Note 16. Income Taxes

Income (loss) before income taxes consisted of the following:


	Years Ended December 31,
	2011		2010		2009
	(In thousands)
Domestic	$	80,693	$	47,038	$	(17,973	)
Foreign		212,456		257,620		(51,408	)

Total	$	293,149	$	304,658	$	(69,381	)

Determining the consolidated provision for income tax expense, income tax liabilities, and deferred tax assets and liabilities involves judgment. We calculate and provide for income taxes in each of the tax jurisdictions in which we operate, which involves estimating current tax exposures as well as making judgments regarding the recoverability of deferred tax assets in each jurisdiction. The estimates used could differ from actual results, and this may have a significant impact on operating results in future periods.

Significant components of the provision for income taxes are as follows:


	Years Ended December 31,
	2011		2010			2009
	(In thousands)
Current	$	8,980	$	26,548		$	8,644
Deferred		18,402		(5,035	)		(17,771	)

Federal		27,382		21,513			(9,127	)

Current		844		7,183			(1,706	)
Deferred		1,009		(3,002	)		20,017

State		1,853		4,181			18,311

Current		12,041		16,703			3,728
Deferred		1,194		(71	)		2,942

Foreign		13,235		16,632			6,670

Total provision for income taxes	$	42,470	$	42,326		$	15,854

The provision for income taxes differs from the provision calculated by applying the federal statutory tax rate to income before income taxes as follows:


	Years Ended December 31,
	2011			2010			2009
	(In thousands)
Expected provision at 35%	$	102,602		$	106,630		$	(24,283	)
State tax, net of federal benefit		3,203			(1,386	)		(738	)
Tax-exempt interest		(1,447	)		(2,153	)		(2,873	)
Research and development credits		(4,500	)		(1,944	)		(395	)
Foreign income/losses taxed at different rates		(61,907	)		(71,563	)		31,908
Stock-based compensation		5,109			6,289			3,181
Utilization of net operating loss carryforwards		0			0			(20,730	)
Effect of California tax law change		0			0			20,220
Valuation allowance		0			0			4,029
Other		(590	)		6,453			5,535

Total provision for income taxes	$	42,470		$	42,326		$	15,854

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities are as follows:


	December 31,
	2011			2010
	(In thousands)
Deferred tax assets:
Reserves and accruals	$	39,045		$	47,119
Intangibles and capitalized in-process research and development		3,882			9,066
Stock-based compensation		14,579			20,059
Deferred profit		5,545			4,129
Net operating loss carryforwards		38,076			37,374
Credits		16,347			10,741
Other		2,992			6,416

Total deferred tax assets		120,466			134,904
Valuation allowance		(25,135	)		(19,037	)

Deferred tax assets, net of valuation allowance		95,331			115,867
Deferred tax liabilities:
Depreciation		(2,939	)		(8,487	)
Senior convertible notes		(165,397	)		0
Other liabilities		(4,835	)		(4,298	)

Total net deferred tax assets (liabilities)	$	(77,840	)	$	103,082

As of December 31, 2011, we had a net deferred tax liability of $77.8 million as compared to a net deferred tax asset of $103.1 million as of December 31, 2010. The changes to our net deferred tax assets and liabilities primarily relates to the difference between the book and tax basis difference of our Senior Convertible Notes issued during the year. As of December 31, 2011 and 2010, we had a valuation allowance of $25.1 million and $19.0 million, respectively, on certain California and non-U.S. deferred tax assets. We will continue to monitor and reassess the need for further increases or decreases to the valuation allowance.

As of December 31, 2011, our federal and state net operating losses for tax return purposes were $79.1 million and $45.7 million, respectively. If not utilized, these carryforwards will begin to expire in 2014. As of December 31, 2011, we had state tax credit carryforwards of $30.7 million. The majority of these credits carry forward indefinitely.

As of December 31, 2011, our aggregate undistributed earnings in our foreign subsidiaries were $373.1 million. We intend to reinvest those earnings for expansion of our business operations outside of the United States on an indefinite basis. Accordingly, no U.S. taxes have been provided. Upon distribution of those earnings in the form of dividends, we would be subject to U.S. taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. It is not feasible to determine the amount of unrecognized deferred income tax liability related to these earnings.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	December 31,
	2011			2010			2009
	(In thousands)
Balance, beginning of period	$	60,439		$	49,652		$	27,575
Additions for tax positions taken in a prior year		663			2,571			5,848
Additions for tax positions taken in the current year		6,752			10,333			17,589
Reductions for tax positions taken in the prior year		(1,936	)		(257	)		(894	)
Reductions for tax positions taken in the prior year due to settlement		(600	)		(1,350	)		(203	)
Reductions for tax positions taken in the prior year due to statutes lapsing		(217	)		(510	)		(263	)

Balance, end of period	$	65,101		$	60,439		$	49,652

Of the total unrecognized tax benefits as of December 31, 2011, 2010, and 2009, $61.6 million, $57.9 million, and $46.4 million, respectively, if recognized, would affect our effective tax rate. The remaining amounts in unrecognized tax benefits would not affect our rate as they are offset by valuation allowances.

With certain exceptions, we are no longer subject to state income tax examinations by tax authorities for years prior to 2008. We believe that adequate accruals have been provided for any potential adjustments that may result from current examinations by state tax authorities. As of the balance sheet date, our income tax refunds claimed in amended federal returns filed for the tax years ended December 31, 2006 and 2007 were under review by the Internal Revenue Service (IRS). Subsequent to the balance sheet date, the IRS added our 2008 amended income tax return to its review. We believe that the IRS review of 2006 to 2008 amended income tax returns will be finalized concurrently. As it concerns federal and other tax jurisdictions and tax periods, it is reasonably possible that our total unrecognized tax benefits could increase or decrease over the next twelve months as we may be subject to either examination by tax authorities or a lapse in statute of limitations. Currently, it is not possible to estimate the amount of any increase or decrease in unrecognized tax benefits.

As of December 31, 2011 and 2010, accrued interest and penalties were $4.8 million and $3.5 million, respectively, and were classified as Long-term income taxes payable in the Consolidated Balance Sheet. For the years ended December 31, 2011 and 2010, interest and penalties expense was $1.3 million and $1.7 million, respectively. For the year ended December 31, 2009, interest and penalties expense was a benefit of $1.9 million.