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 29,			December 30,			December 29,			December 30,
	2018			2017			2018			2017
Income before income taxes	$	32,314		$	104,740		$	84,539		$	243,112
Provision for income taxes	$	2,381		$	70,961		$	705		$	93,121
Effective tax rate	7.4		%	67.7		%	0.8		%	38.3		%

Our income tax expense for the third quarter of fiscal year 2019 was $2.4 million compared to $71.0 million in income tax expense for the third quarter of fiscal year 2018, resulting in effective tax rates of 7.4% and 67.7% for the third quarter of fiscal year 2019 and 2018, respectively. Our income tax expense was $0.7 million for the first nine months of fiscal year 2019 compared to $93.1 million of tax expense for the first nine months of fiscal year 2018, resulting in effective tax rates of 0.8% and 38.3%, respectively. Our effective tax rates for the third quarter and first nine months of fiscal year 2019 were lower than the federal statutory rate primarily due to the U.S. federal research and development tax credit and the effect of income earned in certain foreign jurisdictions that is taxed below the federal statutory rate; our effective tax rate for the first nine months of fiscal year 2019 was further reduced by adjustments recorded to reduce the provisional amount of the Tax Act's transition tax. Our effective tax rates for the third quarter and first nine months of fiscal year 2018 were higher than the federal statutory rate primarily due to the impact of the Tax Act enacted in the third quarter of fiscal year 2018, partially offset by the effect of income earned in certain foreign jurisdictions that is taxed below the federal statutory rate and excess tax benefits from stock-based compensation.

The Tax Act was enacted on December 22, 2017. The Tax Act reduced the U.S. federal corporate income tax rate from 35.0% to 21.0%, restricted the deductibility of certain business expenses, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax-deferred and created new taxes on certain foreign sourced earnings, among other provisions. In accordance with SEC Staff Accounting Bulletin No. 118 ("SAB 118"), we recorded adjustments to the enactment-date effects of the Tax Act. We applied the guidance in SAB 118 when accounting for the enactment-date effects of the Tax Act under ASC 740, Income Taxes, for the following aspects: remeasurement of deferred tax assets and liabilities, one-time transition tax, and tax on global intangible low taxed income ("GILTI"). During the first nine months of fiscal year 2019, we recognized adjustments of $11.1 million that decreased the enactment-date provisional amounts recorded at March 31, 2018.

The one-time transition tax represents the tax on our total post-1986 earnings and profits, which was previously deferred from U.S. income taxes under prior U.S. law. We recorded a provisional amount for our one-time transition tax liability for each of our foreign subsidiaries, resulting in a transition tax liability of $53.9 million at March 31, 2018. Upon further analysis of the Tax Act, subsequent Internal Revenue Service ("IRS") guidance, and regulations proposed by the U.S. Department of the Treasury and the IRS, we finalized our calculations of the transition tax liability during the third quarter of fiscal year 2019. We recognized a decrease of $11.2 million and an increase of $0.2 million to the transition tax provisional amount in the second and third quarters of fiscal year 2019, respectively, which are included as a component of income tax expense from continuing operations.

We remeasured certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future, which was generally 21%, by recording a provisional amount of $6.1 million at March 31, 2018. We finalized our calculations and recognized a decrease of $0.1 million to our provisional amount in the third quarter of fiscal year 2019, which is included as a component of income tax expense from continuing operations.

The Tax Act subjects a U.S. shareholder to current tax on certain earnings of foreign subsidiaries under a provision commonly known as GILTI. Under U.S. GAAP, an accounting policy election can be made to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years, or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. We have elected to account for GILTI in the year the tax is incurred.

The Company records unrecognized tax benefits for the estimated risk associated with tax positions taken on tax returns. At December 29, 2018, the Company had unrecognized tax benefits of $40.0 million, all of which would impact the effective tax rate if recognized. The Company recorded gross increases of $0.7 million, $0.9 million, and $0.9 million to its current year unrecognized tax benefits in the first, second, and third quarters of fiscal year 2019, respectively, and gross decreases of $12.5 million and $5.1 million to its prior year unrecognized tax benefits in the second and third quarters of fiscal year 2019, respectively. The Company’s total unrecognized tax benefits are classified as “Non-current income taxes" 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 29, 2018, the balance of accrued interest and penalties, net of tax, was $2.1 million.

Fiscal years 2015 through 2018 remain open to examination by the Company's major taxing jurisdictions, although carry forward attributes that were generated in tax years prior to fiscal year 2015 may be adjusted upon examination by the tax authorities if they have been, or will be, used in a future period. The Company's United Kingdom subsidiaries are currently under a limited scope tax audit for certain income tax matters related to fiscal year 2016. The Company's fiscal year 2017 federal income tax return is under examination by the U.S. Internal Revenue Service. The Company believes it has accrued adequate reserves related to the matters under examination. The Company is not under an income tax audit in any other major taxing jurisdiction.