NOTE 12 — INCOME TAXES:

The components of income (loss) before income taxes are as follows:

	Year Ended December 31,
	2013			2012		2011
	(in thousands)
United States	$	(2,463	)	$	6,343	$	3,550
Foreign	(17,127		)	113,795		10,159
Income (loss) before taxes on income	$	(19,590	)	$	120,138	$	13,709

The components of the provision for income taxes are as follows:

	Year Ended December 31,
	2013			2012			2011
	(in thousands)
Current:
U.S. federal	$	1,989		$	6,178		$	2,838
State and local	508			890			437
Foreign	3,110			4,573			907
	5,607			11,641			4,182
Deferred:
U.S. federal	$	(1,174	)	$	(2,805	)	$	(658	)
State and local	(219		)	(226		)	(149		)
Foreign	(462		)	(423		)	—
	(1,855		)	(3,454		)	(807		)
Provision for taxes on income	$	3,752		$	8,187		$	3,375

At December 31, 2013 and 2012, temporary differences which gave rise to significant deferred tax assets and liabilities are as follows:

	December 31,
	2013			2012
	(in thousands)
Deferred tax assets:
Net operating loss and credit carryforwards	$	44,706		$	30,644
Reserves and accruals	8,961			7,499
Depreciation and amortization	942			(174		)
Other	2,285			—
Gross deferred tax assets	56,894			37,969
Valuation allowance	(27,365		)	(28,039		)
Total deferred tax assets	29,529			9,930
Intangible assets	(15,038		)	(4,034		)
Total deferred tax liabilities	(15,038		)	(4,034		)
Net deferred tax assets	$	14,491		$	5,896

The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance.

At December 31, 2013, the Company had foreign net operating loss carryforwards of approximately $82.1 million in Israel, $61.2 million in the United States, and $14.2 million in Denmark. The US net operating losses expire in 2033 and the non-US net operating losses have no expiration date.

The Company has not provided for Israeli income and foreign withholding taxes on $11.7 million of its non-Israeli subsidiaries’ undistributed earnings as of December 31, 2013. The Company currently has no plans to repatriate those funds and intends to indefinitely reinvest them in its non-Israeli operations. The Company cannot determine the impact of local taxes, withholding taxes and foreign tax credits associated with future repatriation of such earnings because the time or manner of the repatriation is uncertain and therefore cannot quantify the related tax liability.

The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

	Year Ended December 31,
	2013		2012		2011
Tax at statutory rate	35.0	%	35.0	%	34.0	%
State, net of federal benefit	2.9		0.5		2.2
Meals and entertainment	(0.4	)	0.1		0.4
Tax at rates other than the statutory rate	(35.7	)	(32.9	)	(15.6	)
Share-based compensation	(4.6	)	(0.1	)	3.2
Net change in tax reserves	(15.9	)	4.8		—
Other, net	(0.5	)	(0.6	)	0.4
Provision for taxes	(19.2	)%	6.8	%	24.6	%

The Company calculates the pool of excess tax benefits resulting from share based compensation available to absorb tax deficiencies recognized using the method under which each award grant is tracked on an employee-by-employee basis and grant-by-grant basis to determine if there is a tax benefit situation or tax deficiency situation for such award. The Company then compares the fair value expense to the tax deduction received for each grant and aggregates the benefits and deficiencies to determine whether there is a hypothetical additional paid in capital (“APIC”) pool. For the years ended December 31, 2013 and 2012, the Company recognized a tax benefit to APIC of $2.7 million and $5.1 million, respectively.

The Company’s operations in Israel were granted “Approved Enterprise” status by the Investment Center in the Israeli Ministry of Industry Trade and Labor and “Beneficiary Enterprise” status from the Israeli Income Tax Authority, which makes the Company eligible for tax benefits under the Israeli Law for Encouragement of Capital Investments, 1959. Under the terms of the Beneficiary Enterprise program, income that is attributable to the Company’s operations in Yokneam, Israel, will be exempt from income tax for a period of ten years commencing when the Company first generates taxable income (after setting off its losses from prior years). Income that is attributable to the Company’s operations in Tel Aviv, Israel, will be exempt from income tax for a period of two years commencing when the Company first generates taxable income (after setting off its losses from prior years), and will be subject to a reduced income tax rate (generally between 10% and the current corporate tax rate, depending on the percentage of foreign investment in the Company) for five to eight years beginning fiscal year 2013. The corporate tax rate was 25% in 2013 and will be 26.5% in 2014. The Beneficiary Enterprise tax holiday associated with the Company’s Yokneam and Tel Aviv operations began in 2011. The tax holiday for the Company’s Yokneam operations will expire in 2020 and the Tax Holiday for the Company’s Tel-Aviv operations will expire between the years 2017 and 2020. The tax holiday has resulted in a cash tax savings of $6.4 million and $33.2 million in 2013 and 2012 respectively, increasing diluted earnings per share by approximately $0.15 and $0.76 in the year ended December 31, 2013 and 2012.

As a multinational corporation, the Company conducts business in many countries and is subject to taxation in many jurisdictions. The taxation of the Company’s business is subject to the application of multiple and sometimes conflicting tax laws and regulations as well as multinational tax conventions. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation and the evolution of regulations and court rulings. Consequently, taxing authorities may impose tax assessments or judgments against the Company that could materially impact its tax liability and/or its effective income tax rate.

As of December 31, 2013 and 2012, unrecognized tax benefits totaled approximately $23.6 million and $9.7 million, respectively, which would reduce the Company’s income tax expense and effective tax rate, if recognized.

The following summarizes the activity related to the Company’s unrecognized tax benefits:

	Year Ended December 31,
	2013			2012
	(in thousands)
Gross unrecognized tax benefits, beginning of the period	$	9,716		$	4,063
Increases in tax positions for prior years	444			120
Decreases in tax positions for prior years	(11		)	—
Increases in tax positions for current year	3,029			5,533
Decreases in tax positions for current year	(630		)	—
Increases in tax positions acquired or assumed in a business combination	11,037			—
Gross unrecognized tax benefits, end of the period	$	23,585		$	9,716

It is the Company’s policy to classify accrued interest and penalties as part of the accrued unrecognized tax benefits liability and record the expense in the provision for income taxes. For the years ended December 31, 2013, 2012 and 2011, the amount of accrued interest or penalties related to unrecognized tax benefit totaled $0.6 million, $0.4 million and $0.2 million, respectively. For unrecognized tax benefits that existed at December 31, 2013, the Company does not anticipate any significant changes within the next twelve months.

The Company files income tax returns in the U.S. federal jurisdictions, and various states and foreign jurisdictions. The 2009 through 2012 tax years are open and may be subject to potential examination in one or more jurisdictions.