Note H - Income Taxes

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

H.   INCOME TAXES:

The following table summarizes the provision for income taxes:

	For Years Ended December 31 (in thousands)
	2023			2022			2021
Current:
Federal	$	9,314		$	7,389		$	6,675
State		(252	)		167			1,742
		9,062			7,556			8,417
Deferred:
Federal		(1,509	)		(2,157	)		(819	)
State		319			(154	)		(793	)
		(1,190	)		(2,311	)		(1,612	)
Total tax provision	$	7,872		$	5,245		$	6,805

The effective rate of the provision for income taxes on earnings before income taxes as shown in the Consolidated Statements of Comprehensive Income differs from the applicable statutory federal income tax rate for the following reasons:

	Percent of Pre-tax Income
	2023			2022			2021
Statutory rate		21.0	%		21.0	%		21.0	%
State tax, net of federal benefit		0.1	%		0.0	%		2.3	%
Research and development credit		(1.8	%)		(2.1	%)		(2.0	%)
Adjustment for prior year estimates		(0.6	%)		1.2	%		0.1	%
Foreign-derived intangible income		(0.3	%)		(0.2	%)		(0.2	%)
Tax exempt interest and dividends		0.0	%		(0.1	%)		(0.1	%)
Other		0.2	%		0.4	%		(0.1	%)
Effective rate		18.6	%		20.2	%		21.0	%

Deferred tax assets and liabilities are recorded based on the differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes.  The tax effects of the cumulative temporary differences resulting in deferred tax assets and liabilities are as follows at December 31:

	(In thousands)
	2023		2022
Deferred tax assets
Research and development expenses	$	3,215	$	1,284
State NOL and tax credit carryforwards		1,534		2,336
Insurance (primarily product liability)		1,128		1,142
Other		1,654		1,457
Inventory		969		1,095
Vacation		904		908
Doubtful accounts		140		1,933
Subtotal		9,544		10,155
Less: valuation allowance		954		1,960
Total deferred tax assets		8,590		8,195
Deferred tax liabilities
Goodwill and other intangibles		1,921		2,157
Depreciation		860		532
Deferred revenue		6		-
Total deferred tax liabilities		2,787		2,689
Net deferred tax assets	$	5,803	$	5,506

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.  The Company believes it is more likely than not that the benefit from certain state NOL and tax credit carryforwards will not be realized.  A significant factor of objective negative evidence evaluated was the cumulative losses incurred in the Safety segment over the three-year period ended December 31, 2023.  Such objective evidence limits the ability to consider subjective evidence, such as projections for future growth. 

On the basis of this evaluation, as of December 31, 2023 and 2022, valuation allowances of $954,000 and $1,960,000, respectively, have been provided on the deferred tax assets related to these state NOL and tax credit carryforwards, which will expire between 2034 and 2043.  The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for growth. 

The Company establishes tax reserves in accordance with FASB ASC 740, Income Taxes.  The following is a reconciliation of the Company’s unrecognized tax benefits for the years ended December 31, 2023 and 2022:

	(In thousands)
	2023			2022
Balance at January 1	$	2,458		$	2,375
Increases for tax positions taken related to the current year		544			628
Increases for tax positions taken related to prior years		70			32
Lapse of statute of limitations		(530	)		(577	)
Settlements		(61	)		-
Balance at December 31	$	2,481		$	2,458

The ending net unrecognized tax benefits results from adjusting the gross balance for deferred tax items, interest and penalties, and deductible taxes. The net unrecognized tax benefits are included in Deferred Income Taxes and Federal and State Income Taxes - Non-current within the Consolidated Balance Sheet.

It is the Company’s practice to include tax related interest expense, interest income, and penalties in tax expense.  During the years ended December 31, 2023, 2022 and 2021, the Company accrued approximately $166,000, $169,000 and $169,000 in interest expense, respectively.

The Company is subject to U.S. federal income tax as well as income taxes of multiple states.  Tax years 2020 through 2022 are currently open for examination.  For all states in which it does business, the Company is subject to state audit statutes.