Income Taxes

The components of income before provision for income taxes are as follows (in thousands):



	Year ended December 28, 2013		Year ended December 29, 2012		Year ended December 31, 2011
United States	$	50,782	$	59,216	$	62,730
Foreign	24,944		24,605		23,801
Total	$	75,726	$	83,821	$	86,531

The following table presents the current and deferred provision (benefit) for income taxes (in thousands):



	Year ended December 28, 2013			Year ended December 29, 2012			Year ended December 31, 2011
Current:
Federal	$	24,488		$	26,332		$	23,951
State	2,426			2,411			621
Foreign	1,704			(54		)	1,123
	28,618			28,689			25,695
Deferred:
Federal	(7,281		)	(5,546		)	(2,415		)
State	(970		)	(1,458		)	(544		)
Foreign	(362		)	198			(258		)
	(8,613		)	(6,806		)	(3,217		)
Total	$	20,005		$	21,883		$	22,478

Included in the 2013 and 2011 current tax provisions are net increases of $0.3 million and $0.9 million, respectively, for tax and accrued interest related to uncertain tax positions for each year. Also, included in the 2012 current tax provision is a net decrease of $1.7 million for tax and accrued interest related to uncertain tax positions.

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



	Year ended December 28, 2013		Year ended December 29, 2012		Year ended December 31, 2011
Statutory regular federal income tax rate	35.0	%	35.0	%	35.0	%
State provision, net of federal benefit	1.3		0.7		0.1
Nondeductible items	0.9		1.0		0.6
Foreign tax rate differential	(9.8	)	(10.1	)	(8.6	)
Tax credits	(3.5	)	(0.5	)	(1.1	)
Change in federal valuation allowance	3.0		—		—
Other	(0.5	)	—		—
Total	26.4	%	26.1	%	26.0	%

On January 2, 2013, President Obama signed The American Taxpayer Relief Act of 2012 into law which reinstated the federal research tax credit (R&D Tax Credit) retroactively from January 1, 2012 through December 31, 2013. As a result of this legislation, the Company recorded additional R&D Tax Credits during fiscal 2013 for amounts generated in fiscal 2012 of approximately $1.0 million. In addition, as a result of Cercacor’s continuing operating losses, Cercacor management determined that there was insufficient positive evidence to support a more likely than not realization of its remaining deferred tax assets. As a result, Cercacor recorded a federal valuation allowance of approximately $2.3 million against the Cercacor deferred tax assets in fiscal 2013.

The components of the deferred tax assets are as follows (in thousands):



	December 28, 2013			December 29, 2012
Deferred tax assets:
Tax credits	$	3,203		$	2,492
Deferred revenue	4,234			2,999
Acquired intangibles	507			587
Net operating losses	277			4,688
Accrued liabilities	17,036			9,713
Share-based compensation	19,385			17,660
Property and equipment	670			590
Other	2,149			1,473
Total	47,461			40,202
Valuation allowance	(3,563		)	(2,441		)
Total deferred tax assets	43,898			37,761
Deferred tax liabilities:
Property and equipment	—			(15		)
Acquired intangibles	—			(2,305		)
State taxes and other	(1,697		)	(1,452		)
Total deferred tax liabilities	(1,697		)	(3,772		)
Net deferred tax assets	$	42,201		$	33,989
Current net deferred tax asset	19,636			12,911
Long-term net deferred tax asset	22,565			21,078
Net deferred tax assets	$	42,201		$	33,989

At December 28, 2013, the Company has $1.3 million of net operating loss carryforwards from its subsidiary in Sweden, which will carry forward indefinitely. The Company also has a $0.2 million of net operating losses from various states, which will begin to expire in 2028, all of which will be recorded in equity when realized. The Company has state research and development tax credits of $2.7 million which will carry forward indefinitely. Additionally, the Company has $0.5 million of investment tax credit on research and development expenditures from its operations in Canada which will begin to expire in 2019. The Company believes that it is more likely than not that the deferred tax assets related to these carryforwards will be realized. In making this determination, the Company considered all available positive and negative evidence, including scheduled reversals of liabilities, projected future taxable income, tax planning strategies and recent financial performance.

Cercacor, the Company’s VIE, is not included in the Company’s consolidated federal or state income tax returns. At December 28, 2013, Cercacor has federal research and development tax credit carryforwards of $0.6 million which will begin to expire in 2028 and state research and development tax credit carryforwards of $0.9 million, which will carry forward indefinitely. In addition, Cercacor has federal alternative minimum tax credit carryforwards of $0.2 million which will also carry forward indefinitely. After considering all positive and negative evidence, including Cercacor’s continuing operating losses, Cercacor management believes that there is insufficient positive evidence to support a more likely than not realization of these carryforwards, as well as the rest of its net deferred tax assets, and therefore, has recorded a full valuation allowance against Cercacor’s net deferred tax assets.

As a result of certain business and employment actions undertaken by the Company, income earned in a certain European country is subject to a reduced tax rate through 2013, which can be extended through 2018, upon meeting certain employment thresholds. For the years ended December 28, 2013 and December 29, 2012, the estimated income tax benefit related to such business arrangement was $1.2 million and $1.2 million, respectively, and favorably impacted net income per diluted share by $0.02 and $0.02 respectively. There was no impact to net income per diluted share in prior years.

During the years ended December 28, 2013, December 29, 2012, and December 31, 2011, the Company recorded a tax benefit of $0.7 million, $0.4 million, and $1.7 million , respectively, from the exercise of non-qualified stock options and incentive stock options as a reduction of its income tax liability and an increase in equity. The tax benefit results from the difference between the fair value of the Company’s stock on the exercise dates and the exercise price of the option.

As of December 28, 2013, the Company has not provided for deferred income taxes on approximately $57.4 million of cumulative undistributed earnings of certain foreign subsidiaries, because such earnings are intended to be permanently reinvested in those operations. If such earnings were distributed, the Company would accrue estimated additional income tax expense of $17.6 million.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):



	Year ended December 28, 2013			Year ended December 29, 2012
Unrecognized tax benefits, beginning of period	$	6,685		$	8,366
Increase from tax positions in prior period	265			47
Increase from tax positions in current period	695			563
Settlements	(443		)	(1,725		)
Lapse of statute of limitations	(572		)	(566		)
Unrecognized tax benefits, end of period	$	6,630		$	6,685

The amount of unrecognized benefits which, if ultimately recognized, could favorably affect the tax rate in a future period was $5.6 million and $5.7 million as of December 28, 2013 and December 29, 2012, respectively. Both amounts are net of any federal and/or state benefits. It is reasonably possible that the amount of unrecognized tax benefits in various jurisdictions may change in the next 12 months due to the expiration of statutes of limitation and audit settlements. However, due to the uncertainty surrounding the timing of these events, an estimate of the change within the next 12 months cannot be made at this time.

Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. For the years ended December 28, 2013, December 29, 2012 and December 31, 2011, the Company had accrued $0.9 million, $0.8 million and $0.7 million, respectively, for the payment of interest.

The Company conducts business in multiple jurisdictions, and as a result, one or more of the Company’s subsidiaries files income tax returns in the U.S. federal, various state, local and foreign jurisdictions. The Company has concluded on all U.S. federal income tax matters for years through 2009. All material state, local and foreign income tax matters have been concluded for years through 2006.