Income Taxes:

The components of income tax expense are as follows:



	Year Ended December 31,
	2011			2012			2013
Current:
Federal	$	1,737		$	3,164		$	(1,790	)
State	318			312			(122		)
Foreign	2,131			2,880			1,497
	4,186			6,356			(415		)
Deferred:
Federal	(8,038		)	(18,003		)	(2,378		)
State	(818		)	(2,799		)	938
Foreign	(162		)	(12		)	(70		)
	(9,018		)	(20,814		)	(1,510		)
Total income tax benefit	$	(4,832	)	$	(14,458	)	$	(1,925	)

The income (loss) before tax are comprised of the following:



	Year Ended December 31,
	2011			2012		2013
Domestic operations	$	23,963		$	13,278	$	(4,860	)
Foreign operations	$	(3,569	)	$	16,129	$	6,393

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. The income tax benefit of $1,925 in 2013 primarily resulted from benefits related to the reversal of unrecognized tax benefits, foreign tax credits and research and development credits for both 2012 and 2013 recognized in 2013, which were not available in 2012 as a result of legislation, and $1.3 million of expense related to a correction of the prior year income tax balances recognized in the fourth quarter of 2013. The correction of the prior year income tax balance was not considered material to the prior year or current year financial statements.

Deferred tax assets and liabilities are comprised of the following:



	December 31,
	2012			2013
Research and development credit carryforward	$	3,506		$	5,233
Reserves and accruals not currently deductible	4,444			3,085
Deferred revenue	3,191			2,379
Domestic net operating loss carryforwards	2,351			1,900
Capital losses	31			29
Foreign net operating loss and credit carryforwards	2,145			6,327
Intangibles	12,610			11,506
Tax deductible transaction costs	429			347
Share-based compensation	2,086			1,730
Inventory obsolescence reserve	3,517			3,935
Depreciation	—			356
Other	1,946			223
Gross deferred tax assets	36,256			37,050
Valuation allowance for deferred tax assets	(1,361		)	(1,646		)
Deferred tax assets after valuation allowance	34,895			35,404
Gross deferred tax liabilities	(611		)	(1,072		)
Net deferred tax assets	$	34,284		$	34,332

At December 31, 2012 and 2013, the Company had valuation allowances of $1,361 and $1,646, respectively, 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.

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, 2011, 2012 and 2013 to income before provision for income taxes as follows:



	Year Ended December 31,
	2011			2012			2013
Federal income tax provision at statutory rate	$	7,138		$	10,292		$	537
State taxes, net of federal effect	207			(698		)	828
Foreign taxes net of federal effect	1,136			1,296			(1,514		)
Domestic manufacturing benefit	(536		)	(915		)	—
Change in valuation allowance for deferred tax assets	(12,358		)	(23,313		)	(153		)
Research tax credit	(875		)	—			(1,965		)
Deferred tax true-up	—			—			401
Other	456			(1,120		)	(59		)
Provision (benefit) for income taxes	$	(4,832	)	$	(14,458	)	$	(1,925	)
Effective tax rate	(24		)%	(49		)%	(126		)%

At December 31, 2013, the Company had federal, state and foreign net operating loss carryforwards of $1,371, $399 and $516, respectively. In addition, as of December 31, 2013 the Company had federal AMT carryforwards of $130. The federal, state and foreign net operating loss carryforwards expire on various dates through December 31, 2031, December 31, 2031 and December 31, 2022, respectively. At December 31, 2013, the Company had federal and state research & development credits and foreign tax credit carryforwards of $4,068, $1,165 and $4,386, respectively. The federal research & development credits are set to expire at various dates through December 31, 2033.The state research & development credits are set to expire at various dates through December 21, 2024. The foreign tax credit is set to expire at various dates through December 31, 2023. The 2013 benefit for income taxes includes a benefit of $1,993 for unrecognized tax benefits, a provision of $850 for the correction of a prior year income tax balance recognized in the fourth quarter and a provision of $625 related to an Internal Revenue Service audit adjustment. These amounts are included in the “Other” line item.

A provision has not been made at December 31, 2013 for U.S. or additional foreign withholding taxes on approximately $2,524 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. It is not practical to estimate the amount of tax that might be payable if some or all of such earnings were to be remitted.

The total amount of unrecognized tax benefits were as follows:



	December 31,
	2011		2012			2013
Unrecognized tax benefits, opening balance	$	6,724	$	8,476		$	9,566
Gross increases—tax positions in prior period	1,358		486			533
Gross decreases - tax positions in prior period	—		(494		)	(4,992		)
Gross increases—current-period tax positions	394		1,098			599
Lapse of statute of limitations	—		—			—
Unrecognized tax benefits, ending balance	$	8,476	$	9,566		$	5,706

Included in the balance of unrecognized tax benefits at December 31, 2012 and 2013 are unrecognized tax benefits of $6,272 and $4,278, respectively, which would be reflected as an adjustment to income tax expense if recognized. The year over year decrease from 2012 to 2013 is primarily due to the reversal of unrecognized tax benefits related to federal tax exposures. 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, 2011, 2012 and 2013, the Company recognized approximately $330, $557 and $(768), respectively, in interest and penalties expense associated with uncertain tax positions. As of December 31, 2012 and 2013, the Company had accrued interest and penalties expense related to unrecognized tax benefits of $1,538 and $770, respectively.

The Company is subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. In December 2013, 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 was recorded as a discrete event in the first quarter of 2013. This discrete event reduced tax expense in the first quarter of 2013 by approximately $800 for research and development tax credits for 2012.