17. INCOME TAXES

During the quarter ended June 30, 2013, the Company identified certain prior period errors which affected the income tax provisions and related tax balance sheet accounts for the interim and annual periods in the years ended December 31, 2010 through 2012 and the quarter ended March 31, 2013. The Company has revised the financial information to reflect the correction of the identified errors in the periods in which they originated. For additional details, see Note 1 Basis of Presentation – Revision of Prior Period Financial Statements.

The following table presents the income tax expense (benefit) from continuing operations and the effective tax rates:

	Three Months Ended								Nine Months Ended
	September 30, 2013				September 30, 2012					September 30, 2013					September 30, 2012
Income tax expense (benefit) from continuing operations (in thousands)	$	(5	)		$	(2,709	)		$		(2,963	)		$		105
Effective tax rate		0.02		%		15.0		%			15.2		%			(8.9	)%

The Company’s effective tax rate was 0.02% and 15.0% for the three months ended September 30, 2013 and 2012, respectively, and 15.2% and (8.9)% for the nine months ended September 30, 2013 and 2012, respectively. The effective tax rates for the three and nine months ended September 30, 2013 differ from the U.S. federal statutory rate of 35% due primarily to discrete benefits recorded during the three and nine months ended September 30, 2013, $2.2 million of which was recorded in the first quarter of 2013 related to the reinstatement of the federal research and development tax credit signed into law on January 2, 2013, but retroactive to 2012, $1.0 million of which was recorded in the second quarter of 2013 related to previously non-deductible acquisition-related expenses that became deductible in the quarter, and a $2.0 million reserve release inclusive of interest which was recorded in the third quarter due to the expiration of a statute of limitations. In addition, $1.5 million of tax benefits realized on disqualifying dispositions of stock from the Company’s employee stock purchase plan were recorded in the nine months ended September 30, 2013, $0.5 million of which was recorded in the third quarter. For the three and nine months ended September 30, 2012, discrete benefits from reserve releases for statute expirations were $3.2 million and $3.6 million, inclusive of interest, respectively. Also reflected in the effective tax rate for the three and nine months ended September 30, 2013 and 2012, were impacts associated with proportional earnings from the Company’s operations in lower tax jurisdictions and other recurring permanent adjustments including non-deductible stock-based compensation expense.

As of September 30, 2013, the amount of gross unrecognized tax benefits was $22.6 million, all of which would affect the Company’s effective tax rate if realized. The Company recognizes interest income and interest expense and penalties on tax overpayments and underpayments within income tax expense. As of September 30, 2013 and 2012, the Company had approximately $1.6 million of accrued interest and penalties related to uncertain tax positions. The Company anticipates that, except for $1.5 million in uncertain tax positions that may be reduced related to the lapse of various statutes of limitation, there will be no material changes in uncertain tax positions in the next 12 months.

As a U.S. based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions, the Company has entered into agreements with the local governments in certain foreign jurisdictions where it has significant operations to provide it with favorable tax rates in those jurisdictions if certain criteria are met. Tax benefits realized from favorable tax rates for the three and nine months ended September 30, 2013 were $1.0 million ($0.01 per share) in aggregate, primarily related to the Company’s subsidiary in China which was granted High-New Technology Enterprise (“HNTE”) Recognition in 2008 resulting in a reduction in tax rate from 25% to 15%.