UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2020March 31, 2021

OR

For the transition period from ____________ to ____________

Commission File No. 001-00106

THE LGL GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

(407) 298-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ☐    No  ☒

As of November 9, 2020,May 3, 2021, the registrant had 5,213,3205,272,204 shares of common stock, $0.01 par value per share, outstanding.

THE LGL GROUP, INC.

Quarterly Report on Form 10-Q for the Quarterly Period Ended September 30, 2020March 31, 2021

INDEX

PARTPART I

FINANCIAL INFORMATION

The LGL Group, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except par value and share amounts)

See Accompanying Notes to Condensed Consolidated Financial Statements.

The LGL Group, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except share and per share amounts)

See Accompanying Notes to Condensed Consolidated Financial Statements.

The LGL Group, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(In thousands, except share amounts)

See Accompanying Notes to Condensed Consolidated Financial Statements.

The LGL Group, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

See Accompanying Notes to Condensed Consolidated Financial Statements.

The LGL Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and the instructions to Form 10-Q. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2020March 31, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2020.2021. The information included in this Form 10-Q should be read in conjunction with the information included in theThe LGL Group, Inc. (the “Company”, “we”, “our” or “us”) Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2020.29, 2021.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company consolidates entities in which it hasand all of its majority-owned subsidiaries except its sole variable interest entity (“VIE”), LGL Systems Acquisition Holding Company, LLC (the “Sponsor”). The VIE serves as the sponsor to a controlling financial interest. Material intercompanyspecial purpose acquisition company (“SPAC”). Intercompany transactions and accounts have been eliminated in consolidation. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a variable interest entity (“VIE”).

A variableVIE: Our sole interest in a VIE, is an investment that will absorb portions of the VIE’s expected losses and/or receive portions of the VIE’s expected residual returns. The Company’s sole VIE represents its interest in the Sponsor, (as defined below).

VIE Consolidation Analysis

The enterprise with a controlling financial interest inis accounted for under the equity method of accounting and not consolidated. Determining whether to consolidate a VIE requires judgement in assessing whether an entity is known asa VIE and if we are the entity’s primary beneficiary and consolidates the VIE. The Company determines whether it isbeneficiary. If we are the primary beneficiary of a VIE, by performing an analysis that principally considers:

The Company reassesses its evaluation of whether an entity is a VIE when certain reconsideration events occur. The Company reassesses its determination of whether it is the primary beneficiary of a VIE on an ongoing basis based on current facts and circumstances.

Equity-Method Investments

Investments:  When the Company does not have a controlling financial interest in an entity but can exert significant influence over the entity’s operating and financial policies, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option available under GAAP. Significant influence generally exists when the Company owns 20% or moreto 50% of the entity’s common stock or in-substance common stock.

Revenue Recognition

The Company recognizes revenue from the sale of its products in accordance with the criteria in Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which are:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

The Company meets these conditions upon the Company’s satisfaction of the performance obligation, usually at the time of shipment to the customer, because control passes to the customer at that time. The Company’sOur standard terms for customers are net due within 30 days, with a few exceptions, none regularly exceeding 60 days.

The Company provides disaggregated revenue details by segment in Note L – Segment Information, and geographic markets in Note M – Domestic and Foreign Revenues.

The Company offers a limited right of return and/or authorized price protection provisions in its agreements with certain electronic component distributors who resell the Company's products to original equipment manufacturers or electronic manufacturing services companies. As a result, the Company estimates and records a reserve for future returns and other charges against revenue at the time of shipment consistent with the terms of sale. The reserve is estimated based on historical experience with each respective distributor. These reserves and charges are immaterial as the Company does not have a history of significant price protection adjustments or returns. The Company provides a standard assurance warranty that does not create a performance obligation.

Practical Expedients:

Income Taxes

The Company periodically undertakes a review of its valuation allowance and it evaluates all positive and negative factors that may affect whether it is more likely than not that the Company would realize its future tax benefits from its deferred tax balances.

Impairments of Long-Lived Assets

Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Long-lived assets are grouped with other assets to the lowest level to which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Management assesses the recoverability of the carrying cost of the assets based on a review of projected undiscounted cash flows. If an asset is held for sale, management reviews its estimated fair value less cost to sell. Fair value is determined using pertinent market information, including appraisals or broker's estimates, and/or projected discounted cash flows. In the event an impairment loss is identified, it is recognized based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset.

