INCOME TAXES

The components of income before income taxes were as follows:



	Years Ended
	December 31, 2012			December 31, 2011		December 31, 2010
	(In thousands)
U.S.	$	(19,956	)	$	125,905	$	102,590
Foreign	62,194			255,285		13,762
Income before income taxes	$	42,238		$	381,190	$	116,352

The provision for (benefit from) income taxes consists of the following:



		Years Ended
		December 31, 2012			December 31, 2011			December 31, 2010
		(In thousands)
Federal	Current	$	10,378		$	2,454		$	(142,191	)
	Deferred	4,501			5,982			(88,291		)
State	Current	(5		)	172			58
	Deferred	(494		)	(2,064		)	(20,041		)
Foreign	Current	3,757			18,979			8,495
	Deferred	(6,344		)	40,677			(64,753		)
Provision for (benefit from) income taxes		$	11,793		$	66,200		$	(306,723	)

The Company's effective tax rate differs from the U.S. Federal statutory income tax rate as follows:



	Years Ended
	December 31, 2012		December 31, 2011		December 31, 2010
U.S. Federal statutory income tax rate	35.00	%	35.00	%	35.00	%
State tax	(0.23	)	0.22		0.65
Effect of foreign operations	(2.55	)	(15.52	)	(40.37	)
Recognition of tax credits	(10.04	)	(2.95	)	(56.22	)
Net operating loss and future deductions not currently benefited	—		—		27.82
Change of valuation allowance	1.04		(0.09	)	(100.33	)
Audit settlements and IRS refunds	—		0.20		(129.42	)
Other, net (1)	4.70		0.51		(0.75	)
Effective tax provision rate	27.92	%	17.37	%	(263.62	)%

_________________________________________


(1)	Included in Other, net, are adjustments related to return to provision true-up, unrecognized tax benefit ("UTB"), withholding taxes and non-deductible stock compensation.

For the years ended December 31, 2012 and 2011, the significant components of the tax provision were from operations in jurisdictions with operating profits. The Company's effective tax rate for the years ended December 31, 2012 and 2011 was lower than the statutory federal income tax rate of 35%, primarily due to income recognized in lower tax rate jurisdictions and the recognition of foreign R&D credits.

For the year ended December 31, 2010, the significant components of the tax benefit were the favorable settlement of the IRS tax audit, the release of valuation allowances attributable to deferred tax assets, and the recognition of certain U.S. foreign tax credits and foreign R&D credits.

Deferred income taxes

The tax effects of temporary differences that constitute significant portions of the deferred tax assets and deferred tax liabilities are presented below:



	December 31, 2012			December 31, 2011
	(In thousands)
Deferred income tax assets:
Net operating losses	$	53,500		$	33,324
Research and development, foreign tax and other tax credits	55,051			45,327
Accrued liabilities	31,519			33,124
Fixed assets	42,711			42,501
Intangible assets	8,331			12,356
Deferred income	5,007			8,391
Stock-based compensation	9,084			6,830
Unrealized foreign exchange translation	4,801			4,651
Other	4,878			4,832
Total deferred income tax assets	214,882			191,336
Deferred income tax liabilities:
Fixed assets	(55		)	(57		)
Deferred income	(846		)	(693		)
Unremitted earnings of foreign subsidiaries	(2,548		)	(5,075		)
Foreign losses subject to recapture	(14,837		)	(15,170		)
Other	(267		)	—
Total deferred tax liabilities	(18,553		)	(20,995		)
Less valuation allowance	(41,271		)	(38,742		)
Net deferred income tax assets	$	155,058		$	131,599
Reported as:
Current deferred tax assets(1)	$	53,105		$	10,239
Current deferred tax liabilities(2)	(304		)	—
Non-current deferred tax assets(3)	102,315			121,417
Non-current deferred tax liabilities(4)	(58		)	(57		)
Net deferred income tax assets	$	155,058		$	131,599

_________________________________________


(1)	Included within Prepaids and other current assets on the consolidated balance sheets and short-term tax attributes.


(2)	Included within Accrued and other liabilities on the consolidated balance sheets.


(3)	Included within Other assets on the consolidated balance sheets and long-term tax attributes.


(4)	Included within Other long-term liabilities on the consolidated balance sheets.

Similar to the Company's position during the fourth quarter of 2011, it concluded that it was more likely than not that it would be able to realize the benefit of a significant portion of its deferred tax assets in the future, except certain assets related to state and some foreign net operating losses and state tax credits, including R&D credit carry forwards. As a result, the Company continues to provide a full valuation allowance on the deferred tax assets relating to those items for year ended December 31, 2012.

