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Income Taxes
6 Months Ended
Jun. 30, 2013
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
The income tax provision for the three and six months ended June 30, 2013, as a percentage of income before taxes was 19.1% and 12.2%, respectively. The income tax provision for the three months ended June 30, 2013 included income tax benefits totaling $424,000 pertaining to 2012 from the filing of 2012 foreign tax returns during the period. For the six months ended June 30, 2013, the income tax provision also included a $1.4 million benefit for 2012 research tax credits as a tax law was enacted on January 2, 2013 to retroactively reinstate the federal research and development tax credit to January 1, 2012.

The income tax provision for the three and six months ended June 30, 2012, as a percentage of income before taxes, was 33.4% and 33.5%, respectively. The tax provision for the three and six months ended June 30, 2012, included the recognition of $176,000 of previously unrecognized tax benefits due to settlements with the tax authorities. Additionally, the tax provision for the three and six months ended June 30, 2012 excluded any benefits from the federal research and development credit which expired on December 31, 2011 and had not been reinstated as of June 30, 2012.

As of June 30, 2013, the gross amount of unrecognized tax benefits for uncertain tax positions was $12.4 million (including interest and penalties) and the net amount, reduced for the federal effects of potential state tax exposures, was $9.0 million. Included in the $9.0 million is $5.3 million which has not yet reduced income tax payments, and therefore, has been netted against non-current deferred tax assets. The remaining $3.7 million liability consisted of $3.4 million included in long-term income taxes payable and $274,000 netted against short-term income taxes receivable. If these uncertain tax positions are sustained upon tax authority audit, or otherwise become certain, the $3.7 million would favorably affect the Company’s tax provision in such future periods. The Company does not anticipate a significant change to the amounts of unrecognized tax benefits presented as long-term liability or reduction to long-term deferred tax assets in the next 12 months.

The Company continues to recognize interest and penalties related to income tax matters as part of the income tax provision. As of June 30, 2013 and December 31, 2012, the Company had $435,000 and $354,000, respectively, accrued for interest and none accrued for penalties in both periods. These accruals are included as a component of long-term income taxes payable.
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.





Deferred tax assets and liabilities result primarily from temporary differences between book and tax bases of assets and liabilities and state research and development credit carryforwards. The Company had net current deferred tax assets of $21.8 million and net long-term deferred tax liabilities of $133,000 as of June 30, 2013. 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 $8.2 million maintained against state deferred tax assets as of June 30, 2013. The recorded valuation allowance is primarily due to required income apportionment methods in California causing a shortfall of projected future taxable income to realize all available deferred tax assets in that jurisdiction. Should the Company determine that future realization of other recognized tax benefits is not more likely than not, additional valuation allowance would be established which would increase the Company's tax provision in the period of such determination.