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Income Taxes
 12 Months Ended
Jun. 30, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

INCOME TAXES

The provision for income taxes consisted of the following (thousands of dollars):

 

 

 

Years Ended

 

 

 

June 30, 2024

 

 

July 2, 2023

 

Currently payable (recoverable):

 

 

 

 

 

 

Federal

 

$

4,466

 

 

$

1,035

 

State

 

 

619

 

 

 

401

 

Foreign

 

 

3,401

 

 

 

4,782

 

 

 

 

8,486

 

 

 

6,218

 

Deferred tax provision

 

 

(4,711

)

 

 

(4,937

)

 

 

$

3,775

 

 

$

1,281

 

The 2024 and 2023 federal provisions for income taxes excluded deductions of $16.7 million and $22.0 million, respectively, in research and development costs that are deductible in future periods as the costs were included in the deferred tax provisions of the respective periods. The 2023 federal provision also included $6.0 million of capital losses on the sale of our interest in VAST LLC. The 2023 foreign provision for income taxes included $2.2 million of China non-resident capital gain tax related to the sale of our interest in VAST LLC. Foreign income before the provision for income taxes was $8.4 million in 2024 and $3.1 million in 2023.

The items accounting for the difference between income taxes computed at the federal statutory tax rate and the provision for income taxes were as follows:

 

 

Years Ended

 

 

 

June 30, 2024

 

 

July 2, 2023

 

U.S. statutory rate

 

 

21.0

%

 

 

21.0

%

State taxes, net of federal tax benefit

 

 

2.7

 

 

 

4.7

 

Foreign subsidiaries

 

 

5.4

 

 

 

—

 

China non-resident capital gain tax

 

 

(1.6

)

 

 

(28.7

)

U.S. tax impact on sale of VAST LLC

 

 

—

 

 

 

(9.7

)

Valuation allowance

 

 

2.6

 

 

 

(18.8

)

Return to provision adjustment

 

 

(6.1

)

 

 

2.1

 

Global intangible low-taxed income

 

 

—

 

 

 

(8.0

)

Research and development tax credit

 

 

(8.1

)

 

 

19.4

 

Non-controlling interest

 

 

2.3

 

 

 

4.0

 

Uncertain tax positions

 

 

—

 

 

 

(1.7

)

Stock-based compensation

 

 

0.7

 

 

 

0.3

 

Other

 

 

(0.2

)

 

 

(1.3

)

 

 

 

18.7

%

 

 

(16.7

%)

 

Impacts of the sale of our one-third interest in VAST LLC on our 2023 effective rate included the China non-resident capital gain tax, the U.S. tax impact on the sale of VAST LLC, and the capital loss carryforward valuation allowance. As discussed above, the 2023 foreign provision for income taxes includes $2.2 million of China non-resident capital gain tax related to the sale of our interest in VAST LLC. The U.S. tax impact of the sale of VAST LLC was the result of the tax gain recognized. The valuation allowance, as discussed further below, was generated by our assessment of the future realization of the capital losses realized on the VAST LLC sale. The change in the research and development tax credit on the effective rate between periods is due to book pre-tax income in the current year as compared to book pre-tax loss in the prior year.

The components of deferred tax (liabilities) assets were as follows (thousands of dollars):

 

 

June 30, 2024

 

 

July 2, 2023

 

Unrecognized pension and postretirement benefit
   plan liabilities

 

$

296

 

 

$

368

 

Accrued warranty

 

 

2,319

 

 

 

2,255

 

Payroll-related accruals

 

 

4,769

 

 

 

4,094

 

Research and development costs

 

 

8,598

 

 

 

5,541

 

Capital loss carryforward related to sale of interest in VAST LLC

 

 

1,677

 

 

 

1,403

 

Stock-based compensation

 

 

281

 

 

 

414

 

Inventory reserve

 

 

1,712

 

 

 

1,633

 

Environmental reserve

 

 

313

 

 

 

327

 

Repair and maintenance supply parts reserve

 

 

215

 

 

 

222

 

Allowance for credit losses

 

 

113

 

 

 

118

 

Lease Liability

 

 

931

 

 

 

1,049

 

Right of Use Assets

 

 

(856

)

 

 

(1,049

)

Credit carry-forwards

 

 

1,899

 

 

 

1,628

 

Postretirement obligations

 

 

104

 

 

 

64

 

Accumulated depreciation

 

 

(3,455

)

 

 

(4,387

)

Accrued pension obligations

 

 

444

 

 

 

415

 

Joint ventures

 

 

440

 

 

 

47

 

Other

 

 

362

 

 

 

1,078

 

 

 

 

20,162

 

 

 

15,220

 

Valuation allowance

 

 

(2,569

)

 

 

(1,601

)

Net deferred tax assets

 

$

17,593

 

 

$

13,619

 

 

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax basis and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.

Foreign tax credit carry-forwards at June 30, 2024 resulted in future benefits of approximately $1.4 million and expire between 2031 and 2041. A valuation allowance related to the federal credit carry-forwards of $692,000 has been recorded as of June 30, 2024 as we currently do not anticipate having sufficient foreign sourced income to utilize these credit carry-forwards. State credit carry-forwards at June 30, 2024 resulted in future benefits of approximately $541,000 and expire at varying times between 2025 and 2032. A valuation allowance of $155,000 has been recorded as of June 30, 2024, due to our assessment of the future realization of certain state credit carry-forward benefits. We do not currently anticipate having sufficient state taxable income to offset these credit carry-forwards. A valuation allowance of $1.7 million has been recorded as of June 30, 2024 due to our assessment of the future realization of the capital loss carryforward related to the sale of VAST LLC. We do not currently anticipate having capital gains in future taxable years to offset the capital loss carryforward.

The total liability for unrecognized tax benefits was $1.6 million as of both June 30, 2024 and July 2, 2023 and was included in Other Long-term Liabilities in the accompanying Consolidated Balance Sheets. This liability includes $1.4 million of unrecognized tax benefits at both June 30, 2024 and July 2, 2023. The liability includes $150,000 of accrued interest at June 30, 2024 and $162,000 at July 2, 2023. This liability does not include an amount for accrued penalties. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was approximately $1.2 million at June 30, 2024 and $1.1 million at July 2, 2023. We recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows for the years ended June 30, 2024 and July 2, 2023 (thousands of dollars):

 

 

Years Ended

 

 

 

June 30, 2024

 

 

July 2, 2023

 

Unrecognized tax benefits, beginning of year

 

$

1,395

 

 

$

1,314

 

Gross increases – tax positions in prior years

 

 

41

 

 

 

50

 

Gross decreases – tax positions in prior years

 

 

(59

)

 

 

—

 

Gross increases – current period tax positions

 

 

427

 

 

 

385

 

Tax years closed

 

 

(387

)

 

 

(354

)

Unrecognized tax benefits, end of year

 

$

1,417

 

 

$

1,395

 

 

We or one of our subsidiaries files income tax returns in the United States (federal), Wisconsin (state), Michigan (state) and various other states, Mexico and other foreign jurisdictions. Tax years open to examination by tax authorities under the statute of limitations include fiscal 2021 through 2024 for federal, fiscal 2020 through 2024 for most states and calendar 2019 through 2023 for foreign jurisdictions.