Income Taxes

Domestic and foreign pre-tax income (loss) was as follows:



Year ended January 31,	2013		2012			2011
Domestic	$	9,670	$	(62,943	)	$	(56,810	)
Foreign	131,665		145,267			88,822
Total pre-tax income	$	141,335	$	82,324		$	32,012

The provision (benefit) for income taxes was as follows:



Year ended January 31,	2013			2012			2011
Current:
Federal	$	(210	)	$	475		$	(826	)
State	(65		)	137			250
Foreign	4,964			(2,731		)	9,028
Total current	4,689			(2,119		)	8,452
Deferred:
Federal and state	350			695			468
Foreign	(2,338		)	361			(5,492		)
Total deferred	(1,988		)	1,056			(5,024		)
Total provision (benefit) for income taxes	$	2,701		$	(1,063	)	$	3,428



Year ended January 31,	2013			2012			2011
Federal tax, at statutory rate	$	49,467		$	28,813		$	11,204
State tax, net of federal benefit	(65		)	137			251
Impact of international operations including withholding taxes and other reserves	(50,275		)	(53,499		)	(30,308		)
Repatriation of foreign subsidiary earnings	12,661			1,364			2,364
Foreign tax credits	(8,203		)	(411		)	(241		)
Costs incurred for stock of acquired business	67			98			(3		)
Tax credits (excluding foreign tax credits)	(11,782		)	(9,677		)	(9,697		)
Amortization of deferred charge	—			323			657
Losses and tax credits for which no benefit has been realized	5,978			28,275			24,574
Stock based compensation expense	1,895			2,947			2,663
Non-deductible meals and entertainment	1,021			1,096			1,117
Other, net	1,937			(529		)	847
Provision (benefit) for income taxes	$	2,701		$	(1,063	)	$	3,428

The significant components of the deferred income tax provision (benefit) were as follows:



Year ended January 31,	2013			2012			2011
Net changes in gross deferred tax assets and liabilities	$	(8,331	)	$	(10,491	)	$	(20,381	)
Deferred tax assets reducing/(increasing) goodwill	2			(1,747		)	(5,618		)
Deferred tax assets reducing/(increasing) equity	(283		)	36			(1,178		)
Deferred tax assets increasing deferred charge and other liabilities	(87		)	(1,690		)	(305		)
Increase in beginning-of-year balance of the valuation allowance for deferred tax assets	6,711			14,948			22,458
Total deferred income tax provision (benefit)	$	(1,988	)	$	1,056		$	(5,024	)

The tax effects of temporary differences and carryforwards, which gave rise to significant portions of deferred tax assets and liabilities, were as follows:



As of January 31,	2013			2012
Deferred tax assets:
Depreciation of property, plant, and equipment	$	274		$	232
Reserves and allowances	10,398			9,509
Accrued expenses not currently deductible	20,463			22,267
Stock-based compensation expense	12,394			14,902
Net operating loss carryforwards	55,612			68,746
Tax credit carryforwards	75,639			57,198
Purchased technology and other intangible assets	6,456			15,070
Deferred revenue	3,097			1,563
Other, net	7,853			8,086
Total gross deferred tax assets	192,186			197,573
Less valuation allowance	(154,695		)	(147,984		)
Deferred tax assets	37,491			49,589
Deferred tax liabilities:
Intangible assets	(9,948		)	(21,578		)
Convertible debt	(13,519		)	(15,607		)
Deferred tax liabilities	(23,467		)	(37,185		)
Net deferred tax assets	$	14,024		$	12,404

The above schedule includes short-term and long-term deferred tax assets and liabilities. Net long-term deferred tax liabilities are presented in our balance sheet in other long-term liabilities.

As of January 31, 2013, we had the following foreign and U.S. Federal and state carryforwards for income tax purposes:



Credit or carryforward	As of January 31, 2013		Expiration
Federal credits and carryforwards:
Research and experimentation credit carryforward	$	60,769	Fiscal 2019 - 2033
Net operating loss carryforward	$	206,368	Fiscal 2019 - 2032
Foreign tax credits	$	12,801	Fiscal 2015 - 2023
Alternative minimum tax credits	$	2,683	No expiration
Childcare credits	$	1,513	Fiscal 2023 - 2033
State income tax credits and carryforwards:
Net operating loss carryforward	$	186,129	Fiscal 2014 - 2032
Research and experimentation	$	13,503	Fiscal 2014 - 2028
Miscellaneous	$	1,293	Various
Foreign net operating loss carryforwards	$	33,618	Generally indefinite

Net operating loss carryforwards created by excess tax benefits from the exercise of stock options are not recorded as deferred tax assets. To the extent such net operating loss carryforwards are utilized, we will increase stockholders’ equity. For presentation purposes, we have elected to exclude the historic deferred tax assets related to excess tax benefits from stock option exercises. Our deferred tax assets related to net operating losses and tax credit carryforwards created by excess tax benefits from stock options have been reduced by $32,794 as of January 31, 2013 and $28,210 as of January 31, 2012.

