TAXES

On December 22, 2017, the president of the United States signed into law the Act. The Act includes numerous changes in existing U.S. tax law, including (1) reducing the U.S. federal corporate income tax rate from 35% to 21%; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; and (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized. The Act also includes the following provisions that will be applicable to us beginning in fiscal year 2019: (1) creation of a new minimum tax on base erosion and anti-abuse; (2) creation of additional limitations on deductible business interest expense; and (3) creation of additional limitations on the utilization of net operating loss carryforwards.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Act. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. For the year ended March 31, 2018, our provision for income taxes includes the impact of decisions regarding the various impacts of tax reform and related disclosures. Consistent with guidance in SAB 118, we recorded provisional amounts for the transition tax on undistributed earnings of $52.9 million, which was partially offset by foreign tax credits of $22.6 million. We also recorded $53.0 million tax benefit as a result of the revaluation of our net deferred tax liabilities. The provisional amounts incorporate assumptions made based upon our current interpretation of the Act and may change as we receive additional clarification and implementation guidance.

We are continuing to analyze additional information to determine the final impact as well as other impacts of the Act. Any adjustments recorded to the provisional amounts will be included in income from operations as an adjustment to our fiscal year 2019 financial statements.

The components of deferred tax assets and liabilities are as follows (in thousands):



	March 31,
	2018			2017
Deferred tax assets:
Foreign tax credits	$	9,140		$	39,554
State net operating losses	12,337			8,432
Net operating losses	98,911			97,878
Accrued pension liability	6,289			10,445
Accrued equity compensation	10,172			17,162
Deferred revenue	688			1,446
Employee award programs	1,603			4,343
Employee payroll accruals	4,426			5,328
Inventories	1,666			3,111
Investment in unconsolidated affiliates	28,778			17,099
Other	5,543			5,865
Valuation allowance - foreign tax credits	(9,140		)	(31,974		)
Valuation allowance - state	(12,337		)	(8,432		)
Valuation allowance	(50,510		)	(34,321		)
Total deferred tax assets	$	107,566		$	135,936
Deferred tax liabilities:
Property and equipment	$	(150,224	)	$	(220,305	)
Inventories	(2,070		)	(1,967		)
Investment in unconsolidated affiliates	(21,470		)	(28,631		)
Employee programs	(1,224		)	(1,033		)
Deferred gain	(2,691		)	(3,208		)
Other	(4,155		)	(5,371		)
Total deferred tax liabilities	$	(181,834	)	$	(260,515	)
Net deferred tax liabilities	$	(74,268	)	$	(124,579	)

Companies may use foreign tax credits to offset the U.S. income taxes due on income earned from foreign sources. However, the credit that may be claimed for a particular taxable year is limited by the total income tax on the U.S. income tax return as well as by the ratio of foreign source net income in each statutory category to total net income. The amount of creditable foreign taxes available for the taxable year that exceeds the limitation (i.e., “excess foreign tax credits”) may be carried back one year and forward ten years. We have $9.1 million of excess foreign tax credits as of March 31, 2018, all of which will expire in fiscal year 2025. As of March 31, 2018, we have $149.0 million of net operating losses in the U.S., of which $2.5 million will expire in fiscal year 2036, $119.7 million will expire in fiscal year 2037 and $26.8 million will expire in fiscal year 2038. In addition, we have net operating losses in certain states totaling $199.7 million which will begin to expire in fiscal year 2022.

We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. As of March 31, 2018, valuation allowances were $50.5 million for foreign operating loss carryforwards, $12.3 million for state operating loss carryforwards and $9.1 million for foreign tax credits.

