INCOME TAXES

The components of income (loss) before income taxes were as follows:



	Years Ended
	December 31, 2013			December 31, 2012			December 31, 2011
	(in thousands)
U.S.	$	25,648		$	(19,956	)	$	125,905
Foreign	(26,161		)	62,194			255,285
Income (loss) before income taxes	$	(513	)	$	42,238		$	381,190

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



		Years Ended
		December 31, 2013			December 31, 2012			December 31, 2011
		(in thousands)
Federal	Current	$	4,805		$	10,378		$	2,454
	Deferred	(10,220		)	4,501			5,982
State	Current	35			(5		)	172
	Deferred	(124		)	(494		)	(2,064		)
Foreign	Current	25,362			3,757			18,979
	Deferred	1,684			(6,344		)	40,677
Provision for income taxes		$	21,542		$	11,793		$	66,200

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



	Years Ended
	December 31, 2013		December 31, 2012		December 31, 2011
U.S. Federal statutory income tax rate	35.00	%	35.00	%	35.00	%
State tax	3.56		(0.23	)	0.22
Effect of foreign operations	(3,979.63	)	(2.55	)	(15.52	)
Recognition of tax credits	875.54		(10.04	)	(2.95	)
Change of valuation allowance	(295.93	)	1.04		(0.09	)
Audit settlements and IRS refunds	(828.85	)	—		0.20
Other, net (1)	(4.15	)	4.70		0.51
Effective tax provision rate	(4,194.46	)%	27.92	%	17.37	%


(1)	Other included items such as permanent differences, return to provision true up, withholding taxes, sale of business, and nondeductible stock compensation.

For the year ended December 31, 2013, the effective tax rate was higher than the 35% U.S. Federal statutory rate, primarily due to a discrete tax reserve of $11.5 million related to an ongoing foreign audit and an income tax provision of $4.2 million as a result of a foreign audit settlement.

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 US federal statutory income tax rate of 35%, primarily due to income recognized in lower tax rate jurisdictions.

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, 2013			December 31, 2012
	(in thousands)
Deferred income tax assets:
Net operating losses	$	46,723		$	53,500
Research and development, foreign tax and other tax credits	75,770			55,051
Accrued liabilities	30,599			31,519
Fixed assets	46,109			42,711
Intangible assets	10,555			8,331
Deferred income	5,261			5,007
Share-based compensation	5,889			9,084
Unrealized foreign exchange translation	1,109			4,801
Other	970			4,878
Total deferred income tax assets	222,985			214,882
Deferred income tax liabilities:
Fixed assets	—			(55		)
Deferred income	—			(846		)
Unremitted earnings of foreign subsidiaries	—			(2,548		)
Foreign losses subject to recapture	(12,054		)	(14,837		)
Other	—			(267		)
Total deferred tax liabilities	(12,054		)	(18,553		)
Less valuation allowance	(41,321		)	(41,271		)
Net deferred income tax assets	$	169,610		$	155,058
Reported as:
Current deferred tax assets(1)	$	35,493		$	53,105
Current deferred tax liabilities(2)	(208		)	(304		)
Non-current deferred tax assets(3)	134,365			102,315
Non-current deferred tax liabilities(4)	(40		)	(58		)
Net deferred income tax assets	$	169,610		$	155,058

_________________________________________


(1)	Included within prepaids and other current assets on the consolidated balance sheets.


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


(3)	Included within other assets on the consolidated balance sheets.


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

Similar to the Company's position during the fourth quarter of 2012, 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 carryforwards. 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, 2013.

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 share-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 share-based awards on other tax attributes, such as research tax credits, through the consolidated statements of operations. The tax benefit realized from excess stock options exercised and restricted stock units vested during 2013 were $2.3 million.

As of December 31, 2013, income taxes were provided on the undistributed earnings in Atmel Munich, Atmel Rousset, Atmel Nantes, Atmel BV, Atmel Semiconductor Technology, Ozmo UK, Temic Semiconductor Test, 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 $177.8 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 U.S.

The Company's tax attribute carry forwards as of December 31, 2013 consist of the following:



Tax Attributes	December 31, 2013		Nature of Expiration
	(in thousands)
Foreign net operating loss carry forwards	$	219,503	beginning of 2014
Federal net operating loss carry forwards	$	19,336	beginning of 2025
State net operating loss carry forwards	$	511,749	2014-2033
Federal R&D credits, net of those related to stock option deductions	$	9,925	beginning of 2019
Federal R&D credits related to stock option deductions	$	32,171	beginning of 2019
State R&D credits	$	18,605	indefinite
Foreign tax credits	$	45,583	beginning of 2017
State investment tax credits	$	1,925	beginning of 2014
Foreign R&D credits	$	44,344	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 2014.

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 unrecognized tax benefits (UTBs) is as follows:



	Years Ended
	December 31, 2013			December 31, 2012			December 31, 2011
	(in thousands)
Balance at January 1	$	72,692		$	67,967		$	63,593
Tax Positions Related to Current Year:
Additions	13,201			10,270			8,794
Tax Positions Related to Prior Years:
Additions	58,253			793			—
Reductions	(13,836		)	(1,877		)	(568		)
Lapse of statute of limitation	(7,152		)	(4,314		)	(1,672		)
Settlements	(3,652		)	(147		)	(2,180		)
Balance at December 31	$	119,506		$	72,692		$	67,967

Included in the UTBs at December 31, 2013, 2012 and 2011, are $43.4 million, $27.2 million and $25.2 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of UTBs at December 31, 2013, 2012 and 2011, are $44.1 million, $45.5 million and $42.8 million, respectively, of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred tax assets.

The table above includes UTBs associated with the refundable foreign R&D credits, including additions and reductions for income tax audits or expiration of the related statute of limitations.

Increases or decreases in UTBs could occur over the next twelve months due to tax law changes, UTBs 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, 2014, 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 UTBs. 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 $29.0 million in the next twelve months. The calculation of UTBs 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 2013 tax years generally remain subject to examination by federal and most state tax authorities. For significant foreign jurisdictions, the 2001 through 2013 tax years generally remain subject to examination by their respective tax authorities.

During the fourth quarter of 2013, the Company was able to complete negotiations and to conclude a foreign income tax audit for years 2007 to 2009, primarily related to transfer pricing. As a result of the settlement of this audit, the Company recorded $4.2 million of income tax including interest and penalties.

In the year ended December 31, 2013, a foreign tax authority completed its field examination on tax year 2010 for one of the Company's foreign subsidiaries and issued a preliminary audit assessment report. The Company plans to file a protest with the appeal office of the foreign tax authority. The Company believes that its reserves for UTBs are adequate to cover any potential settlements that may result from this examination. However, given the unpredictable nature of the appeals process, it is reasonably possible that the Company's UTBs related to these tax positions could change within the next twelve months.

As of the date of this Form 10-K, 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, 2013, 2012 and 2011, the Company recognized expense related to interest and penalties in the consolidated statements of operations of $2.8 million, $0.4 million and $0.5 million, respectively. The total amount of interest and penalties accrued on the consolidated balance sheets as of December 31, 2013 and 2012 was $1.8 million.