9. Income Taxes

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


Year ended January 31,	2012			2011			2010
Domestic	$	(62,943	)	$	(56,810	)	$	(75,899	)
Foreign		145,267			88,822			56,258

Total pre-tax income (loss)	$	82,324		$	32,012		$	(19,641	)

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


Year ended January 31,	2012			2011			2010
Current:
Federal	$	475		$	(826	)	$	(1,846	)
State		137			250			407
Foreign		(2,731	)		9,028			3,501

Total current		(2,119	)		8,452			2,062

Deferred:
Federal and state		695			468			(163	)
Foreign		361			(5,492	)		349

Total deferred		1,056			(5,024	)		186

Total provision (benefit) for income taxes	$	(1,063	)	$	3,428		$	2,248


Year ended January 31,	2012			2011			2010
Federal tax, at statutory rate	$	28,813		$	11,204		$	(6,875	)
State tax, net of federal benefit		137			251			833
Impact of international operations including withholding taxes and other reserves		(53,499	)		(30,308	)		(18,025	)
Dividends		1,364			2,364			1,597
Foreign tax credits		(411	)		(241	)		(241	)
Costs incurred for stock of acquired business		98			(3	)		562
Tax credits (excluding foreign tax credits)		(9,677	)		(9,697	)		(7,610	)
Amortization of deferred charge		323			657			1,349
U.S. losses and tax credits for which no benefit has been realized		28,275			24,574			25,196
Stock based compensation expense		2,947			2,663			4,986
Non-deductible meals and entertainment		1,096			1,117			943
Other, net		(529	)		847			(467	)

Provision (benefit) for income taxes	$	(1,063	)	$	3,428		$	2,248

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


Year ended January 31,	2012			2011			2010
Net changes in gross deferred tax assets and liabilities	$	(10,491	)	$	(20,381	)	$	(19,765	)
Deferred tax assets increasing goodwill		(1,747	)		(5,618	)		(567	)
Deferred tax assets reducing/(increasing) equity		36			(1,178	)		506
Deferred tax assets increasing deferred charge and other liabilities		(1,690	)		(305	)		(13,823	)
Increase in beginning-of-year balance of the valuation allowance for deferred tax assets		14,948			22,458			33,835

Total deferred income tax provision (benefit)	$	1,056		$	(5,024	)	$	186

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,	2012			2011
Deferred tax assets:
Depreciation of property, plant, and equipment	$	232		$	1,393
Reserves and allowances		9,509			3,746
Accrued expenses not currently deductible		22,267			25,337
Stock-based compensation expense		14,902			14,832
Net operating loss carryforwards		68,746			56,221
Tax credit carryforwards		57,198			47,163
Purchased technology and other intangible assets		15,070			16,365
Deferred revenue		1,563			1,793
Other, net		8,086			8,427

Total gross deferred tax assets		197,573			175,277
Less valuation allowance		(147,984	)		(133,036	)

Deferred tax assets		49,589			42,241

Deferred tax liabilities:
Intangible assets		(21,578	)		(22,572	)
Convertible debt		(15,607	)		(2,808	)

Deferred tax liabilities		(37,185	)		(25,380	)

Net deferred tax assets	$	12,404		$	16,861

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, 2012, we had the following foreign and U.S. Federal and state carryforwards for income tax purposes:


Credit or carryforward	As of January 31, 2012		Expiration
Federal credits and carryforwards:
Research & expermination credit carryforward	$	52,175	Fiscal 2019 -2032
Net operating loss carryforward	$	234,999	Fiscal 2019 -2032
Foreign tax credits	$	4,748	Fiscal 2015 -2022
Alternative minimum tax credits	$	2,683	No expiration
Childcare credits	$	1,363	Fiscal 2023 and 2032
State income tax credits and carryforwards:
Net operating loss carryforward	$	200,581	Fiscal 2012 - 2031
Research and experimentation	$	11,394	Fiscal 2012 - 2026
Miscellaneous	$	1,086	Various
Foreign net operating loss carryforwards	$	13,155	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 $28,210 as of January 31, 2012 and $25,606 as of January 31, 2011.

The increase in the valuation allowance largely resulted from an increase in tax credit and 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, 2012, the cumulative amount of earnings upon which U.S. income taxes have not been provided for is approximately $335,522. Upon repatriation, some of these earnings may be sheltered by U.S. loss carryforwards or of 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 2009 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 2006 in Japan and fiscal year 2008 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 $10,000 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 $677 for the year ended January 31, 2012; an expense of $211 for the year ended January 31, 2011 and a benefit of $1,560 for the year ended January 31, 2010.

The below schedule shows the gross changes in unrecognized tax benefits associated with uncertain tax positions for the years ending January 31, 2012 and 2011:


Unrecognized tax benefits as of January 31, 2010	$	39,910
Gross increases—tax positions in prior period		6,771
Gross decreases—tax positions in prior period		(931	)
Gross increases—tax positions in current period		6,099
Settlements		(141	)
Lapse of statute of limitations		(3,481	)
Cumulative translation adjustment		2,469

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

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 $9,916 as of January 31, 2012 and $9,664 as of January 31, 2011. We expect that $32,064 of our unrecognized tax benefits, if recognized, would favorably affect our effective tax rate.