Income Taxes

Effective Tax Rates

The Company's effective tax rates are as follows:



	2014	2013
Three months ended June 30,	30.9%	32.9%
Six months ended June 30,	31.3%	30.6%

The Company’s effective tax rate for the three months ended June 30, 2014 is lower than the prior year’s comparable period primarily due to income earned in jurisdictions with lower statutory tax rates and a lower amount of statutorily non-deductible expenses. These items were partially offset by the effect of the statutory expiration of the U.S. federal research tax credit as of December 31, 2013 and a lower U.S. federal tax benefit from domestic manufacturing activities.

The Company’s effective tax rate for the six months ended June 30, 2014 is higher than the prior year’s comparable period primarily due to the absence of tax benefits related to the U.S. federal research tax credit, including both the one-time benefit recognized in the first quarter of 2013 related to the credit’s extension with retroactive effect to January 1, 2012 and the effect of the credit’s statutory expiration as of December 31, 2013. These items were partially offset by income earned in jurisdictions with lower statutory tax rates and a lower amount of statutorily non-deductible expenses.

The Company’s effective tax rates for both the three and six months ended June 30, 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 and six months ended June 30, 2014, the Company’s gross unrecognized tax benefits increased by $3.1 million and $4.3 million, respectively, primarily as a result of tax positions taken in both the current and prior periods. During the three and six months ended June 30, 2014, the total amount of unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate increased by $3.1 million and $4.5 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 six months ended June 30, 2014, the Company recognized $0.3 million and $0.4 million, respectively, of interest and penalty expense related to unrecognized tax benefits in its condensed consolidated statement of operations. At June 30, 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 $4.4 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 $1.5 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.

The Company’s federal income tax returns for the years 2010 through 2012 are currently under audit by the U.S. Internal Revenue Service. In addition, 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 through 2012) and federal tax carryforwards (2006 through 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. As of June 30, 2014, the Company and it is 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.