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Note 11 - Income Taxes
 12 Months Ended
Jun. 30, 2024
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

11. Income Taxes

 

The components of income from continuing operations before income taxes are as follows (in thousands):

  

2024

  

2023

  

2022

 

U.S. Operations

 $33,891  $52,091  $11,885 

Non-U.S. Operations

  61,232   111,858   69,404 

Total

 $95,123  $163,949  $81,289 

 

 

The Company utilizes the asset and liability method of accounting for income taxes.  Deferred income taxes are determined based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities given the provisions of the enacted tax laws.  The components of the provision for income taxes on continuing operations (in thousands) were as shown below:

 

  

2024

  

2023

  

2022

 

Current:

            

Federal

 $6,230  $7,207  $935 

State

  692   4,242   (651)

Non-U.S.

  17,369   20,472   21,490 

Total Current

 $24,291  $31,921  $21,774 

Deferred:

            

Federal

 $(388) $(6,978) $486 

State

  (684)  (489)  (892)

Non-U.S.

  (1,687)  342   (1,561)

Total Deferred

  (2,759)  (7,125)  (1,967)

Total

 $21,532  $24,796  $19,807 

 

 

A reconciliation from the U.S. Federal income tax rate on continuing operations to the total tax provision is as follows:

 

  

2024

  

2023

  

2022

 

Provision at statutory tax rate

  21.0%  21.0%  21.0%

State taxes

  0.4%  1.7%  (1.4%)

Impact of foreign operations

  3.3%  (2.6%)  5.3%

Federal tax credits

  (3.0%)  (8.7%)  (2.7%)

Cash repatriation

  0.2%  1.0%  1.1%

SubF/GILTI

  0.0%  6.9%  0.0%

Uncertain Tax Positions

  0.4%  (0.1)%  1.3%

Officers compensation

  4.0%  0.4%  0.8%

Share-based compensation

  (4.0%)  (0.2%)  (0.1%)

Return to provision

  0.6%  (1.3%)  (1.6%)

Valuation allowance release

  0.6%  (3.1%)  0.0%

Tax expense on Procon Pumps disposal

  0.0%  0.2%  0.0%

Other

  (0.8%)  (0.1%)  0.7%

Effective income tax provision

  22.6%  15.1%  24.4%

 

 

Changes in the effective tax rates from period to period may be significant as they depend on many factors including, but not limited to, size of the Company’s income or loss and any one-time activities occurring during the period.

 

The income tax provision from continuing operations for the fiscal year ended June 30, 2024 was impacted by the following items: (i) a tax provision of $3.1 million due to the mix of income in various jurisdictions, (ii) tax benefits of $2.8 million related to foreign tax credits of $0.7 million, as well as Federal R&D tax credits of $2.1 million, (iii) a tax provision of $3.8 million related to officers’ compensation, and (iv) a tax benefit of $3.9 million relating to share-based compensation.

 

The income tax provision from continuing operations for the fiscal year ended June 30, 2023 was impacted by the following items: (i) a tax benefit of $4.3 million due to the mix of income in various jurisdictions, (ii) tax benefits of $14.3 million primarily related to foreign tax credits of $11.6 million, as well as Federal R&D tax credits of $2.7 million, (iii) a tax provision of $11.3 million related to the U.S. tax effects of international operations, and (iv) a tax benefit of $5.0 million relating to the partial release of the valuation allowance on capital loss carryforwards, which were utilized against the capital gain recognized on the divestiture of the Procon business.

 

The  income tax provision from continuing operations for the fiscal year ended June 30, 2022 was impacted by the following items: (i) a tax provision of $4.3 million due to the mix of income in various jurisdictions, (ii) a tax benefit of $2.2 million related to Federal R&D credit and Foreign Tax Credit, (iii) a tax benefit of $1.3 million related to return-to-accrual adjustments to true-up prior-period provision amounts, and (iv) a tax expense of $1.0 million related to uncertain tax position.