As of September 30, 2020,During the quarter ended March 31, 2021, we performed an assessment to determine if there were any indicators of impairment as a result of the operating conditions resulting from the coronavirus pandemic (“COVID-19”). pandemic. We concluded that, while there have beenwere events and circumstances in the macro-environment that have impacteddid impact us, we havedid not experiencedexperience any entity-specific indicators of asset impairment and no triggering events occurred.

Recent Accounting Pronouncements

There were no recent accounting pronouncements thatIn June2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-13, “Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments,” which changes the impairment model for most financial assets. The standard replaces the incurred loss model with the current expected credit loss (“CECL”) model to estimate credit losses for financial assets. The provisions of the standard are anticipated to significantly affecteffective for the Company.Company on January 1, 2023; early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its financial statements.

TheOn November 6, 2019, the Company has invested $3.35 million in LGL Systems Acquisition Holding Company, LLC, (a partially-owneda partially owned subsidiary of LGL Group, Inc.), whichthat serves as the sponsor (the “Sponsor”)Sponsor of LGL Systems Acquisition Corp., (“the SPAC” or “DFNS”). The SPAC is a special purpose acquisitionpublicly-traded company commonly referred to as a “SPAC”, or blank check company,on the NYSE under the ticker symbol “DFNS” which was formed for the purpose of effecting a business combination in the aerospace, defense and communications industries (the “SPAC”industries. The Sponsor holds 100% of the SPAC’s Class B common shares, which are restricted and non-tradable, and 5,200,000 private warrants. The Sponsor purchased the private warrants in a private placement that closed simultaneously with the consummation of the SPAC’s initial public offering (“SPAC IPO”). Each private warrant is exercisable to purchase one share of common stock of the SPAC at an exercise price of $11.50 per share. The Company’s investment representsCompany contributed 62.2% of the Sponsor’s initial risk capital. capital to effect the SPAC IPO.

The SPAC IPO closed on November 12, 2019; proceeds from the SPAC IPO totaled $172.5 million. If the SPAC does not complete a business combination within 24 months from the closing of the SPAC IPO, the proceeds from the sale of the private warrants will be used to fund the redemption of the shares sold in the SPAC IPO (subject to the requirements of applicable law); and the private warrants will expire worthless. The Sponsor holds 20% of the total common shares (Class A and Class B) in the SPAC along with the 5,200,000 private warrants.

The Company subscribed to a $2.725 million investment into the Sponsor in March 2021 which it funded in May 2021. The investment will be part of the Sponsor syndication of $5.66 million organized to participate in a $125 million private placement (“PIPE”) purchase of 12,500,000 shares of DFNS Class A common stock.

The PIPE is in connection with the recent announcement by DFNS and IronNet Cybersecurity, Inc. (“IronNet”) of the definitive business combination agreement reached between IronNet and DFNS. The PIPE and business combination are expected to close in the third quarter of 2021, after the required approval by the shareholders of DFNS and the fulfillment of certain other conditions. While the syndicated PIPE investment increases the Company’s commitment to the pro forma IronNet company, its position is not expected to be material to the pro forma capitalization. Upon completion of the business combination, which is subject to regulatory and other approvals, the combined company will be renamed IronNet Cybersecurity, Inc. and will be listed on the NYSE and trade under the ticker symbol “IRNT”.

The Sponsor is managed by LGL Systems Nevada Management Partners LLC (“Nevada GP”), an affiliated entity deemed to be under the significant influence of Marc Gabelli, the Company’s non-executive Chairman of the Board, who is also a greater than 10% stockholder of the Company.Company. The Company has determined that it has significant influence in the Sponsor through Nevada GP but that it is not the primary beneficiary of the Sponsor, as Nevada GP has the power to direct the activities of the Sponsor that most significantly impact the Sponsor’s economic performance through an operating agreement. The Company, therefore, accounts for the Sponsor under the equity method of accounting. For the three months ended March 31, 2021 and 2020, the Company recognized a loss on equity investment in unconsolidated subsidiary of $76,000 and $39,000,

respectively. The equity income (loss) is reportedCompany has recognized a cumulative loss of $354,000 on the basis of a one-quarter lag and was the sole changeits investment in the unconsolidated Sponsor as of March 31, 2021.

