11. Income Taxes

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

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:

Income tax payments (net of refunds received):

The differences between income taxes computed at the United States statutory rate and the provision for income taxes are summarized as follows for the fiscal year 2026 (in thousands): 

(a) State taxes in California, Massachusetts, Michigan and Pennsylvania made up the majority (greater than 50 percent) of the tax effect in this category.

The differences between income taxes computed at the United States statutory rate and the provision for income taxes are summarized as follows for the fiscal years 2025 and 2024 (in thousands):

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. 

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

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, 2026 applies to state net operating loss, foreign net operating loss, branch basket foreign tax credit carryforward 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 $3.0 million decrease in the valuation allowance at June 30, 2026 was primarily driven by the release of the valuation allowance on Federal capital loss carryforwards as a result of the capital gain recognized on the sale of Federal Industries. The $0.8 million decrease in the valuation allowance at June 30, 2025 was primarily driven by current year activity in state and foreign jurisdictions. The $2.8 million increase in the valuation allowance at June 30, 2024 was primarily driven by the establishment of a valuation allowance on branch basket foreign tax credit carryforwards and current year activity in state and foreign jurisdictions.

As of June 30, 2026, the Company had gross state net operating loss ("NOL") and credit carry forwards of approximately $14.7 million and $6.0 million, respectively, which may be available to offset future state income tax liabilities and expire at various dates from 2024 through 2046. In addition, the Company had gross federal NOL carry forwards of approximately $2.7 million and gross foreign NOL carry forwards of approximately $14.8 million, all of which carry forward indefinitely. The Company also had federal credit carryforwards of approximately $5.1 million which expire at various dates from 2027 through 2046.

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 $1.1 million during the fiscal year ended June 30, 2026, $0.9 million during the fiscal year ended June 30, 2025, and $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, 2026, 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 $2.2 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):

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

At June 30, 2026, we had $2.2 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 federal R&D tax credit exposures. The Company decreased its uncertain tax position during the year due to the statute of limitations lapsing on federal R&D tax credits.

If the unrecognized tax benefits in the table above were recognized in a future period, $2.2 million of the unrecognized tax benefit would impact the Company’s effective tax rate. 

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:

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.