 

 

Significant components of the Company’s deferred income taxes are as follows (in thousands):

 

  

2024

  

2023

 

Deferred tax liabilities:

        

Depreciation and amortization

 $(27,625) $(25,951)

Withholding taxes

  (3,197)  (4,773)

Other

  (423)  - 

Operating lease right-of-use-asset

  (4,532)  (4,495)

Total deferred tax liability

 $(35,777) $(35,219)
         

Deferred tax assets:

        

Accrued compensation

 $2,569  $3,633 

Accrued expenses and reserves

  746   1,765 

Pension

  10,405   8,814 

Inventory

  1,813   942 

Lease liabilities

  5,166   4,671 

Section 174 Capitalization

  12,904   9,401 

Other

  -   950 

Net operating loss and credit carry forwards

  15,823   14,302 

Total deferred tax asset

 $49,426  $44,478 
         

Less: Valuation allowance

  (12,365)  (9,562)

Net deferred tax asset (liability)

 $1,284  $(303)

 

The Company estimates the degree to which deferred tax assets, including net operating loss and credit carry forwards will result in a benefit based on expected profitability by tax jurisdiction and provides a valuation allowance for tax assets and loss carry forwards that it believes will more likely than not go unrealized.  The valuation allowance at June 30, 2024 applies to federal capital loss, state loss, foreign loss, and state R&D credit carryforwards, which management has concluded that it is more likely than not that these tax benefits will not be realized.  The increase (decrease) in the valuation allowance from the prior year was due to the current year activity in those same federal, state and foreign jurisdictions.

 

As of June 30, 2024, the Company had gross state net operating loss ("NOL") and credit carry forwards of approximately $31.8 million and $3.9 million, respectively, which may be available to offset future state income tax liabilities and expire at various dates from 2024 through 2044. In addition, the Company had foreign NOL carry forwards of approximately $4.1 million, all of which carry forward indefinitely

 

Under ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, all excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the statement of operations.  Accordingly, we recorded an income tax benefit in the consolidated statement of operation of $3.9 million during the fiscal year ended June 30, 2024 for the windfall of tax benefits related to equity compensation.

 

U.S. tax law allows a 100% dividend received deduction for foreign dividends and the Company has begun to bring back cash from foreign subsidiaries.  However, the permanent reinvestment assertion must still be assessed and made regarding potential liabilities for foreign withholding taxes.  As of June 30, 2024, the Company maintained the assessment that previously undistributed earnings of certain foreign subsidiaries no longer meet the requirements for indefinite reinvestment under applicable accounting guidance.  Therefore, the Company recognized deferred tax liabilities of approximately $0.7 million that relate to withholding taxes on the current earnings of various foreign subsidiaries.  It is expected that deferred tax liabilities will continue to be recorded on current earnings in future periods from these subsidiaries.  The Company maintains the permanent reinvestment assertion on earnings in certain foreign jurisdictions. It is not practicable to estimate the amount of tax that might be payable on the remaining undistributed earnings.

 

The total provision (benefit) for income taxes included in the consolidated financial statements was as follows (in thousands):

 

  

2024

  

2023

  

2022

 

Continuing operations

 $21,532  $24,796  $19,807 

Discontinued operations

  (137)  (43)  (24)

Total provision (benefit)

 $21,395  $24,753  $19,783 

 

 

The changes in the amount of gross unrecognized tax benefits were as follows (in thousands):

 

  

2024

  

2023

  

2022

 

Beginning Balance

 $9,493  $9,559  $9,412 

Additions based on tax positions related to the current year

  273   -   762 

Additions for tax positions of prior years

  -   219   443 

Reductions for tax positions of prior years

  -   (208)  (1,058)

Settlements

  -   (77)  - 

Ending Balance

 $9,766  $9,493  $9,559 

 

At June 30, 2024, we had $9.8 million of non-current liabilities, included in accrued pension and other non-current liabilities on the consolidated balance sheet for uncertain tax positions. We are not able to provide a reasonable estimate of the timing of future payments related to these obligations. The Company increased its uncertain tax position during the year due to state R&D tax credit exposures.

 

If the unrecognized tax benefits in the table above were recognized in a future period, $9.8 million of the unrecognized tax benefit would impact the Company’s effective tax rate. The Company expects a decrease in net unrecognized tax benefits of approximately $8.0 million in the next twelve months as a result of the lapse in the statute of limitations. 

 

Within the next twelve months, the statute of limitations will close in various U.S., state and non-U.S. jurisdictions. The following tax years, in the major tax jurisdictions noted, are open for assessment or refund:

 

Country

 

Years Ending June 30,

 

United States

 2021 to 2024 

Canada

 2020 to 2024 

Germany

 2021 to 2024 

Ireland

 2024 

Portugal

 2023 to 2024 

United Kingdom

 2020 to 2024 

 

The Company’s policy is to include interest expense and penalties related to unrecognized tax benefits within the provision for income taxes on the consolidated statements of operations.  At June 30, 2024 and 2023, the company had $1.3 million and $1.2 million for accrued interest expense on unrecognized tax benefits.