Income Taxes

The Company's effective tax rate for the three and six months ended June 30, 2016 of 27.2% and 27.4%, respectively, differs from the federal statutory rate of 35% primarily due to the benefit of the Section 199 deduction for U.S. production activities, the federal research and development (“R&D”) credit, and earnings in foreign jurisdictions, which are subject to lower tax rates. The effective tax rate differs from the rate for the same periods in 2015 due to the impact of the discrete items referenced in the table below, a change in the tax treatment of share-based compensation in the Company's cost-sharing arrangement, which occurred in the three months ended September 30, 2015, and the benefit of the federal R&D credit, which was permanently reinstated on December 18, 2015.

The Company's effective tax rate for the three and six months ended June 30, 2015 of 30.1% and 30.4%, respectively, differs from the federal statutory rate of 35% primarily due to the benefit of the Section 199 deduction for U.S. production activities and earnings in foreign jurisdictions, which are subject to lower tax rates, and the impact of the discrete items referenced in the table below.

The effective tax rates for the three and six months ended June 30, 2016 and June 30, 2015 include the tax expense (benefit) of the following discrete items (in millions):



	Three Months Ended June 30,					Six Months Ended June 30,
	2016			2015		2016			2015
Equity investments	$	0.6		$	—	$	(1.3	)	$	—
Restructuring charges	$	—		$	0.2	$	—		$	(1.1	)
Acquisition-related charges	$	(3.1	)	$	—	$	(3.1	)	$	—

As of June 30, 2016, the total amount of gross unrecognized tax benefits was $215.5 million, of which $185.2 million, if recognized, would affect the Company's effective tax rate. As a result of the closure of the California Franchise Tax Board (“FTB”) audit discussed below, the gross unrecognized tax benefits was reduced by approximately $14.3 million.

The Company engages in continuous discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. There is a greater than remote likelihood that the balance of the gross unrecognized tax benefits will decrease by approximately $3.9 million within the next twelve months due to lapses of applicable statutes of limitations and the completion of tax review cycles in various tax jurisdictions.

The Company is currently under examination by the Internal Revenue Service (“IRS”) for the 2007 through 2009 tax years. In March 2016, the IRS concluded its field audit and issued a final assessment. The Company is appealing this assessment. As of June 30, 2016, the Company believes the resolution of the audits is unlikely to have a material effect on its consolidated financial condition or results of operations.

In June 2016, the California FTB concluded its audit of the 2004 through 2006 tax years and issued a final assessment which has no material impact on the Company’s financial statements. The Company is no longer subject to an audit of its California income taxes through tax year 2006.

The Company is also subject to separate ongoing examinations by the India tax authorities for the 2003 tax year, 2004 through 2008 tax years, and the 2009 through 2011 tax years. As of as of June 30, 2016, the Company is not aware of any other examinations by tax authorities in any other major jurisdictions in which it files income tax returns.

In 2008, the Company received a proposed adjustment from the India tax authorities related to the 2004 tax year. In 2009, the India tax authorities commenced a separate investigation of our 2004 through 2008 tax returns and are disputing the Company's determination of taxable income due to the cost basis of certain fixed assets. The Company accrued $4.6 million in penalties and interest in 2009 related to this matter. The Company understands that in accordance with the administrative and judicial process in India, the Company may be required to make payments that are substantially higher than the amount accrued in order to ultimately settle this issue. The Company strongly believes that any assessment it may receive in excess of the amount accrued would be inconsistent with applicable India tax laws and intends to defend this position vigorously.

The Company is pursuing all available administrative remedies relative to these matters. The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to these proposed adjustments and the ultimate resolution of these matters is unlikely to have a material effect on its consolidated financial condition or results of operations; however there is still a possibility that an adverse outcome of these matters could have a material effect on its consolidated financial condition and results of operations.