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INCOME TAXES | 12 Months Ended
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Jul. 01, 2017
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income tax provision consists of the following:
| Fiscal Year Ended
| July 1, 2017 |  | July 2, 2016 |  | June 27, 2015
| (in thousands)
Current income tax provision: |  |  |  |  |
United States | $ | 1,231 |  |  | $ | 1,014 |  |  | $ | 1,701 |
Foreign | 1,206 |  |  | 1,960 |  |  | 975 |
| 2,437 |  |  | 2,974 |  |  | 2,676 |
Deferred income tax benefit: |  |  |  |  |
United States | (539 | ) |  | (1,285 | ) |  | (1,486 | )
Foreign | (259 | ) |  | (71 | ) |  | (194 | )
| (798 | ) |  | (1,356 | ) |  | (1,680 | )
Total income tax provision | $ | 1,639 |  |  | $ | 1,618 |  |  | $ | 996 |
The Company has gross tax credit carryforwards of approximately $8.2 million at July 1, 2017. Included in total tax credits carryforwards is approximately $7.4 million in research and development (R&D) tax credits. Management also has reviewed its other deferred tax assets for purposes of determining whether or not a valuation allowance may be required. A valuation allowance against these deferred tax assets is required if it is more likely than not that some of the deferred tax assets will not be realized. Based on the Company’s profitability and estimated future repatriations from foreign subsidiaries, it has been determined that it is more likely than not that the deferred tax assets will be realized. Management has reviewed and updated as necessary estimates of future repatriations of the undistributed earnings of its foreign subsidiaries. Based on this analysis, management expects to repatriate a portion of the foreign undistributed earnings based on increased sales growth driving additional U.S. capital requirements, cash requirements for potential acquisitions and to potentially implement certain tax strategies. No foreign earnings were repatriated from either foreign subsidiary during fiscal 2017 or 2016. The Company currently estimates that future repatriations from foreign subsidiaries will approximate $13.4 million. As such, as earnings are recognized in the United States, the Company would be subject to U.S. federal and state income taxes and potential withholding taxes are estimated to be approximately $6.6 million. Both the domestic tax and estimated withholding tax have been recorded as part of deferred taxes as of July 1, 2017. All other unremitted foreign earnings are expected to remain permanently reinvested for planned fixed asset purchases in foreign locations. The Company has not provided for U.S. income taxes or foreign withholding taxes on approximately $15.0 million of earnings from foreign subsidiaries which are permanently reinvested outside the U.S. The unrecognized net tax provision, after netting U.S. federal and state income tax and any related foreign tax credits, would be approximately $2.3 million associated with these earnings. During the second quarter of fiscal year 2017, the Company signed a unilateral advance pricing agreement (APA) with the Large Taxpayer Division of Mexico’s Servicio de Administración Tributaria (SAT) under an elective framework that has been agreed to by the U.S. and Mexican authorities. The APA is part of a larger program affecting hundreds of U.S. companies with maquiladora operations in Mexico. The general impact of the APA is to increase margins between the maquiladora and U.S. parent company, shifting profits to Mexico from the U.S. As a result of the APA, the Company recognized an increased tax liability in Mexico of approximately $0.4 million related to the calendar years 2014-2016. However, the increased costs to the U.S. resulted in a reduced tax liability of approximately $0.4 million in the U.S. during fiscal year 2017. The overall net impact of the APA is therefore estimated to not be material to the Company’s consolidated financial results. The estimated increased liabilities in Mexico and related offsetting tax benefit in the U.S. were recorded during the second quarter of fiscal year 2017. The APA was finalized during the fourth quarter of fiscal year 2017. Further, the resulting impact of the APA resulted in approximately $1.8 million of additional earnings being recognized in Mexico. The Company has reevaluated its repatriation assumptions and based on new customer growth in Mexico and related required capital expenditures, it is assumed that 50% of the additional $1.8 million in earnings will be permanently reinvested in Mexico. The Company’s effective tax rate differs from the federal tax rate as follows:
