Income Taxes

Effective Tax Rate— The Company’s effective tax rate for 2011 reflects the significant tax benefits from having a higher mix of a portion of our operations in foreign jurisdictions where earnings are taxed at rates lower than U.S. statutory rates and where certain components of the Company's income are exempt from taxation. The Company’s interim period income tax provisions are based on an estimate of the effective income tax rate expected to be applicable to the related annual period, after eliminating discrete items unique to the respective interim period being reported. The Company’s effective income tax rate, excluding the effect of discrete items, for the three months ended September 30, 2011 rate was 8.94% as compared to 4.25% for the same period in 2010. The effective rate increased primarily due to increased taxable income from jurisdictions with higher tax rates.

The Company recognized a net tax benefit of $167 thousand for the nine months ended September 30, 2011. The Company's interim period tax provision, exclusive of discrete items, for this nine month period was an expense of $4.8 million which is reflective of the 8.94% effective tax rate. Included in the discrete items recognized during the nine months ending September 30, 2011 were the releases of the remaining valuation allowances held against deferred tax assets associated with tax net operating losses carry forwards obtained from earlier business acquisitions. These valuation allowances had been previously retained due to uncertainty as to the recoverability of the deferred tax asset in regards to sufficient levels of future expected taxable income, and due to uncertainties as to their utilization posed by the requirements of IRC Section 382. The valuation allowances were released based on analysis of the levels of taxable income being generated by these business units and an analysis of the relevant income tax regulations. As a result of the release of the valuation allowances the Company recognized a tax benefit of $4.6 million (net of charges associated with the offsetting of windfall gains realized from the tax deductions pertaining to exercised stock options and vested restricted stock grants). Also included in recognized discrete items was the recording of enhanced research and development tax deductions applicable to our Singapore operations which was retroactive back to the year 2010 and reduced tax expense by $403 thousand.

At September 30, 2011, the Company had remaining available domestic net operating loss (“NOL”) carry-forwards of approximately $57.2 million which are available to offset future federal and certain state income taxes. Approximately $40.0 million of these NOL carry-forwards were obtained as a result of the recent acquisition of ADAM in February 2011. The Company expects to fully utilize these NOLs before they begin to expire in 2019.

Accounting for Uncertainty in Income Taxes—The Company has applied the FASB’s accounting guidance on accounting for uncertain income tax positions. As of September 30, 2011 the Company’s Condensed Consolidated Balance Sheet includes a liability of $2.98 million for unrecognized tax benefits which is included in other long-term liabilities. During the three and nine months ended September 30, 2011 there were no changes to this liability. A reconciliation of the beginning and ending amount of the Company’s liability reserves for unrecognized tax benefits is as follows:



	(in thousands)
Balance at January 1, 2011	$	2,980
Additions for tax positions related to current year	$	—
Additions for tax positions of prior years	$	—
Reductions for tax position of prior years	$	—
Balance at September 30, 2011	$	2,980

The Company recognizes interest accrued and penalties related to unrecognized tax benefits as part of income tax expense. As of September 30, 2011 approximately $602 thousand of estimated interest and penalties is included in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheet.

Based on its current knowledge and the probability assessment of potential outcomes, the Company believes that recorded tax reserves, as determined in accordance with the requisite income tax guidance, are adequate.