Income Taxes

Enacted on December 22, 2017, the TCJA significantly changed U.S. corporate income tax law by reducing federal statutory tax rates from 35% to 21%, instituting a territorial tax system that provides a 100% exemption on future repatriations from certain foreign subsidiaries, and imposing a one-time transition tax on previously deferred non-U.S. earnings. In accordance with SAB 118, the Company recorded a one-time charge of $87 million in the fourth quarter of 2017 primarily consisting of:


•	A re-measurement of the Company's net deferred tax assets due to a reduction in U.S. corporate income tax rate from 35% to 21% effective January 1, 2018 (“Re-measurement”), totaling $75 million; and


•	A one-time mandatory transition tax on previously deferred earnings of foreign subsidiaries (“Toll Tax”) and a reassessment of the Company's assertion regarding re-investment of its non-US subsidiaries' undistributed earnings (“Assertion Tax”), together totaling $12 million.

The Company considered the entire $87 million charge to be a provisional estimate as of December 31, 2017.

During the three and nine months ended September 30, 2018, the Company adjusted its provisional estimate as follows:



(in millions)	Three Months			Nine Months
Re-measurement	$	(5.0	)	$	(5.0	)
Toll Tax	$	0.7		$	0.7
Assertion Tax	$	—		$	(0.4	)

The resulting impact on the Company’s effective tax rates was as follows:



(in percentage points)	Three Months		Nine Months
Re-measurement	(4.6	)%	(1.7	)%
Toll Tax	0.6	%	0.2	%
Assertion Tax	—		(0.1	)%

Since the enactment of the TCJA, the U.S. Department of the Treasury and the Internal Revenue Service (“IRS”) have not yet issued interpretive guidance on certain significant areas of the new law. Some U.S. states have issued guidance on the TCJA, while others have yet to issue complete guidance. During the remainder of 2018, the Company will analyze any new pronouncements, and gather any outstanding information required in order to finalize its calculation of the effect of the TCJA. The Company will record any changes to its provisional estimate no later than the quarter ending December 31, 2018.

Effective Tax Rates

The Company’s quarterly provision for income taxes is measured using an annual effective tax rate, adjusted for discrete items within the period presented.

The Company’s effective tax rates are as follows:



	Three Months Ended September 30,		Nine Months Ended September 30,
	2018	2017	2018	2017
Effective Tax Rate	17.6%	29.4%	19.7%	29.4%

The Company’s effective tax rates for both the three and nine months ended September 30, 2018 are lower than the prior year’s comparable periods primarily due to the TCJA, specifically the reduction in the statutory U.S. federal tax rate, partially offset by:


•	The elimination of certain deductions


•	U.S. taxes related to non-U.S. earnings


•	Earnings in jurisdictions with statutory tax rates higher than the U.S.

The Company's effective tax rate for both the three and nine months ended September 30, 2018 is lower than the statutory U.S. federal tax rate of 21%, primarily due to excess tax benefits associated with share-based payments, U.S. federal research credit, partially offset by unfavorable impacts of U.S. state taxes, U.S. taxes related to non-U.S. earnings, and certain expenses that are statutorily non-deductible for income tax purposes.

Unrecognized Tax Benefits

During the three months ended September 30, 2018, the Company's gross unrecognized tax benefits, excluding interest and penalties did not materially change. During the nine months ended September 30, 2018 the Company’s gross unrecognized tax benefits increased by $0.8 million, primarily as a result of tax positions taken during the current period, partially offset by reductions resulting from the expiration of statutes of limitations.

During the three months and nine months ended September 30, 2018, the total amount of unrecognized tax benefits that, if recognized, would affect the Company's effective tax rate did not materially change and increased by $1.4 million, respectively.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of its income tax expense. During the three and nine months ended September 30, 2018, the Company recognized $0.1 million and $1.1 million, respectively, of interest and penalty expense related to unrecognized tax benefits in its Condensed Consolidated Statement of Operations.

At September 30, 2018 and December 31, 2017, the total amount of accrued interest and penalty expense related to unrecognized tax benefits recorded on the Company’s Condensed Consolidated Balance Sheets was $7.6 million and $6.5 million, respectively.

During the next twelve months, it is reasonably possible that the Company's unrecognized tax benefits may decrease by $11.5 million due to expiration of statutes of limitations and settlements with tax authorities. However, if the ultimate resolution of income tax examinations results in amounts that differ from this estimate, the Company will record additional income tax expense or benefit in the period in which such matters are effectively settled.

Income Tax Examinations

The Company's income tax returns are subject to examination by the U.S. federal, U.S. state and local, and non-U.S. tax authorities.

The Company’s federal income tax returns for the years 2015 through 2017 remain subject to examination by the IRS.

With few exceptions, the Company is no longer subject to U.S. state and local or non-U.S. income tax examinations for years before 2011. Currently, the Company and its subsidiaries are under examination in various jurisdictions, including Germany (2013 through 2015), Canada (2013 through 2015), and Japan (2015 through 2017).