Income tax expense is based on taxable income determined in accordance with current enacted laws and tax rates. Deferred income taxes are recorded for the temporary differences between the financial statement and tax bases of assets and liabilities using currently enacted tax rates.

Income before income taxes consists of the following (in thousands):

Income tax expense consists of the following components (in thousands):

Our effective tax rate differs from the U.S. Federal statutory income tax rate of 21% for the following reasons (in thousands):

The following table represents a reconciliation of the U.S. Federal statutory income tax rate of 21.0% to the Company's effective rate for income taxes for fiscal 2025 and 2024, prior to the adoption of ASU 2023-09:

For our Canada, Honduras and Mexico foreign operating units, we permanently reinvest the earnings and consequently do not record a deferred tax liability relative to the undistributed earnings.                                              

The primary components of deferred tax assets and liabilities were as follows (in thousands):

The deferred tax assets at June 30, 2026 associated with net operating loss carryforwards and the related expiration dates are as follows (in thousands):

We evaluate our deferred taxes to determine if the “more likely than not” standard of evidence has not been met thereby supporting the need for a valuation allowance. The evaluation of the amount of net deferred tax assets expected to be realized necessarily involves forecasting the amount of taxable income that will be generated in future years. We have forecasted future results using estimates management believes to be reasonable. Our forecasts are based on our best estimate of expected trends resulting from certain leading economic indicators. The realization of deferred income tax assets is dependent on future events. Actual results may vary from management's forecasts. Such variances could result in adjustments to the valuation allowance on deferred tax assets in future periods, and such adjustments could be material to the consolidated financial statements. A valuation allowance must be established for deferred tax assets when it is more likely than not that assets will not be realized.

A summary of the valuation allowance by jurisdiction is as follows (in thousands):

The valuation allowance of $1.4 million is related to certain U.S. state and foreign deferred tax assets. The U.S. state deferred taxes are primarily related to state net operating losses. The foreign deferred taxes are primarily related to net operating losses.                            

Uncertain Tax Positions

As of June 30, 2026, we had gross unrecognized tax benefits of $3.8 million related to uncertain tax positions in various jurisdictions.         

A reconciliation of the beginning and ending amount of these unrecognized tax benefits is as follows (in thousands): 

We recognize interest and penalties associated with uncertain tax positions in income tax expense. We had $0.7 million and $0.6 million accrued for interest and penalties as of June 30, 2026 and 2025, respectively.

It is reasonably possible that various issues relating to approximately $1.2 million of the total gross unrecognized tax benefits as of June 30, 2026 will be resolved within the next twelve months as exams are completed or statutes expire. If recognized, $1.0 million of the total $1.2 million of unrecognized tax benefits would decrease our effective tax rate. The remaining balance will be settled or released as tax audits are effectively settled, statutes of limitation expire, or other new information becomes available.

Our U.S. federal income tax returns for fiscal years 2023 and the following subsequent years are still subject to audit. In addition, we conduct business in various states. The major states in which we conduct business are subject to audit for fiscal years 2022 and the following subsequent years. Our foreign operations are subject to audit for fiscal years 2018 and the following subsequent years.

On July 4, 2025, the U.S. enacted H.R.1, commonly referred to as the OBBBA. The OBBBA includes a broad range of changes, including 100% initial-year bonus depreciation on qualifying property, as well as the immediate deduction for domestic research and development expenses. The impact of the OBBBA on our income tax expense and related effective tax rate for fiscal 2026 was immaterial.

Cash Paid for Taxes

Cash paid for taxes (net of refunds received) during fiscal 2026 were as follows (in thousands):

Cash paid for taxes (net of refunds received) during fiscal 2025 and 2024 was $18.6 million and $19.9 million, respectively.