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Income Taxes
9 Months Ended
Sep. 30, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The Company and its subsidiaries will file a consolidated federal income tax return as well as combined state income tax returns in certain jurisdictions. In other jurisdictions, the Company and its subsidiaries will file separate company state and local income tax returns.
The Company’s effective tax rate was a benefit of 59.9% on a pre-tax loss for the three months ended September 30, 2016, and an expense of 31.3% on pre-tax income for the nine months ended September 30, 2016. These rates differed from the federal statutory rate of 35% primarily due to benefits associated with research and development tax credits, tax deductions for domestic production activities, state and local taxes, and the effect of nondeductible expenses including certain compensation and meals and entertainment.
The Company’s effective tax rate of 38.1% for the three months ended September 30, 2015 differed from the federal statutory rate of 35% primarily due to state and local taxes and the effect of nondeductible expenses including certain compensation and meals and entertainment. The Company’s effective tax rate of 34.4% for the nine months ended September 30, 2015 differed from the federal statutory rate of 35% primarily due to the reversal of a valuation allowance on certain state tax net operating losses and other deferred tax assets as a result of a change in tax status of one of the Company's subsidiaries in the second quarter of 2015, other state and local taxes and the effect of nondeductible expenses including certain compensation and meals and entertainment.
Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. Valuation allowances recorded on the balance sheet dates are necessary in cases where management believes that it is more likely than not that some portion or all of the deferred tax assets will not be realized.
As of September 30, 2016, the Company is subject to U.S. Federal income tax examinations for the tax years 2013 through 2015, and to non-U.S. income tax examinations for the tax years 2007 through 2015. In addition, the Company is subject to state and local income tax examinations in various jurisdictions for the tax years 2007 through 2015. The final outcome of these examinations is not yet determinable. However, the Company anticipates that adjustments to the unrecognized tax benefits, if any, will not result in a material change to the results of operations or financial condition.
At September 30, 2016, the Company had $4.5 million of unrecognized tax benefits, all of which would affect the Company's effective tax rate if recognized. At December 31, 2015, the Company had $3.6 million of unrecognized tax benefits, all of which would affect the Company’s effective tax rate if recognized.
The Company's policy for recording interest and penalties associated with audits is to record such items as a component of income or loss before income taxes. Penalties, if any, are recorded in Other expenses and interest paid or received is recorded in Debt interest expense and Interest, net, respectively, on the Consolidated Statements of Operations.