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Note D - Income Taxes
12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

D. Income Taxes

 

Prior to the Separation, the Company's U.S. operations and certain of its non-U.S. operations were historically included in the income tax returns of LGL Group or its subsidiaries. For the periods prior to the Separation, the income tax expense and all tax liabilities that are presented in these financial statements were calculated on a "carve-out" basis, which applied the accounting guidance as if the Company filed income tax returns on a standalone, separate return basis. The Company believes the assumptions supporting its allocation and presentation of income taxes on a separate return basis are reasonable. However, the Company's tax results, as presented in these financial statements for periods prior to the Separation, may not be reflective of the results that the Company expects to generate in the future.

 

Post-Separation, the Company filed a consolidated U.S. federal income tax return as well as separate and combined income tax returns in various state, local and international jurisdictions. Income tax expense for the period prior to the Separation is based on the combined financial statements prepared on a "carve-out" basis. Income tax expense for the period after the Separation is based on the consolidated results of the Company on a standalone basis.

 

Income before income taxes for the years ended December 31, 2023 and 2022 consist of the following:

 

  

2023

  

2022

 
  

(in thousands)

 

United States

 $3,966  $1,705 

Foreign

  434   890 

Total

 $4,400  $2,595 

 

Income tax provision for the years ended December 31, 2023 and 2022 is as follows:

 

  

2023

  

2022

 
  

(in thousands)

 

Current:

        

Federal

 $1,308  $703 

State and local

  314   188 

Foreign

  72   213 

Total Current

  1,694   1,104 

Deferred:

        

Federal

  (662)  (263)

State and local

  (121)  (78)

Foreign

     34 

Net deferred

  (783)  (307)

Income tax provision

 $911  $797 

 

A reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate to income before income taxes is detailed below:

 

  

2023

  

2022

 
  

(in thousands)

 

Tax provision at expected statutory rate

 $924  $544 

State taxes, net of federal benefit

  143   91 

Permanent differences

  14   83 

Tax credits

  (201)  (61)

Foreign tax expense, and other

  55   161 

Change in rate

  5    

Other

  (29)  (21)

Provision for income taxes

 $911  $797 

Effective tax rate

  20.7%  30.7%

  

Deferred income taxes for 2023 and 2022 were provided for the temporary differences between the financial reporting basis and the income tax basis of the Company's assets and liabilities. Tax effects of temporary differences and carryforwards at December 31, 2023 and 2022 were as follows:

 

  

December 31, 2023

  

December 31, 2022

 
  

Deferred Tax

  

Deferred Tax

 
  

Asset

  

Liability

  

Asset

  

Liability

 
  

(in thousands)

 

Inventory reserve

 $306  $  $320  $ 

Other reserves and accruals

  307      181    

Capitalized Sec. 174 R&E

  855      432    

Fixed assets

  43   399   39   80 

Stock-based compensation

  540      61    

Other

  173   23   84   36 

Tax credit carryforwards

  33      50    

Total deferred income taxes

  2,257  $422   1,167  $116 

Net deferred tax assets

 $1,835      $1,051     

 

As of December 31, 2023, our unrecognized tax benefits totaled $111,000, and are included within accrued expenses in our Consolidated Balance Sheet. The following table summarizes the activity related to the Company’s unrecognized tax benefits, without interest and penalties:

 

  

2023

  

2022

 
  

(in thousands)

 

Balance at January 1

 $77  $448 

Deductions for tax positions of prior years

  (27)   

Additions based on tax positions related to the current year

  61   77 

Transfer to LGL Group, Inc.

     (448)

Balance at December 31

 $111  $77 

 

The Company will recognize any interest and penalties related to unrecognized tax positions in Income Tax Provision in the Consolidated and Combined Statements of Operations. Our total accrued interest and penalties associated with uncertain tax positions were immaterial as of December 31, 2023. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $111,000. We do not expect a significant change to the amount of unrecognized tax benefits over the next 12 months. The Company believes that the taxes accrued in our Consolidated Balance Sheets fairly represent the amount of income taxes to be settled or realized in the future.

 

As of December 31, 2023, the Company had Federal and research and development tax credit carryforwards of approximately $33,000 available to reduce future tax liabilities, which will begin to expire starting in 2027.

 

The Company filed a U.S. federal income tax return as well as income tax returns in various states and in non-U.S. jurisdictions. The Company filed its initial consolidated U.S. federal income tax return in October 2023, and there are no open Internal Revenue Service examinations.

 

On August 19, 2022, the Company and LGL Group entered into an Amended and Restated Tax Indemnity and Sharing Agreement. Under the agreement, LGL Group will generally be responsible for all U.S. federal, state, local and non-U.S. income taxes of the Company for any taxable period, or portion of such period, ending on or before the Separation.