INCOME TAXES

Income Tax Expense

Income taxes consisted of the following:



	Fiscal Year Ended March 31,
	2013			2012			2011
Current
United States	$	(3,465	)	$	2,871		$	18,052
State and local	682			(2,064		)	2,290
Foreign	57,355			53,582			59,051
	54,572			54,389			79,393
Deferred
United States	1,746			4,796			(43		)
State and local	279			444			(226		)
Foreign	9,769			1,530			(775		)
	11,794			6,770			(1,044		)
Total	$	66,366		$	61,159		$	78,349

Foreign taxes include U.S. tax expense on earnings of foreign subsidiaries. The Company has no undistributed earnings of consolidated foreign subsidiaries that are classified as permanently reinvested.

Consolidated Effective Income Tax Rate

A reconciliation of the statutory U.S. federal rate to the Company’s effective income tax rate is as follows:



	Fiscal Year Ended March 31,
	2013		2012		2011
Statutory tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	0.3		(0.7	)	0.6
Change in valuation allowance on deferred tax assets	(0.1	)	0.7		(0.2	)
Nondeductible European Commission fine	—		8.6		—
Dividends received from deconsolidated operations	(1.5	)	(1.8	)	—
Other, including changes in liabilities recorded for uncertain tax positions	(1.7	)	(4.0	)	(3.2	)
Effective income tax rate	32.0	%	37.8	%	32.2	%

The Company amended certain prior year state income tax returns during fiscal year 2012. The related income tax refunds reduced income tax expense and the consolidated effective tax rate for the year.

Components of Income Before Income Taxes and Other Items

The U.S. and foreign components of income before income taxes and other items were as follows:



	Fiscal Year Ended March 31,
	2013			2012		2011
United States	$	(4,161	)	$	21,773	$	32,826
Foreign	211,446			140,205		210,073
Total	$	207,285		$	161,978	$	242,899

Deferred Income Tax Liabilities and Assets

Significant components of deferred tax liabilities and assets were as follows:



	March 31,
	2013			2012
Liabilities
Foreign withholding taxes	$	25,074		$	14,192
Undistributed earnings	32,346			46,010
Goodwill	30,851			30,851
All other	14,099			20,998
Total deferred tax liabilities	$	102,370		$	112,051

Assets
Employee benefit plans	$	60,397		$	69,373
Reserves and accruals	32,795			45,793
Deferred income	4,732			8,098
Deferred compensation	3,616			3,035
All other	12,292			17,144
Total deferred tax assets	113,832			143,443
Valuation allowance	(1,252		)	(4,620		)
Net deferred tax assets	$	112,580		$	138,823

At March 31, 2013, the Company had no material net operating loss carryforwards in either its domestic or foreign operations.

Combined Income Tax Expense (Benefit)

The combined income tax expense (benefit) allocable to continuing operations, other comprehensive income, and direct adjustments to shareholders' equity was as follows:



	Fiscal Year Ended March 31,
	2013			2012			2011
Continuing operations	$	66,366		$	61,159		$	78,349
Other comprehensive income	2,600			(18,296		)	3,210
Direct adjustments to shareholders' equity	(1,052		)	(285		)	159
Total	$	67,914		$	42,578		$	81,718

Uncertain Tax Positions

A reconciliation of the beginning and ending balance of the gross liability for uncertain tax positions for the fiscal years ended March 31, 2013, 2012 and 2011, is as follows:



	Fiscal Year Ended March 31,
	2013			2012			2011
Liability for uncertain tax positions, beginning of year	$	7,913		$	9,223		$	22,184
Additions:
Related to tax positions for the current year	191			262			1,184
Related to tax positions for prior years	—			1,072			77
Reductions:
Related to tax positions for prior years	—			—			(205		)
Due to settlements with tax jurisdictions	(66		)	(698		)	(12,765		)
Due to lapses of statutes of limitations	(2,339		)	(1,213		)	(1,571		)
Effect of currency rate movement	(314		)	(733		)	319
Liability for uncertain tax positions, end of year	$	5,385		$	7,913		$	9,223

Of the total liability for uncertain tax positions at March 31, 2013, approximately $4.4 million could have an effect on the consolidated effective tax rate if the tax benefits are recognized. The liability for uncertain tax positions includes $1.8 million related to tax positions for which it is reasonably possible that the amounts could change significantly before March 31, 2014. This amount reflects a possible decrease in the liability for uncertain tax positions that could result from the completion and resolution of tax audits and the expiration of open tax years in various tax jurisdictions.

In fiscal year 2011, of the reduction in the liability for uncertain tax positions of $12.8 million due to settlements with tax jurisdictions, approximately $5.7 million represented tax paid and $7.1 million represented amounts reversed through income tax expense.

The Company recognizes accrued interest related to uncertain tax positions as interest expense, and it recognizes penalties as a component of income tax expense. The consolidated statements of income include a net reversal of interest and penalties of $1.6 million in fiscal year 2013, net expense for interest and penalties of $0.4 million in fiscal year 2012, and a net reversal of interest and penalties of $0.2 million in fiscal year 2011. At March 31, 2013 and 2012, $2.7 million and $4.5 million, respectively, were accrued for interest and penalties.

Universal and its subsidiaries file a U.S. federal consolidated income tax return, as well as returns in several U.S. states and a number of foreign jurisdictions. As of March 31, 2013, the Company's earliest open tax year for U.S. federal income tax purposes was its fiscal year ended March 31, 2010. Open tax years in state and foreign jurisdictions generally range from 3 to 6 years.