Annual Report for Fiscal Year Ending 06-30, 2026 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion reviews and analyzes the consolidated results of operations of U.S. Global Investors, Inc. and its subsidiaries (collectively, "U.S. Global" or the "Company") for the past two fiscal years and other factors that may affect future financial performance. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.

Recent Trends in Financial Markets

The Company's operating revenues are closely tied to assets under management ("AUM"), which are influenced by market performance, investor inflows and outflows, and the mix of managed investment products. As a result, changes in financial markets and investor sentiment can have a significant impact on revenues and operating results.

During the fiscal year ended June 30, 2026, U.S. equity markets delivered strong returns, supported by resilient economic growth and continued technological innovation. The S&P 500 gained approximately 20.9 percent for the twelve months ended June 30, 2026, led by the Information Technology sector, which advanced approximately 36.7 percent. Investor enthusiasm surrounding artificial intelligence ("AI"), cloud computing, and digital infrastructure fueled strong earnings growth among technology companies. Semiconductor manufacturers and related businesses benefited from growing demand for AI-related hardware and data center investment. This demand contributed significantly to overall market performance.

At the same time, global financial markets continued to be influenced by geopolitical tensions, trade policy uncertainty, and shifting monetary policy expectations. Conflicts in Eastern Europe and the Middle East, along with changing tariff policies among major economies, contributed to periods of market volatility. These conditions increased investor interest in safe-haven assets, particularly gold. Gold prices reached record highs during the period, benefiting precious metals mining and royalty companies and supporting investor demand for related investment strategies.

While several central banks began easing monetary policy during the year, inflation remained above long-term targets in many regions. Economic growth moderated but remained positive across most major economies, supported by healthy labor markets and consumer spending. These conditions created a range of opportunities across asset classes and encouraged investors to seek targeted investment exposure through exchange-traded funds ("ETFs").

The travel and tourism industry remained resilient throughout the fiscal year. Strong demand for leisure travel, international tourism, cruises, and hospitality services supported revenue growth across many travel-related companies. These trends benefited the Company's travel-focused products, including the U.S. Global Jets ETF (JETS) and the U.S. Global Travel UCITS ETF (TRIP), as investors continued to seek exposure to the long-term growth of global travel.

Investors' preference for ETFs over traditional mutual funds remained a key industry trend. The ETF industry continued to attract net inflows due to its transparency, liquidity, and tax efficiency, while actively managed mutual funds generally experienced net outflows. This shift reflects growing demand for flexible, cost-effective investment vehicles.

Management remains focused on growing assets under management through differentiated investment strategies, expanding distribution opportunities, and prudently managing market and geopolitical risks. The Company believes its specialized exposure to travel, precious metals, technology, aerospace and defense provides attractive opportunities for long-term growth as investor demand continues to evolve.

Business Segments

The Company, with principal operations located in San Antonio, Texas, manages two business segments:

1.

Investment management services, through which the Company offers, to U.S. Global Investors Funds ("USGIF" or the "Fund(s)") and ETF clients, a range of investment management products and services to meet the needs of individual and institutional investors; and

2.

Corporate investments, through which the Company invests for its own account in an effort to add growth and value to its cash position. The Company holds a significant amount of its total assets in investments.

Assets Under Management ("AUM")
(dollars in thousands)		June 30, 2026				June 30, 2025
Investment Management Services
ETF Clients		$	1,204,517			$	973,216
USGIF			467,474				350,435
Total AUM		$	1,671,991			$	1,323,651

As of June 30, 2026, total AUM was $1.7 billion compared to $1.3 billion on June 30, 2025, an increase of $348.3 million, or 26.3 percent. The increase in AUM was driven primarily by growth in the USGIF and ETF clients focused on the gold and natural resources sector, and Jets ETF, which invests in airline-related stocks, including global airline carriers, airport operators and aircraft manufacturers. During fiscal year 2026, average AUM was $1.5 billion compared to $1.4 billion in fiscal year 2025, an increase of 8.1 percent.

