Note 9. Income Taxes

The income tax provision represents the Company’s federal, state and foreign tax provision estimate. The Company’s income tax provision of $8.0 million and $4.4 million for the three and six months ended September 30, 2017, respectively. The Company’s income tax provision was $5.9 million and $14.4 million for the three and six months ended September 30, 2016, respectively.

As discussed further in “Note 2. Basis of Presentation and Summary of Significant Accounting Policies,” the Company adopted ASU 2016-09 in the first quarter of fiscal 2018. ASU 2016-09 requires excess tax benefits and shortfalls to be recognized in the income tax provision as discrete items in the period when restricted stock units vest or stock option exercises occur, whereas previously such income tax effects were recorded as part of additional paid-in capital only when the related tax deduction resulted in a reduction of current income taxes payable. On April 1, 2017, the Company recorded a cumulative-effect adjustment to increase retained earnings and deferred tax assets by $76.4 million for excess tax benefits not previously recognized. The adoption of ASU 2016-09 also resulted in excess tax benefits associated with stock-based awards of $4.5 million and $21.3 million being recognized as an income tax benefit for three and six months ended September 30, 2017, respectively. These recognized excess tax benefits resulted from restricted stock units that vested or stock options that were exercised during the three and six months ended September 30, 2017. The amount of future excess tax benefits or shortfalls will likely fluctuate from period to period based on the price of the Company’s stock, the number of restricted stock units vesting or stock option exercises, and the fair value assigned to such stock-based awards under U.S. GAAP. Accordingly, the Company’s expects that the adoption of ASU 2016-09 will result in more volatility to its effective income tax rate, net income and earnings per share in future periods.

The estimated annual effective income tax rate is based upon estimated income before income taxes for the year, the geographical composition of the estimated income before taxes and estimated permanent differences. The estimated annual effective income tax rate can fluctuate and may differ from the actual income tax rate recognized in fiscal 2018 for various reasons, including estimates of income before taxes, tax legislation, permanent differences, discrete items, and any adjustments between the income tax provision calculations and filed income tax returns.

The significant differences between the statutory income tax rate and effective income tax rate for the three and six months ended September 30, 2017 and 2016 were as follows:

	For the Three Months Ended September 30,							For the Six Months Ended September 30,
		2017			2016				2017			2016
Statutory income tax rate		35.0		%	35.0		%		35.0		%	35.0		%
Increase resulting from:
Excess tax benefits from stock-based awards		(13.7	)		—				(32.1	)		—
Credits		(1.2	)		(1.3	)			(1.2	)		(1.3	)
State taxes, net		3.5			3.4				3.5			3.3
Permanent differences		1.8			2.7				1.8			2.8
Other		(0.8	)		—				(0.4	)		—
Effective tax rate		24.6		%	39.8		%		6.6		%	39.8		%

The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of multiple state and foreign jurisdictions. Fiscal years 2012 through 2017 remain open to examination in Germany and Abiomed Europe GmbH, the Company’s main operating subsidiary in Germany, is currently being audited for fiscal years 2012 through 2015. In July 2017, the Company was notified by the Internal Revenue Service, or IRS, that it has selected our federal tax return for fiscal 2016 for examination. In September 2017, the Company was notified by German tax authorities that our ECP subsidiary in Germany will be audited for the year ended December 31, 2014 and the three months ended March 31, 2015. All tax years remain subject to examination by the IRS and state tax authorities, because the Company has net operating loss and tax credit carryforwards which may be utilized in future years to offset taxable income, those years may also be subject to review by relevant taxing authorities if the carryforwards are utilized.