As a result of certain realization requirements of the accounting standard for stock-based compensation, the table of deferred tax assets and liabilities shown above does not include deferred tax assets that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. The Company uses the "with and without" method to determine the order in which tax attributes are utilized. The Company only recognizes excess tax benefits from stock-based awards in additional paid-in capital if an incremental tax benefit is realized from a reduction in taxes payable, after all other tax attributes currently available to the Company have been utilized. In addition, the Company accounts for the indirect effects of stock-based awards on other tax attributes, such as research tax credits, through the consolidated statements of operations. The tax benefit realized from stock options exercised during 2012 was $1.3 million.

As of December 31, 2012, income taxes were provided on the undistributed earnings in Atmel Automotive, Atmel Rousset, Atmel Nantes, Atmel BV, Atmel Switzerland, and Atmel SARL. In determining the tax liability, the Company has accounted for potential gross-up of foreign taxes and expected foreign tax credits determined on the basis of U.S. tax rules governing earnings and profits computations in these jurisdictions. The Company continues to assert indefinite re-investment with respect to the earnings and profits of its other foreign subsidiaries (other than earnings subject to current U.S. tax under subpart F or Section 956 of the Internal Revenue Code) amounting to approximately $389.6 million as it is currently the Company's intention to reinvest these earnings indefinitely in operations outside the U.S. The Company estimates that its U.S. cash needs will be met from its prospective business operations and it will not need to repatriate cash (earnings) from its foreign jurisdictions to the US.

The Company's tax attribute carry forwards as of December 31, 2012 consist of the following:



Tax Attribute	December 31, 2012		Nature of Expiration
	(In thousands)
Foreign net operating loss carry forwards	$	164,491	beginning of 2013
State net operating loss carry forwards	502,349		2013-2032
Federal R&D credits, net of those related to stock option deductions	5,126		beginning of 2020
Federal R&D credits related to stock option deductions	29,314		beginning of 2020
State R&D credits	14,817		indefinite
Foreign tax credits	43,973		beginning of 2020
State investment tax credits	8,255		beginning of 2013
Foreign R&D credits	32,203		refundable

The Company believes it may not be able to utilize portions of the net operating loss carry forwards in non-U.S. jurisdictions before they expire, starting in 2013.

Unrecognized tax benefits

The Company recognizes uncertain tax positions only to the extent that management believes that it is more-likely-than-not that the position will be sustained. The reconciliation of the beginning and ending amount of gross UTB is as follows:



	Years Ended
	December 31, 2012			December 31, 2011			December 31, 2010
	(In thousands)
Balance at January 1	$	67,967		$	63,593		$	182,552
Tax Positions Related to Current Year:
Additions	10,270			8,794			35,810
Tax Positions Related to Prior Years:
Additions	793			—			—
Reductions	(1,877		)	(568		)	(34		)
Lapse of Statute of Limitation	(4,314		)	(1,672		)	(2,239		)
Settlements	(147		)	(2,180		)	(152,496		)
Balance at December 31	$	72,692		$	67,967		$	63,593

Included in the UTBs at December 31, 2012, 2011 and 2010, are $27.2 million, $25.2 million and $24.7 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of unrecognized tax benefits at December 31, 2012, 2011 and 2010, are $45.5 million, $42.8 million and $38.9 million, respectively, of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred tax assets.

The table above includes unrecognized tax benefits associated with the refundable foreign R&D credits, including additions due to positions taken in the current year and reductions for the completion of income tax audits or expiration of the related statute of limitations.

Increases or decreases in unrecognizable tax benefits could occur over the next twelve months due to tax law changes, unrecognized tax benefits established in the normal course of business, or the conclusion of ongoing tax audits in various jurisdictions around the world. The Company believes that before December 31, 2013, it is reasonably possible that either certain audits will conclude or the statutes of limitations relating to certain income tax examination periods will expire, or both. As such, after the Company reaches settlement with the tax authorities, the Company expects to record a corresponding adjustment to its unrecognized tax benefits. Given the uncertainty as to settlement terms, the timing of payments and the impact of such settlements on other uncertain tax positions, the range of estimated potential decreases in underlying uncertain tax positions is between $0 and $10.0 million in the next twelve months.

The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations. The Company regularly assesses its tax positions in light of legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which the Company does business.

Income tax audits

The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2001 through 2012 tax years generally remain subject to examination by federal and most state tax authorities. For significant foreign jurisdictions, the 2001 through 2012 tax years generally remain subject to examination by their respective tax authorities.

Currently, the Company has tax audits in progress in various other foreign jurisdictions. To the extent the final tax liabilities are different from the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations. While the Company believes that the resolution of these audits will not have a material adverse impact on the Company's results of operations, the outcome is subject to uncertainty.

The Company's policy is to recognize interest and/or penalties related to income tax matters in its income tax provision. In the years ended December 31, 2012, 2011 and 2010, the Company recognized expense (credits) related to interest and penalties in the consolidated statements of operations of $0.4 million, $0.5 million and $(45.8) million, respectively. The total amount of interest and penalties accrued on the consolidated balance sheets as of December 31, 2012 and 2011 was $1.8 million and $1.4 million, respectively.