Note 11: Income Taxes

The components of pretax income are as follows:


(In thousands)
Year Ended November 30,	2011		2010		2009

U.S.	$	69,199	$	54,566	$	32,279
Foreign		18,505		16,862		18,901

Total	$	87,704	$	71,428	$	51,180

The provisions for income taxes are comprised of the following:


(In thousands)
Year Ended November 30,	2011		2010			2009

Current:
Federal	$	19,961	$	11,536		$	10,116
State		1,982		1,925			1,383
Foreign		5,131		5,392			7,293

Total current		27,074		18,853			18,792

Deferred:
Federal		1,624		4,817			1,948
State		71		48			(36	)
Foreign		174		(861	)		(2,279	)

Total deferred		1,869		4,004			(367	)

Total	$	28,943	$	22,857		$	18,425

The tax effects of significant items comprising our deferred taxes are as follows:


(In thousands)
November 30,	2011			2010

Deferred tax assets:
Accounts receivable	$	1,230		$	598
Other current assets		780			815
Capitalized research costs		1,360			2,697
Accrued compensation		3,258			1,369
Accrued liabilities and other		9,469			10,722
Deferred revenue		1,540			2,743
Stock-based compensation		8,908			8,667
Tax credit and loss carryforwards		48,503			50,334

Gross deferred tax assets		75,048			77,945
Valuation allowance		(23,352	)		(21,566	)

Total net deferred tax assets		51,696			56,379

Deferred tax liabilities:
Goodwill		(10,629	)		(9,481	)
Depreciation and amortization		(3,795	)		(5,783	)

Total deferred tax liabilities		(14,424	)		(15,264	)

Total	$	37,272		$	41,115

The valuation allowance primarily applies to net operating loss carryforwards and unutilized tax credits in jurisdictions or under conditions where realization is not assured. The increase in the valuation allowance during fiscal 2011 primarily related to the creation of net operating loss carryforwards and excess tax credits.

At November 30, 2011, we have net operating loss carryforwards of $70.1 million expiring on various dates through 2024 and $30.4 million that may be carried forward indefinitely. At November 30, 2011, we have tax credit carryforwards of approximately $14.3 million expiring on various dates through 2031 and $0.8 million that may be carried forward indefinitely.

A reconciliation of the U.S. federal statutory rate to the effective tax rate is as follows:

		$ 3,28100			$ 3,28100			$ 3,28100
Year Ended November 30,	2011			2010			2009

Tax at U.S. Federal statutory rate		35.0	%		35.0	%		35.0	%
Foreign rate differences		(0.1	)		(2.8	)		(1.7	)
State income taxes, net		1.7			1.8			1.7
Research credits		(3.4	)		(0.2	)		(3.7	)
Domestic production activities deduction		(2.1	)		(0.8	)		(0.8	)
Tax-exempt interest		(0.2	)		(0.2	)		(0.5	)
Nondeductible stock-based compensation		2.6			2.3			5.2
Nonrecurring benefit from change in estimate from earnings and profits		—			(3.5	)		—
Other		(0.5	)		0.4			0.8

Total		33.0	%		32.0	%		36.0	%

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. We recognize and record potential tax liabilities for anticipated tax audit issues in various tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. We adjust these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in income tax benefits being recognized in the period when we determine the liabilities are no longer necessary.

A reconciliation of the balance of our unrecognized tax benefits is as follows:

		$ 3,28100			$ 3,28100			$ 3,28100
(In thousands)
Year Ended November 30,	2011			2010			2009

Balance, beginning of year	$	1,219		$	3,281		$	4,784
Tax positions related to current year		13			—			—
Settlements with tax authorities		—			(1,736	)		(1,323	)
Tax positions acquired		—			200			—
Lapses due to expiration of the statute of limitations		(108	)		(526	)		(180	)

Balance, end of year	$	1,124		$	1,219		$	3,281

We recognize interest and penalties related to uncertain tax positions as a component of our provision for income taxes. In fiscal years 2011 and 2010, we included $0.1 million and $0.1 million, respectively, of estimated interest and penalties in the provision for income taxes. We had accrued $0.3 million and $0.2 million of estimated interest and penalties at November 30, 2011 and November 30, 2010, respectively. We do not expect any significant changes to the amount of unrecognized tax benefits in the next 12 months.

We have not provided for U.S. income taxes on the undistributed earnings of non-U.S. subsidiaries, as these earnings have been permanently reinvested and would primarily be offset by foreign tax credits. Cumulative undistributed foreign earnings were approximately $35.4 million at November 30, 2011.

The Internal Revenue Service is currently examining our U.S. Federal income tax returns for fiscal years 2009 and 2010. Our Federal income tax returns have been examined or are closed by statute for all years prior to fiscal 2008, and we are no longer subject to audit for those periods. State taxing authorities are currently examining our income tax returns for years through fiscal 2010. Our state income tax returns have been examined or are closed by statute for all years prior to fiscal 2008, and we are no longer subject to audit for those periods.

Tax authorities for certain non-U.S. jurisdictions are also examining returns affecting unrecognized tax benefits, none of which are material to our consolidated balance sheets, cash flows or statements of income. With some exceptions, we are generally no longer subject to tax examinations in non-U.S. jurisdictions for years prior to fiscal 2006.

We believe that we have adequately provided for any reasonably foreseeable outcomes related to our tax audits and that any settlement will not have a material effect on our consolidated financial position or results of operations. However, there can be no assurances as to the possible outcomes.