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INCOME TAXES | 12 Months Ended
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Jun. 27, 2020
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income tax benefit consists of the following:
| Fiscal Year Ended |  |  |  |
| June 27, 2020 |  | June 29, 2019 |  | June 30, 2018
| (in thousands) |  |  |  |
Current income tax benefit: |  |  |  |  |
United States | $ | 365 |  |  | $ | (537) |  |  | $ | (221) |
Foreign | 154 |  |  | 895 |  |  | 1,722 |
| 519 |  |  | 358 |  |  | 1,501 |
Deferred income tax benefit: |  |  |  |  |
United States | (1,850) |  |  | (910) |  |  | (795) |
Foreign | 892 |  |  | (206) |  |  | (823) |
| (958) |  |  | (1,116) |  |  | (1,618) |
Total income tax benefit | $ | (439) |  |  | $ | (758) |  |  | $ | (117) |
The Company has gross tax credit carryforwards of approximately $8.8 million at June 27, 2020 consisting of federal research and development (R&D) tax credits. Management has reviewed all deferred tax assets for purposes of determining whether or not a valuation allowance may be required. A valuation allowance against deferred tax assets is required if it is more likely than not that some of the deferred tax assets will not be realized. Based upon the Company’s profitability, forecasted income, and evaluation of all other positive and negative evidence, management determined that it is more likely than not that the deferred tax assets will be realized. Subsequent to the end of the fiscal year ending June 27, 2020, the Treasury Department issued final regulations applicable to the Company’s position with respect to the U.S. taxability of foreign earnings under the global intangible low taxed income (also known as “GILTI”) regime and the deductibility of interest expense under IRC Section 163(j). The Company is still evaluating the impact of these regulations, and, at this time, it does not anticipate any material impact to its current or future income tax positions. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss (NOL) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company does not expect that the NOL carryback provision of the CARES Act will result in a material cash benefit. In addition, the CARES Act contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income. This modification would increase the allowable interest expense deduction of the Company and result in less taxable income for fiscal year 2020, but is not expected to have a material impact on the provision for income taxes. Also, under the CARES Act, AMT credits not previously refunded for the 2018 tax year are refundable in the 2019 taxable year rather than in years 2019-2021, and taxpayers can elect to claim 100% of the AMT credits in the first taxable year beginning in 2018 by applying for a tentative refund claim on or before December 31, 2020. The Company has made this election by applying for a tentative refund claim. The Company is taking advantage of the deferred payment payroll taxes provision, the impacts of which are not expected to be material. The Company is continuing to evaluate the impacts of other aspects of the CARES Act, and at this time the Company does not believe they will have a material impact on our consolidated financial position, results of operations, or cash flows. On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. The Tax Act reduced Federal corporate tax rates effective January 1, 2018, and changed certain other provisions, many of which were not effective until fiscal year 2019. Effective tax rates for fiscal year 2018, were blended rates reflecting the benefit of two quarters of Federal tax rate reductions. These benefits were offset by discrete expenses relating to the revaluation of our U.S. net deferred tax assets, an adjustment relating to foreign exchange, and required adjustments associated with the transition from a global to a territorial tax system (discussed further below). As a result of the U.S. tax system under the Tax Act from a global to a territorial model, a deemed one-time repatriation of all accumulated earnings and profits (AE&P) in Mexico and China occurred on December 31, 2017 (the “Transition Tax”). On December 22, 2017, the staff of the SEC issued Staff Accounting Bulletin No. 118 (“SAB No. 118”). SAB No. 118 provided guidance on accounting for the tax effects of the 2017 Tax Act and allowed registrants to record provisional amounts for a period of up to one year from the date of enactment of the 2017 Tax Act. In fiscal year 2019, we finalized the Transition Tax calculation, resulting in a net Transition Tax amount of $0.8 million, a decrease of $0.4 million for the fiscal year. In addition to the $0.8 million Transition Tax described above, the Company recognized a $1.3 million discrete expense in fiscal year 2018 due to the revaluation of our U.S. net deferred tax assets. Offsetting these amounts, because of the shift to a territorial system of taxation in the U.S., the Company recognized a discrete benefit of approximately $1.3 million related to reversing its previously recognized estimated liability associated with estimated future repatriations from Mexico and China. In future years, because of the Transition Tax on AE&P described above, repatriations of cash will generally be tax-free in the U.S. However, withholding taxes in China may still apply to any such future