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INCOME TAXES | 12 Months Ended
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Jun. 29, 2024
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income tax benefit consists of the following:
| Fiscal Year Ended
| June 29, 2024 |  | July 1, 2023 |  | July 2, 2022
| (in thousands)
Current income tax provision (benefit): |  |  |  |  |
United States | $ | 263 |  |  | $ | 998 |  |  | $ | (2,179) |
Foreign | 1,451 |  |  | 2,134 |  |  | 2,012 |
| 1,714 |  |  | 3,132 |  |  | (167) |
Deferred income tax provision (benefit): |  |  |  |  |
United States | (4,322) |  |  | (2,130) |  |  | 443 |
Foreign | 208 |  |  | 141 |  |  | 38 |
| (4,114) |  |  | (1,989) |  |  | 481 |
Total income tax provision | $ | (2,400) |  |  | $ | 1,143 |  |  | $ | 314 |
The Company has gross tax credit carryforwards of approximately $10.4 million at June 29, 2024 consisting of federal research and development (R&D) tax credits. Management has reviewed all deferred tax assets for purposes of determining whether 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. On January 27, 2021, the Company received official notice from the Vietnamese tax authorities, confirming tax benefits awarded related to the Company’s principal product line in Vietnam (the “Tax Holiday”). Under the Tax Holiday, the tax rate applied to income derived from this product line will be zero percent for four years beginning with fiscal year 2021, then five percent for nine years, then ten percent for one year (as opposed to the normal twenty percent Vietnamese statutory rate). The Company continuously evaluates impact of tax law and regulatory changes. The Company noted no changes during the current quarter or fiscal year that would have a material impact on its provision for income taxes or overall income tax position. The 2017 Tax Cuts and Jobs Act (TCJA) mandated that, for tax years after fiscal year 2022, certain costs incurred for research and development (R&D) activities would no longer be allowed for immediate deduction but would be capitalized and amortized over 5 years (for R&D activities performed domestically) or 15 years (for R&D activities performed abroad). The Company began capitalizing and amortizing such costs in fiscal year 2023, resulting in an increase to income taxes payable that was largely offset by the utilization of R&D credit carryovers. In future years, 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 regarding to the portion of accumulated earnings and profits 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 $8.0 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 29, 2024 |  | July 1, 2023 |  | July 2, 2022 |
| (in thousands) |
Federal income tax provision at statutory rates | $ | (1,089) |  |  | $ | 1,322 |  |  | $ | 775 |  |
State income taxes, net of federal tax effect | (145) |  |  | (25) |  |  | 86 |  |
Foreign tax rate differences | (71) |  |  | 137 |  |  | 336 |  |
Net operating loss carryback | — |  |  | — |  |  | (593) |  |
Effect of income tax credits | (929) |  |  | (1,020) |  |  | (920) |  |
Previously unrecognized tax benefits | (232) |  |  | (75) |  |  | 146 |  |
Inflation adjustments | 132 |  |  | 118 |  |  | 178 |  |
Tax penalties & interest included in tax provision | — |  |  | — |  |  | 179 |  |
Global Intangible Low-Taxed Income (GILTI) tax | 53 |  |  | 33 |  |  | 59 |  |
Provision to return reconciliation | (68) |  |  | 52 |  |  | (91) |  |
Equity compensation shortfall | 51 |  |  | 73 |  |  | 104 |  |
Foreign Exchange Gains/Losses Unrealized for Tax Purposes | (126) |  |  | 277 |  |  | 23 |  |
Other | 24 |  |  | 251 |  |  | 32 |  |
Income tax provision (benefit) | $ | (2,400) |  |  | $ | 1,143 |  |  | $ | 314 |  |
The domestic and foreign components of income before income taxes were:
| Fiscal Year Ended
| June 29, 2024 |  | July 1, 2023 |  | July 2, 2022
| (in thousands)
Domestic | $ | (13,539) |  |  | $ | (1,086) |  |  | $ | (2,890) |
Foreign | 8,352 |  |  | 7,386 |  |  | 6,581 |
Income before income taxes | $ | (5,187) |  |  | $ | 6,300 |  |  | $ | 3,691 |
Deferred income tax assets and liabilities consist of the following at:
| June 29, 2024 |  | July 1, 2023 |  | July 2, 2022
| (in thousands)
Deferred tax assets: |  |  |  |  |
Tax credit carryforwards, net | $ | 7,544 |  |  | $ | 6,812 |  |  | $ | 7,990 |
Net operating loss | — |  |  | — |  |  | 486 |
Inventory | 252 |  |  | 267 |  |  | 247 |
Identifiable intangibles | 247 |  |  | 308 |  |  | 370 |
Accruals | 2,340 |  |  | 2,421 |  |  | 2,406 |
Property, plant, and equipment | — |  |  | 1,328 |  |  | 1,200 |
ASC 606 deferred costs | 3,852 |  |  | 4,802 |  |  | 4,216 |
Lease liabilities | 3,542 |  |  | 3,775 |  |  | 3,671 |
Interest expense deduction carryforward | 2,765 |  |  | 977 |  |  | 580 |
Research and development expenses | 6,042 |  |  | 3,860 |  |  | — |
Other | 505 |  |  | 271 |  |  | 465 |
Deferred income tax assets | $ | 27,089 |  |  | $ | 24,821 |  |  | $ | 21,631 |
Deferred tax liabilities: |  |  |  |  |
Accrued withholding tax - unremitted earnings | (796) |  |  | (754) |  |  | (754) |
Property, plant, and equipment | (127) |  |  | — |  |  | — |
Right-of-use assets | (3,609) |  |  | (3,857) |  |  | (3,663) |
Tax capital lease liabilities | (764) |  |  | (2,832) |  |  | (2,385) |
ASC 606 accelerated revenue | (3,882) |  |  | (4,599) |  |  | (3,736) |
Other | (798) |  |  | (799) |  |  | (1,102) |
Deferred income tax liabilities | $ | (9,976) |  |  | $ | (12,841) |  |  | $ | (11,640) |
Net deferred income tax assets | $ | 17,113 |  |  | $ | 11,980 |  |  | $ | 9,991 |
Balance sheet caption reported in: |  |  |  |  |
Long-term deferred income tax asset | $ | 17,376 |  |  | $ | 12,254 |  |  | $ | 10,055 |
Long-term deferred income tax liability | (263) |  |  | (274) |  |  | (64) |
Net deferred income tax asset | $ | 17,113 |  |  | $ | 11,980 |  |  | $ | 9,991 |
Uncertain Tax Positions: The Company has R&D tax credits that approximate $10.4 million that have 20-year carryforwards before expiring. The Company’s R&D tax credits expire in various fiscal years from 2033 to 2044. As of June 29, 2024, 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 2005 to 2024. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| Fiscal Year Ended
| June 29, 2024 |  | July 1, 2023 |  | July 2, 2022
| (in thousands)
Beginning Balance | $ | 3,028 |  |  | $ | 2,998 |  |  | $ | 4,863 |
Additions based on tax positions related to the current year | 110 |  |  | 120 |  |  | 286 |
Adjustment to prior year tax positions & amended tax returns | (7) |  |  | (15) |  |  | (2,296) |
Lapse of statute of limitations | (232) |  |  | (75) |  |  | 145 |
Ending Balance | $ | 2,899 |  |  | $ | 3,028 |  |  | $ | 2,998 |
The $2.9 million of unrecognized tax benefits at the end of fiscal year 2024, if recognized, would reduce the effective tax rate. 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 jurisdiction.

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