The following is a brief discussion of the Company's two business segments.

Investment Management Services

The Company generates operating revenues from providing investment management and related services to USGIF and ETF clients. These revenues are largely dependent on the value and composition of AUM. As a result, fluctuations in financial markets, investor sentiment and net cash flows directly affect AUM and, consequently, the Company's revenues and operating results.

Information regarding the mutual funds within USGIF, including prospectuses and performance information, is available on the Company's website, www.usfunds.com. Information regarding the Company's U.S.-Based ETFs, including prospectuses, performance and holdings, is available at www.usglobaletfs.com. Shareholders in USGIF are generally not required to provide advance notice prior to redeeming fund shares, and USGIF does not currently charge redemption fees. Similarly, the U.S.-based ETFs' authorized participants are generally not required to provide advance notice of share redemptions, and the U.S.-based ETFs do not charge redemption fees.

Investment advisory fees from USGIF are generally calculated as a percentage of average net assets, ranging from 0.375 percent to 1.00 percent, and are paid monthly. The Company also serves as investment advisor to four U.S.-based ETF clients.

The Company receives a management fee of 0.60 percent of average net assets for the U.S.-based ETFs. The Company also serves as investment adviser to one European-based ETF, The Travel UCITS ETF ("TRIP"), which pays a unitary management fee of 0.69 percent of average net assets. TRIP is not included in the AUM rollforward table below and is not available to U.S. investors.

The Company has agreed to bear all expenses of the U.S.-based ETFs, except the U.S. Global Sea to Sky Cargo ETF. The Company has agreed to contractually limit the expenses of the U.S. Global Sea to Sky Cargo ETF through April 2027. The Company has also agreed to bear all expenses of TRIP.

In fiscal year 2025, advisory fees on certain USGIF equity funds remained subject to a performance-based adjustment that could decrease fees based on investment performance. The performance adjustment began to be phased out during the fourth quarter of fiscal 2024 and was fully eliminated during the fourth quarter of fiscal 2025. During the phase-out period, the adjustment could only reduce advisory fees. As a result, advisory fees were reduced by $247,000 in fiscal year 2025. The elimination of the performance fee adjustment contributed to the increase in USGIF advisory fees during fiscal year 2026.

Investment advisory revenues are affected by changes in AUM, including:

●

market appreciation or depreciation;

	●	dividends and distributions;
	●	net shareholder purchases or redemptions;

●

exchanges between products with different fee structures; and

●

fee waivers and expense reimbursements.

The following tables summarize the changes in AUM for USGIF equity funds, USGIF fixed income funds and the Company's U.S.-based ETFs. The tables exclude TRIP, the Company's European-based ETF, which is not available to U.S. investors.

		Year Ended June 30, 2026
(dollars in thousands)		USGIF Equity				USGIF Fixed Income				Total USGIF				U.S.-Based ETFs
Beginning Balance		$	296,756			$	53,679			$	350,435			$	952,959
Market appreciation (depreciation)			139,116				1,544				140,660				379,498
Dividends and distributions			(74,405	)			(1,570	)			(75,975	)			(10,432	)
Net shareholder purchases (redemptions)			54,369				(2,015	)			52,354				(139,304	)
Ending Balance		$	415,836			$	51,638			$	467,474			$	1,182,721
Average investment management fee			0.88	%			0.00	%			0.79	%			0.59	%
Average net assets		$	437,138			$	51,919			$	489,057			$	1,018,978

		Year Ended June 30, 2025
(dollars in thousands)		USGIF Equity				USGIF Fixed Income				Total USGIF				U.S.-Based ETFs
Beginning Balance		$	233,296			$	55,102			$	288,398			$	1,254,217
Market appreciation (depreciation)			82,436				2,044				84,480				233,052
Dividends and distributions			(7,591	)			(1,839	)			(9,430	)			(2,652	)
Net shareholder purchases (redemptions)			(11,385	)			(1,628	)			(13,013	)			(531,658	)
Ending Balance		$	296,756			$	53,679			$	350,435			$	952,959
Average investment management fee			0.76	%			0.00	%			0.63	%			0.60	%
Average net assets		$	254,596			$	53,778			$	308,374			$	1,085,157

