UNIVERSAL CORP /VA/UVV
UNIVERSAL CORP /VA/ Income Taxes Disclosure
NCOME 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, 2025, 2024, and 2023 the Company’s U.S. federal statutory tax rate was 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.
In various countries in which the Company operates, legislation has been enacted incorporating the Organization for Economic Cooperation and Development’s Global Anti-Base Erosion Pillar Two model rules establishing a 15% global minimum tax. In certain countries this legislation became effective at the beginning of fiscal year 2025. The estimated tax impact of such legislation has been included in the provision for income taxes and is not material. Like GILTI, this is treated as a period cost and does not have any additional deferred taxes related to these new laws.
Income Tax Expense
Income taxes for the fiscal years ended March 31, 2025, 2024, and 2023 consisted of the following:
| Fiscal Year Ended March 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current | |||||||||||||||||
| United States | $ | 7,038 | $ | 5,107 | $ | 9,967 | |||||||||||
| State and local | 713 | 696 | 1,134 | ||||||||||||||
| Foreign | 32,112 | 30,711 | 8,289 | ||||||||||||||
| 39,863 | 36,514 | 19,390 | |||||||||||||||
| Deferred | |||||||||||||||||
| United States | (2,631) | (824) | (4,727) | ||||||||||||||
| State and local | (22) | (138) | 613 | ||||||||||||||
| Foreign | 3,736 | (4,443) | (3,543) | ||||||||||||||
| 1,083 | (5,405) | (7,657) | |||||||||||||||
| Total | $ | 40,946 | $ | 31,109 | $ | 11,733 | |||||||||||
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, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| U.S. federal statutory tax rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State income taxes, net of federal benefit | 0.4 | 0.3 | 1.0 | ||||||||||||||
| Foreign earnings taxed at rates other than the U.S. federal statutory tax rate | (3.7) | (5.2) | (1.5) | ||||||||||||||
| Foreign dividend withholding taxes | 6.7 | 2.9 | 2.6 | ||||||||||||||
| Brazil tax ruling | — | — | (17.1) | ||||||||||||||
| Changes in uncertain tax positions | — | (0.2) | (0.1) | ||||||||||||||
| Other | 2.2 | 0.2 | 2.4 | ||||||||||||||
| Effective income tax rate | 26.6 | % | 19.0 | % | 8.3 | % | |||||||||||
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 were used to reduce federal non-income tax liabilities through the end of fiscal year 2025 and were exhausted as of March 31, 2025. The tax credits were recognized as both current and noncurrent assets on the consolidated balance sheet based on when the credits were expected to be realized. Additionally, the unused tax credits earned tax-exempt interest income through the utilization date, which were used to reduce both non-income tax and income tax liabilities. The ruling resulted in a net income tax benefit of $24.2 million in fiscal year 2023. The net income tax benefit of the Brazil tax ruling resulted in a $2.4 million income tax provision for U.S. federal income taxes related to the fiscal year 2018 consolidated federal tax return. Additionally, the Company sold its idled Tanzania operations and recognized $1.1 million of income taxes in the fiscal year ended March 31, 2023.
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, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| United States | $ | 5,529 | $ | 22,517 | $ | 27,942 | |||||||||||
| Foreign | 148,686 | 141,563 | 114,027 | ||||||||||||||
| Total | $ | 154,215 | $ | 164,080 | $ | 141,969 | |||||||||||
Deferred Income Tax Liabilities and Assets
Significant components of deferred tax liabilities and assets were as follows:
| March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Liabilities | |||||||||||
| Foreign withholding taxes | $ | 20,989 | $ | 15,350 | |||||||
| Property, plant and equipment | 14,730 | 10,604 | |||||||||
| Undistributed earnings | 3,362 | 3,145 | |||||||||
| Operating lease right-of-use assets | 8,238 | 8,119 | |||||||||
| Goodwill and other intangible assets | 30,834 | 32,232 | |||||||||
| Interest rate swap | 1,013 | 3,036 | |||||||||
| All other | 1,680 | 1,168 | |||||||||
| Total deferred tax liabilities | $ | 80,846 | $ | 73,654 | |||||||
| Assets | |||||||||||
| Employee benefit plans | $ | 12,624 | $ | 15,938 | |||||||
| Reserves and accruals | 6,325 | 6,973 | |||||||||
| Deferred income | 3,989 | 5,827 | |||||||||
| Operating lease right-of-use liabilities | 7,496 | 7,407 | |||||||||
| Currency translation losses of foreign subsidiaries | 2,156 | 2,156 | |||||||||
| Local currency exchange losses of foreign subsidiaries | 4,466 | 2,075 | |||||||||
| Interest expense limitation carryforward | 6,369 | 1,434 | |||||||||
| Foreign tax credit carryforward | 8,795 | 8,196 | |||||||||
| Capital loss carryforwards | 4,097 | 4,143 | |||||||||
| All other | 13,470 | 8,563 | |||||||||
| Total deferred tax assets | 69,787 | 62,712 | |||||||||
| Valuation allowance | (14,492) | (13,016) | |||||||||
| Net deferred tax assets | $ | 55,295 | $ | 49,696 | |||||||
At March 31, 2025, 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, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Continuing operations | $ | 40,946 | $ | 31,109 | $ | 11,733 | |||||||||||
| Other comprehensive loss | (531) | (1,056) | 3,551 | ||||||||||||||
| Total | $ | 40,415 | $ | 30,053 | $ | 15,284 | |||||||||||
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, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Liability for uncertain tax positions, beginning of year | $ | 1,070 | $ | 1,415 | $ | 2,024 | |||||||||||
| Additions: | |||||||||||||||||
| Related to tax positions for the current year | 71 | 65 | 1,198 | ||||||||||||||
| Related to tax positions for prior years | — | — | — | ||||||||||||||
| Reductions: | |||||||||||||||||
| Due to lapses of statutes of limitations | (56) | (56) | (75) | ||||||||||||||
| Due to tax settlements | — | (311) | (1,661) | ||||||||||||||
| Effect of currency rate changes | (79) | (43) | (71) | ||||||||||||||
| Liability for uncertain tax positions, end of year | $ | 1,006 | $ | 1,070 | $ | 1,415 | |||||||||||
The liability for uncertain tax positions at March 31, 2025 includes approximately $1.0 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 $0.8 million related to tax positions for which it is reasonably possible that the amounts could change significantly before March 31, 2026. 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.
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 and penalties were not material for fiscal years 2023 through 2025, and liabilities recorded for penalties at March 31, 2025 and 2024 were also 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. Open tax years in U.S. Federal, state, and foreign jurisdictions range from 3 to 6 years. There is an exception for the Company’s U.S. Federal fiscal year 2018 tax return due to the election on the amended return that extended the statute to 30 years.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | May 30, 2025 | Showing above |
| 2024 | May 29, 2024 | |
| 2023 | May 25, 2023 | |
| 2022 | May 27, 2022 | |
| 2021 | May 28, 2021 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.