INCOME TAXES

The Company is subject to the tax laws of many jurisdictions. Changes in tax laws or the interpretation of tax laws can affect the Company’s earnings, as can the resolution of pending and contested tax issues. The Company's consolidated effective income tax rate is affected by a number of factors, including the mix of domestic and foreign earnings, the effect of exchange rate changes on deferred taxes, and the Company’s ability to utilize foreign tax credits.

Income Tax Expense

Income taxes for the fiscal years ended March 31, 2015, 2014, and 2013 consisted of the following:



	Fiscal Year Ended March 31,
	2015			2014			2013
Current
United States	$	4,126		$	1,433		$	(3,465	)
State and local	657			507			682
Foreign	46,885			75,770			57,355
	51,668			77,710			54,572
Deferred
United States	3,352			1,686			1,746
State and local	159			275			279
Foreign	(17,173		)	(4,136		)	9,769
	(13,662		)	(2,175		)	11,794
Total	$	38,006		$	75,535		$	66,366

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,
	2015		2014		2013
Statutory tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	0.3		0.2		0.3
Dividends received from deconsolidated operations	(1.3	)	(0.9	)	(1.5	)
Effect of exchange rate changes on deferred income taxes	(4.9	)	(1.0	)	(1.0	)
Tax benefit arising from payment of a portion of the European Commission fine by a subsidiary	(5.0	)	—		—
Other, including changes in liabilities recorded for uncertain tax positions	(0.1	)	(0.6	)	(0.8	)
Effective income tax rate	24.0	%	32.7	%	32.0	%

During the first quarter of fiscal year 2015, the Company recorded a consolidated income tax benefit of $8 million arising from the ability of its subsidiary, Deltafina S.p.A., to pay a significant portion of the European Commission fine and related interest charges in Italy that were settled during that quarter following the unsuccessful appeal of the case involving anti-competitive activities in the Italian tobacco market (see Note 3). Deltafina and Universal Corporation were jointly liable for the amounts imposed by the European Commission. The Company’s initial accrual of the fine and interest in September 2011 assumed that the entire obligation would be paid by Universal Corporation due to uncertainty with respect to Deltafina’s financial capacity to bear any significant portion of the cost upon the eventual settlement and to uncertainty as to when the payment would be made. Deltafina ultimately was able to assume responsibility for approximately $30 million of the total $53 million obligation for the fine and interest when those amounts were paid. Although the portion of the fine paid by Deltafina is not deductible for income tax purposes in Italy, it reduced the subsidiary’s cumulative undistributed earnings and the associated consolidated tax liability, resulting in the $8 million benefit in the Company's consolidated income tax provision. This discrete item reduced the effective income tax rate for fiscal year 2015 by 5.0%.

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,
	2015		2014		2013
United States	$	27,181	$	9,156	$	(4,161	)
Foreign	131,286		221,534		211,446
Total	$	158,467	$	230,690	$	207,285

Deferred Income Tax Liabilities and Assets

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



	March 31,
	2015			2014
Liabilities
Foreign withholding taxes	$	34,339		$	30,147
Undistributed earnings	14,510			23,865
Goodwill	30,851			30,851
All other	8,922			12,471
Total deferred tax liabilities	$	88,622		$	97,334

Assets
Employee benefit plans	$	50,977		$	40,816
Reserves and accruals	14,039			32,248
Deferred income	5,387			4,013
Currency translation losses of foreign subsidiaries	12,167			—
Local currency exchange losses of foreign subsidiaries	10,674			207
All other	9,607			8,612
Total deferred tax assets	102,851			85,896
Valuation allowance	(629		)	(1,252		)
Net deferred tax assets	$	102,222		$	84,644

At March 31, 2015, 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,
	2015			2014			2013
Continuing operations	$	38,006		$	75,535		$	66,366
Other comprehensive income	(21,900		)	22,190			2,600
Direct adjustments to shareholders' equity	(932		)	(972		)	(1,052		)
Total	$	15,174		$	96,753		$	67,914

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, 2015, 2014 and 2013, is as follows:



	Fiscal Year Ended March 31,
	2015			2014			2013
Liability for uncertain tax positions, beginning of year	$	3,809		$	5,385		$	7,913
Additions:
Related to tax positions for the current year	272			194			191
Related to tax positions for prior years	—			168			—
Reductions:
Due to settlements with tax jurisdictions	—			—			(66		)
Due to lapses of statutes of limitations	(478		)	(1,776		)	(2,339		)
Related to tax positions for prior years	(143		)	—			—
Effect of currency rate movement	(566		)	(162		)	(314		)
Liability for uncertain tax positions, end of year	$	2,894		$	3,809		$	5,385

Of the total liability for uncertain tax positions at March 31, 2015, approximately $2.2 million could have an effect on the consolidated effective tax rate if the tax benefits are recognized. The liability for uncertain tax positions includes $0.2 million related to tax positions for which it is reasonably possible that the amounts could change significantly before March 31, 2016. 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.

The Company recognizes accrued interest related to uncertain tax positions as interest expense, and it recognizes penalties as a component of income tax expense. Amounts accrued or reversed for interest and penalties were not material for any of the fiscal years 2013 through 2015, and liabilities recorded for interest and penalties at March 31, 2015 and 2014 also were not material.

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, 2015, the Company's earliest open tax year for U.S. federal income tax purposes was its fiscal year ended 2012. Open tax years in state and foreign jurisdictions generally range from 3 to 6 years.