Income Taxes

12 Months Ended

Jul. 01, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income before provision for income taxes during fiscal year 2022, 2021 and 2020 consisted of the following: 

	Fiscal Year
(In thousands)	2022		2021		2020
United States	$	31,923	$	26,325	$	9,497
Foreign	(1,488)		(3,885)		(5,788)
Total income before income taxes	$	30,435	$	22,440	$	3,709

Provision for (benefit from) income taxes for fiscal year 2022, 2021 and 2020 were summarized as follows:

	Fiscal Year
(In thousands)	2022		2021		2020
Current provision (benefit):
Federal	$	15	$	(60)	$	(10)
Foreign	1,234		2,128		3,589
State and local	333		221		45
	1,582		2,289		3,624
Deferred provision (benefit):
Federal	6,348		(75,587)		(744)
Foreign	161		983		572
State and local	1,184		(15,384)		—
	7,693		(89,988)		(172)
Total provision for (benefit from) income taxes	$	9,275	$	(87,699)	$	3,452

The provision for (benefit from) income taxes differed from the amount computed by applying the federal statutory rate of 21.0%, to our income before provision for (benefit from) income taxes as follows:

	Fiscal Year
(In thousands)	2022		2021		2020
Tax provision at statutory rate	$	6,344	$	4,713	$	779
Valuation allowances	220		(95,796)		(6,577)
Permanent differences	242		(346)		(347)
State and local taxes, net of U.S. federal tax benefit	1,534		1,436		542
Foreign income taxed at rates different than the U.S. statutory rate	439		209		764
Executive compensation limitation	439		—		—
Stock-based compensation excess tax benefits	(580)		(482)		—
Tax credit/deductions - generated and expired	113		108		99
Foreign withholding taxes	267		1,184		303
Brazil withholding tax receivable	—		72		—
Change in uncertain tax positions	644		102		2,674
Return-to-provision/Deferred true-up adjustments	(269)		—		5,634
Other	(118)		1,101		(419)
Total provision for (benefit from) income taxes	$	9,275	$	(87,699)	$	3,452

Our provision for (benefit from) income taxes was $9.3 million of expense for fiscal 2022, $87.7 million of benefit for fiscal 2021 and $3.5 million of expense for fiscal 2020. Our tax expense for fiscal 2022 was primarily due to tax expense related to U.S. and profitable foreign subsidiaries.

Our tax benefit for fiscal 2021 was primarily due to the release of $92.2 million in valuation allowance on our U.S. federal and state deferred tax assets, offset by tax expenses related to profitable foreign subsidiaries and an increase in our reserve for uncertain tax positions.

The components of deferred tax assets and liabilities were as follows:

(In thousands)	July 1, 2022		July 2, 2021
Deferred tax assets:
Inventory	$	4,065	$	5,279
Accruals and reserves	3,248		3,437
Bad debts	157		392
Amortization	2,274		1,530
Stock compensation	807		552
Deferred revenue	1,913		1,960
Unrealized exchange gain/loss	374		197
Other	2,888		3,433
Tax credit carryforwards	4,926		5,447
Tax loss carryforwards	114,048		119,287
Total deferred tax assets before valuation allowance	134,700		141,514
Valuation allowance	(37,529)		(37,447)
Total deferred tax assets	97,171		104,067
Deferred tax liabilities:
Branch undistributed earnings reserve	176		130
Depreciation	948		450
Right of use assets	548		634
Other	650		—
Total deferred tax liabilities	2,322		1,214
Net deferred tax assets	$	94,849	$	102,853
As Reported on the Consolidated Balance Sheets
Deferred income tax assets	$	95,412	$	103,467
Deferred income tax liabilities	563		614
Total net deferred income tax assets	$	94,849	$	102,853

Our valuation allowance related to deferred income taxes, as reflected in our consolidated balance sheets, was $37.5 million as of July 1, 2022 and $37.4 million as of July 2, 2021. The change in valuation allowance for the fiscal years ended July 1, 2022 and July 2, 2021 was an increase of $0.1 million and a decrease of $98.7 million, respectively. The increase in the valuation allowance in fiscal 2022 was primarily due to losses in tax jurisdictions in which we cannot recognize tax benefits, partially offset by the release of certain U.S. federal, state, and foreign valuation allowances. The decrease in the valuation allowance in fiscal 2021 was primarily due to the release of certain U.S. federal, state, and foreign valuation allowances, partially offset by losses in tax jurisdictions in which we cannot recognize tax benefits. During the third quarter of fiscal 2021, we recorded a valuation allowance release of $92.2 million as a discrete item based on management’s reassessment of the amount of its U.S. federal and state deferred tax assets that are more likely than not to be realized, primarily as a result of increases in U.S. profitability in the current period and expectations of continued profitability in future periods. In performing our analysis, we used the most updated plans and estimates that we currently use to manage the underlying business and calculated the utilization of our deferred tax assets. As of July 1, 2022, we continue to maintain a valuation allowance of $1.1 million on certain U.S. federal and state deferred tax assets that we believe is not more likely than not to be realized in future periods.

