Income Taxes:

The components of income tax expense are as follows:



	Year Ended December 31,
	2010			2011			2012
Current:
Federal	$	743		$	1,737		$	3,164
State	124			318			312
Foreign	2,807			2,131			2,880
	3,674			4,186			6,356
Deferred:
Federal	—			(8,038		)	(18,003		)
State	(167		)	(818		)	(2,799		)
Foreign	15			(162		)	(12		)
	(152		)	(9,018		)	(20,814		)
Total income tax expense (benefit)	$	3,522		$	(4,832	)	$	(14,458	)

Income before tax of $16,284 and $14,253 was generated by domestic and foreign operations, respectively, in 2010. Income (loss) before tax of $23,963 and $(3,569) was generated by domestic and foreign operations, respectively, in 2011. Income before tax of $13,278 and $16,129 was generated by domestic and foreign operations, respectively, in 2012.

The income tax benefit of $4,832 and $14,458 in 2011 and 2012, respectively, primarily resulted from benefits related to the release of valuation allowance recorded against U.S. deferred tax assets, partially offset by taxes accrued in both the U.S. and foreign tax jurisdictions.

Deferred tax assets and liabilities are comprised of the following:



	December 31,
	2011			2012
Research and development credit carryforward	$	7,574		$	5,290
Reserves and accruals not currently deductible	4,059			4,444
Deferred revenue	2,035			3,191
Domestic net operating loss carryforwards	690			2,288
Capital losses	71			31
Foreign net operating loss and credit carryforwards	1,586			2,145
Intangibles	13,944			12,610
Tax deductible transaction costs	472			429
Share-based compensation	2,000			2,086
Inventory obsolescence reserve	4,077			1,797
Other	862			2,261
Gross deferred tax assets	37,370			36,572
Valuation allowance for deferred tax assets	(24,674		)	(1,361		)
Deferred tax assets after valuation allowance	12,696			35,211
Gross deferred tax liabilities	(456		)	(611		)
Net deferred tax assets	$	12,240		$	34,600

At December 31, 2011 and 2012, we had valuation allowances of $24,674 and $1,361 on certain of our deferred tax assets to reflect the deferred tax asset at the net amount that is more likely than not to be realized. The Company released $23,313 in valuation allowance after it evaluated the realizability of the federal and state deferred tax assets based on positive earnings for the past three years as well as the projected earnings in future years and believes it is more likely than not that the deferred tax asset will be realized in the future years. The Company will continue to monitor the realizability of the deferred tax asset and evaluate the valuation allowance.

In assessing the realizability of deferred tax assets, the Company uses a more likely than not standard. If it is determined that it is more-likely-than-not that deferred tax assets will not be realized, a valuation allowance must be established against the deferred tax assets. The ultimate realization of the assets is dependent on the generation of future taxable income during the periods in which the associated temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income and tax planning strategies when making this assessment.

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. federal income tax rate of 35% for the years ended December 31, 2010, 2011 and 2012 to income before provision for income taxes as follows:



	Year Ended December 31,
	2010			2011			2012
Federal income tax provision at statutory rate	$	10,687		$	7,138		$	10,292
State taxes, net of federal effect	468			207			(698		)
Foreign taxes net of federal effect	—			1,136			1,296
Domestic manufacturing benefit	(573		)	(536		)	(915		)
Change in valuation allowance for deferred tax assets	(6,553		)	(12,358		)	(23,313		)
True-up of prior year benefit	(414		)	—			—
Other	(93		)	(419		)	(1,120		)
Provision (benefit) for income taxes	$	3,522		$	(4,832	)	$	(14,458	)
Effective tax rate	12		%	(24		)%	(49		)%

At December 31, 2012, the Company had state net operating loss carryforwards of $13,687. The net operating loss carryforwards expire on various dates through December 31, 2030. At December 31, 2012, the Company had federal and state research & development credits and foreign tax credit carryforwards of $3,406, $1,859 and $2,145, respectively. The federal research & development credits are set to expire at various dates through December 31, 2031.The state research & development credits are set to expire at various dates through December 21, 2023. The foreign tax credit is set to expire at various dates through December 31, 2019.

A provision has not been made at December 31, 2012 for U.S. or additional foreign withholding taxes on approximately $3,147 of undistributed earnings of our foreign subsidiaries in Europe and Japan because it is the present intention of management to permanently reinvest these undistributed earnings. Upon distribution of those earnings, U.S. taxes on such permanently reinvested foreign earnings would be recorded net of applicable foreign tax credits and withholding taxes, if any.

The total amount of unrecognized tax benefits were as follows:



	December 31,
	2010		2011		2012
Unrecognized tax benefits, opening balance	$	5,531	$	6,724	$	8,476
Gross increases—tax positions in prior period	982		1,358		(8		)
Gross increases—current-period tax positions	211		394		1,098
Lapse of statute of limitations	—		—		—
Unrecognized tax benefits, ending balance	$	6,724	$	8,476	$	9,566

Included in the balance of unrecognized tax benefits at December 31, 2011 and 2012 are unrecognized tax benefits of $6,118 and $6,272 which would be reflected as an adjustment to income tax expense if recognized, respectively. It is reasonably possible that certain amounts of unrecognized tax benefits may reverse in the next 12 months; however, we do not expect such reversals would have a significant impact on our results of operations or financial position.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2010, 2011 and 2012, the Company recognized approximately $27, $330 and $557 in interest and penalties expense associated with uncertain tax positions, respectively. As of December 31, 2011 and 2012, the Company had accrued interest and penalties expense related to unrecognized tax benefits of $566 and $1,538, respectively.

The Company is subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. Presently, the Company is under a federal income tax examination by the Internal Revenue Service for examination of income tax returns for the tax years ended, December 31, 2007 through December 31, 2009. The Company has not been contacted by any other U.S. state, local or foreign tax authority for all open tax periods beginning after December 31, 2007.

The American Taxpayer Relief Act of 2012 was passed by Congress and signed into law on January 1, 2013. The provisions under this law were made retroactive to January 1, 2012. However, as a result of the law being signed on January 1, 2013, the financial impact of any retroactive provision will be recorded as a discrete event in the first quarter of 2013. The Company estimates that this discrete event will reduce tax expense in the first quarter of 2013 by approximately $800 for research and development tax credits for 2012.