9. INCOME TAXES

Our effective tax rates were 35.2 percent and 37.1 percent for the three and nine months ended September 30, 2016, respectively.  The effective tax rates for the three and nine months ended September 30, 2015, were 41.9 percent and 40.4 percent, respectively.  The 2016 rates are lower due to an increase in the estimate of the Domestic Production Activities Deduction and some discrete items recorded in the quarter including a benefit from the adoption of the new stock compensation rules and from return to accrual adjustments for tax returns filed related to 2015.  The higher rates in 2015 were primarily due to decreases in our valuation allowance offset by increases in the Company’s current U.S. federal tax resulting from the use of our federal net operating loss carryforward by Masco.

For 2015 activity through the Separation, we filed our tax returns as a member of the Masco consolidated group for U.S. federal and certain state jurisdictions.  As a result, certain tax attributes, primarily the federal and state net operating loss carryforwards, were treated as assets of the Masco consolidated group, which they were able to utilize through December 31, 2015.  Masco fully utilized the federal net operating loss and certain state net operating losses by the end of 2015.

During the third quarter of 2016, we recorded return to provision adjustments for tax returns filed related to 2015 tax year. 

We early adopted ASU 2016-09 in the third quarter of 2016.  As a result, a tax benefit of $0.5 million related to share-based compensation was recognized in our Condensed Consolidated Statements of Operations as a discrete item in income tax expense.

In the fourth quarter of 2015, we released all but $0.8 million of our valuation allowance against U.S. Federal and certain state deferred tax assets, due primarily to a return to sustainable operating profitability.