Tax loss and credit carryforwards as of July 1, 2022 have expiration dates ranging between one year and no expiration in certain instances. The amounts of U.S. federal tax loss carryforwards as of July 1, 2022 was $358.9 million and begin to expire in fiscal 2023. The amount of U.S. federal and state tax credit carryforwards as of July 1, 2022 was $7.0 million, and certain credits began to expire in fiscal 2023. The amount of foreign tax loss carryforwards as of July 1, 2022 was $188.0 million and certain losses began to expire in fiscal 2023. The amount of foreign tax credit carryforwards as of July 1, 2022 was $2.8 million, and certain credits will begin to expire in fiscal 2026.

We use the flow-through method to account for investment tax credits generated on eligible scientific research and development expenditures. Under this method, the investment tax credits are recognized as a benefit to income tax in the year they are generated.

United States income taxes have not been provided on basis differences in foreign subsidiaries of $3.2 million as of July 1, 2022 because of our intention to reinvest these earnings indefinitely. Additionally, no foreign withholding taxes, federal or state taxes have been provided if these unremitted earnings of the Company’s foreign subsidiaries were distributed, as such amounts are considered permanently reinvested.

It is not practicable to estimate the additional income taxes, including applicable foreign withholding taxes, that would be due upon the repatriation of these earnings.

As of July 1, 2022, we had unrecognized tax benefits of $17.7 million for various federal, foreign, and state income tax matters. Unrecognized tax benefits increased by $0.4 million during fiscal 2022. Our total unrecognized tax benefits that, if recognized, would affect our effective tax rate was $9.7 million as of July 1, 2022. These unrecognized tax benefits are presented on the accompanying consolidated balance sheets net of the tax effects of net operating loss carryforwards.

We account for interest and penalties related to unrecognized tax benefits as part of our provision for income taxes. The interest accrued was $0.7 million as of July 1, 2022. As of July 2, 2021, an immaterial amount of penalties have been accrued.

Our unrecognized tax benefit activity for fiscal 2022, 2021 and 2020 was as follows:

(In thousands)	Amount
Unrecognized tax benefit as of June 28, 2019	$	12,987
Additions for tax positions in prior periods	7,023
Additions for tax positions in current periods	3,094
Decreases for tax positions in prior periods	(4,692)
Decreases related to change of foreign exchange rate	(365)
Unrecognized tax benefit as of July 3, 2020	18,047
Additions for tax positions in prior periods	184
Additions for tax positions in current periods	869
Decreases for tax positions in prior periods	(1,788)
Decreases related to change of foreign exchange rate	(57)
Unrecognized tax benefit as of July 2, 2021	17,255
Additions for tax positions in prior periods	54
Additions for tax positions in current periods	704
Decreases for tax positions in prior periods	(104)
Decreases related to change of foreign exchange rate	(202)
Unrecognized tax benefit as of July 1, 2022	$	17,707

There was no change in our unrecognized tax benefit for tax positions in prior periods for fiscal year 2022 related to settlements with tax authorities in the table above. Our unrecognized tax benefit decreased for tax positions in prior periods by $0.9 million and $3.8 million for fiscal year 2021 and 2020, respectively, related to settlements with tax authorities in the table above.

We have a number of years with open tax audits which vary from jurisdiction to jurisdiction. Our major tax jurisdictions that are open and subject to potential audits include the U.S., Singapore, Nigeria, and Saudi Arabia. The earliest years for these jurisdictions are as follows: U.S. - 2003; Singapore - 2015; Nigeria – 2006; and Saudi Arabia - 2019.

On December 27, 2020, the US enacted the Consolidated Appropriations Act of 2021 (CAA) which extended and expanded certain tax relief measures created by the CARES Act, including, but not limited to, (1) second round of Payroll Protection Program loans, and (2) the Employer Retention Credit for 2021.

On March 11, 2021, the US enacted the American Rescue Plan Act of 2021 (ARPA) which expands Section 162(m) to cover the next five most highly compensated employees for the taxable year, in addition to the “covered employees” effective for taxable years beginning after December 31, 2026. We continue to examine the elements of CAA and ARPA and the impact they may have on our future business.