As of June 30, 2026, USGIF AUM was $467.5 million compared to $350.4 million as of June 30, 2025, an increase of $117.0 million, or 33.4 percent. Average net assets for USGIF were $489.1 million during fiscal year 2026 compared to $308.4 million during fiscal year 2025, an increase of 58.6 percent. The change in USGIF AUM was primarily attributable to market appreciation in equity funds.

As of June 30, 2026, AUM in the Company's U.S.-based ETFs was $1.2 billion compared to $953.0 million as of June 30, 2025, an increase of $229.8 million, or 24.1 percent. Average net assets for the Company's U.S.-based ETFs were $1.0 billion during fiscal year 2026 compared to $1.1 billion during fiscal year 2025, a decrease of 6.1 percent. The change in U.S.-based ETF AUM was primarily attributable to market appreciation, particularly within JETS. The Company also serves as investment adviser to TRIP, a European-based ETF that is not included in the table above. Average net assets for TRIP were $20.5 million and $20.4 million during fiscal years 2026 and 2025, respectively.

The average annualized investment management fee rate (total advisory fees, excluding performance fees, as a percentage of average assets under management) of USGIF was 79 and 63 basis points in fiscal year 2026 and 2025. The average investment management fee for equity funds in fiscal year 2026 and 2025 was 88 basis points and 76 basis points, respectively. The average investment management fee for the fixed income funds was nil for both fiscal years 2026 and 2025 due to fee waivers on these funds as discussed in Note 4, Investment Management and Other Fees, to the Consolidated Financial Statements of this Annual Report on Form 10-K.

During fiscal years 2026 and 2025, the Company recorded advisory fee revenue from USGIF of approximately $3.8 million and $1.7 million, respectively. Based on actual recorded amounts, total USGIF advisory fees increased by approximately $2.2 million, or 128.2 percent, in fiscal year 2026 compared to fiscal year 2025, primarily due to higher average AUM in the funds focused on the gold and natural resources sector. This increase was also attributable to the elimination of the performance fee adjustment, which reduced advisory fees in fiscal 2025 but did not impact advisory fees in 2026.

The average management fee rate for the Company's U.S.-based ETFs was 59 basis points and 60 basis points during fiscal years 2026 and 2025, respectively. Advisory fees from all ETF clients totaled $6.2 million and $6.6 million during fiscal years 2026 and 2025, respectively. Changes in ETF advisory fees during fiscal year 2026 were primarily attributable to lower average net assets in JETS.

Corporate Investments

Management believes it can more effectively manage the Company's cash position by maintaining certain types of investments utilized in cash management and continues to believe that such activities are in the best interest of the Company. As of June 30, 2026, investments measured at fair value on a recurring basis totaled $11.7 million, representing approximately 24.4 percent of the total assets.

The following table summarizes the cost, unrealized gains (losses), and fair value of investments measured at fair value on a recurring basis as of June 30, 2026, and 2025.

Securities at Fair Value		Cost				Unrealized Gain (Loss) in Other Comprehensive Income (Loss)				Unrealized Gain (Loss) in Investment Income (Loss)				Fair Value
(dollars in thousands)
Trading securities at fair value 1		$	13,006			$	-			$	(1,262	)		$	11,744
Total at June 30, 2026		$	13,006			$	-			$	(1,262	)		$	11,744
Trading securities at fair value 1		$	12,963			$	-			$	(775	)		$	12,188
Available-for-sale debt securities at fair value 2			3,993				125				(2,542	)			1,576
Total at June 30, 2025		$	16,956			$	125			$	(3,317	)		$	13,764

1.	Realized gains and losses and changes in unrealized gains and losses are included in net investment income (loss) in the Consolidated Statements of Operations.

