Income Taxes

Effective Tax Rates

The Company's effective tax rates attributable to income from continuing operations are as follows:



	2013	2012
Three months ended March 31,	31.9%	28.3%

The Company’s effective tax rate attributable to income from continuing operations for the three months ended March 31, 2014 is higher than the prior year’s comparable period primarily due to:


•	The one-time benefit recognized in the first quarter of 2013 related to the January 2013 extension of the U.S. federal research credit with retroactive effect to January 1, 2012, and


•	The statutory expiration of the U.S. federal research tax credit as of December 31, 2013.

The Company's effective tax rate attributable to income from continuing operations for the three months ended March 31, 2014 is lower than the statutory U.S. federal tax rate of 35% primarily as a result of income earned in jurisdictions with tax rates lower than the U.S. statutory rate and the U.S. federal tax benefit for domestic manufacturing activities. These items are partially offset by net U.S. state taxes, and certain expenses that are statutorily non-deductible for income tax purposes.

Unrecognized Tax Benefits

During the three months ended March 31, 2014, the Company's gross unrecognized tax benefits increased by $1.2 million primarily as a result of tax positions taken in both the current and prior periods. During the three months ended March 31, 2014, the total amount of unrecognized tax benefits that, if recognized, would affect the Company's effective tax rate increased by $1.4 million.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of its income tax expense. During the three months ended March 31, 2014, the Company recognized $0.1 million of interest and penalty expense related to unrecognized tax benefits in its condensed consolidated statement of operations. At March 31, 2014 and December 31, 2013, the total amount of accrued interest and penalty expense related to unrecognized tax benefits recorded in the Company’s condensed consolidated balance sheets was $4.1 million and $4.0 million, respectively.

During the next twelve months, it is reasonably possible that the Company's unrecognized tax benefits may increase by approximately $0.7 million due to a combination of tax positions expected to be taken during the course of the year, the expiration of the statute of limitations on assessment, and settlements with tax authorities.

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.

During 2013, the U.S. Internal Revenue Service commenced an examination of the Company federal income tax returns, and the Company is currently under audit for the years 2010 through 2012.

Certain of the Company’s consolidated federal tax carryforwards generated before 2010 remain subject to examination, as do acquired subsidiaries’ federal income tax returns (2010 - 2012) and federal tax carryforwards (2006 - 2012).

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 2009. During the first quarter of 2014, a California income tax examination of 2007 and 2008 was completed and an assessment of $0.1 million issued, for which an accrual was previously established. As of March 31, 2014, the Company and its subsidiaries are under examination in various jurisdictions, including Germany (2006 through 2011). In addition, the Company’s appeal of certain Canadian tax assessments (2007 through 2009) is on-going.

The Company believes it has provided adequate income tax accruals for all jurisdictions’ open years; however, the ultimate resolution of all income tax examinations is uncertain. If issues raised during examinations of the Company’s income tax returns are not resolved in a manner consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.