INCOME TAXES

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



	Three months ended						Six months ended
	July 3, 2015			June 27, 2014			July 3, 2015			June 27, 2014
Loss before income taxes	$	(267	)	$	(8,709	)	$	(3,210	)	$	(15,842	)
Provision for income taxes	727			28,353			441			26,630
Effective income tax rate	(272.3		)%	(325.6		)%	(13.7		)%	(168.1		)%

The Company operates in multiple jurisdictions and its profits are taxed pursuant to the tax laws of these jurisdictions. The Company’s effective income tax rate may be affected by changes in, or interpretations of tax laws and tax agreements in any given jurisdiction, utilization of net operating loss and tax credit carry forwards, changes in geographical mix of income and expense, and changes in management’s assessment of matters such as the ability to realize deferred tax assets, as well as recognition of uncertain tax benefits, the effects of statute of limitation, or settlement with tax authorities.

The Company’s effective income tax rate of (13.7)% for the six months ended July 3, 2015 differed from the U.S. federal statutory rate of 35% primarily due to a difference in foreign tax rates. U.S. losses generated for the six months ended July 3, 2015 received no tax benefit as a result of a full valuation allowance against all of our U.S. deferred tax assets and the impairment of the VJU investment (see Note 4, "Investments in Other Equity Securities") received no tax benefit.

The Company’s effective income tax rate of (168.1)% for the six months ended June 27, 2014 differed from the U.S. federal statutory rate of 35%, primarily due to a $24.5 million increase in the valuation allowance against both U.S. federal and state deferred tax assets. The increased valuation allowance was a result of a history of operating losses in recent years, including the lower than expected revenue and profitability in the second quarter of 2014, which has led to uncertainty with respect to the Company’s ability to realize certain of its net deferred tax assets.

The Company files U.S. federal and 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 2011 through 2014 tax years generally remain subject to examination by U.S. federal and most state tax authorities. In significant foreign jurisdictions, the 2006 through 2014 tax years generally remain subject to examination by their respective tax authorities. In July 2015, the Company was notified that the U.S. Internal Revenue Service will be auditing its 2012 tax year. In addition, a subsidiary of the Company is under audit for the 2012 and 2013 tax years, which commenced in the first quarter of 2015, by the Israel tax authority. If, upon the conclusion of these audits, the ultimate determination of taxes owed in the United States or Israel is for an amount in excess of the tax provision the Company has recorded in the applicable period, the Company’s overall tax expense, effective tax rate, operating results and cash flow could be materially and adversely impacted in the period of adjustment.

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 July 3, 2015, the total amount of gross unrecognized tax benefits, including interest and penalties, was approximately $16.2 million, which 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 $0.6 million of gross interest and penalties accrued as of July 3, 2015. The Company will continue to review its tax positions and provide for, or reverse, unrecognized tax benefits as issues arise. As of July 3, 2015, the Company anticipates that the balance of gross unrecognized tax benefits will decrease up to approximately $0.8 million due to expiration of the applicable statues of limitations over the next 12 months.