2.

Realized gains and losses are included in net investment income (loss) in the Consolidated Statements of Operations. Changes in unrealized gains and losses are included in the Consolidated Statements of Comprehensive Income, except for declines in fair value determined to be other than temporary, and amounts attributable to embedded derivatives, which are included in net investment income (loss) in the Consolidated Statements of Operations. An embedded derivative and its related host contract represent one legal contract and are combined within the investments in available-for-sale debt securities on the Consolidated Balance Sheets.

Included in the amounts presented above are investments in funds advised by the Company, with fair values of $9.7 million and $10.6 million at June 30, 2026, and 2025, respectively.

Net investment income (loss) from the Company's investments includes:

●

realized gains and losses on sales of securities;

●

unrealized gains and losses on fair valued securities;

●

foreign currency gains and losses;

●

impairments and observable price changes on equity investments without readily determinable fair values; and

●

dividend and interest income.

Investment income can be volatile and may vary depending on market fluctuations, the Company's ability to participate in investment opportunities, and timing of transactions. For fiscal year 2026, the Company had net investment income of $4.1 million, compared to $2.4 million for fiscal year 2025. Due to market volatility, the Company expects that gains or losses will continue to fluctuate in the future.

Included in the securities recorded at fair value in the table above are investments in HIVE Digital Technologies Ltd. ("HIVE"), consisting of common shares valued at $55,000, and $27,000 as of June 30, 2026, and 2025, respectively, and convertible debentures with a fair value of $1.6 million as of June 30, 2025. The investments in HIVE are discussed in more detail in Note 3, Investments, to the Consolidated Financial Statements of this Annual Report on Form 10-K. Frank Holmes, CEO, is the executive chairman of HIVE.

Cryptocurrency markets and related securities have been, and are expected to continue to be, volatile and may be influenced by a variety of factors, including speculative activity, technological developments, market sentiment, and regulatory changes. Companies operating in the cryptocurrency industry also face cybersecurity, environmental, regulatory, and other operational risks. Changes in the market value of the Company's investments, including investments in companies operating in the cryptocurrency industry, may affect the investment values reported in the Company's Consolidated Balance Sheets and the gains and losses recognized in the Company's Consolidated Statements of Operations and Comprehensive Income (Loss).

In addition to the securities at fair value presented above, as of June 30, 2026, and 2025, the Company owned other investments of approximately $4.7 million and $1.3 million, respectively, classified as securities without readily determinable fair values and held-to-maturity debt investments, net of allowance for credit losses, of $972,000 and $948,000, respectively.

Consolidated Results of Operations

The following is a discussion of the consolidated results of operations of the Company and a detailed discussion of the Company's revenues and expenses.

Year Ended June 30, 2026, Compared with Year Ended June 30, 2025

The Company had net income, as shown in the Consolidated Statements of Operations, of $3.1 million, or $ 0.24 per share, for the year ended June 30, 2026, compared with a net loss of $334,000, or $ (0.03) per share, for the year ended June 30, 2025, a change of approximately $3.4 million. The change is primarily due to higher operating revenues and net investment income, partially offset by higher tax expenses, as discussed further below.

Operating Revenues

		Year ended June 30,
										$				%
(dollars in thousands)		2026				2025				Change				Change
ETF advisory fees:
Airline, travel and cargo ETFs		$	5,015			$	6,007			$	(992	)			(16.5	)%
Gold and natural resources ETF			1,080				625				455				72.8	%
Technology, aerospace and defense ETF			97				10				87				870.0	%
Total ETF advisory fees			6,192				6,642				(450	)			(6.8	)%
USGIF advisory fees:
Gold and natural resources funds			3,407				1,373				2,034				148.1	%
International equity funds			433				310				123				39.7	%
Fixed income funds			-				-				-				n/a
Total USGIF advisory fees			3,840				1,683				2,157				128.2	%
Total advisory fees			10,032				8,325				1,707				20.5	%
USGIF administrative services fees			219				127				92				72.4	%
Total Operating Revenues		$	10,251			$	8,452			$	1,799				21.3	%

Total consolidated operating revenues for the year ended June 30, 2026, increased $1.8 million, or 21.3 percent, compared to the year ended June 30, 2025. The increase was primarily attributable to higher advisory fees from the funds focused on the gold and natural resources sector.