On April 12, 2021, the SEC’s Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (the “Staff Statement”) was released. The SPAC evaluated the applicability and impact of the Staff Statement on its historical financial statements that have been filed with the SEC and determined that restatement was required.  The SPAC changed its accounting treatment for both its public and private warrants outstanding using liability classification instead of equity classification resulting in a mark to market warrant liability adjustment for each reporting period since issuance in 2019.  The Company reports its investment in the Sponsor under the equity method of accounting using hypothetical liquidation at book value (“HLBV”). HLBV determines the amount that would be received by the Company if the partnership were liquidated at book value at the end of each measurement period. The SPAC’s mark to market accounting adjustments for the warrant liability does not change the Company’s HLBV due to the warrants requiring no cash settlement as of December 31, 2020 under a hypothetical liquidation; therefore, the SPAC’s restatement did not impact the Company’s carrying amount of its equity investment during both the three and nine month periods ended September 30, 2020.

The Sponsor holds 20% of the shares in the SPAC along with 5,200,000 private warrants at a strike priceSponsor as of $11.50. On November 7, 2019, the SPAC raised $172.5 million through the sale of 17.25 million shares and was listed as a publicly traded company on the NASDAQ Capital Market under the ticker symbol ‘DFNS’. The SPAC’s initial public offering closed on November 12, 2019. Prior to and immediately following the initial public offering, the Sponsor held 4,312,500 shares of the SPAC, which are restricted and non-tradable.

If the SPAC does not complete a business combination within 24 months from the closing of the SPAC’s initial public offering, the proceeds from the sale of the private warrants will be used to fund the redemption of the shares sold in the SPAC’s initial public offering (subject to the requirements of applicable law), and the private warrants will expire worthless.March 31, 2021, or any previously reported period.  

Certain cash equivalents and marketable securitiesbalances held and invested in various mutual funds are managed by g.researcha related entity (the "Fund Manager"). Marc Gabelli currently serves as an executive officer of the Fund Manager. The brokerage and fund transactions in 20202021 and 20192020 were directed solely at the discretion of the Company’s management.

As of March 31, 2021September 30, 2020, the balance with the Fund Manager totaled $18,918,000,$19,189,000, including $13,281,000$13,282,000, which is classified within cash and cash equivalents on the accompanying unaudited condensed consolidated balance sheets, and $5,636,000$5,907,000 which is classified within marketable securities on the accompanying unaudited condensed consolidated balance sheets. Amounts invested generated $15,000$127,000 and $179,000($293,000) of realized and unrealized investment income and $52,000 and $167,000 of interest earnings(loss) during the first ninethree months ofended March 31, 2021 and 2020, and 2019, respectively, that is included within other income (expense), net on the accompanying unaudited condensed consolidated statements of operations. Fund management fees are anticipated to average less than 0.35%0.25% of the asset balances under management on an annual basis.

As of December 31, 2019,2020, the balance with the Fund Manager totaled $14,536,000,$19,062,000, including $8,915,000$13,282,000 which is classified within cash and cash equivalents on the accompanying unaudited condensed consolidated balance sheets, and $5,621,000$5,780,000 which is classified as marketable securities on the accompanying unaudited condensed consolidated balance sheets.

Marc Gabelli serves as Chairman and Co-Chief Executive Officer of the SPAC, and has invested in the Sponsor and is the initial managing member of Nevada GP.GP, the manager of the Sponsor. Timothy Foufas, a member of the Company’s board of directors (the “Board”), is also a member and investor of the Sponsor, and Chief Operating Officer of the SPAC and is a member of Nevada GP. Robert LaPenta, Jr., a member of the Company’s board of directors,Board, is also a member and investor of the Sponsor, Co-Chief Executive Vice PresidentOfficer and Chief Financial Officer of the SPAC and is a member of Nevada GP. John Mega, a member of the Company’s board of directors,Board, is also a member and investor of the Sponsor and the President of the SPAC. Patrick Huvane, the Company’s Senior Vice President of Business Development, is a member of both the Company’s and the SPAC’s management team. Michaelteam and an investor in the Sponsor. Mike J. Ferrantino, Jr., the Company’s Chief Executive Officer, is also a member of the Company’s board of directors, is alsoBoard, a member and investor of the Sponsor and a board member for the SPAC. Under separate arrangement, these people may be eligible to receive incentive compensation should the SPAC complete a successful acquisition. Mr. LaPenta and Mr. Mega were appointed to the Company’s board of directors on August 24, 2020.acquisition.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value guidance identifies three primary valuation techniques: the market approach, the income approach and the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to observable inputs such as quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The maximization of observable inputs and the minimization of the use of unobservable inputs are required.

