Income Taxes

The income tax provision includes income taxes currently payable and those deferred due to temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. The following is a summary of the components of the income tax provision (benefit) for the years December 31, 2011, 2010 and 2009:



	Year Ended December 31,
	2011			2010			2009
Current taxes:
Federal	$	2,882		$	2,890		$	2,500
State	250			(1,883		)	859
Foreign	1,559			4,357			6,890
Total current taxes	4,691			5,364			10,249
Deferred taxes:
Federal	14,548			(5,516		)	10,244
State	1,233			(2,232		)	14
Foreign	(541		)	(1,678		)	(3,321		)
Total deferred taxes	15,240			(9,426		)	6,937
Income tax provision (benefit)	$	19,931		$	(4,062	)	$	17,186

Included in Federal current taxes above for the years ended December 31, 2011, 2010 and 2009 is $3.2 million, $2.3 million and $0.0 million respectively, related to foreign withholding tax imposed on United States income.

The following is a geographical breakdown of income (loss) before income taxes:



	Year Ended December 31,
	2011		2010			2009
United States	$	85,057	$	(16,592	)	$	37,120
Foreign	17,562		14,671			7,641
Total	$	102,619	$	(1,921	)	$	44,761

The following is a summary of the items that cause recorded income taxes to differ from taxes computed using the statutory federal income tax rate of 35% for the years ended December 31, 2011, 2010 and 2009:



	Year Ended December 31,
	2011			2010			2009
Income before income taxes	$	102,619		$	(1,921	)	$	44,761
Income tax at federal statutory rate	$	35,917		$	(672	)	$	15,666
Research and development credits	(803		)	(1,115		)	(795		)
Meals, entertainment and other non-deductible expenses	2,344			1,183			772
State income taxes, net of federal benefit	1,937			105			1,689
Section 199 deduction	—			(532		)	(554		)
Foreign tax rate differential	(1,132		)	(1,371		)	(531		)
Benefit of litigation settlement	(13,809		)	—			—
Interest and penalties on uncertain tax positions	155			(1,679		)	(59		)
Uncertain tax positions	(4,331		)	(1,299		)	2,035
Transaction costs	—			1,114			—
Change in Valuation Allowance	808			—			(1,283		)
Other, net	(1,155		)	204			246
Income tax provision	$	19,931		$	(4,062	)	$	17,186
Effective tax rate	19.4		%	211.5		%	38.4		%

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2011 and 2010 are as follows:



	2011						2010
	Current			Non-Current			Current			Non-Current
Deferred tax asset:
Accruals and reserves	$	9,849		$	4,193		$	18,019		$	2,388
Deferred revenue	5,055			2,614			11,026			6,366
Net operating loss	14,067			225,823			23,088			222,678
Foreign accruals, reserves and net operating losses	4,522			6,974			2,237			8,790
Tax credit carryforwards	—			24,268			—			19,174
R&D expenses capitalized	—			30,809			—			39,218
Property and equipment	—			5,706			—			7,576
Total deferred tax assets	33,493			300,387			54,370			306,190
Deferred tax liability:
Goodwill and other intangibles	—			(27,672		)	—			(32,051		)
Total deferred tax liability	—			(27,672		)	—			(32,051		)
Valuation allowance for deferred tax assets	(1,430		)	(14,444		)	(3,554		)	(19,076		)
Net deferred tax assets	$	32,063		$	258,271		$	50,816		$	255,063

Residual United States income taxes have not been provided on undistributed earnings of our foreign subsidiaries. These earnings are considered to be indefinitely reinvested and, accordingly, no provision for United States federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both United States income taxes and withholding taxes payable to various foreign countries less an adjustment for foreign tax credits. It is not practical to estimate the amount of additional tax that might be payable on the foreign earnings. As of December 31, 2011, the cumulative undistributed earnings of the Company's foreign subsidiaries is approximately $19.8 million.

