Income taxes

The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual tax rate changes, the Company makes a cumulative adjustment in that quarter.



	Three months ended						Nine months ended
(dollars in thousands)	September 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
Income tax expense (benefit)	$	8,474		$	(2,947	)	$	22,975		$	2,574
Effective tax rate	31.1		%	(25.2		)%	24.6		%	30.6		%

The higher income tax expense for the three and nine months ended September 30, 2015, compared to the same periods in 2014, was primarily due to higher pre-tax income. The income tax benefit for the third quarter of 2014 was primarily attributable to the impact of net losses that are not benefited, foreign withholding taxes, and non-deductible stock based compensation offset, in part, by research tax credits. The Company's provision for income taxes in each period has differed from the tax computed at U.S. federal statutory income tax rate due to state taxes, the effect of non-U.S. operations, deductible and non-deductible stock-based compensation expense, and adjustments to unrecognized tax benefits.

The Company is currently under examination by the U.S. Internal Revenue Service for tax years 2012 and 2013 and the California Franchise Tax Board for tax years 2011 and 2012. At this time, the Company is not able to estimate the potential impact that these examinations may have on income tax expense. If the examinations are resolved unfavorably, they may have a material negative impact on the Company's results of operations.

At September 30, 2015 and December 31, 2014, the Company’s total amount of gross unrecognized tax benefits was $25.2 million and $16.6 million, respectively. If recognized, $23.6 million of the unrecognized tax benefits (net of federal benefit) at September 30, 2015 would be recorded as a reduction of the income tax provision in future periods. Management believes events that could occur in the next 12 months and cause a material change in unrecognized tax benefits include, but are not limited to, the completion of examinations by the U.S. or foreign taxing authorities, and the expiration of statute of limitations on the Company's tax returns. It is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase within the next 12 months. However, the range of the reasonably possible change cannot be reliably estimated.