10.	INCOME TAXES

In December 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted. The Tax Reform Act among other things, lowered the U.S. corporate tax rate from 35% to 21%, implemented a territorial tax system from a worldwide system and imposed a tax on deemed repatriation of earnings of foreign subsidiaries, all of which were effective for our first quarter of fiscal 2018. Other provisions of the Tax Reform Act, such as elimination of domestic production deductions and limitation on other business deductions, will be effective for us beginning in fiscal 2019. We recognized the income tax effects of the Tax Reform Act in our 2018 financial statements in accordance with Staff Accounting Bulletin No. 118, which provides Securities and Exchange Commission (“SEC”) staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the Tax Reform Act was signed into law. As such, our financial results reflect the income tax effects of the Tax Reform Act for which the accounting under ASC Topic 740 is complete and provisional amounts for those specific income tax effects of the Tax Reform Act for which the accounting under ASC Topic 740 is incomplete but a reasonable estimate could be determined.

We recorded income tax expense during the first six months of fiscal 2018 of $6.1 million compared to $2.0 million for the same period in fiscal 2017. Our effective tax rate for the first six months of fiscal 2018 was 48% compared to 31% for the same period in fiscal 2017. The effective tax rate for the six months ended April 30, 2018 is a blended rate reflecting the estimated benefit of approximately four months of the federal tax rate reductions for fiscal 2018, a one-time provisional charge of $2.5 million related to the transition tax on deemed repatriation of accumulated foreign income and a one-time non-cash tax charge of $0.4 million related to the revaluation of net deferred tax assets.

The $2.5 million transition tax on deemed repatriation of accumulated foreign income is subject to adjustment during the measurement period of up to one year following the December 2017 enactment date, as provided by recent SEC guidance. We measure 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, our deferred tax assets and liabilities were re-measured to reflect the reduction in the U.S. corporate income tax rate from 35% to 21%, resulting in an increase of $0.4 million in income tax expense for the first quarter ended January 31, 2018 and a corresponding decrease of $0.4 million in net deferred tax assets as of January 31, 2018.

Both of these tax adjustments represent provisional amounts based upon our current interpretation of the Tax Reform Act and may change as we receive additional clarification and implementation guidance. We will continue to analyze the effects of the Tax Reform Act on our financial statements and operations. Any additional impacts from the enactment of the Tax Reform Act will be recorded as they are identified during the remainder of the measurement period as provided for in accordance with Staff Accounting Bulletin No. 118. During the second quarter of fiscal 2018, we did not record any additional amounts, or make any changes to provisional amounts previously recorded, related to the Tax Reform Act.

Our unrecognized tax benefits were $1.2 million as of April 30, 2018 and $1.1 million as of October 31, 2017, and in each case included accrued interest.

We recognize accrued interest and penalties related to unrecognized tax benefits as components of income tax expense. As of April 30, 2018, the gross amount of interest accrued, reported in Accrued expenses and other, was approximately $75,000, which did not include the federal tax benefit of interest deductions.

We file U.S. federal and state income tax returns, as well as tax returns in several foreign jurisdictions. The statutes of limitations with respect to unrecognized tax benefits will expire between July 2018 and July 2020.