Income Taxes

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



Year ended January 31,	2014			2013		2012
Domestic	$	(754	)	$	9,670	$	(62,943	)
Foreign	163,822			131,665		145,267
Total pre-tax income	$	163,068		$	141,335	$	82,324

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



Year ended January 31,	2014			2013			2012
Current:
Federal	$	(366	)	$	(210	)	$	475
State	355			(65		)	137
Foreign	6,585			4,964			(2,731		)
Total current	6,574			4,689			(2,119		)
Deferred:
Federal and state	1,333			350			695
Foreign	1,603			(2,338		)	361
Total deferred	2,936			(1,988		)	1,056
Total provision (benefit) for income taxes	$	9,510		$	2,701		$	(1,063	)

The actual income tax expense (benefit) is different from that which would have been computed by applying the statutory federal income tax rate to our income before income tax. A reconciliation of income tax expense (benefit) as computed at the U.S. federal statutory income tax rate to the provision (benefit) for income taxes is as follows:



Year ended January 31,	2014			2013			2012
Federal tax, at statutory rate	$	57,074		$	49,467		$	28,813
State tax, net of federal benefit	355			(65		)	137
Impact of international operations including withholding taxes and other reserves	(46,632		)	(50,275		)	(53,499		)
Repatriation of foreign subsidiary earnings	20,367			12,661			1,364
Foreign tax credits	(5,489		)	(8,203		)	(411		)
Costs incurred for stock of acquired business	—			67			98
Tax credits (excluding foreign tax credits)	(12,571		)	(11,782		)	(9,677		)
Amortization of deferred charge	(2,311		)	—			323
Change in valuation allowance	(5,929		)	5,978			28,275
Stock-based compensation expense	2,593			1,895			2,947
Non-deductible meals and entertainment	1,087			1,021			1,096
Other, net	966			1,937			(529		)
Provision (benefit) for income taxes	$	9,510		$	2,701		$	(1,063	)

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,	2014			2013
Deferred tax assets:
Depreciation of property, plant, and equipment	$	(8	)	$	274
Reserves and allowances	10,733			10,398
Accrued expenses not currently deductible	20,118			20,463
Stock-based compensation expense	7,839			12,394
Net operating loss carryforwards	40,245			55,612
Tax credit carryforwards	90,852			75,639
Purchased technology and other intangible assets	3,267			6,456
Deferred revenue	3,680			3,097
Other, net	4,844			7,853
Total gross deferred tax assets	181,570			192,186
Less valuation allowance	(126,989		)	(154,695		)
Deferred tax assets	54,581			37,491
Deferred tax liabilities:
Intangible assets	(5,699		)	(8,286		)
Undistributed foreign earnings	(32,132		)	(1,662		)
Convertible debt	(11,276		)	(13,519		)
Deferred tax liabilities	(49,107		)	(23,467		)
Net deferred tax assets	$	5,474		$	14,024

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, 2014, we had the following foreign and U.S. Federal and state carryforwards for income tax purposes:



Credit or carryforward	As of January 31, 2014		Expiration
Federal credits and carryforwards:
Research and experimentation credit carryforward	$	70,201	Fiscal 2019 - 2034
Net operating loss carryforward	$	179,123	Fiscal 2019 - 2032
Foreign tax credits	$	14,335	Fiscal 2015 - 2024
Alternative minimum tax credits	$	2,683	No expiration
Childcare credits	$	1,649	Fiscal 2023 - 2034
State income tax credits and carryforwards:
Net operating loss carryforward	$	213,490	Fiscal 2015 - 2033
Research and experimentation	$	18,026	Fiscal 2015 - 2029
Miscellaneous	$	1,199	Various
Foreign net operating loss carryforwards	$	34,122	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 $38,893 as of January 31, 2014 and $32,794 as of January 31, 2013.

The decrease in the valuation allowance largely resulted from the utilization of U.S. net operating losses and the expected use of additional U.S. net operating losses to offset actual tax impacts of accrued foreign subsidiary repatriations.

We have determined the amounts of our valuation allowances 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 our 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 taxes 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, 2014, the cumulative amount of earnings upon which U.S. income taxes have not been provided is approximately $432,481. 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 re-invested, 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. For U.S. federal income tax purposes, the tax years which remain open for examination are fiscal years 2011 and forward, although net operating loss and credit carryforwards from all years are subject to examination and adjustment 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 2010 in Ireland.

We have reserves for taxes to address potential exposures involving tax positions that are being challenged or that could be challenged by the tax 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. It is reasonably possible that existing unrecognized tax benefits may decrease from $0 to $4,000 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 our reserves, which could settle or expire within the next twelve months, may result in 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 $1,710 for the year ended January 31, 2014, a benefit of $297 for the year ended January 31, 2013 and an expense of $677 for the year ended January 31, 2012.

The below schedule shows the gross changes in unrecognized tax benefits associated with uncertain tax positions for the years ending January 31, 2014 and 2013:



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
Gross increases—tax positions in prior period	3,863
Gross decreases—tax positions in prior period	(10,313		)
Gross increases—tax positions in current period	3,900
Gross decreases-tax positions current	—
Settlements	(1,581		)
Lapse of statute of limitations	(2,982		)
Cumulative translation adjustment	(348		)
Unrecognized tax benefits as of January 31, 2014	$	31,321

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 $7,687 as of January 31, 2014 and $9,538 as of January 31, 2013. We expect that $18,674 of our unrecognized tax benefits, if recognized, would favorably affect our effective tax rate.