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INCOME TAXES
 12 Months Ended
Mar. 31, 2025
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Income before income taxes was comprised of the following (in thousands):
Year Ended March 31,
202520242023
U.S. Federal$163,935 $127,647 $118,181 
Foreign16,182 12,833 7,730 
Income before income taxes$180,117 $140,480 $125,911 


Income tax expense consists of the following (in thousands):
For the year ended:CurrentDeferredTotal
March 31, 2025
U.S. Federal$35,448 $(4,888)$30,560 
State and local9,371 (1,374)7,997 
Foreign4,378 (302)4,076 
Provision for income taxes$49,197 $(6,564)$42,633 
March 31, 2024
U.S. Federal$28,832 $(2,560)$26,272 
State and local8,057 (10)8,047 
Foreign3,444 178 3,622 
Provision for income taxes$40,333 $(2,392)$37,941 
March 31, 2023
U.S. Federal$27,920 $(3,549)$24,371 
State and local6,135 (2,471)3,664 
Foreign1,482 (180)1,302 
Provision for income taxes$35,537 $(6,200)$29,337 
Income tax expense differed from the amounts computed by applying the U.S. federal statutory income tax rate of 21.0% to income before income taxes as a result of the following (in thousands):
Year Ended March 31,
202520242023
Computed tax expense at statutory rate$37,830 $29,501 $26,441 
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal benefits6,318 6,358 2,895 
Nondeductible executive compensation2,712 1,196 1555 
Repatriation tax, net of tax credit559 491 904 
Tax indemnification asset release124 1,789 — 
Global intangible low-taxed income ("GILTI") inclusion 1 207 1,123 
Effect of rates different than statutory385 255 67 
Valuation allowance228 (132)(96)
Other permanent differences234 215 557 
Uncertain tax positions ("UTP")(2,288)278 (224)
Vesting of stock-based compensation(1,420)(417)(408)
IRC section 250 deductions(1,187)(1,050)(1,626)
Foreign tax credits— (207)(604)
Other, net(863)(543)(1,247)
Provision for income taxes$42,633 $37,941 $29,337 

The effective tax rates for the years ended March 31, 2025, 2024 and 2023 were 23.7%, 27.0% and 23.3%, respectively. As compared with the statutory rate for the year ended March 31, 2025, the provision for income taxes was primarily impacted by state tax expenses (net of federal benefits), which increased the provision by $6.3 million and effective rate by 3.5%, executive compensation limitation, which increased the provision by $2.7 million and the effective tax rate by 1.5%. This was offset by UTP, which decreased the provision by $2.3 million ($3.6 million UTP release offset by $1.3 million additional penalties and interest) and the effective tax rate of 1.3%; tax benefits related to the restricted stock vesting, which decreased the provision by $1.4 million and the effective tax rate by 0.8% and IRC section 250 deductions, which decreased the provision by $1.2 million and the effective tax rate by 0.7%.

As compared with the statutory rate for the year ended March 31, 2024, the provision for income taxes was primarily impacted by the state tax expenses (net of federal benefits), which increased the provision by $6.4 million and effective rate by 4.5%; impact of the tax indemnification asset release, which increased the provision by $1.8 million and the effective tax rate by 1.3%; executive compensation limitation, which increased the provision by $1.2 million and the effective tax rate by 0.9%; impact of repatriation of foreign earnings, which increased the provision by $0.5 million and the effective rate by 0.3%. This was partially offset by IRC section 250 deductions, which decreased the provision by $1.1 million and the effective tax rate by 0.7%.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2025 and 2024 are presented below (in thousands):
March 31,
20252024
Deferred tax assets:
Operating lease liabilities$16,461 $11,852 
Accrued compensation6,197 6,777 
Inventory reserves4,938 3,877 
Transaction costs1,863 1,141 
Capitalized R&D1,859 1,446 
Accrued expenses823 773 
Credits and carryforwards441 292 
Pension and other employee benefits554 384 
Other, net1,067 641 
Deferred tax assets34,203 27,183 
Valuation allowance(444)(216)
Deferred tax assets, net of valuation allowance33,759 26,967 
Deferred tax liabilities:
Goodwill and intangible assets(60,979)(64,534)
Operating lease right-of-use assets(14,681)(10,609)
Property, plant and equipment(7,462)(7,725)
Repatriation reserve(2,079)(1,911)
Other, net(1,270)(1,796)
Deferred tax liabilities(86,471)(86,575)
Net deferred tax liabilities$(52,712)$(59,608)

As of March 31, 2025 we had immaterial valuation allowance related to capital loss carryforwards. During the year ended March 31, 2025, we released the valuation allowance related to foreign tax credits and recorded an additional valuation allowance related to loss carryforwards that we do not expect to be able to realize. During the year ended March 31, 2024, we utilized the remaining net operating loss carryforward and released the related valuation allowance.