Advisory fees increased $1.7 million, or 20.5 percent, in fiscal 2026 compared to fiscal 2025. The increase consisted of approximately $1.5 million of higher management fees, primarily due to higher average assets under management, and a favorable $247,000 change related to the elimination of performance fee adjustments. Management fees from USGIF increased due to higher average assets under management, primarily driven by market appreciation. ETF advisory fees decreased due to lower average assets under management, primarily in JETS.

Advisory Fees. Advisory fees, the largest component of the Company's operating revenues, are derived from two sources: ETF advisory fees and USGIF advisory fees. In fiscal year 2026, the ETF advisory fees accounted for 60.4 percent of the Company's operating revenues, and the USGIF advisory fees accounted for 37.5 percent of the Company's operating revenues.

The Company serves as investment advisor to four U.S.-based ETF clients. The Company receives a management fee of 0.60 percent of average net assets and has agreed to bear all expenses of the U.S.-based ETFs, except the U.S. Global Sea to Sky Cargo ETF, for which the Company has contractually agreed to limit expenses through April 2027. The Company also serves as investment advisor to one European-based ETF, for which it receives a unitary management fee of 0.69 percent of average net assets and has agreed to bear all expenses. The Company recorded advisory fees from the ETF clients of $6.2 million and $6.6 million in fiscal years 2026 and 2025, respectively.

Investment base advisory fees from USGIF are calculated as a percentage of average net assets, ranging from 0.375 percent to 1.00 percent, and are paid monthly. The Company has contractually agreed to limit fund expenses through April 2027, except for the U.S. Government Securities Ultra Short Bond Fund, for which fee waivers and expense reimbursements are voluntary and may be discontinued at the Company's discretion. The base advisory fees on the equity funds within USGIF were adjusted upward or downward based on performance. This performance adjustment began to be phased out during the fourth quarter of fiscal 2024 and ceased during the fourth quarter of fiscal 2025. During the phase-out period, the adjustment for the performance fee could only be adjusted downward. For the year ended June 30, 2025, the Company adjusted its base advisory fees downward by $247,000. USGIF advisory fees in total, including performance adjustments, increased by approximately $2.2 million, or 128.2 percent, in fiscal year 2026 compared to fiscal year 2025.

Operating Expenses

Total consolidated operating expenses decreased $584,000, or 5.1 percent, compared with the previous fiscal year, as shown below.

		Year ended June 30,								$				%
(dollars in thousands)		2026				2025				Change				Change
Employee compensation and benefits		$	4,958			$	4,931			$	27				0.5	%
General and administrative			5,341				5,795				(454	)			(7.8	)%
Advertising			507				650				(143	)			(22.0	)%
Depreciation			42				61				(19	)			(31.1	)%
Interest			6				1				5				500.0	%
Total		$	10,854			$	11,438			$	(584	)			(5.1	)%

Other Income (Loss)

		Year ended June 30,								$				%
(dollars in thousands)		2026				2025				Change				Change
Net investment income (loss)		$	4,148			$	2,393			$	1,755				73.3	%
Other income (loss)			339				331				8				2.4	%
Total Other Income (Loss)		$	4,487			$	2,724			$	1,763				64.7	%

Total consolidated other income increased to $4.5 million for fiscal 2026 from $2.7 million for fiscal 2025, primarily due to higher net investment income. Net investment income was $4.1 million in fiscal 2026, compared to $2.4 million in fiscal 2025, reflecting an increase in realized and unrealized results on equity securities. Realized and unrealized gains on equity securities were $2.6 million in fiscal 2026, compared to losses of $281,000 in fiscal 2025. The fiscal 2026 results included net realized and unrealized gains of $3.2 million from equity investments accounted for under the measurement alternative in fiscal 2026, compared to realized losses of $362,000 in fiscal 2025.

