Income Taxes

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

Effective Tax Rates

The Company’s effective tax rates are as follows:



	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2017	2016	2017	2016
Effective Tax Rate	30.5%	27.0%	29.4%	27.4%

The Company’s effective tax rate for the three and six months ended June 30, 2017 is higher than the prior year’s comparable period primarily due to a higher amount of income earned in jurisdictions with higher statutory tax rates and the favorable resolution of an income tax audit in the second quarter of 2016, partially offset by the favorable effect of share-based compensation.

In addition, the Company’s effective tax rate for the six months ended June 30, 2017 is higher than the prior year’s comparable period due to the favorable impact of Japanese tax reform in 2016.

The Company's effective tax rate for the three months ended June 30, 2017 is lower than the statutory U.S. federal tax rate of 35% primarily due to the favorable impacts 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 benefit recorded for excess tax benefits associated with share-based payments. 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, 2017, the Company's gross unrecognized tax benefits, excluding interest and penalties, increased by $1.5 million and $2.7 million respectively, primarily as a result of tax positions taken in both the current and prior periods, partially offset by reductions resulting from the expiration of statutes of limitation. During the three and six months ended June 30, 2017, the total amount of unrecognized tax benefits that, if recognized, would affect the Company's effective tax rate increased by $1.4 million and $2.6 million, respectively. The difference between these amounts relates to (1) offsetting tax effects from other tax jurisdictions, and (2) interest expense, net of deferred taxes.

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, 2017, the Company recognized $0.1 million and $0.5 million, respectively, of interest and penalty expense related to unrecognized tax benefits in its Condensed Consolidated Statements of Operations. As of June 30, 2017 and December 31, 2016, the total amount of accrued interest and penalty expense related to unrecognized tax benefits recorded in the Company’s Consolidated Balance Sheets was $6.7 million and $6.2 million, respectively.

During the next twelve months, it is reasonably possible the Company’s unrecognized tax benefits may decrease by $6.2 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 Company’s consolidated federal income tax returns for the years 2013 through 2015 remain subject to examination by the Internal Revenue Service (“IRS”). In addition, acquired subsidiaries’ federal tax carryforwards (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 2011. Currently the Company and its subsidiaries are under examination in various jurisdictions, including Germany (2010 through 2012), Canada (2013 through 2015) and California (2012 and 2013).