In December 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act includes a number of changes to existing U.S. tax laws that impact the company, most notably a reduction of the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. The 2017 Tax Act also provides for a one-time transition tax on certain foreign earnings and the acceleration of depreciation for certain assets placed into service after September 27, 2017 as well as prospective changes beginning in 2018, including acceleration of tax revenue recognition, additional limitations on executive compensation, limitations on the deductibility of interest, and significant changes to the system of taxing foreign earnings.

The changes to existing U.S. tax laws as a result of the 2017 Tax Act, which we believe have the most significant impact on the Company’s federal income taxes are as follows:

The 2017 Tax Act reduces the corporate tax rate from 35% to 21%. The Company, as a fiscal year filer, is required to use a 31.5% blended rate for the fiscal year ending March 31, 2018 under the 2017 Tax Act. The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Company’s deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate from 35% to 21%, resulting in a $50.6 million increase in tax expense for the year ended March 31, 2018 and a corresponding $50.6 million decrease in net deferred tax assets as of March 31, 2018. Corresponding adjustments were made to the valuation allowance resulting in no net tax expense.

The 2017 Tax Act provides for a one-time inclusion in taxable income attributable to a deemed mandatory repatriation of certain unremitted earnings through December 31, 2017 of foreign subsidiaries of U.S. companies. This deemed repatriation results in U.S. taxes being imposed on such earnings which has not been previously taxed by the United States at rates discounted from the regular statutory corporate tax rate, subject to a reduction for available foreign tax credits. The company had an estimated $17.3 million of undistributed foreign earnings subject to the deemed mandatory repatriation, before reduction by the participation exemption of $8.8 million for a net inclusion of $8.5 million. This inclusion resulted in a commensurate decrease in deferred tax assets due to the utilization of net operating loss carryforwards to offset the inclusion. Corresponding adjustments were made to the valuation allowance resulting in no net tax expense.

Beginning in fiscal year 2019, under the 2017 Tax Act, foreign earnings are generally eligible for a 100% exclusion from U.S. taxable income under a new territorial system of taxation. However, the 2017 Tax Act nonetheless imposes tax on certain foreign earnings pursuant to a newly enacted provision known as the global intangible low-taxed income (“GILTI”) provision. The GILTI provision requires the company to include in its U.S. income tax return the earnings of certain foreign subsidiaries in excess of an allowable return on the foreign subsidiaries’ tangible assets. A company may make an accounting policy election to account for GILTI as a period cost in the period in which it is incurred or to recognize deferred taxes when book-tax basis differences exist which are expected to affect the amount of the GILTI inclusion upon reversal. The company made a policy election to treat the GILTI tax as a period cost. The GILTI provision resulted in $0.5 million of income tax expense for fiscal year 2019. This inclusion resulted in a corresponding decrease in deferred tax assets due to the utilization of net operating loss carryforwards to offset the inclusion. Corresponding adjustments were made to the valuation allowance resulting in no net tax expense.

 

Beginning in fiscal year 2019, under the 2017 Tax Act, deductions for interest expense are limited to 30% of an amount generally derived as taxable income before interest, amortization and depreciation expenses (through fiscal year 2022 when this base for the limitation is further narrowed). The disallowed interest expense deduction is available as a carryforward of indefinite duration. For fiscal year 2019, $28.5 million of the Company’s interest expenses were disallowed and carried forward pursuant to this limitation. The impact is that realization of the deferred tax asset attributable to the disallowed interest expense carryforward will require a greater amount of future income than the deferred tax asset for the regular net operating losses.

Pre-tax loss reflected in the Consolidated Statements of Operations is as follows (in thousands):

 

The Company’s provision for income tax consists of the following (in thousands):

 

The income tax provision differs from the amount computed by applying the federal statutory rate of 21% for 2019, 31.5% for 2018, and 35% for 2017 to income (loss) before income taxes as follows (in thousands):

 

 

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

 

As of March 31, 2019, 2018 and 2017 we had federal, state and foreign net operating loss carryforwards of approximately $332.1 million, $210.0 million, and $18.1 million, respectively. We also had federal, state, and foreign tax credit carryforwards of approximately $77.7 million, $40.0 million, and $0.9 million as of March 31, 2019, 2018 and 2017, respectively. Some of the net operating loss and tax credit carryforwards expire in varying amounts beginning in fiscal 2019 if not previously utilized. Others are not subject to expiration. As a result of the 2017 Tax Act, $2.7 million of U.S. Federal net operating loss carryforwards generated after fiscal 2018 are not subject to expiration, although their use in any taxable year is limited to 80% of the taxable income in such year.

These carryforwards include $11.1 million of acquired net operating losses and $8.3 million of acquired credits, the utilization of which is subject to various limitations due to prior changes in ownership. Certain changes in stock ownership could result in additional limitations on the amount of both acquired and self-generated net operating loss and tax credit carryovers that can be utilized each year. If the Company has previously undergone, or should it experience in the future, such a change in stock ownership, it could severely limit the usage of these carryover tax attributes against future income, resulting in additional tax charges.

Due to our history of net losses in the United States, the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets. Accordingly, we have established a full valuation allowance against our U.S. and certain foreign net deferred tax assets. Significant management judgement is required in assessing our ability to realize any future benefit from our net deferred tax assets. We intend to maintain this valuation allowance until sufficient positive evidence exists to support its reversal. Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.

At March 31, 2019, the Company had unremitted foreign earnings of approximately $90.5 million. The Company does not assert indefinite reinvestment of its foreign earnings. However, due to the combination of the transition tax, the previous inclusion in U.S. taxable income of certain foreign earnings invested in the United States, the GILTI provisions and the general exclusion of the remaining foreign earnings from U.S. taxation under the new territorial system of international taxation, the principle taxes accrued on such unremitted earnings are $3.2 million of foreign withholding taxes in jurisdictions where full tax treaty relief is not available.

A reconciliation of the gross unrecognized tax benefits follows (in thousands):

 

During fiscal 2019, excluding interest and penalties, there was a $34.5 million change in our unrecognized tax benefits. Including interest and penalties, the total unrecognized tax benefit at March 31, 2019 was $117.0 million, $98.7 million of which, if recognized, would favorably affect the effective tax rate. At March 31, 2019, the Company had recorded accrued interest and penalties of $0.9 million. Our practice is to recognize interest and penalties related to income tax matters in the income tax provision in the Consolidated Statements of Operations. As of March 31, 2019 $111.4 million of unrecognized tax benefits were recorded as a contra deferred tax asset in other long-term assets and $5.6 million were recorded in other long-term liabilities in the Consolidated Balance Sheets.

We file our tax returns as prescribed by the laws of the jurisdictions in which we operate. Our U.S. tax returns have been audited for years through 2002 by the Internal Revenue Service. In other major jurisdictions, we are generally open to examination for the most recent three to five fiscal years. Although timing of the resolution and closure on audits is highly uncertain, we do not believe it is likely that the unrecognized tax benefits would materially change in the next 12 months.