The following table is a rollforward of the deferred tax valuation allowance (in thousands):



	Fiscal Year Ended March 31,
	2018			2017			2016
Balance – beginning of fiscal year	$	(74,727	)	$	(29,373	)	$	(11,700	)
Additional allowances	(20,259		)	(45,354		)	(17,673		)
Reversals and other changes	22,999			—			—
Balance – end of fiscal year	$	(71,987	)	$	(74,727	)	$	(29,373	)

The components of loss before benefit (provision) for income taxes for fiscal years 2018, 2017 and 2016 are as follows (in thousands):



	Fiscal Year Ended March 31,
	2018			2017			2016
Domestic	$	(91,002	)	$	(147,988	)	$	(115,277	)
Foreign	(137,972		)	3,686			36,046
Total	$	(228,974	)	$	(144,302	)	$	(79,231	)

The provision (benefit) for income taxes for fiscal years 2018, 2017 and 2016 consisted of the following (in thousands):



	Fiscal Year Ended March 31,
	2018			2017			2016
Current:
Domestic	$	1,247		$	2,797		$	(29,907	)
Foreign	13,607			17,153			27,317
	$	14,854		$	19,950		$	(2,590	)
Deferred:
Domestic	$	(39,079	)	$	24,651		$	(4,483	)
Foreign	(6,666		)	(12,013		)	4,991
	$	(45,745	)	$	12,638		$	508
Total	$	(30,891	)	$	32,588		$	(2,082	)

The reconciliation of the U.S. Federal statutory tax rate to the effective income tax rate for the (provision) benefit for income taxes is shown below:



	Fiscal Year Ended March 31,
	2018		2017		2016
Statutory rate	31.6	%	35.0	%	35.0	%
Effect of U.S. tax reform	9.9	%	—	%	—	%
Net foreign tax on non-U.S. earnings	0.8	%	(0.5	)%	(8.4	)%
Benefit of foreign tax deduction in the U.S.	—	%	2.5	%	2.6	%
Foreign earnings indefinitely reinvested abroad	(8.2	)%	(1.1	)%	15.9	%
Change in valuation allowance	1.1	%	(25.7	)%	(25.3	)%
Foreign earnings that are currently taxed in the U.S.	(32.9	)%	(28.3	)%	(7.9	)%
Effect of change in foreign statutory corporate income tax rates	—	%	(0.2	)%	1.1	%
Impairment of foreign investments	11.8	%	—	%	—	%
Goodwill impairment	—	%	(1.0	)%	(11.8	)%
Changes in tax reserves	(2.3	)%	(0.2	)%	(0.5	)%
Other, net	1.7	%	(3.1	)%	1.9	%
Effective tax rate	13.5	%	(22.6	)%	2.6	%

In fiscal year 2018, our effective tax rate is 13.5% and includes: (i) tax benefit of $27.0 million related to the impairment of our equity investment in Líder; (ii) tax impact of one-time transition tax on unrepatriated earnings of foreign subsidiaries under the Act of $52.9 million, which is partially offset by the utilization of foreign tax credits of $22.6 million; (iii) tax benefit of $53.0 million as a result of the revaluation of our net deferred tax liabilities; and (iv) tax benefit due to release of $22.8 million of foreign tax credit valuation allowances.

Our effective income tax rate for fiscal year 2017 was (22.6)%representing the income tax expense rate on a pre-tax net loss for the fiscal year, which was reduced by $37.0 million of tax expense for an increase in valuation allowance.

A portion of our aircraft fleet is owned directly or indirectly by our wholly owned Cayman Island subsidiaries. Our foreign operations combined with our leasing structure provided a material benefit to the effective tax rates for fiscal years 2018, 2017 and 2016. In fiscal year 2017, our unfavorable permanent differences, such as valuation allowances and non-tax deductible goodwill write-off had the effect of increasing our income tax expense and reducing our effective tax rate applied to pre-tax losses. Also, our effective tax rates for fiscal years 2018, 2017 and 2016 benefited from the permanent investment outside the U.S. of foreign earnings, upon which no U.S. tax had been provided until the one-time transition tax on unrepatriated earnings of foreign subsidiaries under the Act.

In fiscal year 2017, our effective tax rate was impacted by valuation allowances of $37.0 million and a change in the mix of geographic earnings in which we experienced U.S. losses offset by taxes in jurisdictions taxed on a deemed profit basis. The current effective tax rate was impacted by the tax effect of the $8.7 million goodwill impairment discussed in Note 1.

