INCOME TAXES:

Total income tax expense (benefit) was allocated as follows (dollars in thousands):



	2018			2017			2016
Earnings (loss) from continuing operations	$	(22,771	)	$	4,534		$	(11,632	)
Earnings from discontinued operations	—			—			3,598
Stockholders’ equity:
Tax shortfall (excess tax benefits) from share-based compensation	—			(2,183		)	293
	$	(22,771	)	$	2,351		$	(7,741	)

Income tax expense (benefit) attributable to earnings (loss) from continuing operations consists of (dollars in thousands):



	2018			2017			2016
Current:
U.S. Federal	$	(6,334	)	$	9,778		$	(2,410	)
Non-U.S.	616			472			535
State	(79		)	3,102			1,907
	(5,797		)	13,352			32
Deferred:
U.S. Federal	(19,113		)	(3,680		)	(3,789		)
Non-U.S.	549			405			(3,220		)
State	1,590			(5,543		)	(4,655		)
	(16,974		)	(8,818		)	(11,664		)
Total	$	(22,771	)	$	4,534		$	(11,632	)

Earnings (loss) before income tax attributable to U.S. and non-U.S. continuing operations consists of (dollars in thousands):



	2018			2017		2016
U.S.	$	(2,552	)	$	7,936	$	(6,952	)
Non-U.S.	3,261			706		(13,328		)
Total	$	709		$	8,642	$	(20,280	)

Earnings (loss) before income taxes, as shown above, are based on the location of the entity to which such earnings (loss) are attributable. However, since such earnings (loss) may be subject to taxation in more than one country, the income tax provision shown above as U.S. or non-U.S. may not correspond to the earnings (loss) shown above.

Below is a reconciliation of expected income tax expense (benefit) computed by applying the blended U.S. federal statutory rate of 31.5% for fiscal 2018, and the U.S. federal statutory rate of 35.0% for fiscal 2017 and fiscal 2016, respectively, to earnings (loss) before income taxes to actual income tax expense (benefit) from continuing operations (dollars in thousands):



	2018			2017			2016
Computed expected income tax (benefit)	$	223		$	3,025		$	(7,098	)
Increase (reduction) in income taxes resulting from:
State income taxes, net of federal benefit	1,203			(1,586		)	(1,796		)
Research and other tax credits	(5,015		)	(2,285		)	(4,027		)
Effect of federal rate change on deferred taxes	(24,565		)	—			—
Nondeductible expenses	1,028			1,156			661
Acxiom Impact disposition	—			(4,502		)	—
Stock-based compensation	3,590			3,308			1,857
Non-U.S. subsidiaries taxed at other rates	246			614			2,468
Adjustment to valuation allowances	—			2,896			(3,585		)
Acquisitions costs	—			478			—
Foreign income inclusion	84			473			—
Other, net	435			957			(112		)
	$	(22,771	)	$	4,534		$	(11,632	)

On December 22, 2017, the U.S. enacted significant tax law changes following the passage of H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) (previously known as “The Tax Cuts and Jobs Act”). The Tax Act included significant changes to existing tax law, including a permanent reduction to the U.S. federal corporate income tax rate from 35% to 21%, a one-time repatriation tax on deferred foreign income (“Transition Tax”), and numerous other changes to business-related deductions.

The permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% became effective January 1, 2018 (the “Effective Date”). Because the Effective Date did not fall on the first day of our fiscal year, we are required to apply a blended tax rate for the entire fiscal year based on a weighted daily average rate. As a result of the Tax Act, our U.S. federal statutory corporate income tax rate is 31.5% for the fiscal year ended March 31, 2018.

The Company recorded a $24.6 million benefit for the remeasurement of net deferred tax liabilities to reflect the reduced tax rate that will apply when these deferred taxes are settled or realized in future periods. While the Company was able to make a reasonable estimate of the impact of the reduction to the corporate tax rate, its rate may be affected by other analyses related to the Tax Act, including, but not limited to, the state tax effect of adjustments made to federal temporary differences. In addition, due to the complexity of the new global intangible low-taxed income ("GILTI") tax rules, we are continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under GAAP, the Company is allowed to make an accounting policy choice to either (i) treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred, or (ii) factor in such amounts into the measurement of deferred taxes. The Company has not made a policy decision regarding whether to record deferred taxes on GILTI. We will continue to analyze the full effects of the Tax Act on our consolidated financial statements and expect to complete our analysis by our quarter ending December 31, 2018.

In fiscal 2017, the Company incurred a tax loss on the Acxiom Impact disposition, resulting in a capital loss carryforward. Based on management’s assessment of realizability, a valuation allowance was established against the related deferred tax asset. The state income tax benefit resulting from the Acxiom Impact disposition, net of related valuation allowances, is reflected above in State income taxes, net of federal benefit.

