Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

NOTE 9. INCOME TAXES

Income tax expense for the three months ended June 30, 2011 was $54.8 million, or 31.8% of pre-tax income, compared with $55.5 million, or 38.5% of pre-tax income for the three months ended June 30, 2010. Income tax expense for the six months ended June 30, 2011 was $104.3 million, or 32.0% of pre-tax income, compared with $104.0 million, or 37.4% of pre-tax income for the six months ended June 30, 2010. The effective tax rate for the three and six months ended June 30, 2011 differs from the U.S. federal statutory rate of 35% primarily due to the effect of income earned by certain of the Company's overseas entities being taxed at rates lower than the federal statutory rate and research & development credits ("R&D credits"), partially offset by state income taxes and non-deductible stock option expenses. The Company intends these foreign earnings to be indefinitely reinvested outside the United States. The effective tax rate for the three and six months ended June 30, 2010 differs from the federal statutory rate primarily due to state income taxes and non-deductible stock option expenses, partially offset by the effect of income earned by certain of the Company's overseas entities being taxed at rates lower than the federal statutory rate. The decrease in effective tax rates for the three and six months ended June 30, 2011 compared with the three and six months ended June 30, 2010 is primarily related to R&D credits, the decrease in California tax after the adoption of single sales factor apportionment effective January 1, 2011, and an increase in foreign earnings taxed at lower rates relative to domestic income.

As of June 30, 2011, the Company has total gross unrecognized tax benefits of approximately $86.2 million compared with approximately $78.9 million as of December 31, 2010, representing an increase of approximately $7.3 million for the six months ended June 30, 2011. Of the total gross unrecognized tax benefits, $81.9 million and $74.7 million as of June 30, 2011 and December 31, 2010, respectively, if recognized, would reduce the Company's effective tax rate in the period of recognition. Gross interest related to unrecognized tax benefit accrued was approximately $6.6 million and $5.5 million, respectively, as of June 30, 2011 and December 31, 2010.

The Company files federal, state and foreign income tax returns in many jurisdictions in the United States and abroad. For U.S. federal and California income tax purposes, the statutes of limitations currently remain open for all years since inception due to utilization of net operating losses and R&D credits generated in prior years.