INCOME TAXES

The Company reported the following operating results for the periods presented (in thousands):



	Three months ended						Nine months ended
	September 26, 2014			September 27, 2013			September 26, 2014			September 27, 2013
Loss from continuing operations before income taxes	$	(3,752	)	$	(2,278	)	$	(19,594	)	$	(21,955	)
Provision for (benefit from) income taxes	(4,830		)	(38,953		)	21,800			(45,723		)
Effective income tax rate	128.7		%	1,710.0		%	(111.3		)%	208.3		%

The Company's quarterly income taxes reflect an estimate of the corresponding fiscal year's annual effective tax rate and include, where applicable, adjustments for discrete tax items.

The Company's effective rate for the nine months ended September 26, 2014 was different from the U.S. federal statutory rate of 35%, primarily due to a $28.7 million increase in the valuation allowance against both U.S. federal, California and other state deferred tax assets, as a result of a history of operating losses in recent years that has led to uncertainty with respect to the Company’s ability to realize certain of its net deferred tax assets, of which $4.2 million and $24.5 million were recorded in the third and second quarter of 2014, respectively. This unfavorable impact was offset partially by $8.5 million of net tax benefit, recorded in the third quarter of 2014, associated with the release of tax reserves for uncertain tax positions as a result of the expiration of statues of limitations.

The Company's effective rate for the nine months ended September 27, 2013 was different from the U.S. federal statutory rate of 35%, primarily attributable to the net of various discrete items, non-deductible amortization on foreign intangibles, the differential in foreign tax rates, federal research and development tax credit, and non-deductible stock-based compensation expense. The discrete items included primarily the $38.4 million tax benefit associated with the reversal of previously recorded federal and, to a lesser extent, foreign income taxes as a result of the expiration of the applicable statues of limitations in the U.S. for 2008 and 2009 and in foreign jurisdictions for various years, and the benefit associated with the reinstatement of the prior year's federal research and development tax credit, offset partially by a higher valuation allowance on California research and development tax credit and accrued interest on uncertain tax positions.

The Company files federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations during which such tax returns may be audited and adjusted by the relevant tax authorities. The U.S. Internal Revenue Service has concluded its audit for the 2008, 2009 and 2010 tax years. The statute of limitations on the Company's 2008 and 2009 U.S. corporate income tax returns expired in September 2013, and the 2010 corporate income tax return expired in September 2014. As a result, the Company released $38.4 million of related tax reserves, including accrued interest and penalties, for the 2008 and 2009 tax years in the third quarter of 2013 and, additionally, the Company released $8.5 million of related tax reserves, including accrued interest and penalties, for the 2010 tax year in the third quarter of 2014.

The 2011 through 2013 tax years generally remain subject to examination by U.S. federal and most state tax authorities. In significant foreign jurisdictions, the 2006 through 2013 tax years generally remain subject to examination by their respective tax authorities.

The Company's operations in Switzerland are subject to a reduced tax rate under the Switzerland tax holiday which requires various thresholds of investment and employment in Switzerland. The Company has met these various thresholds and the Switzerland tax holiday is effective through the end of 2018.

As of September 26, 2014, the total amount of gross unrecognized tax benefits, including interest and penalties, was approximately $16.8 million, that if recognized, would affect the Company's effective tax rate. The Company recognizes interest and penalties related to unrecognized tax positions in income tax expense. The Company had $0.3 million of gross interest and penalties accrued as of September 26, 2014. The Company will continue to review its tax positions and provide for, or reverse, unrecognized tax benefits as issues arise. As of September 26, 2014, the Company anticipates that the balance of gross unrecognized tax benefits will decrease up to approximately $0.6 million due to expiration of the applicable statues of limitations over the next twelve months.