Income Taxes

Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate and, if our estimated annual tax rate changes, we make a cumulative adjustment. The effective tax rate for the six months ended June 30, 2018 is estimated to approximate 18.2%. Our effective tax rate for the six months ended July 1, 2017 was estimated at 39.2%. The change in rate is primarily due to the Tax Reform Act, that was signed into law on December 22, 2017 by the President of the United States, which reduces the corporate federal income tax rate for 2018 and beyond from 35% to 21%.

As a result of the Tax Reform Act, the Company estimated a tax liability of $6,100 due to the transition toll tax on the deemed repatriation of deferred foreign earnings of non-U.S. operations, which the Company believes will be fully offset by foreign tax credits. The final amounts recorded in subsequent financial statements may differ from these provisional amounts due to, among other things, additional analysis related to foreign deferred earnings, changes in interpretations of the Tax Reform Act and related assumptions of the Company and additional regulatory guidance that may be issued.

On December 22, 2017, the SEC issued Staff Accounting Bulletin 118 (“SAB 118”). This guidance allows registrants a “measurement period”, not to exceed one year from the date of enactment, to complete their accounting for the tax effects of the Tax Reform Act. SAB 118 further directs that during the measurement period, registrants who are able to make reasonable estimates for the tax effects of the Tax Reform Act should include those amounts in their financial statements as “provisional” amounts. Registrants should reflect adjustments over subsequent periods as they are able to refine their estimates and complete their accounting for the tax effects of the Tax Reform Act. The provisional amounts computed by the Company are expected to be finalized when the


I.	Income Taxes (continued)

U.S. corporate income tax return for 2017 is filed in 2018, but in no event later than one year from the enactment date.

At December 31, 2017, we had unrecognized tax benefits of $2,581, of which $1,948 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of $128. During the second quarter 2018 we decreased our unrecognized tax benefits by $1,547 as a result of the pending settlement of the IRS audits of our 2015 and 2016 U.S. income tax returns. As of June 30, 2018, we had unrecognized tax benefits of $1,034, of which $561 would affect our effective rate if recognized, and accrued interest expense related to unrecognized benefits of $21. Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for financial reporting purposes. We recognize interest accrued related to unrecognized tax benefits in income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense.

The Company is routinely under audit by federal, state, local and Canadian authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The IRS finalized their audit of our 2015 and 2016 U.S. income tax returns in July 2018. With the exception of U.S. state jurisdictions, the Company is no longer subject to examination by tax authorities for the years through 2016. As of June 30, 2018, we believe it is reasonably possible that the total amount of unrecognized tax benefits will not significantly increase or decrease.