In August 2008, certain of our existing and newly created subsidiaries completed intercompany leasing transactions involving eleven aircraft. The tax benefit of this transaction is being recognized over the remaining useful life of the assets, which is approximately 13 years. During each of the fiscal years 2017 and 2016, this transaction resulted in a $2.4 million and $2.8 million reduction in our consolidated provision for income taxes, respectively. This transaction resulted in no impact on our consolidated provision for income taxes during fiscal year 2018.

Our operations are subject to the jurisdiction of multiple tax authorities, which impose various types of taxes on us, including income, value added, sales and payroll taxes. Determination of taxes owed in any jurisdiction requires the interpretation of related tax laws, regulations, judicial decisions and administrative interpretations of the local tax authority. As a result, we are subject to tax assessments in such jurisdictions including the re-determination of taxable amounts by tax authorities that may not agree with our interpretations and positions taken. The following table summarizes the years open by jurisdiction as of March 31, 2018:



	Jurisdiction	Years Open
	U.S.	Fiscal year 2014 to present
	U.K.	Fiscal year 2017 to present
	Nigeria	Fiscal year 2009 to present
	Trinidad	Fiscal year 2005 to present
	Australia	Fiscal year 2014 to present
	Norway	Fiscal year 2014 to present

The effects of a tax position are recognized in the period in which we determine that it is more-likely-than-not (defined as a more than 50% likelihood) that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is measured as the largest amount of tax benefit that is greater than 50% likely of being recognized upon ultimate settlement.

We have analyzed filing positions in the federal, state and foreign jurisdictions where we are required to file income tax returns for all open tax years. We believe that the settlement of any tax contingencies would not have a significant impact on our consolidated financial position, results of operations or liquidity. In fiscal years 2018, 2017 and 2016, we had a net provision of $5.4 million, $0.2 million and $0.4 million, respectively, of reserves for tax contingencies primarily related to non-U.S. income tax on foreign leasing operations. Our policy is to accrue interest and penalties associated with uncertain tax positions in our provision for income taxes. In fiscal years 2018, 2017 and 2016, $0.1 million, $0.2 million and $0.3 million, respectively, in interest and penalties were accrued in connection with uncertain tax positions.

As of March 31, 2018 and 2017, we had $6.7 million and $1.3 million, respectively, of unrecognized tax benefits, all of which would have an impact on our effective tax rate, if recognized.

The activity associated with our unrecognized tax benefit during fiscal years 2018 and 2017 is as follows (in thousands):



	Fiscal Year Ended March 31,
	2018			2017
Unrecognized tax benefits – beginning of fiscal year	$	1,332		$	1,093
Increases for tax positions taken in prior years	7,784			1,059
Decreases for tax positions taken in prior years	(2,434		)	(818		)
Decrease related to statute of limitation expirations	—			(2		)
Unrecognized tax benefits – end of fiscal year	$	6,682		$	1,332

As of March 31, 2018, we have aggregated approximately $517.9 million in unremitted foreign earnings reinvested abroad. Pursuant to the Act, these earnings were subject to the mandatory one-time transition tax and eligible to be repatriated to the U.S. without additional U.S. tax. Although these foreign earnings have been deemed to be repatriated from a U.S. federal income tax perspective, we have not yet completed our assessment of the U.S. tax reform on our plans to reinvest foreign earnings and as such have not changed our prior conclusion that the unremitted earnings are indefinitely reinvested. Accordingly, we have not provided deferred taxes on these unremitted earnings. If our expectations were to change, withholding and other applicable taxes incurred upon repatriation, if any, are not expected to have a significant impact on our results of operations.

We receive a tax benefit that is generated by certain employee stock benefit plan transactions. Under previous accounting guidance, in fiscal years 2017 and 2016, this benefit was recorded directly to additional paid-in-capital on our consolidated balance sheets and did not reduce our effective income tax rate.

Income taxes paid during fiscal years 2018, 2017 and 2016 were $26.7 million, $28.1 million and $28.0 million, respectively.