FRIEDMAN INDUSTRIES INC Income Taxes Disclosure
9. INCOME TAXES
Components of tax expense are as follows (in thousands):
| Year Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Federal | ||||||||
| Current | $ | 1,234 | $ | 4,248 | ||||
| Deferred | 112 | 473 | ||||||
| 1,346 | 4,721 | |||||||
| State | ||||||||
| Current | 153 | 927 | ||||||
| Deferred | 109 | 321 | ||||||
| 262 | 1,248 | |||||||
| Total | $ | 1,608 | $ | 5,969 | ||||
The U.S. federal statutory income tax rate is reconciled to the effective rate as follows:
| Year Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Income tax expense at U.S. federal statutory rate | 21.0 | % | 21.0 | % | ||||
| Current year state and local income taxes net of federal income tax benefit | 2.7 | 4.3 | ||||||
| Other | (2.8 | ) | 0.3 | |||||
| Provision for income taxes | 20.9 | % | 25.6 | % | ||||
The Company’s tax returns may be subject to examination by the Internal Revenue Service for the fiscal years ended March 31, 2022 through March 31, State and local returns may be subject to examination for fiscal years ended March 31, 2021 through March 31,
Deferred income taxes are provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s consolidated deferred tax assets (liabilities) are as follows (in thousands):
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Deferred tax liabilities: | ||||||||
| Depreciation | $ | (6,199 | ) | $ | (6,451 | ) | ||
| Unrealized gain - mark to market derivatives | (87 | ) | — | |||||
| Total deferred tax liabilities | (6,286 | ) | (6,451 | ) | ||||
| Deferred tax assets: | ||||||||
| Inventory capitalization | 537 | 552 | ||||||
| Interest expense limitation | 140 | — | ||||||
| Postretirement benefits other than pensions | 29 | 26 | ||||||
| Restricted stock compensation | 23 | 77 | ||||||
| Unrealized Loss - mark to market derivatives | — | 403 | ||||||
| Other | 79 | 136 | ||||||
| Total deferred tax assets | 808 | 1,194 | ||||||
| Net deferred tax liability | $ | (5,478 | ) | $ | (5,257 | ) | ||
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.