repatriations. Management has not changed its indefinite investment assertions with regards to the portion of AE&P in China that may be repatriated in the future. Accordingly, management estimates that future repatriations of cash from China may result in approximately $0.8 million of withholding tax. There would be no offsetting foreign tax credits in the U.S. and as such, this potential liability is a direct cost associated with actual repatriations. Withholding taxes will not apply to future repatriations from Mexico or Vietnam. The Company expects to repatriate a portion of its foreign earnings based on increased net sales growth driving additional capital requirements domestically, cash requirements for potential acquisitions and to implement certain tax strategies. The Company expects to repatriate approximately $7.8 million from China, in the future. All other unremitted foreign earnings are expected to remain permanently reinvested for planned fixed assets purchases and improvements in foreign locations. The Company’s effective tax rate differs from the federal tax rate as follows:
| Fiscal Year Ended |  |  |  |
| June 27, 2020 |  | June 29, 2019 |  | June 30, 2018
| (in thousands) |  |  |  |
Federal income tax provision (benefit) at statutory rates | $ | 907 |  |  | $ | (1,836) |  |  | $ | (397) |
State income taxes, net of federal tax effect | 90 |  |  | (158) |  |  | (4) |
Foreign tax rate differences | 336 |  |  | 251 |  |  | 103 |
Tax rate change | — |  |  | — |  |  | 1,634 |
Provisional transition tax on accumulated foreign earnings | — |  |  | (384) |  |  | 1,190 |
Effect of income tax credits | (310) |  |  | (861) |  |  | (687) |
Previously unrecognized tax benefits | (1,345) |  |  | — |  |  | — |
Effect of repatriation of foreign earnings, net | — |  |  | (42) |  |  | (1,484) |
Goodwill write-off | — |  |  | 1,726 |  |  | — |
Global Intangible Low-Taxed Income (GILTI) tax | — |  |  | 150 |  |  | — |
Provision to return reconciliation | (241) |  |  | 630 |  |  | (401) |
Other | 124 |  |  | (234) |  |  | (71) |
Income tax benefit | $ | (439) |  |  | $ | (758) |  |  | $ | (117) |
The domestic and foreign components of income (loss) before income taxes were:
| Fiscal Year Ended |  |  |  |
| June 27, 2020 |  | June 29, 2019 |  | June 30, 2018
| (in thousands) |  |  |  |
Domestic | $ | 1,142 |  |  | $ | (12,220) |  |  | $ | (4,593) |
Foreign | 3,177 |  |  | 3,480 |  |  | 3,151 |
Income (loss) before income taxes | $ | 4,319 |  |  | $ | (8,740) |  |  | $ | (1,442) |
Deferred income tax assets and liabilities consist of the following at:
| June 27, 2020 |  | June 29, 2019
| (in thousands) |  |
Deferred tax assets: |  |  |
Net operating loss | $ | 184 |  |  | $ | 33 |
Tax credit carryforwards, net | 5,961 |  |  | 4,986 |
Inventory | 1,426 |  |  | 1,087 |
Identifiable intangibles | 493 |  |  | 407 |
Interest expense carryforward | — |  |  | 474 |
Accruals | 2,847 |  |  | 3,549 |
Research and development expenses | — |  |  | 232 |
Mart-to-market adjustments | 415 |  |  | — |
ASC 606 deferred costs | 1,943 |  |  | 2,484 |
Lease liabilities | 3,201 |  |  | — |
Other | 212 |  |  | 30 |
Deferred income tax assets | $ | 16,682 |  |  | $ | 13,282 |
Deferred tax liabilities: |  |  |
Accrued withholding tax - unremitted earnings | (820) |  |  | (820) |
Fixed assets | (566) |  |  | (443) |
Right-of-use assets | (3,290) |  |  | — |
Mart-to-market adjustments | — |  |  | (730) |
ASC 606 accelerated revenue | (1,344) |  |  | (3,274) |
Other | (718) |  |  | (175) |
Deferred income tax liabilities | $ | (6,738) |  |  | $ | (5,442) |
Net deferred income tax assets | $ | 9,944 |  |  | $ | 7,840 |
Balance sheet caption reported in: |  |  |
Long-term deferred income tax asset | $ | 10,178 |  |  | $ | 7,840 |
Long-term deferred income tax liability | (234) |  |  | — |
Net deferred income tax asset | $ | 9,944 |  |  | $ | 7,840 |
Certain reclassifications have been made in the 2019 information in the above table to conform with 2020 presentation. Uncertain Tax Positions: The Company has R&D tax credits that approximate $8.8 million that have 20-year carryforwards before expiring. The Company’s R&D tax credits expire in various fiscal years from 2026 to 2040. The Company also has alternative minimum tax credits, which do not expire, approximating $347,000, which are now classified as a receivable due to the repeal of the alternative minimum tax. As of June 27, 2020, the Company had unrecognized tax benefits of $2.9 million related to its gross R&D tax credits. The unrecognized tax benefits relate to certain R&D tax credits generated from 2002 to 2020. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| Fiscal Year Ended |  |  |  |
| June 27, 2020 |  | June 29, 2019 |  | June 30, 2018
| (in thousands) |  |  |  |
Beginning Balance | $ | 4,099 |  |  | $ | 4,011 |  |  | $ | 3,947 |
Additions based on tax positions related to the current year | 109 |  |  | 88 |  |  | 64 |
Lapse of statute of limitations | (1,345) |  |  | — |  |  | — |
Ending Balance | $ | 2,863 |  |  | $ | 4,099 |  |  | $ | 4,011 |
The increase from the prior year is due to additional R&D credits that were recorded in 2020 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, China and Vietnam. 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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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