Income Taxes

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Our provision for income taxes is based on estimated effective tax rates derived from an estimate of annual consolidated earnings before taxes, adjusted for nondeductible expenses, other permanent items and any applicable credits.

The following table presents the provision for income taxes (in thousands) and the effective tax rates:



	Three Months Ended						Nine Months Ended
	December 30,			December 24,			December 30,			December 24,
	2017			2016			2017			2016
Income before income taxes	$	104,740		$	145,792		$	243,112		$	270,134
Provision for income taxes	$	70,961		$	23,751		$	93,121		$	43,983
Effective tax rate	67.7		%	16.3		%	38.3		%	16.3		%

Our income tax expense was $71.0 million and $23.8 million for the third quarter of fiscal year 2018 and 2017, respectively, resulting in effective tax rates of 67.7% and 16.3% for the third quarter of fiscal year 2018 and 2017, respectively. Our income tax expense was $93.1 million and $44.0 million for the first nine months of fiscal year 2018 and 2017, respectively, resulting in effective tax rates of 38.3% and 16.3% for the first nine months of fiscal year 2018 and 2017, respectively. Our effective tax rate for the third quarter and first nine months of fiscal year 2018 was higher than the federal statutory rate primarily due to the impact of the legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act") enacted in the current quarter and described below, partially offset by income earned in certain foreign jurisdictions that is taxed below the federal statutory rate and excess tax benefits from stock-based compensation. Our effective tax rate for the third quarter and first nine months of fiscal year 2017 was below the federal statutory rate primarily due to income earned in certain foreign jurisdictions taxed below the federal statutory rate, excess tax benefits from stock-based compensation, and the U.S. R&D tax credit.

The Tax Act was enacted on December 22, 2017. The Tax Act reduces the U.S. federal corporate income tax rate from 35.0% to 21.0%, restricts the deductibility of certain business expenses, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax-deferred and creates new taxes on certain foreign sourced earnings, among other provisions. The reduction in the U.S. federal corporate income tax rate is effective January 1, 2018. The rate change is administratively effective at the beginning of our fiscal year 2018, resulting in a blended U.S. federal corporate income tax rate of 31.6% for the annual period. This reduction in the statutory U.S. tax rate, when coupled with changes in the deductibility of certain business expenses that are also effective in fiscal year 2018, resulted in an immaterial change to the estimated annual effective tax rate as of the third quarter of fiscal year 2018. The discrete tax effects of the enactment of the Tax Act are described below.

As of the end of the third quarter of fiscal year 2018, we have not completed our accounting for, and have made a reasonable estimate of, the income tax effects of the Tax Act. We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21.0%. We are still analyzing certain aspects of the Tax Act and refining our calculations, which could potentially affect the measurement of these balances or give rise to new deferred tax amounts. The provisional amount recorded as a discrete component of income tax expense in the current quarter related to the remeasurement of our deferred tax balances was $6.1 million of tax expense. In addition, we recorded a provisional amount of $51.8 million for our one-time transition tax liability as a discrete component of income tax expense. The one-time transition tax is based on our total post-1986 earnings and profits (E&P) that were previously deferred from U.S. income taxes, and is based in part on the amount of those earnings held in cash and other specified assets. The amount may change when we finalize the calculation of E&P and finalize the amounts held in cash or other specified assets on the applicable measurement date.

The Company records unrecognized tax benefits for the estimated risk associated with tax positions taken on tax returns. At December 30, 2017, the Company had unrecognized tax benefits of $36.2 million, all of which would impact the effective tax rate if recognized. The Company recorded a gross decrease of $2.3 million due to the lapse of the statute of limitations in the first quarter of fiscal year 2018 applicable to a tax deduction claimed on a prior year tax return, as well as gross increases to its current year unrecognized tax benefits of $2.2 million, $2.8 million, and $2.6 million for the first, second and third quarters of fiscal year 2018, respectively. The Company believes it is reasonably possible that the gross unrecognized tax benefits could decrease by approximately $1.1 million in the next 12 months due to the lapse of the statute of limitations applicable to a tax position taken on a prior year tax return. The Company’s total unrecognized tax benefits are classified as “Other long-term liabilities” in the consolidated condensed balance sheets.

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of December 30, 2017, the balance of accrued interest and penalties, net of tax, was $0.8 million.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. Fiscal years 2014 through 2017 remain open to examination by the major taxing jurisdictions to which the Company is subject, although carry forward attributes that were generated in tax years prior to fiscal year 2014 may be adjusted upon examination by the tax authorities if they have been, or will be, used in a future period. The Company is not currently under an income tax audit in any major taxing jurisdiction.