STRATTEC SECURITY CORP Income Taxes Disclosure
NOTE 6. INCOME TAXES
Income tax expense is summarized as following (in thousands):
|
|
Years Ended |
|
|||||
|
|
June 29, 2025 |
|
|
June 30, 2024 |
|
||
Current: |
|
|
|
|
|
|
||
Federal |
|
$ |
4,726 |
|
|
$ |
4,466 |
|
State |
|
|
336 |
|
|
|
619 |
|
Foreign |
|
|
2,545 |
|
|
|
3,401 |
|
|
|
|
7,607 |
|
|
|
8,486 |
|
Deferred: |
|
|
|
|
|
|
||
Federal |
|
|
(1,103 |
) |
|
|
(3,988 |
) |
State |
|
|
(138 |
) |
|
|
(538 |
) |
Foreign |
|
|
(649 |
) |
|
|
(185 |
) |
|
|
|
(1,890 |
) |
|
|
(4,711 |
) |
Total income tax expense |
|
$ |
5,717 |
|
|
$ |
3,775 |
|
Income tax expense recognized in the accompanying consolidated statements of income differs from the amounts computed by applying the federal income tax rate to earnings before income tax expense. A reconciliation at the federal statutory rate to the effective tax rate is summarized in the following table:
|
|
Years Ended |
|
|||||
|
|
June 29, 2025 |
|
|
June 30, 2024 |
|
||
Federal statutory rate |
|
|
21.0 |
% |
|
|
21.0 |
% |
State taxes, net of federal tax benefit |
|
|
1.0 |
|
|
|
2.7 |
|
Foreign subsidiaries |
|
|
(1.7 |
) |
|
|
5.4 |
|
China non-resident capital gain tax |
|
|
— |
|
|
|
(1.6 |
) |
Valuation allowance |
|
|
4.9 |
|
|
|
2.6 |
|
Return to provision adjustment |
|
|
1.1 |
|
|
|
(6.1 |
) |
Research and development tax credit |
|
|
(6.0 |
) |
|
|
(8.1 |
) |
Non-controlling interest |
|
|
0.4 |
|
|
|
2.3 |
|
Stock-based compensation |
|
|
(0.1 |
) |
|
|
0.7 |
|
Other |
|
|
2.6 |
|
|
|
(0.2 |
) |
Effective income tax rate |
|
|
23.2 |
% |
|
|
18.7 |
% |
The components of deferred tax (liabilities) assets were as follows (in thousands):
|
|
June 29, 2025 |
|
|
June 30, 2024 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Research and development costs |
|
$ |
10,396 |
|
|
$ |
8,598 |
|
Compensation and employee benefits |
|
|
6,472 |
|
|
|
5,894 |
|
Other accrued expenses |
|
|
4,871 |
|
|
|
4,672 |
|
Capital loss and credit carryforwards |
|
|
4,923 |
|
|
|
3,576 |
|
Lease liabilities |
|
|
739 |
|
|
|
931 |
|
Other |
|
|
1,296 |
|
|
|
1,714 |
|
Gross deferred tax assets |
|
|
28,697 |
|
|
|
25,385 |
|
Valuation allowance |
|
|
(3,865 |
) |
|
|
(2,569 |
) |
Net deferred tax assets |
|
|
24,832 |
|
|
|
22,816 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
||
Property, plant and equipment |
|
|
(3,167 |
) |
|
|
(3,455 |
) |
Lease right of use assets |
|
|
(662 |
) |
|
|
(856 |
) |
Other |
|
|
(1,472 |
) |
|
|
(912 |
) |
Gross deferred tax liabilities |
|
|
(5,301 |
) |
|
|
(5,223 |
) |
Net deferred tax assets |
|
$ |
19,531 |
|
|
$ |
17,593 |
|
The Company has foreign tax credit carryforwards of $2.5 million (expiring between 2031 and 2044), $647,000 of state tax credit carryforward (expiring between 2026 and 2039) and $1.8 million of net capital loss carryforward. The Company has established a full valuation allowance against the capital loss carryforward and a partial valuation allowance against deferred tax assets associated with other credit carryforward and deductions, based on its assessment of future realization.
The total liability for unrecognized tax benefits was $1.9 million as of June 29, 2025 and $1.6 million as of June 30, 2024 and was included in Other noncurrent liabilities in the accompanying consolidated balance sheets. Substantially all of these unrecognized tax benefits, if recognized, would impact the effective income tax rate. Interest and penalties related to unrecognized tax benefits are recognized in income tax expense.
Income tax returns are filed in the United States, Wisconsin, Michigan and various other states, as well as Mexico and other foreign jurisdictions. Tax years open to examination by tax authorities under the statute of limitations include fiscal 2022 through 2025 for federal, fiscal 2021 through 2025 for most states and calendar 2020 through 2024 for foreign jurisdictions.
On July 4, 2025, the One Big Beautiful Bill Act (the Act) was signed into law. Key provisions that may impact the Company include the ability to immediately expense qualifying research and development costs and permanent extensions of certain provisions within the 2017 Tax Cuts and Jobs Act. The Company is currently evaluating the future impact of the Act on its financial position, results of operations and cash flows.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Aug 25, 2025 | Showing above |
| 2024 | Sep 5, 2024 | |
| 2023 | Sep 7, 2023 | |
| 2022 | Sep 8, 2022 | |
| 2021 | Sep 2, 2021 | |
| 2020 | Sep 3, 2020 | |
| 2019 | Sep 5, 2019 | |
| 2018 | Sep 6, 2018 | |
| 2017 | Sep 7, 2017 | |
| 2016 | Sep 8, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.