10. Income Taxes

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 24,		December 26,		December 24,		December 26,
	2016		2015		2016		2015
Income before income taxes	$	145,792	$	62,395	$	270,134	$	154,876
Provision for income taxes	$	23,751	$	21,011	$	43,983	$	45,258
Effective tax rate		16.3%		33.7%		16.3%		29.2%

Our income tax expense was $23.8 million and $44.0 million for the third quarter and first nine months of fiscal year 2017, respectively. Our effective tax rate was 16.3% for both the third quarter and first nine months of fiscal year 2017. Our income tax expense was $21.0 million and $45.3 million for the third quarter and first nine months of fiscal year 2016, respectively. Our effective tax rate was 33.7% and 29.2% for the third quarter and first nine months of fiscal year 2016, respectively. Our income tax expense includes $2.2 million, $8.0 million, and $10.8 million of tax benefit for the first, second, and third quarters of fiscal year 2017, respectively, from the early adoption of the ASU 2016-09 accounting standard. Please refer to Note 2 for further information.

Our effective tax rate for the third quarter and first nine months of fiscal year 2017 was lower than the federal statutory rate primarily due to income earned in certain foreign jurisdictions taxed below the federal statutory rate and the recognition of tax benefits in the period in which they occur for early adoption of the ASU 2016-09 accounting standard. Our effective tax rate for the third quarter and first nine months of fiscal year 2016 was below the federal statutory rate primarily due to the permanent extension of the U.S. R&D credit in the third quarter of fiscal 2016. Our effective tax rate for the first nine months of fiscal 2016 was further reduced by a one-time tax benefit associated with deferred taxes related to U.S. R&D credit carryforwards recorded in the second quarter of fiscal year 2016.

The Company records unrecognized tax benefits for the estimated risk associated with tax positions taken on tax returns. At December 24, 2016, the Company had unrecognized tax benefits of $29.0 million, all of which would impact the effective tax rate if recognized. The Company’s total unrecognized tax benefits are classified as either “Other long-term liabilities” in the consolidated condensed balance sheets or as a reduction to deferred tax assets to the extent that the unrecognized tax benefit relates to deferred tax assets.

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company recognized $0.2 million of interest in the provision for income taxes during the first nine months of fiscal year 2017. As of December 24, 2016, the balance of accrued interest and penalties, net of tax was $0.2 million. No interest or penalties were recognized during the first nine months of fiscal year 2016.

The Company believes it is reasonably possible that the gross unrecognized tax benefits could decrease by approximately $2.3 million in the next 12 months due to the lapse of the statute of limitations applicable to a tax deduction claimed on a prior year tax return.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. Fiscal years 2014 through 2016 remain open to examination by the major taxing jurisdictions to which the Company is subject, although carry forward attributes that were generated in tax years prior to fiscal year 2014 may be adjusted upon examination by the tax authorities if they have been, or will be, used in a future period. The Company is not currently under an income tax audit in any major taxing jurisdiction.