Income Taxes

The Company’s quarterly provision for income taxes is measured using an annual effective tax rate, adjusted for discrete items within the periods presented.

Effective Tax Rates

The Company’s effective tax rates are as follows:



	2016	2015
Three months ended June 30,	27.0%	31.5%
Six months ended June 30,	27.4%	32.1%

The Company’s effective tax rate for the three months ended June 30, 2016 is lower than the prior year’s comparable period primarily due to:


•	Inclusion of the U.S. federal research credit, which had expired on December 31, 2014 and was not renewed with retroactive effect until December 2015,


•	A greater U.S. federal tax benefit on domestic manufacturing activities, and


•	The resolution of a tax examination

These items were partially offset by a higher amount of statutorily non-deductible expenses in 2016.

The Company’s effective tax rate for the six months ended June 30, 2016 is lower than the prior year’s comparable period primarily for the reasons described above plus the impact changes in Japanese tax law had on the Company’s deferred tax balances in 2016 (favorable) and tax carryforwards in 2015 (unfavorable).

The Company’s effective tax rates for both the three and six months ended June 30, 2016 are lower than the statutory U.S. federal tax rate of 35% primarily due to the favorable impact of income earned in jurisdictions with tax rates lower than the U.S. statutory rate, the U.S. federal tax benefit for domestic manufacturing activities, the U.S. federal research credit and the resolution of a tax examination. These items are partially offset by the unfavorable impacts of 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, 2016, the Company’s gross unrecognized tax benefits decreased by $2.7 million and $1.9 million, respectively, primarily as a result of settlements with taxing authorities partially offset by tax positions taken in the current period. During the three and six months ended June 30, 2016, the total amount of unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate decreased by $2.9 million and $1.9 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 six months ended June 30, 2016, the Company recognized $(0.1) million and $0.3 million, respectively, of interest and penalty (income) / expense related to unrecognized tax benefits in its Condensed Consolidated Statement of Operations. At June 30, 2016 and December 31, 2015, the total amount of accrued interest and penalty expense related to unrecognized tax benefits recorded in the Company’s Condensed Consolidated Balance Sheets was $6.1 million and $5.8 million, respectively.

During the next twelve months, it is reasonably possible that the Company’s unrecognized tax benefits may decrease by $3.4 million due to the expiration of statutes of limitations and settlements with tax authorities. However, if the ultimate resolution of income tax examinations results in amounts that differ from this estimate, the Company will record additional income tax expense or benefit in the period in which such matters are effectively settled.

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 IRS has completed its examination of the Company’s consolidated federal income tax returns for the years 2010 through 2012. While the Company did not have to record additional tax expense due to prior accruals, it paid $0.2 million of additional taxes and $1.4 million of tax credits previously utilized were eliminated. The Company’s consolidated federal income tax returns for 2013 and 2014 remain subject to examination.

The IRS is currently examining an acquired subsidiary’s consolidated federal income tax return for 2013. In addition, acquired subsidiaries’ federal return (2012) and tax carry forwards (2006 through 2012) remain subject to IRS examination.

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 2010. Currently the Company and its subsidiaries are under examination in various jurisdictions, including Germany (2008 through 2012), Canada (2013 and 2014) and California (2010 and 2011).