12.

INCOME TAXES

The Company’s effective tax rate for the nine months ended September 30, 2016 and 2015 was 35.5% and 37.2%, respectively, which resulted in expense of $29.5 million and $23.7 million, respectively. A difference of 1.3% in the effective tax rate was due to non-deductible tax items in 2015. The remaining difference of 0.4% was due to the availability of Federal research and development tax credits in 2016.

The Company analyzes its deferred tax assets each reporting period, considering all available positive and negative evidence in determining the expected realization of those deferred tax assets. As of September 30, 2016, the Company maintains a valuation allowance of $4.6 million against deferred tax assets primarily related to state tax credits it estimates will expire before they are realized.

During the nine months ended September 30, 2016, the Company realized $1.7 million of excess tax benefits from stock-based awards and recorded a corresponding increase to additional paid-in capital.

The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations may result in future assessments by these taxing authorities, and the Company accrues a liability when it believes that it is more likely than not that benefits of tax positions will not be realized. The Company believes that adequate provisions have been made for all tax returns subject to examination. As of September 30, 2016, Federal tax years 2012 through 2015 remain subject to examination. Sales made to foreign distributors are not taxable in any foreign jurisdictions as the Company does not have a taxable presence in any foreign jurisdiction.