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Note 11 - Income Taxes
 12 Months Ended
Jun. 30, 2025
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):

  

2025

  

2024

  

2023

 

U.S. Operations

  (4,833) $33,891  $52,091 

Non-U.S. Operations

  73,643   61,232   111,858 

Total

 $68,810  $95,123  $163,949 

 

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:

 

  

2025

  

2024

  

2023

 

Current:

            

Federal

 $(6,200) $6,230  $7,207 

State

  763   692   4,242 

Non-U.S.

  26,187   17,369   20,472 

Total Current

 $20,750  $24,291  $31,921 

Deferred:

            

Federal

 $(4,345) $(388) $(6,978)

State

  (1,486)  (684)  (489)

Non-U.S.

  (3,835)  (1,687)  342 

Total Deferred

  (9,666)  (2,759)  (7,125)

Total

 $11,084  $21,532  $24,796 

 

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

 

  

2025

  

2024

  

2023

 

Provision at statutory tax rate

  21.0%  21.0%  21.0%

State taxes

  -0.8%  0.4%  1.7%

Impact of foreign operations

  8.4%  3.3%  (2.6%)

Federal tax credits

  -6.8%  (3.0%)  (8.7%)

Cash repatriation

  4.3%  0.2%  1.0%

SubF/GILTI

  0.0%  0.0%  6.9%

Uncertain Tax Positions

  -13.3%  0.4%  (0.1)%

Officers compensation

  2.7%  4.0%  0.4%

Share-based compensation

  -1.3%  (4.0%)  (0.2%)

Return to provision

  1.0%  0.6%  (1.3%)

Valuation allowance release

  0.0%  0.6%  (3.1%)

Tax expense on Procon Pumps disposal

  0.0%  0.0%  0.2%

Other

  0.9%  (0.8%)  (0.1%)

Effective income tax provision

  16.1%  22.6%  15.1%

 

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, 2025 was impacted by the following items: (i) a tax provision of $5.7 million due to the mix of income in various jurisdictions, (ii) tax benefits of $4.6 million related to foreign tax credits of $2.1 million, as well as Federal R&D tax credits of $2.5 million, (iii) a tax provision of $1.8 million related to officers’ compensation, (iv) a tax provision of $3.0 million related to cash repatriation, and (v) a tax benefit of $9.1 million (inclusive of $1.2 million of interest) related to the release of a Sec. 965 toll tax uncertain tax position due to the lapse of statute of limitations. 

 

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 $3.8 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.

 

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

 

  

2025

  

2024

 

Deferred tax liabilities:

        

Depreciation and amortization

 $(32,396) $(27,625)

Withholding taxes

  (3,421)  (3,197)

Other

  -   (423)

Operating lease right-of-use-asset

  (5,100)  (4,532)

Total deferred tax liability

 $(40,917) $(35,777)
         

Deferred tax assets:

        

Accrued compensation

 $2,553  $2,569 

Accrued expenses and reserves

  (16,313)  746 

Pension

  9,647   10,405 

Inventory

  1,971   1,813 

Lease liabilities

  6,067   5,166 

Section 174 Capitalization

  18,308   12,904 

Other

  -   - 

Net operating loss and credit carry forwards

  14,240   15,823 

Total deferred tax asset

 $36,473  $49,426 
         

Less: Valuation allowance

  (11,527)  (12,365)

Net deferred tax asset (liability)

 $(15,971) $1,284 

 

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, 2025 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, 2025, the Company had gross state net operating loss ("NOL") and credit carry forwards of approximately $15.8 million and $5.4 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 federal NOL carry forwards of  approximately $2.7 million and foreign NOL carry forwards of approximately $2.7 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 $0.9 million during the fiscal year ended June 30, 2025 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, 2025, 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 $3.0 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):

 

  

2025

  

2024

  

2023

 

Continuing operations

 $11,084  $21,532  $24,796 

Discontinued operations

  (11)  (137)  (43)

Total provision (benefit)

 $11,073  $21,395  $24,753 

 

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

 

  

2025

  

2024

  

2023

 

Beginning Balance

 $9,766  $9,493  $9,559 

Additions based on tax positions related to the current year

  1,108   273   - 

Additions for tax positions of prior years

  -   -   219 

Reductions for tax positions of prior years

  -   -   (208)

Statute lapses

  (7,961)  -   (77)

Ending Balance

 $2,913  $9,766  $9,493 

 

At June 30, 2025, we had $2.9 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. The Company decreased its uncertain tax position during the year due to the statute of limitations lapsing on the Sec. 965 toll tax position that was established in prior years.

 

If the unrecognized tax benefits in the table above were recognized in a future period, $2.9 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 $0.9 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

  2022 to 2025 

Canada

  2021 to 2025 

Germany

  2021 to 2025 

Ireland

  2024 to 2025 

Portugal

  2023 to 2025 

United Kingdom

  2021 to 2025 

 

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,  2025 and  2024, the company had $0 and $1.3 million for accrued interest expense on unrecognized tax benefits.

 

On July 4, 2025, the U.S. government enacted The One Big Beautiful Bill Act of 2025 which includes, among other provisions, changes to the U.S. corporate income tax system including the allowance of immediate expensing of qualifying research and development expenses and permanent extensions of certain provisions within the Tax Cuts and Jobs Act. Certain provisions are effective for the company beginning fiscal 2026. We are evaluating the future impact of these tax law changes on our financial statements.

 

The Organization for Economic Co-operation and Development (OECD) and the G20 Inclusive Framework on Base Erosion and Profit Shifting (the "Inclusive Framework") have put forth Pillar Two proposals that ensure a minimal level of taxation. Several countries in which the Company operates, including several European Union member states, have adopted domestic legislation to implement the Inclusive Framework's global corporate minimum tax rate of fifteen percent. This legislation became effective for the Company beginning July 1, 2024. Based on the Company's analysis of Pillar Two provisions, these tax law changes did not have a material impact on the Company's financial statements for fiscal 2025.