross decreases related to settlements with tax authorities |  |  | (5,234 | ) |  |  | (480 | ) |  |  | (274 | )
Gross decreases related to lapse of applicable statute of limitations |  |  | — |  |  |  | — |  |  |  | (391 | )
Balance at end of year |  | $ | 207 |  |  | $ | 5,236 |  |  | $ | 4,532 |
In fiscal 2018, UNIFI recognized a benefit related to the realization of unrecognized tax benefits resulting from settlements with tax authorities. UNIFI received a notice of audit dated June 29, 2017 from the Department of the Treasury, Internal Revenue Service (the “IRS”); the tax periods under audit were fiscal years 2013, 2014 and 2015. On June 21, 2018, the IRS completed its examination. Unrecognized tax benefits would generate a favorable impact of $130 on UNIFI’s effective tax rate when recognized. UNIFI does not expect material changes in uncertain tax positions within the next 12 months. The reversal of interest and penalties recognized by UNIFI within the provision for income taxes was $(1,030), $(42) and $(23) for fiscal 2018, 2017, and 2016, respectively. UNIFI had $41, $773 and $279 accrued for interest and/or penalties related to uncertain tax positions as of June 24, 2018, June 25, 2017 and June 26, 2016, respectively. Expiration of Net Operating Loss Carryforwards and Foreign Tax Credits As of June 24, 2018, UNIFI had U.S. federal NOL carryforwards of $19,511. Of these carryforwards, $6,930 can be carried forward indefinitely, and $12,581 will begin to expire in fiscal 2037 if unused. As of June 24, 2018, UNIFI had U.S. federal NOL carryforwards held outside the U.S. consolidated tax filing group of $6,914. These carryforwards, if unused, will begin to expire in fiscal 2035. As of June 24, 2018, UNIFI had U.S. federal capital loss carryforwards held outside the U.S. consolidated tax filing group of $4,489, which carry a full valuation allowance. These carryforwards, if unused, will begin to expire in fiscal 2027. As of June 24, 2018, UNIFI had $43,589 of U.S. state NOL carryforwards that may be used to offset future taxable income, $8,426 of which are offset by a valuation allowance. Of these carryforwards, $868 can be carried forward indefinitely, and $42,721 will begin to expire in fiscal 2022 if unused. As of June 24, 2018, the Company also had U.S. state NOL carryforwards held outside the U.S. consolidated tax filing group of $19,192, $12,279 of which are offset by a valuation allowance. These carryforwards, if unused, will begin to expire in fiscal 2019. As of June 24, 2018, UNIFI had foreign NOL carryforwards of $9,866, which are offset by a full valuation allowance. These carryforwards, if unused, will begin to expire in fiscal 2019. As of June 24, 2018, UNIFI had U.S. federal foreign tax credits of $3,791, which are offset by a full valuation allowance. These carryforwards, if unused, will begin to expire in fiscal 2028. As of June 24, 2018, UNIFI had foreign tax credits in foreign jurisdictions of $1,639 with no expiration, which are offset by a full valuation allowance. Tax Years Subject to Examination Unifi, Inc. and its domestic subsidiaries file a consolidated federal income tax return, as well as income tax returns in multiple state and foreign jurisdictions. The tax years subject to examination vary by jurisdiction. UNIFI regularly assesses the outcomes of both completed and ongoing examinations to ensure that UNIFI’s provision for income taxes is sufficient. In fiscal 2018, the IRS examined UNIFI’s federal income tax returns for fiscal 2014 and 2015, and re-examined the federal income tax return for fiscal 2013. The examination closed with no proposed adjustments. In fiscal 2016, the IRS examined UNIFI’s federal income tax return for fiscal 2013. The examination closed with no material assessment. In fiscal 2016, the North Carolina Department of Revenue initiated an audit for tax periods ending June 24, 2012 to June 28, 2015. The audit was not concluded at the end of fiscal 2018. No material assessment is anticipated. UNIFI is currently under appeal in Colombia for tax years 2006 and 2007. UNIFI believes it is more-likely-than-not to conclude the appeal with no material assessment. Statutes related to material foreign jurisdictions are open from January 1, 2013 and material state jurisdictions from June 29, 2014. Certain carryforward tax attributes generated in years prior remain subject to examination and could change in subsequent tax years. Indefinite Reinvestment Assertion As of June 24, 2018, U.S. income taxes and foreign withholding taxes were not provided for on a cumulative total of approximately $113,855 of undistributed earnings of UNIFI’s foreign subsidiaries. UNIFI intends to reinvest these earnings indefinitely in its foreign subsidiaries. If at a later date, these earnings were to be repatriated to the United States, UNIFI would be required to accrue and pay state income and/or foreign local withholding taxes on these amounts. Determination of the amount of any unrecognized deferred tax liability on these undistributed earnings is not practicable. UNIFI will continue to assess the existing circumstances, including any changes in tax laws, and reevaluate the necessity for any deferred tax liability.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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