Income Taxes

Income tax expense (benefit) for 2012, 2011 and 2010 consists of the following:



	For the Years Ended
(In thousands)	2012			2011			2010

Current:
Federal	$	164,690		$	162,288		$	85,106
State	13,302			19,061			10,355
Foreign	4,142			3,831			(883		)
Total current expense	182,134			185,180			94,578
Deferred:
Federal	9,035			(15,927		)	22,297
State	4,453			(5,410		)	4,038
Foreign	(5,146		)	(776		)	4,027
Total deferred expense (benefit)	8,342			(22,113		)	30,362

Total income tax expense	$	190,476		$	163,067		$	124,940

Temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities that give rise to significant portions of deferred income taxes at the end of 2012 and 2011 relate to the following:



(In thousands)	2012			2011

Deferred tax assets:
Accrued expenses	$	20,346		$	18,597
Separate return net operating losses	21,412			16,757
Share based compensation	35,323			26,462
Contract and service revenues and costs	17,339			25,022
Other	6,890			5,410
Total deferred tax assets	101,310			92,248

Deferred tax liabilities:
Software development costs	(101,393		)	(91,267		)
Depreciation and amortization	(96,695		)	(85,746		)
Other	(5,537		)	(4,029		)
Total deferred tax liabilities	(203,625		)	(181,042		)

Net deferred tax liability	$	(102,315	)	$	(88,794	)

At the end of 2012, we had net operating loss carry-forwards subject to Section 382 of the Internal Revenue Code for Federal income tax purposes of $7.4 million that are available to offset future Federal taxable income, if any, through 2020. We had net operating loss carry-forwards from non-U.S. jurisdictions of $0.9 million that are available to offset future taxable income, if any, through 2024 and $59.8 million that are available to offset future taxable income, if any, with no expiration. In addition, we had a deferred tax asset for state net operating loss carryforwards of $0.9 million which are available to offset future taxable income, if any, through 2032. We expect to fully realize all these net operating loss carry-forwards in future periods.

At the end of 2012, we had not provided tax on the cumulative undistributed earnings of our foreign subsidiaries of approximately $82 million, because it is our intention to reinvest these earnings indefinitely. If these earnings were distributed, we would be subject to U.S. taxes and foreign withholding taxes, net of U.S. foreign tax credits which may be available. The calculation of this unrecognized deferred tax liability is complex and not practicable.

The effective income tax rates for 2012, 2011, and 2010 were 32%, 35%, and 34%, respectively. These effective rates differ from the Federal statutory rate of 35% as follows:



	For the Years Ended
(In thousands)	2012			2011			2010

Tax expense at statutory rates	$	205,698		$	164,393		$	126,744
State income tax, net of federal benefit	13,856			11,439			10,151
Tax credits	(1,510		)	(5,520		)	(10,568		)
Unrecognized tax benefit (including interest)	(12,832		)	102			7,501
Permanent differences	(19,900		)	(2,472		)	(4,629		)
Other, net	5,164			(4,875		)	(4,259		)

Total income tax expense	$	190,476		$	163,067		$	124,940

A reconciliation of the beginning and ending amount of unrecognized tax benefit is presented below:



(In thousands)	2012			2011		2010

Unrecognized tax benefit - beginning balance	$	14,640		$	14,100	$	6,599
Gross increases (decreases) - tax positions in prior periods	(12,464		)	540		—
Gross increases - current-period tax positions	—			—		7,501

Unrecognized tax benefit - ending balance	$	2,176		$	14,640	$	14,100

All of the unrecognized tax benefit will favorably impact our effective tax rate if recognized. We do not expect to recognize any material portion of our unrecognized tax benefits in the next 12 months. Our federal returns have been examined by the Internal Revenue Service through 2009. We have various state and foreign returns under examination.

The 2012 beginning and ending amounts of accrued interest related to unrecognized tax benefits were $0.9 million and $0.1 million, respectively. We classify interest and penalties as income tax expense in our consolidated statement of operations. No accrual for tax penalties was recorded at the end of the year.