6. INCOME TAXES

We recorded an income tax provision of $1.0 million and $0.4 million for the first three months of fiscal 2027 and the first three months of fiscal 2026, respectively. The effective income tax rate during the first three months of fiscal 2027 was a tax provision of 19.6% as compared to a tax provision of 18.1% during the first three months of fiscal 2026. The difference in rate during the first three months of fiscal 2027 as compared to the first three months of fiscal 2026 reflects changes in our geographical distribution of income (loss). The 19.6% effective income tax rate differs from the federal statutory rate of 21% as a result of our geographical distribution of income (loss) and the impact of permanent items.

In the normal course of business, we are subject to examination by taxing authorities throughout the world. Years prior to fiscal 2016 are closed for examination under the statute of limitation for U.S. federal and U.S. state. During the third quarter of fiscal 2025, we received a notice from the State of Illinois for an income tax audit covering the period from June 2021 to May 2023. The Company has filed for an extension until March 2027 and is waiting to hear from the State of Illinois office for further action. We have no other current open audits in the U.S.

In The Netherlands, years prior to fiscal 2021 are closed for examination. We were under examination in Germany for fiscal years 2019 to 2022. The audit concluded in the first quarter of fiscal 2027 with no material impact on the Company’s consolidated financial statements and disclosures.

We have historically determined that undistributed earnings of our foreign subsidiaries, to the extent of cash available, will be repatriated to the U.S. The deferred tax liability on the outside basis difference is now primarily withholding tax on future dividend distributions. There was no deferred tax liability related to undistributed earnings of our foreign subsidiaries as of August 29, 2026 and May 30, 2026.

The Company recorded a $0.4 million uncertain tax position as of August 29, 2026 and as of May 30, 2026. We record interest related to uncertain tax positions in the income tax expense line item within the Consolidated Statements of Comprehensive Income. Accrued interest was included within the related tax liability line in the Consolidated Balance Sheets. We have recorded a liability of less than $0.1 million for interest as of August 29, 2026 and May 30, 2026.

The Company maintains a valuation allowance representing the portion of the deferred tax asset that management does not believe is more likely than not to be realized. The valuation allowance was $2.7 million as of August 29, 2026 and $2.8 million as of May 30, 2026. The valuation allowance relates to state Net Operating Losses ($1.2 million) and deferred tax assets in foreign jurisdictions where historical taxable losses have been incurred ($1.5 million). The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

We have considered the impact of the One Big Beautiful Bill Act on the Company’s annual effective tax rate for fiscal year 2027. This includes Net Controlled Foreign Corporation Tested Income ("NCTI") (formerly Global Intangible Low-Taxed Income), eliminates the Qualified Business Asset Investment ("QBAI") exclusion, and sets the Section 250 deduction at 40%, broadening the U.S. tax base. Foreign-Derived Intangible Income becomes Foreign Derived Deduction Eligible Income, with a 33.34% deduction and narrower eligibility but no QBAI reduction. The NCTI foreign tax credit haircut decreases from 20% to 10%, allowing for a 90% credit and improving utilization. These changes did not have a significant impact to the annual effective tax rate.