NATIONAL PRESTO INDUSTRIES INC Income Taxes Disclosure

H.   INCOME TAXES:

The following table summarizes the provision for income taxes:

 

		For Years Ended December 31 (in thousands)
		2025				2024				2023
Current:
Federal		$	592			$	12,299			$	9,314
State			702				1,439				(252	)
			1,294				13,738				9,062
Deferred:
Federal			7,350				(4,486	)			(1,509	)
State			391				(42	)			319
			7,741				(4,528	)			(1,190	)
Total tax provision		$	9,035			$	9,210			$	7,872



The income taxes paid (net of refunds received) by the Company are as follows:

 

		For Years Ended December 31 (in thousands)
		2025				2024				2023
Federal		$	9,080			$	11,420			$	6,710
State			1,083				530				109
Foreign			21				21				18
Total income taxes paid (net of refunds received)		$	10,184			$	11,971			$	6,837

 

The amount of income taxes paid (net of refunds received) did not exceed 5 percent of total income taxes paid (net of refunds received) in any state or foreign jurisdiction for the years ended December 31, 2025, 2024 and 2023.

 

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
		2025								2024								2023
		Amount (in thousands)				Percent				Amount (in thousands)				Percent				Amount (in thousands)				Percent
U.S. federal statutory tax rate		$	8,845				21.0	%		$	10,641				21.0	%		$	8,911				21.0	%
State and local income taxes, net of federal income tax effect (a)			988				2.3	%			1,493				2.9	%			404				0.9	%
Tax credits
Research and development tax credits			(449	)			(1.1	%)			(474	)			(0.9	%)			(567	)			(1.3	%)
Changes in unrecognized tax benefits			(494	)			(1.2	%)			(891	)			(1.8	%)			(481	)			(1.1	%)
Other adjustments
Adjustments for prior year estimates			160				0.4	%			(1,451	)			(2.9	%)			(274	)			(0.6	%)
Other			(15	)			0.0	%			(108	)			(0.2	%)			(121	)			(0.3	%)
Effective tax rate		$	9,035				21.4	%		$	9,210				18.1	%		$	7,872				18.6	%

 

(a) State taxes in Mississippi and Arkansas for 2025 and Mississippi and Wisconsin for 2024 and 2023 made up the majority (greater than 50 percent) of the tax effect of this category.

 

 

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)
		2025				2024
Deferred tax assets
State NOL and tax credit carryforwards		$	2,370			$	2,091
Lease liabilities			2,107				2,286
Vacation			1,004				979
Inventory			994				3,215
Insurance (primarily product liability)			968				1,089
Research and development expenses			-				5,630
Other			917				981
Subtotal			8,360				16,271
Less: valuation allowance			1,839				1,599
Total deferred tax assets			6,521				14,672
Deferred tax liabilities
Right-to-use lease asset			2,107				2,286
Goodwill and other intangibles			1,256				1,469
Depreciation			562				581
Deferred revenue			2				9
Total deferred tax liabilities			3,927				4,345
Net deferred tax assets		$	2,594			$	10,327

 

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, 2025.  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, 2025 and 2024, valuation allowances of $1,839,000 and $1,599,000, respectively, have been provided on the deferred tax assets related to these state NOL and tax credit carryforwards, which will expire between 2034 and 2045.  The amount of the deferred tax assets 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, 2025 and 2024:

 

		(In thousands)
		2025				2024
Balance at January 1		$	2,122			$	2,481
Increases for tax positions taken related to the current year			352				694
Increases (decrease) for tax positions taken related to prior years			(299	)			(51	)
Lapse of statute of limitations			(332	)			(1,002	)
Balance at December 31		$	1,843			$	2,122

 

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, 2025, 2024 and 2023, the Company accrued approximately $137,000, $129,000 and $166,000 in interest expense, respectively.

 

The Company is subject to U.S. federal income tax as well as income taxes of multiple states.  Tax years 2022 through 2024 are currently open for examination.  For all states in which it does business, the Company is subject to state audit statutes.