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		Nine Months Ended
	September 30,		September 30,
	2017	2016	2017	2016
Effective Tax Rate	29.4%	33.0%	29.4%	29.4%

The Company’s effective tax rate for the three months ended September 30, 2017 is lower than the prior year’s comparable period primarily due to the favorable effect of share-based compensation, favorable return-to-provision adjustments, and a reduction in tax accruals due to lapses in the statutes of limitation, partially offset by a higher amount of income earned in jurisdictions with higher statutory tax rates.

The Company’s effective tax rate for the nine months ended September 30, 2017 is approximately equal to the prior year’s comparable period.

The Company’s effective tax rates for both the three and nine months ended September 30, 2017 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, 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 months ended September 30, 2017, the Company's gross unrecognized tax benefits, excluding interest and penalties, decreased by less than $0.1 million. During the nine months ended September 30, 2017 the Company’s gross unrecognized tax benefits increased by $2.7 million, primarily as a result of tax positions taken in both current and prior periods, partially offset by reductions resulting from the expiration of statutes of limitations. During the three months and nine months ended September 30, 2017, the total amount of unrecognized tax benefits that, if recognized, would affect the Company's effective tax rate increased by $0.1 million and $2.7 million, respectively. The difference between these amounts relates to (1) offsetting 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 nine months ended September 30, 2017, the Company recognized $0.1 million and $0.6 million, respectively, of interest and penalty expense related to unrecognized tax benefits in its Condensed Consolidated Statement of Operations. At September 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 $6.8 million and $6.2 million, respectively.

During the next twelve months, it is reasonably possible that the Company's unrecognized tax benefits may decrease by $7.7 million due to 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 2014 through 2016 remain subject to examination by the Internal Revenue Service (“IRS”). In addition, acquired subsidiaries’ federal tax carryforwards (2007 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 the state of California (2012 and 2013).