10.

Income Taxes

Federal and state income tax expense was $0.1 million in the second quarter of 2013 and $1.5 million in the second quarter of 2012. During the first six months of 2013 and the first six months of 2012, federal and state income tax expense was $1.2 million and $2.9 million, respectively. The effective tax rate for the first six months 2013 was 18.8% compared to 39.0% in 2012. Included in federal and state income tax expense for the second quarter of 2013 is an additional $1.4 million tax benefit, net of related uncertain tax position reserves, for research and development income tax credits earned during 2009 through 2011. This additional credit (partial credit as quantified was recognized in the third and fourth quarters of 2012) was not recognized in prior periods as these credits were not fully quantified until the current period. The Company also increased its estimate of the research and development income tax credits available for 2012 and 2013 (based on the revisions to 2009-2011) which was a tax benefit of $0.6 million for the six months ended June 30, 2013. These tax benefits are offset by $0.4 million of fees related to the calculation of the credits included in Selling and administrative expenses. Without the impact of the 2009-2011 credits, the effective tax rate for the first six months of 2013 would have been approximately 40.0% compared to 39.0% for the first six months of 2012. Along with the tax benefit of research and development income tax credits, our effective tax rate is additionally affected by certain permanent differences including non-deductible acquisition expense, non-deductible incentive stock based compensation, reversals of certain income tax reserves/deferrals, and tax holidays in foreign jurisdictions.

The Company files income tax returns in various federal, state and local jurisdictions. The Company is no longer subject to federal, state and local income tax examinations by tax authorities for years before 2008.

The Company accounts for uncertain tax positions pursuant to ASC Topic 740, “Income Taxes.” As of June 30, 2013 and December 31, 2012, the liability for uncertain tax positions totaled approximately $475 and $162, respectively. The Company recognizes interest accrued related to uncertain tax positions in interest expense and penalties in income tax expense.