The increase in the valuation allowance largely resulted from an increase in tax credit carryforwards offset by the utilization of some net operating loss carryforwards in the U.S., the timing of the deduction on the accrued expenses, and the movement of the reserves in our tax position. We have determined the amount of the valuation allowance based on our estimates of taxable income by jurisdiction in which we operate over the periods in which the related deferred tax assets will be recoverable. We determined it is not more-likely-than-not that our U.S. entities will generate sufficient taxable income and foreign source income to fully utilize foreign tax credit carryforwards, research and experimentation credit carryforwards, and net operating loss carryforwards before expiration. Accordingly, we recorded a valuation allowance against those deferred tax assets for which realization does not meet the more-likely-than-not standard. Similarly, there is a valuation allowance on the state deferred tax assets due to the same uncertainties regarding future taxable U.S. income. We determine valuation allowances related to certain foreign deferred tax assets based on historical losses as well as future expectations in certain jurisdictions.

We have not provided for income tax on the undistributed earnings of our foreign subsidiaries to the extent they are considered permanently re-invested outside the U.S. As of January 31, 2013, the cumulative amount of earnings upon which U.S. income taxes have not been provided for is approximately $431,201. Upon repatriation, some of these earnings may be sheltered by U.S. loss carryforwards or foreign tax credits, which may reduce the federal tax liability associated with any future foreign dividend. Determination of the amount of unrecognized deferred U.S. income tax liability on permanently re-invested earnings is not practicable. Where the earnings of our foreign subsidiaries are not treated as permanently reinvested, we have considered the impact in our tax provision.

We are subject to income taxes in the U.S. and in numerous foreign jurisdictions. In the ordinary course of business there are many transactions and calculations where the ultimate tax determination is uncertain. The statute of limitations for adjustments to our historic tax obligations will vary from jurisdiction to jurisdiction. In some cases it may be extended or be unlimited. Furthermore, net operating loss and tax credit carryforwards may be subject to adjustment after the expiration of the statute of limitations of the year such net operating losses and tax credits originated. Our larger jurisdictions generally provide for a statute of limitation from three to five years. The tax years for U.S. federal income tax purposes, which remain open for examination are fiscal years 2010 and forward, although net operating loss and credit carryforwards from all years are subject to examination and adjustments for three years following the year in which utilized. We are currently under examination in various jurisdictions. The examinations are in different stages and timing of their resolution is difficult to predict. The statute of limitations remains open for years on or after fiscal 2008 in Japan and fiscal 2009 in Ireland.

We have reserves for taxes to address potential exposures involving tax positions that are being challenged or that could be challenged by taxing authorities even though we believe the positions we have taken are appropriate. We believe our tax reserves are adequate to cover potential liabilities. We review the tax reserves as circumstances warrant and adjust the reserves as events occur that affect our potential liability for additional taxes. It is often difficult to predict the final outcome or timing of resolution of any particular tax matter. Various events, some of which cannot be predicted, such as clarification of tax law by administrative or judicial means, may occur and would require us to increase or decrease our reserves and effective tax rate. We expect to record additional reserves in future periods with respect to our tax filing positions. It is reasonably possible that existing unrecognized tax benefits may decrease from $0 to $11,000 due to settlements or expiration of the statute of limitations within the next twelve months. To the extent that uncertain tax positions resolve in our favor, it could have a positive impact on our effective tax rate. A portion of reserves, which could settle or expire within the next twelve months, may result in recording deferred tax assets subject to a valuation allowance for which no benefit would be recognized. Income tax-related interest and penalties were a benefit of $297 for the year ended January 31, 2013; a benefit of $677 for the year ended January 31, 2012 and an expense of $211 for the year ended January 31, 2011.

The below schedule shows the gross changes in unrecognized tax benefits associated with uncertain tax positions for the years ending January 31, 2013 and 2012:



Unrecognized tax benefits as of January 31, 2011	$	50,696
Gross increases—tax positions in prior period	647
Gross decreases—tax positions in prior period	(189		)
Gross increases—tax positions in current period	3,484
Lapse of statute of limitations	(12,084		)
Cumulative translation adjustment	(649		)
Unrecognized tax benefits as of January 31, 2012	$	41,905
Gross increases—tax positions in prior period	457
Gross decreases—tax positions in prior period	(7		)
Gross increases—tax positions in current period	4,316
Lapse of statute of limitations	(7,553		)
Cumulative translation adjustment	(336		)
Unrecognized tax benefits as of January 31, 2013	$	38,782

The ending balances of unrecognized tax benefits represent the gross amount of exposure in individual jurisdictions and do not reflect any additional benefits expected to be realized if such positions were not sustained, such as the federal deduction that could be realized if an unrecognized state deduction was not sustained. The ending gross balances exclude accrued interest and penalties related to such positions of $9,538 as of January 31, 2013 and $9,916 as of January 31, 2012. We expect that $25,488 of our unrecognized tax benefits, if recognized, would favorably affect our effective tax rate.