Partially offsetting the fiscal 2026 increases, dividend and interest income declined $723,000, or 33.0 percent, to $1.5 million, primarily due to lower interest income earned on the Company's HIVE convertible debentures as a result of principal repayments. In addition, realized gains on debt securities decreased $502,000 to $108,000 in fiscal 2026 from $610,000 in fiscal 2025, reflecting lower gains recognized on the Company's HIVE convertible debenture investment.

Provision for Income Taxes

Income tax expense was $829,000 for fiscal 2026, compared to $72,000 for fiscal 2025, an increase of $757,000. The increase was primarily attributable to higher earnings before income taxes, offset by changes in reserves for uncertain tax positions, and an increase in the valuation allowance on certain deferred tax assets. See Note 12 to the Consolidated Financial Statements of this Annual Report on Form 10-K for additional information regarding income taxes.

Liquidity and Capital Resources

At June 30, 2026, the Company had net working capital (current assets minus current liabilities) of approximately $35.7 million and a current ratio (current assets divided by current liabilities) of 19.7 to 1. With approximately $24.3 million in cash and cash equivalents and $11.7 million in securities carried at fair value, which together represented approximately 75.1 percent of total assets, the Company believes it has adequate liquidity to meet its current obligations. Total shareholders' equity was approximately $45.1 million.

Cash and cash equivalents decreased $222,000 during fiscal 2026, primarily due to $2.0 million of common stock repurchases, $1.1 million of dividend payments, and $1.2 million of corporate investment purchases. These uses of cash were partially offset by $742,000 of net cash provided by operating activities and $2.3 million of proceeds from principal repayments on investments. Shareholders' equity decreased $68,000, or 0.2 percent, from June 30, 2025, primarily reflecting $2.0 million of common stock repurchases and $1.1 million of dividends declared, partially offset by net income of $3.1 million for fiscal 2026.

The Company also has access to a $1.0 million credit facility, which can be utilized for working capital purposes. The credit agreement requires the Company to maintain certain covenants; the Company has been in compliance with these covenants during the current fiscal year. The credit agreement will expire on May 31, 2028, and the Company intends to renew it biennially. The credit facility is collateralized by approximately $1.0 million, included in restricted cash on the Consolidated Balance Sheets, held in deposit in a money market account at the financial institution that provided the credit facility. As of June 30, 2026, this credit facility remained unutilized by the Company.

Investment advisory contracts pursuant to the Investment Company Act of 1940 and related affiliated contracts in the U.S., by law, may not exceed one year in length and, therefore, must be renewed at least annually after an initial two-year term. The investment advisory and related contracts between the Company and USGIF have been renewed through September 2026. The advisory agreements for the U.S.-based ETFs have been renewed through July 2027.

The primary cash requirements are for operating activities. The Company also uses cash to purchase investments, pay dividends and repurchase Company stock. The cash outlays for investments and dividend payments are discretionary. The stock repurchase plan is approved through December 31, 2026, but may be suspended or discontinued. Cash and securities recorded at fair value of approximately $36.1 million are available to fund current activities.

As of June 30, 2026, the Board of Directors has authorized a monthly dividend of $0.0075 per share from July 2026 through September 2026. The total amount of cash dividends to be paid to class A and class C shareholders from July 2026 to September 2026 will be approximately $279,000, which is included as dividends payable in the Consolidated Balance Sheets at June 30, 2026. Payment of cash dividends is within the discretion of the Company's Board of Directors and is dependent on earnings, operations, capital requirements, general financial condition of the Company, and general business conditions.