A provision was made for taxes that may become payable upon distribution of earnings from our foreign subsidiaries. Deferred income tax has not been recognized on any remaining basis difference that is permanently invested outside the United States. The taxes associated with the remaining basis differences that are permanently reinvested are not practical to compute.

A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) is as follows (in thousands):
March 31,
20252024
Balance at beginning of year$10,877 $11,784 
Increases related to prior year tax positions— 173 
Decreases related to prior year tax positions— (31)
Decreases related to lapses of statute of limitations(2,481)(1,049)
Balance at end of year$8,396 $10,877 

During the year ended March 31, 2025, we released a reserve of $3.6 million, including accrued interest of $0.6 million and accrued penalty of $0.5 million, as a result of the lapse of statute for the 2019 and 2020 periods. We also recorded additional accrued interest of $1.2 million and accrued penalty of $0.2 millions on historical tax positions.
During the year ended March 31, 2024, we released a reserve of $1.5 million including accrued interest of $0.2 million and accrued penalty of $0.2 million, as a result of the lapse of statute for the 2019 period. We also recorded additional uncertain tax positions reserve of $1.7 million, including accrued interest of $1.2 million and accrued penalty of $0.5 million on historical tax positions. We also recorded an additional $0.2 million reserve and a corresponding tax indemnification asset through purchase accounting in connection with the Falcon acquisition during the measurement period.

In connection with the Falcon Stainless, Inc. (“Falcon”) acquisition that closed in October 2022, the Company recognized a UTP of $3.0 million related to pre-acquisition tax periods. In addition, in accordance with the tax indemnification provided by the seller to the Company for up to $4.5 million related to UTPs taken in pre-acquisition years, we recognized an initial tax indemnification asset of $3.0 million, which will either be settled or expire upon the closure of the tax statutes for the pre-acquisition periods. During the three months ended December 31, 2024, as a result of the statue expiration, $0.9 million UTP was released and the related $0.9 million tax indemnification asset expired concurrently and was recognized as non-cash other expense on the statement of income, which is not deductible for income tax purposes. During the three months ended December 31, 2023, as a result of the statute expiration, $1.0 million UTP was released and the related $1.0 million tax indemnification asset expired concurrently and was recognized as non-cash other expense on the statement of income. As of March 31, 2025, the UTP reserves and offsetting indemnification asset related to Falcon's pre-acquisition period were $1.8 million. The Falcon UTP reserves and offsetting indemnification asset will either be settled or expire upon the closure of the tax statutes for the pre-acquisition period.

In connection with the T.A. Industries, Inc. (“TRUaire”) acquisition that closed in December 2020, the Company recognized a UTP of $17.3 million related to pre-acquisition tax periods. In addition, in accordance with the tax indemnification provided by the seller to the Company for up to $12.5 million related to UTPs taken in pre-acquisition years, we recognized a tax indemnification asset of $12.5 million, $5 million of which was released in the three months ended March 31, 2021. During the three months ended December 31, 2023, the remaining $7.5 million tax indemnification asset expired and was recognized as non-cash other expense on the statement of income, which is not deductible for income tax purposes. During the three months ended December 31, 2024, $2.7 million of the UTP accrual (including penalties and interests accrued post-acquisition) was released due to the expiration of the tax statutes and was recorded as an income tax benefit. As of March 31, 2025, the UTP accrual related to TRUaire's pre-acquisition tax periods was $12.7 million and is expected to be released in the future as the statutes on the open tax years expire.

The Company expects $6.2 million of existing reserves for UTPs, including interest and penalties, to either be settled or expire within the next 12 months as the statutes of limitations expire. Our federal income tax returns remain subject to examination for the years ended March 31, 2024, 2023 and 2022. Our income tax returns for Falcon's pre-acquisition periods including calendar years 2022 (partial year), 2021, 2020 and 2019 remain subject to examinations. Our income tax returns for TRUaire's pre-acquisition periods including calendar years 2017, 2018, 2019 and 2020 remain subject to examinations. Our income tax returns in certain state income tax jurisdictions remain subject to examination for various periods for the period ended September 30, 2015 and subsequent years.

In August 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. Among other things, the IRA imposes a fifteen percent corporate alternative minimum tax (the “Corporate AMT”) for tax years beginning after December 31, 2022 and levies a one percent excise tax on net share repurchases after December 31, 2022. The excise tax on the share repurchase portion of the IRA did not have an impact on our results of operations or financial position for the year ended March 31, 2025. We do not expect the Corporate AMT, excise tax or other provisions of the IRA to have a material impact on our consolidated financial statements.

The Organization for Economic Cooperation and Development introduced a framework under Pillar Two, which includes a
global minimum tax rate of 15% that applies to fiscal years starting on or after January 1, 2024, with certain remaining provisions to be effective in 2025. Certain jurisdictions in which we do business have enacted laws implementing Pillar Two. Based on our current forecast, we do not currently expect the Pillar Two rules to apply to the Company in the near term. We are monitoring these developments and do not believe these rules will have a material impact on our financial condition and/or consolidated results.