TAXES

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



	March 31,
	2017			2016
Deferred tax assets:
Foreign tax credits	$	39,554		$	41,140
State net operating losses	8,432			—
Net operating losses	97,878			28,695
Accrued pension liability	10,445			13,266
Accrued equity compensation	17,162			17,092
Deferred revenue	1,446			1,749
Employee award programs	4,343			5,098
Employee payroll accruals	5,328			5,099
Inventories	3,111			3,305
Investment in unconsolidated affiliates	17,099			10,863
Other	5,865			4,903
Valuation allowance - foreign tax credits	(31,974		)	—
Valuation allowance - state	(8,432		)	—
Valuation allowance	(34,321		)	(29,373		)
Total deferred tax assets	$	135,936		$	101,837
Deferred tax liabilities:
Property and equipment	$	(220,305	)	$	(202,388	)
Inventories	(1,967		)	(799		)
Investment in unconsolidated affiliates	(28,631		)	(38		)
Employee programs	(1,033		)	(1,360		)
Deferred gain	(3,208		)	—
Other	(5,371		)	(3,390		)
Total deferred tax liabilities	$	(260,515	)	$	(207,975	)
Net deferred tax liabilities	$	(124,579	)	$	(106,138	)

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 $39.6 million of excess foreign tax credits as of March 31, 2017, of which $6.6 million will expire in 2021, $4.0 million will expire in fiscal year 2022, $0.2 million will expire in fiscal year 2023, $15.6 million will expire in fiscal year 2024 and $13.2 million will expire in fiscal year 2025. In fiscal year 2016, we generated $123.2 million of net operating loss in the U.S. which we carried back to fiscal years 2014 and 2015 and received a cash refund of $27.7 million. The unused losses of $1.6 million after the carryback will expire in 2036. In fiscal year 2017, we generated $124.7 million of net operating loss in the U.S. which we will carryforward to future years; any unused losses will expire in 2037.

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, 2017, valuation allowances were $34.3 million for foreign operating loss carryforwards, $8.4 million for state operating loss carryforwards and $32.0 million for foreign tax credits.

The components of income before provision for income taxes for fiscal years 2017, 2016 and 2015 are as follows (in thousands):



	Fiscal Year Ended March 31,
	2017			2016			2015
Domestic	$	(147,988	)	$	(115,277	)	$	(40,602	)
Foreign	3,686			36,046			152,075
Total	$	(144,302	)	$	(79,231	)	$	111,473

The provision for income taxes for fiscal years 2017, 2016 and 2015 consisted of the following (in thousands):



	Fiscal Year Ended March 31,
	2017			2016			2015
Current:
Domestic	$	2,797		$	(29,907	)	$	4
Foreign	17,153			27,317			34,822
	$	19,950		$	(2,590	)	$	34,826
Deferred:
Domestic	$	24,651		$	(4,483	)	$	(11,358	)
Foreign	(12,013		)	4,991			(702		)
	$	12,638		$	508		$	(12,060	)
Total	$	32,588		$	(2,082	)	$	22,766

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



	Fiscal Year Ended March 31,
	2017		2016		2015
Statutory rate	35.0	%	35.0	%	35.0	%
Net foreign tax on non-U.S. earnings	(0.5	)%	(8.4	)%	26.3	%
Benefit of foreign tax deduction in the U.S.	2.5	%	2.6	%	—	%
Foreign earnings indefinitely reinvested abroad	(1.1	)%	15.9	%	(47.0	)%
Change in valuation allowance	(25.7	)%	(25.3	)%	4.0	%
Foreign earnings that are currently taxed in the U.S.	(28.3	)%	(7.9	)%	8.7	%
Effect of reduction in corporate income tax rate	(0.2	)%	1.1	%	—	%
Goodwill impairment	(1.0	)%	(11.8	)%	—	%
Benefit of current year foreign tax credits	—	%	—	%	(11.3	)%
Tax reserve release	0.6	%	0.2	%	(0.1	)%
Other, net	(3.9	)%	1.2	%	4.8	%
Effective tax rate	(22.6	)%	2.6	%	20.4	%

Our effective income tax rate for fiscal year 2017 is (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 2017, 2016 and 2015. 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 2017, 2016 and 2015 benefited from the permanent investment outside the U.S. of foreign earnings, upon which no U.S. tax has been provided.

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, 2016 and 2015, this transaction resulted in a $2.4 million, $2.8 million and $2.9 million reduction in our consolidated provision for income taxes, respectively.

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, 2017:



	Jurisdiction	Years Open
	U.S.	Fiscal year 2014 to present
	U.K.	Fiscal year 2016 to present
	Nigeria	Fiscal year 2009 to present
	Trinidad	Fiscal year 2005 to present
	Australia	Fiscal year 2013 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 2017, 2016 and 2015, we had a net (benefit) provision of $0.2 million, $0.4 million and $0.5 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 2017, 2016 and 2015, $0.2 million, $0.3 million and $0.4 million, respectively, in interest and penalties were accrued in connection with uncertain tax positions.

As of March 31, 2017 and 2016, we had $1.3 million and $1.1 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 2017 and 2016 is as follows (in thousands):



	Fiscal Year Ended March 31,
	2017			2016
Unrecognized tax benefits – beginning of fiscal year	$	1,093		$	4,904
Eastern pre-acquisition tax liability	—			(4,193		)
Increases for tax positions taken in prior years	1,059			898
Decreases for tax positions taken in prior years	(818		)	(188		)
Decrease related to statute of limitation expirations	(2		)	(328		)
Unrecognized tax benefits – end of fiscal year	$	1,332		$	1,093

Unremitted foreign earnings reinvested abroad upon which U.S. income taxes have not been provided aggregated approximately $717.1 million and $832.1 million as of March 31, 2017 and 2016, respectively. No accrual of income tax has been made for fiscal years 2017 and 2016 related to these indefinitely reinvested earnings as there was no plan in place to repatriate any of these foreign earnings to the U.S. as of the end of the fiscal year. Withholding taxes, if any, upon repatriation would not be significant. We do not currently provide for U.S. deferred taxes on unremitted earnings of our foreign subsidiaries as such earnings are deemed to be permanently reinvested. If such earnings were to be distributed, we could be subject to U.S. taxes, which may have a material impact on our results of operations. We cannot practicably estimate the amount of additional taxes that might be payable on unremitted earnings

We receive a tax benefit that is generated by certain employee stock benefit plan transactions. This benefit is recorded directly to additional paid-in-capital on our consolidated balance sheets and does not reduce our effective income tax rate. The tax benefit for fiscal years 2015 totaled approximately $1.6 million, respectively. We did not receive any tax benefits in fiscal years 2017 and 2016 relating to employee stock benefit plan transactions.

Income taxes paid during fiscal years 2017, 2016 and 2015 were $28.1 million, $28.0 million and $34.8 million, respectively.