INCOME TAXES

The income tax provision for the years ended December 31, 2012, 2011 and 2010, as a percentage of income before taxes,was 56%, 29% and 33%, respectively.

A reconciliation of the statutory federal income tax rate to the effective tax rate for the years ended December 31 was as follows:



	2012		2011		2010
Statutory federal income tax rate	35	%	35	%	35	%
Research and development credit	—		(4	)	(1	)
Qualified production activities credit	(4	)	(2	)	(4	)
State income taxes (net of federal income tax benefit)	(2	)	1		2
Non-deductible stock compensation	1		—		—
Valuation allowance	27		—		—
Other	(1	)	(1	)	1
Effective tax rate	56	%	29	%	33	%

The provision for income taxes for the years ended December 31 consisted of the following (in thousands):



	2012			2011			2010
Current:
Federal	$	8,847		$	9,906		$	29,141
State	(1,731		)	585			2,522
Foreign	563			—			—
Total current	7,679			10,491			31,663
Deferred:
Federal	(8,489		)	3,514			(6,259		)
State	16,901			(263		)	(477		)
Foreign	(125		)	—			—
Total deferred	8,287			3,251			(6,736		)
Total provision	$	15,966		$	13,742		$	24,927

Pre-tax income from U.S. and non-U.S. jurisdictions was $28.0 million and $316,000, respectively, for the year ended December 31, 2012. Pre-tax income from non-U.S. jurisdictions for the years ended December 31, 2011 and 2010 was not material.

Deferred tax assets and liabilities result primarily from temporary differences between book and tax bases of assets and liabilities and research and development credit carryforwards. The Company had net current deferred tax assets of $18.8 million as of December 31, 2012. The Company must regularly assess the likelihood that future taxable income levels will be sufficient to ultimately realize the tax benefits of these deferred tax assets. The Company currently believes that future taxable income levels will be sufficient to realize the tax benefits of these deferred tax assets and has not established a valuation allowance except for a valuation allowance of $7.6 million that was established against deferred assets as of December 31, 2012 due to California tax law changes in 2012 which require mandatory single sales factor apportionment in California for most multi-state taxpayers for tax years beginning on or after January 1, 2013. No valuation allowance was established for the years ended December 31, 2011 and 2010. Should the Company determine that future realization of these tax benefits is not likely, additional valuation allowances would be established, which would increase the Company's tax provision in the period of such determination.

Deferred tax assets and liabilities at December 31 were as follows (in thousands):



	2012			2011
Deferred tax assets:
Accruals and reserves not currently deductible	$	10,331		$	10,945
Deferred income	9,354			11,831
Tax net operating loss and credit carryforwards	6,712			8,596
Non-qualified stock compensation	5,049			3,017
Capitalized research and development	95			73
Unrealized impairment of auction rate securities	208			371
Gross deferred tax assets	31,749			34,833
Valuation allowance	(7,625		)	—
Total deferred tax assets	24,124			34,833
Deferred tax liabilities:
Depreciation	(5,351		)	(5,147		)
State income taxes	—			(88		)
Total deferred tax liability	(5,351		)	(5,235		)
Net deferred tax assets (current and non-current)	$	18,773		$	29,598

Included in net deferred tax assets are credit carryforwards. The Company has available state research and development credit carryforwards of approximately $18.1 million, of which approximately $2.3 million represents pre-ownership change carryforwards subject to the Section 383 annual limitation from its 1998 acquisition of Synergy. The state research credit carryforwards are not subject to expiration and may be carried forward indefinitely until utilized.

As of December 31, 2012, the gross liability for uncertain tax positions was $11.6 million and the net liability, reduced for the federal effects of potential state tax exposures, was $8.3 million. If these uncertain tax positions are sustained upon tax authority audit, or otherwise become certain, the net $8.3 million would favorably affect the Company's tax provision in such future periods. Included in the $8.3 million is $5.2 million which has not yet reduced income tax payments, and therefore, has been netted against non-current deferred tax assets. The remaining $3.1 million liability is included in long-term income taxes payable for $2.8 million and current income taxes payable for $0.3 million. The Company does not anticipate a significant change to the $2.8 million long-term uncertain income tax positions within the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):




Balance at January 1, 2012	$	8,532
Additions based on tax positions related to the current year	487
Additions for tax positions related to prior years	77
Subtractions for tax positions related to prior years	(837		)
Balance at December 31, 2012	$	8,259

During 2012, the Company recognized $661,000 of previously unrecognized tax benefits due to expiration of statutes of limitations.

The Company continues to recognize interest and penalties related to income tax matters as part of the income tax provision. As of December 31, 2012 and 2011, the Company had $354,000 and $376,000, respectively, accrued for interest and none accrued for penalties for both years. The interest accruals were included as a component of long-term income taxes payable for $320,000 and current income taxes payable for $34,000 as of December 31, 2012.

The Company is required to file U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. The Company may be subject to examination by the Internal Revenue Service ("IRS") for calendar years 2009 and forward. Significant state tax jurisdictions include California, Massachusetts and Texas, and generally, the Company is subject to routine examination for years 2006 and forward in these jurisdictions. In addition, any research and development credit carryforwards that were generated in prior years and utilized in these years may also be subject to examination by respective state taxing authorities. Generally, the Company is subject to routine examination for years 2005 and forward in various immaterial foreign tax jurisdictions in which it operates.

Substantially all of the Company's undistributed earnings of its foreign subsidiaries, totaling approximately $5.3 million and $4.9 million as of December 31, 2012 and 2011, respectively, are not indefinitely reinvested and, accordingly, applicable federal and state income taxes have been provided thereon. The amounts of such tax liabilities, after consideration of corresponding foreign tax credits, are immaterial.