| Fiscal Year Ended
| July 1, 2017 |  | July 2, 2016 |  | June 27, 2015
| (in thousands)
Federal income tax provision at statutory rates | $ | 2,467 |  |  | $ | 2,771 |  |  | $ | 1,802 |
State income taxes, net of federal tax effect | 175 |  |  | 250 |  |  | 133 |
Foreign tax rate differences | (156 | ) |  | (442 | ) |  | (80 | )
Effect of income tax credits | (738 | ) |  | (1,254 | ) |  | (1,085 | )
Effect of repatriation of foreign earnings, net | 199 |  |  | (161 | ) |  | (80 | )
Other | (308 | ) |  | 454 |  |  | 124 |
Transaction costs | — |  |  | — |  |  | 182 |
Income tax provision | $ | 1,639 |  |  | $ | 1,618 |  |  | $ | 996 |
The domestic and foreign components of income before income taxes were:
| Fiscal Year Ended
| July 1, 2017 |  | July 2, 2016 |  | June 27, 2015
| (in thousands)
Domestic | $ | 3,553 |  |  | $ | 2,228 |  |  | $ | 3,395 |
Foreign | 3,703 |  |  | 5,923 |  |  | 1,905 |
Income before income taxes | $ | 7,256 |  |  | $ | 8,151 |  |  | $ | 5,300 |
Deferred income tax assets and liabilities consist of the following at:
| July 1, 2017 |  | July 2, 2016
| (in thousands)
Deferred tax assets: |  |  |
Tax credit carryforwards, net | $ | 4,164 |  |  | $ | 4,056 |
Foreign subsidiaries - future tax credits | 840 |  |  | 840 |
Inventory | 840 |  |  | 508 |
Accruals | 4,020 |  |  | 4,270 |
Mark-to-market adjustments | 1,443 |  |  | 4,043 |
Other | 28 |  |  | 86 |
Deferred income tax assets | $ | 11,335 |  |  | $ | 13,803 |
Deferred tax liabilities: |  |  |
Foreign subsidiaries – unremitted earnings | (2,288 | ) |  | (2,098 | )
Fixed assets | (456 | ) |  | (1,025 | )
Identifiable intangibles | (1,308 | ) |  | (1,613 | )
Other | (302 | ) |  | (85 | )
Deferred income tax liabilities | $ | (4,354 | ) |  | $ | (4,821 | )
Net deferred income tax assets | $ | 6,981 |  |  | $ | 8,982 |
Balance sheet caption reported in: |  |  |
Long-term deferred income tax asset | $ | 6,981 |  |  | $ | 8,982 |
Net deferred income tax asset | $ | 6,981 |  |  | $ | 8,982 |
Uncertain Tax Positions The Company has R&D tax credits that approximate $7.4 million that have 20 year carryforwards before expiring. The Company’s R&D tax credits expire in various fiscal years from 2021 to 2036. The Company also has alternative minimum tax credits, which do not expire, approximating $726,000. As of July 1, 2017, the Company had unrecognized tax benefits of $3.9 million related to its gross R&D tax credits. The unrecognized tax benefits relate to certain R&D tax credits generated from 1999 to 2016. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| Fiscal Year Ended
| July 1, 2017 |  | July 2, 2016 |  | June 27, 2015
| (in thousands)
Beginning Balance | $ | 3,760 |  |  | $ | 3,446 |  |  | $ | 3,072 |
Additions based on tax positions related to the current year | 187 |  |  | 314 |  |  | 374 |
Ending Balance | $ | 3,947 |  |  | $ | 3,760 |  |  | $ | 3,446 |
The increase from the prior year is due to additional R&D credits that were recorded in 2017 as discussed above. Management does not anticipate any material changes to this amount during the next 12 months. The Company recognizes interest accrued related to unrecognized tax benefits and penalties in its income tax provision. The Company has not recognized any interest or penalties in the fiscal years presented in these financial statements. The Company is subject to income tax in the U.S. federal jurisdiction, various state jurisdictions, Mexico and China. Certain years remain subject to examination but there are currently no ongoing exams in any taxing jurisdictions.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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