Income Taxes

Effective Tax Rates

The Company's effective tax rates are as follows:



	2014	2013
Three months ended September 30,	27.5%	30.1%
Nine months ended September 30,	30.6%	30.4%

The Company’s effective tax rate for the three months ended September 30, 2014 is lower than the prior year’s comparable period primarily due to income earned in jurisdictions with lower statutory tax rates, the favorable resolution of certain non-U.S. tax assessments, and a lower amount of statutorily non-deductible expenses. These items are 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 nine months ended September 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, as well as a lower U.S. federal tax benefit from domestic manufacturing activities. These items were partially offset by income earned in jurisdictions with lower statutory tax rates, the favorable resolution of certain non-U.S. tax assessments, and a lower amount of statutorily non-deductible expenses.

The Company’s effective tax rates for the three and nine months ended September 30, 2014 are 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 U.S. state taxes, and certain statutorily non-deductible expenses.

Unrecognized Tax Benefits

During the three and nine months ended September 30, 2014, the Company’s gross unrecognized tax benefits increased by $1.5 million and $5.8 million, respectively, primarily as a result of tax positions taken in both the current and prior periods, partially offset by settlements with taxing authorities. During the three and nine months ended September 30, 2014, the total amount of unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate increased by $1.4 million and $5.9 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 nine months ended September 30, 2014, the Company recognized $0.3 million and $0.7 million, respectively, of interest and penalty expense related to unrecognized tax benefits in its Condensed Consolidated Statements of Operations. At September 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 Balances Sheets was $4.7 million and $4.0 million, respectively.

As of September 30, 2014, it is reasonably possible that the Company’s unrecognized tax benefits may not significantly change during the next twelve months.

Income Tax Examinations

The Company’s income tax returns are subject to examination by 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, and its federal income tax return for 2013 remains subject to examination. 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 (2011 through 2013) and federal tax carryforwards (2006 through 2013).

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 September 30, 2014, the Company and its subsidiaries are under examination in various jurisdictions, including Germany for the years 2006 through 2011. During the quarter ended September 30, 2014, the Company’s appeal of Canadian tax assessments for the years 2007 through 2009 was resolved in the Company’s favor.

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.