10.	Income Taxes

The Company is subject to income taxes in the U.S. and various state and foreign jurisdictions. Tax statutes and regulations within each jurisdiction are subject to interpretation and require the application of significant judgment. The Company is currently under examination by two state jurisdictions for the years 2010 through 2017 and one foreign jurisdiction for the years 2011 through 2015. The Company does not expect resolution of these examinations to have a material impact on its results of operations, financial condition or cash flows.

The Company’s total liability for unrecognized tax benefits as of March 31, 2018 and June 30, 2017 was $4.1 million and $1.7 million, respectively. The $4.1 million unrecognized tax benefit at March 31, 2018, if recognized, would impact the Company’s effective tax rate.

The effective income tax rate for the three months ended March 31, 2018 increased to 31.6 percent from 26.8 percent for the same period last year. The effective tax rate increased primarily due to the positive impact in FY2017 of research and development tax credits for the years ending June 30, 2016 and June 30, 2017, both of which were recognized in the third quarter of FY2017. This increase was partially offset by the favorable effect of a reduced federal statutory rate due to the Tax Cuts and Jobs Act (TJCA) for the three months ended March 31, 2018.

The effective income tax rate for the nine months ended March 31, 2018 decreased to (9.6) percent from 33.7 percent for the same period last year. The effective tax rate decreased primarily due to certain impacts of the TCJA, discussed below. The effective tax rate was also favorably affected by excess tax benefits from employee share-based payment awards under ASU 2016-09, a benefit from the research and development tax credit, and gains from the change in value of assets invested in corporate owned life insurance (COLI) policies.

Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (the “TCJA”) was enacted on December 22, 2017. Among other things, the TCJA reduces the U.S. federal corporate tax rate from 35.0 percent to 21.0 percent effective on January 1, 2018. The rate change is administratively effective at the beginning of our fiscal year, using a blended rate for the annual period. As a result, the blended federal statutory tax rate for the year is 28.06 percent. Additionally, the TCJA requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, creates new taxes on certain foreign-sourced earnings and changes or limits certain tax deductions and credits. At March 31, 2018, we have not completed our accounting for the tax effects of enactment of the TCJA; however, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. For these items we recognized provisional amounts in income tax expense benefit as discussed below.

We remeasured deferred tax asset and liability balances at December 22, 2017 based on the rates at which they are expected to reverse in the future, which is generally 21.0 percent for reversals after FY2018 and a blended rate of 28.06 percent for reversals within FY2018. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of our net deferred tax liabilities was a reduction to income tax expense of zero and $94.8 million for the three and nine months ended March 31, 2018.

The one-time transition tax is based on our total post-1986 earnings and profits (“E&P”) for which we have previously deferred from U.S. income taxes. We recorded a provisional amount for our one-time transition tax liability for our foreign subsidiaries, resulting in an increase in income tax expense of zero and $9.7 million for the three and nine months ended March 31, 2018, respectively. The Company expects to pay this amount over eight years. We have not yet completed our calculation of the total post-1986 foreign E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when we finalize the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax and any additional outside basis difference inherent in these entities as these amounts continue to be indefinitely reinvested in foreign operations.

The Company will continue to analyze the TCJA to determine the full effects of the new law, including the new lower corporate tax rate, international provisions, and the impact of the TCJA on the 162(m) limitations on its financial condition and results of operations. Additionally, the Company will continue to monitor various state law changes in reaction to the TCJA as changes are enacted.

The overall impact of the TCJA on our results of operations was a $5.7 million and $98.0 million reduction to tax expense for the three and nine months ended March 31, 2018. The corresponding increase in diluted earnings per share was $0.23 and $3.88 for the three and nine months ended March 31, 2018, respectively.