INCOME TAXES

Income Tax Expense

Income taxes consisted of the following:



	Fiscal Year Ended March 31,
	2012			2011			2010
Current
United States	$	2,871		$	18,052		$	12,246
State and local	(2,064		)	2,290			3,357
Foreign	53,582			59,051			56,925
	54,389			79,393			72,528
Deferred
United States	4,796			(43		)	4,134
State and local	444			(226		)	247
Foreign	1,530			(775		)	9,374
	6,770			(1,044		)	13,755
Total	$	61,159		$	78,349		$	86,283

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

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,
	2012			2011		2010
Statutory tax rate	35.0	%		35.0	%	35.0	%
State income taxes, net of federal benefit	(0.7	)		0.6		0.9
Change in classification of permanently reinvested earnings	—			—		1.4
Change in valuation allowance on deferred tax assets	0.7			(0.2	)	—
Nondeductible European Commission fine	8.6			—		—
Dividends received from deconsolidated operations	(1.8	)		—		—
Other, including changes in liabilities recorded for uncertain tax positions	(4.0	)		(3.2	)	(3.7	)
Effective income tax rate	37.8	%	—	32.2	%	33.6	%

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. At the beginning of fiscal year 2010, the Company had approximately $52 million of undistributed earnings of foreign subsidiaries on which no provision for U.S. income taxes had been recorded because those earnings were designated as permanently reinvested. Effective March 31, 2010, the classification of those earnings was changed to reflect a change in management’s intent to repatriate the earnings consistent with appropriate tax planning and good business practice in the respective foreign countries. As a result of this change, approximately $3.5 million of additional income tax expense was recognized in fiscal year 2010 to record the applicable U.S. income tax liability. The Company no longer has any undistributed earnings of consolidated foreign subsidiaries that are classified as permanently reinvested.

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,
	2012		2011		2010
United States	$	21,773	$	32,826	$	48,675
Foreign	140,205		210,073		207,953
Total	$	161,978	$	242,899	$	256,628

Deferred Income Tax Liabilities and Assets

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



	March 31,
	2012			2011
Liabilities
Foreign withholding taxes	$	14,192		$	16,692
Undistributed earnings	46,010			34,015
Goodwill	30,851			31,515
All other	20,998			22,386
Total deferred tax liabilities	$	112,051		$	104,608

Assets
Employee benefit plans	$	69,373		$	50,761
Reserves and accruals	45,793			51,841
Deferred income	8,098			9,035
Deferred compensation	3,035			5,055
All other	17,144			9,927
Total deferred tax assets	143,443			126,619
Valuation allowance	(4,620		)	(3,427		)
Net deferred tax assets	$	138,823		$	123,192

At March 31, 2012, 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,
	2012			2011		2010
Continuing operations	$	61,159		$	78,349	$	86,283
Other comprehensive income	(18,296		)	3,210		6,520
Direct adjustments to shareholders' equity	(285		)	159		(454		)
Total	$	42,578		$	81,718	$	92,349

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, 2012, 2011 and 2010, is as follows:



	Fiscal Year Ended March 31,
	2012			2011			2010
Liability for uncertain tax positions, beginning of year	$	9,223		$	22,184		$	22,740
Additions:
Related to tax positions for the current year	262			1,184			9,609
Related to tax positions for prior years	1,072			77			574
Reductions:
Related to tax positions for prior years	—			(205		)	(1,674		)
Due to settlements with tax jurisdictions	(698		)	(12,765		)	(1,552		)
Due to lapses of statutes of limitations	(1,213		)	(1,571		)	(4,802		)
Other reductions	—			—			(4,041		)
Effect of currency rate movement	(733		)	319			1,330
Liability for uncertain tax positions, end of year	$	7,913		$	9,223		$	22,184

Of the total liability for uncertain tax positions at March 31, 2012, approximately $1.9 million could have an effect on the consolidated effective tax rate if the tax benefits are recognized. The liability for uncertain tax positions includes $2.3 million related to tax positions for which it is reasonably possible that the amounts could change significantly before March 31, 2013. 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 net expense for interest and penalties of $0.4 million in fiscal year 2012, net expense for interest and penalties of $0.2 million in fiscal year 2011, and a net reversal of interest and penalties of $2.6 million in fiscal year 2010. At March 31, 2012 and 2011, $4.5 million and $5.8 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, 2012, the Company's earliest open tax year for U.S. federal income tax purposes was its fiscal year ended March 31, 2009. Open tax years in state and foreign jurisdictions generally range from three to six years.