ESCALADE INC Income Taxes Disclosure

Note 10 —    Provision for Taxes

 

The U.S. and non-U.S. components of income before income tax expense for the year ended December 31, 2025 are as follows:

 

In Thousands		2025
Income before taxes:
United States of America (U.S.A.)		$	18,022
Non-U.S.A.			-
Total income from continuing operations before income tax expense		$	18,022
Provision for taxes:
Current
Federal		$	894
State			426
International			-
Total current income tax expense			1,320
Deferred
Federal			2,655
State			346
International			-
Total deferred income tax expense			3,001
Total income tax expense		$	4,321

 

Income before taxes and the provision for taxes consisted of the following for the year ended December 31, 2024.

 

In Thousands		2024
Income before taxes:		$	17,776
Provision (benefit) for taxes:
Current
Federal		$	3,985
State			627
			4,612
Deferred
Federal			188
State			(10	)
			178
		$	4,790

 

The provision for income taxes was computed based on income before taxes. A reconciliation of the provision for income taxes to the amount computed using the statutory rate for the year ended December 31, 2025 follows:

 

In Thousands		2025
Income tax at statutory rate		$	3,785				21.0	%
Increase (decrease) in income tax resulting from
State tax expense, net of federal effect			610				3.4	%
Effect of changes in tax laws or rates enacted in the current period			-
Tax credits			(140	)			(0.8	%)
Valuation allowances			-
Nontaxable items or nondeductible items
Stock based compensation			(34	)			(0.2	%)
Other nontaxable or nondeductible items			103				0.6	%
Changes in unrecognized tax benefits			-
Other			(3	)			(0.0	%)
Recorded provision for income taxes		$	4,321				24.0	%

 

A reconciliation of the provision for income taxes to the amount computed using the statutory rate for the year ended December 31, 2024 follows:

 

In Thousands		2024
Income tax at statutory rate		$	3,733
Increase (decrease) in income tax resulting from
State tax expense, net of federal effect			487
Federal true-ups			121
Federal tax credits			(158	)
Sale of Harvard Sports			582
Incentive stock options			(8	)
Other			33
Recorded provision for income taxes		$	4,790

 

The Company’s state and local income tax expense for the year ended December 31, 2025, primarily relates to operations in the following jurisdictions: California, Florida, and Illinois. These states collectively represent more than 50% of the total state and local income tax expense recognized for the period.

 

The provision for income taxes was computed based on income before taxes. In accordance with FASB ASC 740, the Company has no uncertain tax positions for the years ending December 31, 2025 and 2024. Interest costs and penalties, when applicable, related to income taxes are classified as interest expense and selling, general and administrative costs, respectively in the Company’s financial statements. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and multiple state and foreign jurisdictions. The Company is subject to future examinations by federal, state and other tax authorities for all years after 2021.

 

The Company has state, net of federal benefit, research tax credit carryforwards of $265 thousand as of December 31, 2025. The state research tax credit carryforwards began to expire in 2025. The related valuation allowance was decreased to the amount of $265 thousand as of December 31, 2025, leaving an ending deferred, net of federal benefit, in the amount of zero. The decrease in the valuation allowance relates to the increase in the projected tax liability which would be offset by the credit carryforward. The valuation allowance is based on the historical results and estimated future results of the Company, as it is the judgment of management not all of these tax carryforward attributes will be realized before they begin to expire.

 

At December 31, 2025, the Company had domestic federal income taxes receivable of $540 thousand and a domestic state income taxes receivable of $17 thousand. At December 31, 2024, the Company had domestic federal income taxes receivable of $254 thousand, domestic state income taxes receivable of $211 thousand, and transition tax payable of $297 thousand recorded.

 

The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2025 and 2024 are as follows:

 

In Thousands		2025				2024
Assets
Valuation reserves		$	1,169			$	1,350
Stock based compensation			10				217
Federal and state credits			265				322
Lease obligation			306				288
Other			-				4
Capitalized research costs			448				2,714
Total assets			2,198				4,895
Liabilities
Property and equipment			(833	)			(864	)
Goodwill and intangible assets			(6,511	)			(6,139	)
Lease – right of use asset			(298	)			(277	)
Prepaid insurance			(594	)			(595	)
Total liabilities			(8,236	)			(7,875	)
Valuation Allowance
Beginning balance			(322	)			(319	)
(Increase) Decrease during period			57				(3	)
Ending balance			(265	)			(322	)
		$	(6,303	)		$	(3,302	)

 

Deferred tax assets (liabilities) are included in the consolidated balance sheets as follows:

 

In Thousands		2025				2024
Deferred income tax asset – current		$	-			$	-
Deferred income tax asset (liability) – long-term			(6,303	)			(3,302	)
		$	(6,303	)		$	(3,302	)

 

The total amount of unrecognized tax benefits, net of federal income tax benefits, were zero at December 31, 2025 and December 31, 2024.

 

The Company had no accrued interest and penalties related to taxes, recognized as a liability, as of December 31, 2025.

 

The Company has assessed its risk associated with all tax return positions and believes its tax reserve estimate reflects its best estimate of the deductions and positions it will be able to sustain, or it may be willing to concede as part of a settlement. The Company will continue to monitor the progress and conclusion of all audits and will adjust its estimated liability as necessary.

 

The following jurisdictions had income taxes paid (net of refunds) for the year ended December 31, 2025:

 

In Thousands
Federal Taxes Paid		$	1,477
State & Local Taxes Paid
Illinois			89
Other States (Aggregate)			142
Total State and Local Taxes Paid			231
Total Income Taxes Paid, Net		$	1,708