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Income Taxes
6 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted by the U.S. government. The Tax Act has impacted the U.S. statutory Federal tax rate that the Company will use going forward, which has been reduced to 21% from 35%. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory Federal rate of approximately 28% for our fiscal year ending June 30, 2018, and 21% for subsequent fiscal years.
The Tax Act also includes items that the Company expects will increase its tax expense including, but not limited to, the elimination of the domestic manufacturing deduction and increased limitations on executive compensation. In addition, the actual effective tax rate may be materially different than the statutory Federal tax rate (including being higher) based on the availability and impact of various other adjustments including but not limited to state taxes, Federal research and development credits, discrete tax benefits related to stock compensation, and the inclusion or exclusion of various items in taxable income which may differ from GAAP income.
To transition to the reduced U.S. corporate tax rate, an adjustment is required to be made to our U.S. deferred tax assets and liabilities. For the three months ended December 31, 2017, the adjustment to the U.S. deferred tax assets and liabilities resulted in a tax benefit of $1,286. The Tax Act includes a transition tax, which is a one-time tax charge on accumulated, undistributed foreign earnings. The calculation of accumulated foreign earnings requires an analysis of each foreign entity’s financial results going back to 1986, including historical tax information that is not yet available to management. The Company has not recorded any transition tax associated with its accumulated, undistributed foreign earnings given its current U.S. tax attributes, including the availability of foreign tax credits. For the three months ended December 31, 2017, the Company has recorded a provisional tax expense of $415 as it no longer expects to utilize certain foreign tax credits. The Company continues to evaluate its transition tax obligation and expects to finalize its conclusions by the end of fiscal 2018. The Company does not expect the final amounts to be materially different than those recorded within this period. For the three-months ended December 31, 2017, the Company has recorded all known and estimable impacts of the Tax Act that are effective for fiscal year 2018. In accordance with SEC Staff Accounting Bulletin 118 (“SAB 118”), future adjustments to the provisional numbers will be recorded as discrete adjustments to income tax expense in the period in which those adjustments become estimable and finalized.
The Company recorded an income tax provision of $1,335 and $1,779 on income from operations before income taxes of $10,468 and $6,983 for the three months ended December 31, 2017 and 2016, respectively. The Company recorded an income tax benefit of $7,046 and an income tax provision of $520 on income from operations before income taxes of $20,040 and $9,543 for the six months ended December 31, 2017 and 2016, respectively.
During the three months ended December 31, 2017 and 2016, the Company recognized a discrete tax expense and benefit of $294 and $634, respectively, related to excess tax benefits on stock-based compensation. The discrete tax expense for the three months ended December 31, 2017 included the enactment of the Tax Act which revalued the excess tax benefit previously recorded in the three months ended September 30, 2017. The excess tax benefit related to stock-based compensation is the result of an increase in value from the stock award between the grant date and the vest date. The effective tax rate for the three months ended December 31, 2017 and 2016 differed from the Federal statutory rate primarily due to Federal research and development credits, domestic manufacturing deduction, excess tax benefits related to stock compensation, and state taxes.
During the six months ended December 31, 2017 and 2016, the Company recognized a discrete tax benefit of $7,579 and $2,817, respectively, related to excess tax benefits on stock-based compensation. The discrete tax benefit for the six months ended December 31, 2017 included the enactment of the Tax Act which revalued the excess tax benefit previously recorded in the three months ended September 30, 2017. The benefit is the result of the increase in value from the stock award between the grant date and the vest date. The six months ended December 31, 2017 also included discrete tax benefits of $3,716, derived from new information obtained about net operating loss carry-forwards of the entities acquired from Microsemi Corporation in May 2016. The discrete items disclosed above for the six months ended December 31, 2017 included the effect of the Tax Act. The effective tax rate for the six months ended December 31, 2017 and 2016 differed from the Federal statutory rate primarily due to Federal research and development credits, domestic manufacturing deduction, excess tax benefits related to stock compensation, and state taxes.
No material changes in the Company’s unrecognized tax positions occurred during the six months ended December 31, 2017.