A reconciliation of the liability for unrecognized income tax benefits is as follows:



	2011			2010			2009
Unrecognized tax benefits, beginning of year	$	14,532		$	12,073		$	12,452
Increase related to prior year tax positions	—			—			797
Decrease related to prior year tax positions	(374		)	—			—
Decrease related to Currency Translation	(794		)	—			—
Increase related to Currency Translation	—			—			—
Increase related to current year tax positions	75			—			—
Decrease related to current year tax positions	—			—			(61		)
Expirations	(4,478		)	(1,753		)	(722		)
Settlements	(1,616		)	(1,224		)	(393		)
Acquired unrecognized tax benefits	—			5,436			—
Unrecognized tax benefits, end of year	$	7,345		$	14,532		$	12,073

As of December 31, 2011 approximately $7.3 million of unrecognized tax benefits would impact our effective tax rate if recognized. It is reasonably possible that approximately $0.2 million of unrecognized tax benefits will be recognized within the next 12 months. During the year ended December 31, 2011, unrecognized tax benefits related to foreign expirations and settlements decreased by $4.5 million and $1.6 million as illustrated in the above table.

We treat the accrual of interest and penalties related to uncertain tax positions as a component of income tax expense, including accruals (benefits) made during 2011, 2010 and 2009 of $0.1 million, ($1.7) million and ($0.1) million respectively. As of December 31, 2011, 2010 and 2009 there are approximately $3.1 million, $2.7 million and $2.6 million, respectively of interest and penalty accruals related to uncertain tax positions which are reflected in the Consolidated Balance Sheet.To the extent interest and penalties are not assessed with respect to the uncertain tax positions, the accrued amounts for interest and penalties will be reduced and reflected as a reduction to the overall provision.

We conduct business globally and, as a result, JDA Software Group, Inc. or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. Our business operations in India have been granted a tax holiday from income taxes through the tax year ended March 31, 2011. This tax holiday did not have a significant impact on our 2011 or 2010 operating results; however, our overall tax rate benefited $0.3 million , $1.1 million and $0.9 million in 2011, 2010 and 2009, respectively. The tax holiday benefit is reflected in the foreign rate differential line of the Company's rate reconciliation. While JDA operates in jurisdictions with lower tax rates than the U.S., the effect of the lower rates on JDA's overall tax expense has been immaterial. Furthermore, we expect the effect of any future benefit of lower foreign tax rates will also be immaterial.

In the normal course of business we are subjected to examination by taxing authorities throughout the world, including significant jurisdictions, which are the United States, India and the United Kingdom. We are currently under audit in the U.S. for the 2010 and 2011 tax years. Audits are in process in India covering multiple years. The finalization of these audits has not yet occurred; however, we do not anticipate any material adjustments. The following table sets forth significant jurisdictions that have open tax years that are subject to examination:



Country		Open Tax Years Subject to Examination
United States		2010 - 2011
United Kingdom		2010 - 2011
India		2002 - 2011

JDA Software Group, Inc. accepted an invitation to participate in the Compliance Audit Assurance Program (“CAP”) beginning in 2007. The Internal Revenue Service has completed their review of our tax returns for 2009 and prior years, no material adjustments have been made as a result of these examinations.

At December 31, 2011, we have approximately $5.9 million and $8.9 million of federal and state research and development tax credit carryforwards, respectively, that expire at various dates throughout 2031. We also have approximately $13.2 million of foreign tax credit carryforwards that expire at between 2018 and 2021. We have approximately $678 million of federal net operating loss carryforwards, which are subject to annual limitations prescribed in section 382 of the Internal Revenue Code, that expire beginning in 2018. We also have $431.3 million and $13.9 million of state and foreign net operating loss carryforwards, before consideration of valuation allowance or reduction for uncertain tax positions, that expire beginning in 2015.

We believe that it is more likely than not that the benefit from certain state NOL carryforwards, foreign tax attribute carryforwards and state R&D credits will not be realized. In recognition of this risk, we have provided a valuation allowance of $194.2 million, $3.5 million and $8.9 million, respectively on these gross deferred tax assets. If our assumptions change and we determine we will be able to realize these NOLs and other tax attribute carryforwards, the maximum potential tax benefit relating to the reversal of the valuation allowance on these deferred tax assets as of December 31, 2011, would result in a reduction of income tax expense by approximately $8.8 million, $1.3 million and $5.8 million, respectively.

As a result of certain realization requirements of ASC Topic 718, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets at December 31, 2011 and 2010 that arose directly from (or the use of which was postponed by) tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Equity will be increased by $17.6 million if and when such deferred tax assets are ultimately realized. The Company uses ASC 740 ordering for purposes of determining when excess tax benefits have been realized.