Due to changes in management’s assessment of the realizability of deferred tax assets in certain foreign jurisdictions, the Company released $3.6 million in valuation allowances in fiscal 2016.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at March 31, 2018 and 2017 are presented below (dollars in thousands). In accordance with income tax accounting standards, as of March 31, 2018, the Company has not recognized deferred income taxes on approximately $20.7 million of undistributed earnings of foreign subsidiaries that are indefinitely reinvested outside the respective parent’s country. Calculation of the deferred income tax related to these earnings is not practicable.



	2018			2017
Deferred tax assets:
Accrued expenses	$	6,681		$	9,517
Deferred revenue	491			1,837
Net operating loss carryforwards	51,068			50,414
Stock-based compensation	10,884			19,854
Nonqualified deferred compensation	3,217			4,672
Capital loss carryforward	2,099			3,414
Tax credit carryforwards	13,427			10,403
Other	234			(791		)
Total deferred tax assets	88,101			99,320
Less valuation allowance	(49,719		)	(47,074		)
Net deferred tax assets	38,382			52,246
Deferred tax liabilities:
Prepaid expenses	$	(4,111	)	$	(1,192	)
Capitalized software costs	(7,343		)	(11,582		)
Property and equipment	(4,837		)	(9,800		)
Intangible assets	(42,281		)	(77,785		)
Accrued expenses	(7,828		)	—
Total deferred tax liabilities	(66,400		)	(100,359		)
Net deferred tax liabilities	$	(28,018	)	$	(48,113	)

At March 31, 2018, the Company has net operating loss carryforwards of approximately $21.5 million and $55.4 million for U.S. federal and state income tax purposes, respectively. Of the net operating loss carryforwards, $4.8 million will not expire, and the remaining carryforwards expire in various amounts and will completely expire if not used by 2037. The Company has a capital loss carryforward of $8.3 million, which will expire if not used by 2022. The Company has foreign net operating loss carryforwards of approximately $142.2 million. Of this amount, $141.6 million do not have expiration dates. The remainder expires in various amounts and will completely expire if not used by 2027. The Company has federal and state credit carryforwards of $7.5 million and $22.7 million, respectively. Of the credit carryforwards, $8.5 million will not expire, and the remainder will expire in various amounts and will completely expire if not used by 2038.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the proper character during the periods in which those temporary differences become deductible.

Based upon the Company’s history of profitability and taxable income and the reversal of taxable temporary differences in the U.S., management believes that apart from the U.S. federal capital loss carryforward and various carryforwards in certain states it is more likely than not the Company will realize the benefits of the deductible temporary differences. The Company has established valuation allowances against $0.9 million of deferred tax assets related to the U.S. federal capital loss carryforward and $4.0 million of deferred tax assets related to loss carryforwards in the states where activity does not support the deferred tax asset.

Based upon the Company’s history of losses in certain non-U.S. jurisdictions, the Company has not recorded a benefit for current foreign losses in these jurisdictions. In addition, Management believes it is not more likely than not the Company will realize the benefits of certain foreign loss carryforwards and has established valuation allowances in the amount of $44.8 million against deferred tax assets in such jurisdictions. No valuation allowance has been established against deferred tax assets in non-U.S. jurisdictions in which historical profits and forecasted continuing profits exist. The earnings of subsidiaries in such jurisdictions and the differences in income taxes computed using the U.S. statutory tax rate and the effective tax rate in such jurisdictions are not significant.

The following table sets forth changes in the total gross unrecognized tax benefits for the fiscal years ended March 31, 2018, 2017 and 2016 (dollars in thousands):



	2018			2017			2016
Balance at beginning of period	$	12,870		$	10,906		$	9,711
Increases related to prior year tax positions	1,134			307			1,717
Decreases related to prior year tax positions	(208		)	(466		)	(1,227		)
Increases related to current year tax positions	3,172			2,123			2,035
Settlements with taxing authorities	—			—			(1,330		)
Lapse of statute of limitations	(1,553		)	—			—
Balance at end of period	$	15,415		$	12,870		$	10,906

Gross unrecognized tax benefits as of March 31, 2018 was $15.4 million, of which up to $12.5 million would reduce the Company’s effective tax rate in future periods if and when realized. The Company reports accrued interest and penalties related to unrecognized tax benefits in income tax expense. The combined amount of accrued interest and penalties related to tax positions on tax returns was approximately $0.5 million as of March 31, 2018. There was no material change in accrued interest and penalties during fiscal 2018. The Company anticipates a reduction of $2.3 million of unrecognized tax benefits within the next 12 months, as a result of a lapse of the statute of limitations.

The Company files a consolidated U.S. federal income tax return and tax returns in various state and local jurisdictions. The Company’s subsidiaries also file tax returns in various foreign jurisdictions in which they operate. In the U.S., the statute of limitations for Internal Revenue Service examinations remains open for the Company’s federal income tax returns for fiscal years after 2014. The status of state and local and foreign tax examinations varies by jurisdiction. The Company does not anticipate any material adjustments to its financial statements resulting from tax examinations currently in progress.