Income Taxes

The gross liability for unrecognized tax benefits at June 30, 2014 and December 31, 2013 was $13,019 and $12,028, respectively, exclusive of interest and penalties, of which $11,119 and $10,139 would affect the effective tax rate if the Company were to recognize the tax benefit.

The Company classifies interest and penalties on unrecognized tax benefits as income tax expense. As of June 30, 2014 and December 31, 2013, the combined amount of accrued interest and penalties related to tax positions taken on tax returns was $919 and $754, respectively.



	June 30, 2014		December 31, 2013
Gross liability for unrecognized tax benefits, exclusive of interest and penalties	$	13,019	$	12,028
Interest and penalties on unrecognized benefits	919		754
Total gross uncertain tax positions	$	13,938	$	12,782
Amount included in Current liabilities	$	4,218	$	4,175
Amount included in Other long-term liabilities	9,720		8,607
	$	13,938	$	12,782

The Company’s effective tax rate was 35.7 percent and 35.5 percent for the three months ended June 30, 2014 and 2013, respectively. For the six months ended June 30, 2014 and 2013, the Company's tax rate was 35.8 percent and 35.2 percent, respectively. The increase in the tax rate for the six months ended June 30, 2014 was primarily due to the research and development tax credit. The Company's 2014 tax rate reflects no benefit for the tax credit due to the expiration of the credit on December 31, 2013, whereas the Company's 2013 tax rate reflects the benefit of the tax credit for 2012 and 2013.

On January 2, 2013, the American Taxpayer Relief Act of 2012 (the Act) was signed into law which reinstated the research and development tax credit retroactively from January 1, 2012 through December 31, 2013. Current accounting guidance requires the determination of current and deferred taxes be based upon the provisions of the enacted tax law as of the balance sheet date. Since the Act was not signed into law until January 2, 2013, the effect of the 2012 research and development tax credit was therefore reflected in the Company's 2013 tax rate. Since the research and development tax credit expired as of December 31, 2013, no credit was reflected in the Company's 2014 tax rate. The increase in tax rate was partially offset by an increase in the portion of pre-tax income in certain foreign jurisdictions which is taxed at a lower rate during the six months ended June 30, 2014.

The Company files income tax returns in the United States on a consolidated basis and in many U.S. state and foreign jurisdictions. The Company is subject to examination of income tax returns by the Internal Revenue Service (IRS) and other domestic and foreign tax authorities. The Company is no longer subject to U.S. federal income tax examination for years before 2010 and is no longer subject to state, local or foreign income tax examinations by authorities for years before 2007.

The Company estimates it will recognize $4,218 of unrecognized tax benefits within the next twelve months due to the expiration of the statute of limitations and resolution of income tax audits. These unrecognized tax benefits are related to tax positions taken on certain federal, state, and foreign tax returns. However, the timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. While it is reasonably possible that some issues under examination could be resolved in the next twelve months, based upon the current facts and circumstances, the Company cannot reasonably estimate the timing of such resolution or total range of potential changes as it relates to the current unrecognized tax benefits that are recorded as part of the Company’s financial statements.