Classification within the fair value hierarchy is based upon the objectivity of the inputs that are significant to the valuation of an asset or liability as of the measurement date. The three levels within the fair value hierarchy are characterized as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 - Unobservable inputs for the asset or liability for which there is little, if any, market activity for the asset or liability at the measurement date. Unobservable inputs reflect the Company's own assumptions about what market participants would use to price the asset or liability. These inputs may include internally developed pricing models, discounted cash flow methodologies as well as instruments for which the fair value determination requires significant management judgment.

Assets

To estimate the market value of its cash and cash equivalents and marketable securities, the Company obtains current market pricing from quoted market sources or uses pricing for identical securities. Assets measured at fair value on a recurring basis are summarized below (in thousands).

There were no transfers from Level 2 to Level 3 during the periods presented. There were no Level 3 assets as of September 30, 2020 or December 31, 2019. The Company also has assets that may be subject to measurement at fair value on a non-recurring basis, including goodwill and intangible assets and other long-lived assets. There were no other assets or liabilities subject to fair value on a non-recurring or recurring basis as of September 30, 2020March 31, 2021 or December 31, 2019.2020.

As of March 31, 2021 and December 31, 2020, the Company had investments in two mutual funds. The Equity Mutual Fund noted above is invested in the Gabelli ABC Fund, and the U.S. Treasury Mutual Fund is invested in the Gabelli US Treasury Money Market Fund.

F.Inventories

Inventories are valued at the lower of cost or net realizable value using the FIFO (first-in, first-out) method. The Company reduces the value of its inventories to net realizable value when the net realizable value is believed to be less than the cost of the item. The reserve for excess and obsolete inventory as of September 30, 2020March 31, 2021 and December 31, 20192020 was $1,266,000$1,298,000 and $1,341,000,$1,219,000, respectively.

Inventories are comprised of the following (in thousands):

Intangible assets are recorded at cost less accumulated amortization which is included in engineering, selling and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. Amortization is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, which range up to 10 years. The intangible assets consist of intellectual property and goodwill. The net carrying value of the amortizable intangible assets was $326,000$268,000 and $362,000 $287,000 as of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. Goodwill, which is not amortizable, was $40,000 as of both September 30, 2020March 31, 2021 and December 31, 2019.2020.

Intangible assets are reviewed for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

The Company measuresUnder the cost of employee services in exchange for an award of equity instrumentsCompany’s 2011 Incentive Plan, as amended, restricted stock and stock options have been awarded to certain employees as share-based compensation. Compensation expense is based on thethe grant-date fair value of the award and recognizes the cost recognized over the requisite service period, typically the vesting period. On March 27, 2020, the Company issued 45,000 restricted shares to its Interim President and Chief Executive Officer, with a vesting period of 3.75 years.

The Company estimates the fair value of stock options on the grant date using the Black-Scholes-Merton option-pricing model. The Black-Scholes-Merton option-pricing model requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. There is no expected dividend rate. Historical Company information was the basis for the expected volatility assumption as the Company believes that the historical volatility is indicative of expected volatility over the life of the option. The risk-free interest rate is based on the U.S. Treasury zero-coupon rates with a remaining term equal to the expected term of the option.

Compensation expense related to share-based compensation is recognized over the applicable vesting periods. As of September 30,December 31, 2020, there was approximately $407,000$415,000 of total unrecognized compensation expense related to unvested share-based compensation arrangements, primarily related to restricted stock awards. In March 2021, 26,250 unvested restricted shares were forfeited; total unrecognized compensation expense amounted to $166,000 at March 31, 2021. This cost will be recognized over the weighted average remaining lifeservice period of these awards, (2.25.75 years for restricted stock awards and 1.81.5 years for stock options).options.

The Company computes earnings per share in accordance with ASC 260, Earnings Per Share. Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share adjusts basic earnings per share for the effects of warrants, restricted stock, stock options and other potentially dilutive financial instruments, only in the periods

in which the effects are dilutive. The dilutive effect of share-based awards is reflected in earnings per share by application of the treasury stock method, which includes consideration of unamortized share-based compensation expense required under the Compensation – Stock Compensation Topic of the ASC.

