Income taxes

The consolidated effective tax rate for the quarter ended July 2, 2016 was 27% as compared to the prior year’s rate of 28%. The consolidated effective tax rates for the year-to-date periods ended July 2, 2016 and July 4, 2015 were 25% and 26%, respectively. The effective rate for the first half of 2016 benefited from excess tax benefits from share-based compensation as well as a benefit related to an audit closure. See Note 1 for further discussion regarding the ASU adoption. The effective tax rate for 2015 benefited from a reduction in tax related to current year remitted and unremitted earnings and the completion of certain tax examinations.

As of July 2, 2016, the Company classified $14 million of unrecognized tax benefits as a net current liability. Management’s estimate of reasonably possible changes in unrecognized tax benefits during the next twelve months consists of the current liability balance expected to be settled within one year, offset by approximately $8 million of projected additions related primarily to ongoing intercompany transfer pricing activity. Management is currently unaware of any issues under review that could result in significant additional payments, accruals or other material deviation in this estimate.

Following is a reconciliation of the Company’s total gross unrecognized tax benefits for the year-to-date period ended July 2, 2016; $50 million of this total represents the amount that, if recognized, would affect the Company’s effective income tax rate in future periods.



(millions)
January 2, 2016	$	73
Tax positions related to current year:
Additions	3
Reductions	—
Tax positions related to prior years:
Additions	1
Reductions	—
Settlements	—
July 2, 2016	$	77

For the quarter and year-to-date periods ended July 2, 2016, the Company recognized an increase of $1 million and $2 million, respectively, for tax-related interest. During the year-to-date period ended July 4, 2015, the Company recognized tax-related interest and penalties netting to zero. The accrual balance was $19 million at July 2, 2016.