Income Taxes

12 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The Company operates in the United States and many foreign countries and 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 and the effect of exchange rate changes on local taxable income and deferred taxes in foreign countries.

For fiscal years ended March 31, 2022, 2021, and 2020 the Company's U.S. federal statutory tax rate is 21.0%. The U.S. tax system is primarily territorial based after the enactment of the Tax Cuts and Jobs Act of 2017. The U.S. tax law imposes a tax on U.S. shareholders on certain low-taxed income earned by controlled foreign corporations, referred to as global intangible low-taxed income ("GILTI”). The Company has made an accounting policy election to account for any additional tax resulting from the GILTI provisions in the year in which it is incurred and has not recorded any deferred taxes on temporary book-tax differences related to this income.

The Company continues to assume repatriation of all undistributed earnings of its consolidated foreign subsidiaries and has therefore provided for expected foreign withholding taxes on the distribution of those earnings where applicable, net of any U.S. tax credit attributable to those withholding taxes. The Company has asserted permanent reinvestment of the book basis of certain foreign subsidiaries, and accordingly, no deferred income tax liability has been recorded for any potential taxable gain that may be realized on a future disposition or liquidation of any of those subsidiaries. It is not practicable for the Company to quantify any deferred income tax liability that would be attributable to those events.

Income Tax Expense

Income taxes for the fiscal years ended March 31, 2022, 2021, and 2020 consisted of the following: 

	Fiscal Year Ended March 31,
	2022		2021		2020
Current
United States	$	15,042	$	9,500	$	2,001
State and local	265		621		92
Foreign	25,828		21,626		41,892
	41,135		31,747		43,985
Deferred
United States	(498)		(5,938)		3,735
State and local	1,568		(314)		(16)
Foreign	(3,542)		3,917		(12,416)
	(2,472)		(2,335)		(8,697)
Total	$	38,663	$	29,412	$	35,288

Foreign taxes include any applicable U.S. tax expense on the earnings of foreign subsidiaries.

Consolidated Effective Income Tax Rate

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

	Fiscal Year Ended March 31,
	2022		2021		2020
U.S. federal statutory tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	1.0		0.2		0.1
Foreign earnings taxed at rates other than the U.S. federal statutory tax rate	3.7		(0.9)		(2.0)
Foreign dividend withholding taxes	2.3		5.3		5.1
Changes in uncertain tax positions	(0.3)		—		5.6
Other	(0.5)		(2.2)		1.3
Effective income tax rate	27.2	%	23.4	%	31.1	%

In fiscal year 2022, the Company recognized a $1.7 million benefit related to a final tax law ruling at a foreign subsidiary.

Final United States GILTI regulations published in July 2020 significantly changed from the proposed regulations published in 2019. The final regulations allow for an annual election for GILTI high-tax exclusion instead of a 5-year election and permitted retroactive application to years beginning after December 31, 2017. Universal elected to apply the final regulations to fiscal years 2019 and 2020 which resulted in a tax reduction of $2.7 million. In fiscal year 2021, the Company also recognized a $4.4 million net tax benefit for final U.S. tax regulations issued for hybrid dividends paid by foreign subsidiaries.

During fiscal year 2020, the Company resolved a transfer pricing matter related to a foreign subsidiary. The resolution of the uncertainty with the local country taxing authorities resulted in net additional current income tax expense of $2.8 million. The additional income tax expense for fiscal year 2020 increased the effective tax rate for the year by 2.4%

Components of Income Before Income Taxes

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

	Fiscal Year Ended March 31,
	2022		2021		2020
United States	$	74,553	$	30,060	$	22,916
Foreign	67,714		95,666		90,375
Total	$	142,267	$	125,726	$	113,291

Deferred Income Tax Liabilities and Assets

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

	March 31,
	2022		2021
Liabilities
Foreign withholding taxes	$	19,353	$	21,711
Property, plant and equipment	10,567		8,726
Undistributed earnings	3,004		2,947
Operating lease right-of-use assets	6,621		6,856
Goodwill and other intangible assets	34,584		35,059
Local currency exchange gains of foreign subsidiaries	4,094		—
All other	3,414		4,876
Total deferred tax liabilities	$	81,637	$	80,175
Assets
Employee benefit plans	$	16,138	$	17,199
Reserves and accruals	9,844		7,603
Deferred income	4,127		3,521
Operating lease right-of-use liabilities	6,538		6,718
Currency translation losses of foreign subsidiaries	2,173		2,173
Local currency exchange losses of foreign subsidiaries	595		450
Interest rate swap	302		5,178
All other	9,384		8,568
Total deferred tax assets	49,101		51,410
Valuation allowance	(3,182)		(4,080)
Net deferred tax assets	$	45,919	$	47,330

At March 31, 2022, 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 and other comprehensive income was as follows:

	Fiscal Year Ended March 31,
	2022		2021		2020
Continuing operations	$	38,663	$	29,412	$	35,288
Other comprehensive loss	6,555		9,563		(14,392)
Total	$	45,218	$	38,975	$	20,896

Uncertain Tax Positions

A reconciliation of the beginning and ending balance of the gross liability for uncertain tax positions is as follows:

	Fiscal Year Ended March 31,
	2022		2021		2020
Liability for uncertain tax positions, beginning of year	$	2,437	$	2,377	$	5,625
Additions:
Related to tax positions for the current year	48		49		1,746
Related to tax positions for prior years	328		—		4,369
Reductions:
Due to lapses of statutes of limitations	(56)		(135)		(81)
Due to tax settlements	(814)		—		(8,948)
Effect of currency rate changes	81		146		(334)
Liability for uncertain tax positions, end of year	$	2,024	$	2,437	$	2,377

The liability for uncertain tax positions at March 31, 2022 includes approximately $2.0 million that could have an effect on the consolidated effective tax rate if the tax benefits are recognized. The liability for uncertain tax positions includes $0.1 million related to tax positions for which it is reasonably possible that the amounts could change significantly before March 31, 2023. 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 $0.8 million settlement in fiscal year 2022 represents the resolution of a tax matter with a local country taxing authority. The Company accrued $0.5 million of the fiscal year 2022 settlement in prior fiscal years. The settlement in fiscal year 2020 represents the resolution of a tax matter with a local country taxing authority that resulted in a $8.9 million settlement of which $4.5 million was accrued in prior fiscal years.

For the fiscal year ended March 31, 2021, the Company recognized $1.8 million as a component of interest expense related to a settlement of an uncertain tax position at a foreign subsidiary. Amounts accrued or reversed for interest were not material for fiscal years 2022 or 2020. Amounts accrued or reversed for penalties were not material for fiscal years 2022 through 2020, and liabilities recorded for penalties at March 31, 2022 and 2021 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, 2022, the Company's earliest open tax year for U.S. federal income tax purposes was its fiscal year ended March 31, 2018. Open tax years in U.S. federal, state and foreign jurisdictions range from 3 to 6 years.