For both the three and nine month periodsmonths ended September 30, 2020March 31, 2021, there were 25,000warrants to purchase 1,051,664 shares of common stock and options to purchase 25,000 shares of common stock excluded from the diluted earnings per share computationcomputation. For the three months ended March 31, 2020, there were options to purchase 25,000 shares of common stock excluded from the diluted earnings per share computation.  The warrants and stock options were excluded because the impact of the assumed exercise of such warrants and stock options would have been anti-dilutive during the respective periods.anti-dilutive.

The following table reconciles basic weighted average shares outstanding to diluted weighted average shares outstanding for the three and nine months ended September 30, 2020March 31, 2021 and 2019:2020:

ATM Offering

On January 22, 2020, the Company entered into an Open Market SaleSales Agreement (the “Sales Agreement”) with Jefferies LLC, as sales agent (“Jefferies”), pursuant to which the Company may offer and sell, from time to time, in what is deemed to be an “at the market” offeringmarket offering” (“ATM Offering”), through Jefferies, shares of the Company’s common stock, par value $0.01$0.01 per share, having an aggregate offering price of up to $15,000,000 (the “Shares”)$15,000,000. Shares sold under the Sales Agreement are issued pursuant to the shelf registration statement on Form S-3 (File No. 333-235767), filed by the Company with the SEC on December 31, 2019, which was declared effective on January 8, 2020. The Company filed a prospectus supplement with the SEC on January 23, 2020 in connection with the offer and sale of the Sharesshares pursuant to the Sales Agreement. During February and March of 2020, there263,725 shares were 263,725 shares sold under thisthe Sales Agreement, at an average price per share of $13.65 and$13.65, generating net proceeds of approximately $3,492,000$3,492,000, after brokerage charges of $108,000$108,000 were deducted and paid to Jefferies. Form S-3 and at-the-market (“ATM”) registration costs were approximately $238,000 and were charged to additional paid-in capital. The Sales Agreement and ATM Offering remain in effect in accordance with their terms.

The Company periodically undertakes a review of its valuation allowance and evaluates all positive and negative factors that may affect whether it is more likely than not that the Company would realize its future tax benefits from its deferred tax balances. In the quarter ended September 30, 2019, the Company also released substantially all the valuation allowance related to the Company’s U.S. deferred tax assets ($3.3 million).

The income taxquarterly provision for interim periodsincome taxes is generally determined based upon the expectedmeasured using an annual effective income tax rate, adjusted for discrete items within the full year and the tax rate applicable to certain discrete transactions in the interim period.period presented.  To determine the annual effective income tax rate, the Company must estimateestimates both the total income (loss) before income taxtaxes for the full year and the jurisdictions in which that income (loss) is subject to tax. The actual effective income tax rate for the full year may differ from these estimates if income (loss) before income taxtaxes is greater than or less than what was estimated or if the allocation of income (loss) to jurisdictions in which it is taxed is different from the estimated allocations. In the quarter ended September 30, 2019, the Company also released substantially all the valuation allowance related to the Company’s U.S. deferred tax assets ($3.3 million).

The estimated annualized effective income tax rate for the ninethree months ended September 30,March 31, 2021 and March 31, 2020 was 18.2% and September 30, 2019 was 20.9% and 24.8% (excluding impact of valuation reserve reversal)22.8%, respectively. Differences between the Company’s effective income tax rate and the U.S. federal statutory rate are primarily the impact of state taxes, foreign taxes, non-deductible expenses and excess tax benefits or expense on share-based compensation.

The Company has two reportable business segments, electronic components and electronic instruments. The electronic components segment is focused on the design, manufacture and manufacturemarketing of highly engineered,highly-engineered, high reliability frequency and spectrum control products. These electronic components ensure reliability and security in aerospace and defense communications, low noise and base accuracy for laboratory instruments, and synchronous data transfers throughout the wireless and Internet infrastructure. The electronic instruments segment is focused on the design and manufacture of high performance Frequency and Time Reference Standards that form the basis for timing and synchronization in various applications. The following table sets forth activity broken down by reportable business

Business segment information follows (in thousands):