INCOME TAXES

The income tax provision for the years ended December 31, 2013, 2012 and 2011, as a percentage of income before taxes, was 8%, 56% and 29%, respectively.

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



	2013		2012		2011
Statutory federal income tax rate	35	%	35	%	35	%
Research and development credit	(22	)	—		(4	)
Qualified production activities deduction	(3	)	(4	)	(2	)
State income taxes (net of federal income tax benefit)	—		(2	)	1
Non-deductible stock compensation	1		1		—
Valuation allowance	—		27		—
Deemed dividend income	3		—		—
Other *	(6	)	(1	)	(1	)
Effective tax rate	8	%	56	%	29	%

* Other, in 2013, includes foreign tax rate differential, foreign tax credits and other expenditures not deductible for tax purposes which are all individually insignificant.

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



	2013			2012			2011
Current:
Federal	$	4,833		$	8,847		$	9,906
State	(66		)	(1,731		)	585
Foreign	494			563			—
Total current	5,261			7,679			10,491
Deferred:
Federal	(3,698		)	(8,489		)	3,514
State	(31		)	16,901			(263		)
Foreign	52			(125		)	—
Total deferred	(3,677		)	8,287			3,251
Total provision	$	1,584		$	15,966		$	13,742

Pre-tax income from U.S. and non-U.S. jurisdictions was $16.9 million and $2.3 million, respectively, for the year ended December 31, 2013. Pre-tax income from U.S. and non-U.S. jurisdictions was $28.0 million and $0.3 million, respectively, for the year ended December 31, 2012. Pre-tax income from non-U.S. jurisdictions for the year ended December 31, 2011 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 recognized net deferred tax assets of $22.3 million as of December 31, 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 net deferred tax assets and has not established a valuation allowance except for a valuation allowance of $9.0 million and $7.6 million, respectively, that was established against deferred assets as of December 31, 2013 and 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 year ended December 31, 2011. 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):



	2013			2012
Deferred tax assets:
Accruals, reserves and other amounts not currently deductible	$	11,346		$	10,331
Deferred income	9,547			9,354
Tax net operating loss and credit carryforwards	9,170			6,712
Non-qualified stock compensation	6,115			5,049
Capitalized research and development	—			95
Unrealized loss on investments and other	278			208
Gross deferred tax assets	36,456			31,749
Valuation allowance	(8,999		)	(7,625		)
Total deferred tax assets	27,457			24,124
Deferred tax liabilities:
Long-lived assets	(5,187		)	(5,351		)
Total deferred tax liability	(5,187		)	(5,351		)
Net deferred tax assets (current and non-current)	$	22,270		$	18,773

Included in net deferred tax assets are credit carryforwards. The Company has available state research and development credit carryforwards of approximately $22.2 million, of which approximately $2.3 million represents pre-ownership change carryforwards subject to the Section 382 annual limitation. The state research credit carryforwards are not subject to expiration and may be carried forward indefinitely until utilized.

As of December 31, 2013, the gross liability for uncertain tax positions was $12.5 million and the net liability, reduced for the federal effects of potential state tax exposures, was $9.4 million. If these uncertain tax positions are sustained upon tax authority audit, or otherwise become certain, a net $3.7 million would favorably affect the Company’s tax provision in such future periods. The remaining $5.7 million would be offset by the reversal of related deferred tax assets on which a valuation allowance is placed. The $3.7 million liability is included in long-term income taxes payable for $3.6 million and current income taxes payable for $0.1 million. The Company does not anticipate a significant change to the $3.6 million long-term uncertain income tax positions within the next 12 months.

The amount of unrecognized tax benefits for the years ended December 31 consisted of the following (in thousands):



	2013			2012			2011
Beginning balance	$	8,259		$	8,532		$	9,599
Additions based on tax positions related to the current year	762			487			1,451
Additions for tax positions related to prior years	1,593			77			87
Subtractions for tax positions related to prior years	(1,181		)	(837		)	(2,605		)
Ending balance	$	9,433		$	8,259		$	8,532

The unrecognized tax benefits presented above include amounts related to potential tax exposures, which are presented net of federal tax benefits.

During 2013, the Company recognized $1.1 million of previously unrecognized tax benefits due to expiration of statutes of limitations.

The Company continues to recognize interest and penalties related to uncertain tax positions as part of the income tax provision. As of December 31, 2013 and 2012, the Company had $0.3 million and $0.4 million, 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 $0.3 million and current income taxes payable of less than $0.1 million as of December 31, 2013.

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 2010 and forward. Significant state tax jurisdictions include California, Massachusetts and Texas, and generally, the Company is subject to routine examination for years 2007 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 2006 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 $7.5 million and $5.3 million as of December 31, 2013 and 2012, respectively, are not indefinitely reinvested and, accordingly, applicable federal and state income taxes will be assessed upon repatriation. However, the amounts of such tax liabilities, after consideration of corresponding foreign tax credits, are immaterial.