Income Taxes

12 Months Ended

Mar. 31, 2023

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, 2024, 2023, and 2022 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, 2024, 2023, and 2022 consisted of the following: 

	Fiscal Year Ended March 31,
	2024		2023		2022
Current
United States	$	5,107	$	9,967	$	15,042
State and local	696		1,134		265
Foreign	30,711		8,289		25,828
	36,514		19,390		41,135
Deferred
United States	(824)		(4,727)		(498)
State and local	(138)		613		1,568
Foreign	(4,443)		(3,543)		(3,542)
	(5,405)		(7,657)		(2,472)
Total	$	31,109	$	11,733	$	38,663

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,
	2024		2023		2022
U.S. federal statutory tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	0.3		1.0		1.0
Foreign earnings taxed at rates other than the U.S. federal statutory tax rate	(5.2)		(1.5)		3.7
Foreign dividend withholding taxes	2.9		2.6		2.3
Brazil tax ruling	—		(17.1)		—
Changes in uncertain tax positions	(0.2)		(0.1)		(0.3)
Other	0.2		2.4		(0.5)
Effective income tax rate	19.0	%	8.3	%	27.2	%

In fiscal year 2023, one of the Company's subsidiaries in Brazil received a favorable final judgement from the Brazilian Superior Court of Justice. The lawsuit asserted certain tax credits on exported goods should be excluded from taxable income. The Brazilian revenue authority asserted certain tax credits generated on purchased goods and services that were ultimately exported from Brazil should be included in the calculation of taxable income. The Brazilian Superior Court of Justice affirmed the tax credits are non-taxable in accordance with the historical and existing tax legislation in Brazil. The ruling resulted in recognition of $26.6 million of Brazilian tax credits due to the recalculation of federal income taxes in Brazil for years 2015 through 2022. The affirmative ruling also resulted in recognition of $5.0 million of interest income for the fiscal year ended March 31, 2023. The tax credits and associated interest income credits are being used to reduce federal non-income tax liabilities through the end of calendar year 2027. The tax credits were recognized as both current and noncurrent assets on the consolidated balance sheet based on when the credits are expected to be realized. Additionally, any unused tax credits will earn tax-exempt interest income through the expiration date, which can be used to reduce both non-income tax and income tax liabilities. The Brazilian federal tax authority has formally acknowledged the tax credits and related interest credits to be used by one of the Company's Brazilian subsidiaries. The ruling resulted in a net income tax benefit of $24.2 million in fiscal year 2023. The net income tax benefit included a $2.4 million income tax provision for U.S. federal income taxes related to the fiscal year 2018 consolidated federal tax return that will need to be amended. The Company sold its idled Tanzania operations and recognized $1.1 million of income taxes in the fiscal year ended March 31, 2023.

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

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,
	2024		2023		2022
United States	$	22,517	$	27,942	$	74,553
Foreign	141,563		114,027		67,714
Total	$	164,080	$	141,969	$	142,267

Deferred Income Tax Liabilities and Assets

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

	March 31,
	2024		2023
Liabilities
Foreign withholding taxes	$	15,350	$	17,123
Property, plant and equipment	10,604		10,617
Undistributed earnings	3,145		3,772
Operating lease right-of-use assets	8,119		5,791
Goodwill and other intangible assets	32,232		33,781
Interest rate swap	3,036		1,885
All other	1,168		2,786
Total deferred tax liabilities	$	73,654	$	75,755
Assets
Employee benefit plans	$	15,938	$	15,654
Reserves and accruals	6,973		5,692
Deferred income	5,827		5,573
Operating lease right-of-use liabilities	7,407		5,500
Currency translation losses of foreign subsidiaries	2,156		2,173
Local currency exchange losses of foreign subsidiaries	2,075		1,084
Foreign tax credit carryforward	8,196		5,578
Capital loss carryforwards	4,143		4,197
All other	9,997		11,016
Total deferred tax assets	62,712		56,467
Valuation allowance	(13,016)		(10,234)
Net deferred tax assets	$	49,696	$	46,233

At March 31, 2024, 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,
	2024		2023		2022
Continuing operations	$	31,109	$	11,733	$	38,663
Other comprehensive loss	(1,056)		3,551		6,555
Total	$	30,053	$	15,284	$	45,218

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,
	2024		2023		2022
Liability for uncertain tax positions, beginning of year	$	1,415	$	2,024	$	2,437
Additions:
Related to tax positions for the current year	65		1,198		48
Related to tax positions for prior years	—		—		328
Reductions:
Due to lapses of statutes of limitations	(56)		(75)		(56)
Due to tax settlements	(311)		(1,661)		(814)
Effect of currency rate changes	(43)		(71)		81
Liability for uncertain tax positions, end of year	$	1,070	$	1,415	$	2,024

The liability for uncertain tax positions at March 31, 2024 includes approximately $1.1 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 $0.8 million related to tax positions for which it is reasonably possible that the amounts could change significantly before March 31, 2025. 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 $1.7 million settlement in fiscal year 2023 represents the resolution of a tax matter with a foreign tax authority.

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.

For fiscal year ended March 31, 2023, the Company recognized $1.8 million as a reduction to interest expense related to an uncertain tax position on the Tanzania operations that were sold in fiscal year 2023. Amounts accrued or reversed for interest were not material for fiscal years 2024 and 2022. Amounts accrued or reversed for penalties were not material for fiscal years 2024 through 2022, and liabilities recorded for penalties at March 31, 2024 and 2023 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, 2024, 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.