Contractual obligations primarily consist of agreements for services used in daily operations and for marketing and distribution. As of June 30, 2026, the Company had contractual obligations of $755,000 for the fiscal years ending June 30, 2027, through 2030. Other contractual obligations consist of agreements to waive or reduce fees and/or pay expenses on certain funds. Future obligations under these agreements are dependent upon future levels of fund assets.

Management believes current cash reserves, investments, and financing available will be sufficient to meet foreseeable cash needs for operating activities and for contractual obligations.

Critical Accounting Estimates

The discussion and analysis of financial condition and results of operations are based on the Company's Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP"). The preparation of these Consolidated Financial Statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses. Management reviews these estimates on an ongoing basis. Estimates are based on experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. While significant accounting policies are described in more detail in Note 2 to the Consolidated Financial Statements, the Company believes the accounting policies that require management to make assumptions and estimates involving significant judgment are those relating to valuation of investments, income taxes, and valuation of share-based compensation.

Investments Without Readily Determinable Fair Values. Certain investments are accounted for under the ASC 321 measurement alternative. Management applies significant judgment in assessing whether observable price changes exist and whether impairment indicators are present. Changes in these judgments could affect the carrying value of the investments and the related gains or losses recognized in earnings. Accordingly, management considers the accounting for these investments to be a critical accounting estimate.

Allowance for Credit Losses. The Company's allowance for credit losses requires significant judgment in estimating lifetime expected losses under the Current Expected Credit Losses ("CECL") model, adopted on July 1, 2023. Management's estimate incorporates historical experience, current conditions, and reasonable forecasts of future economic performance. Because these assumptions involve inherent uncertainty, changes in issuer performance or macroeconomic factors could cause actual losses to differ materially from current estimates. Adjustments to the allowance may impact the Company's results of operations and financial condition.

Share-Based Compensation. Share-based compensation expense is measured at the grant date based on the fair value of the award, and the cost is recognized as expense ratably over the award's vesting period. Forfeitures are recognized as they occur.

The Company believes that the estimates related to share-based compensation expense are critical accounting estimates because the assumptions used could significantly impact the timing and amount of share-based compensation expense recorded in the Company's Consolidated Financial Statements.

Income Taxes. The Company's annual effective income tax rate is based on the mix of income and losses in its U.S. and non-U.S. entities which are part of the Company's Consolidated Financial Statements, statutory tax rates, and tax-planning opportunities available to the Company in the various jurisdictions in which it operates. Significant judgment is required in evaluating the Company's tax positions.

Tax law requires certain items to be included in the tax return at different times from when these items are reflected in the Company's Consolidated Statements of Operations. As a result, the effective tax rate reflected in the Consolidated Financial Statements is different from the tax rate reported on the Company's consolidated tax return. Some of these differences are permanent, such as expenses that are not deductible in the tax return, and some differences reverse over time, such as depreciation expense. These timing differences create deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and the tax basis of assets and liabilities and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment dates.

The Company assesses uncertain tax positions in accordance with Accounting Standards Codification ("ASC") 740, Income Taxes, and maintains a reserve. Judgment is used to identify, recognize, and measure the amounts to be recorded in the financial statements related to tax positions taken or expected to be taken in a tax return. A liability is recognized to represent the potential future obligation to the taxing authority for the benefit taken in the tax return. These liabilities are adjusted, including any impact of the related interest and penalties, in light of changing facts and circumstances such as the progress of a tax audit. A number of years may elapse before a particular matter for which a reserve has been established is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction.

The Company assesses whether a valuation allowance should be established against its deferred income tax assets based on consideration of available evidence, both positive and negative, using a more likely than not standard. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecast of future profitability, the duration of statutory carry back and carry forward periods, the Company's experience with tax attributes expiring unused, and tax planning alternatives.

Assessing the future tax consequences of events that have been recognized in the Company's Consolidated Financial Statements or tax returns requires judgment. The Company believes that income taxes include critical accounting estimates because variations in the actual outcome of these future tax consequences could materially impact the Company's financial position, results of operations or cash flows.