11. INCOME TAXES

The United States and foreign components of income before income taxes are as follows:



	2011		2010		2009
	(In thousands)
United States	$	176,824	$	124,337	$	16,434
Foreign	253,673		209,483		177,458
Total	$	430,497	$	333,820	$	193,892

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



	2011			2010			2009
	(In thousands)
Current:
Federal	$	50,022		$	69,540		$	25,065
Foreign	29,169			25,467			21,747
State	11,905			9,048			6,913
Total current	91,096			104,055			53,725
Deferred	(16,229		)	(46,676		)	(50,850		)
Total provision	$	74,867		$	57,379		$	2,875

The significant components of the Company’s deferred tax assets and liabilities consisted of the following:



	December 31,
	2011			2010
	(In thousands)
Deferred tax assets:
Accruals and reserves	$	31,191		$	24,191
Deferred revenue	25,365			19,377
Tax credits	60,331			71,442
Net operating losses	61,205			40,234
Other	8,580			3,495
Stock option compensation	38,834			27,314
Valuation allowance	(9,235		)	(13,999		)
Total deferred tax assets	216,271			172,054
Deferred tax liabilities:
Depreciation and amortization	(27,648		)	(2,684		)
Acquired technology	(78,456		)	(26,850		)
Prepaid expenses	(16,839		)	(12,479		)
Total deferred tax liabilities	(122,943		)	(42,013		)
Total net deferred tax assets	$	93,328		$	130,041

The authoritative guidance requires a valuation allowance to reduce the deferred tax assets reported if it is not more likely than not that some portion or all of the deferred tax assets will be realized. At December 31, 2011, the Company determined that a $9.2 million valuation allowance relating to deferred tax assets for net operating losses was necessary.

The Company does not expect to remit earnings from its foreign subsidiaries. Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $1,320.1 million at December 31, 2011. Those earnings are considered to be permanently reinvested and, accordingly, no U.S. federal and state income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company could be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various foreign countries. The Company maintains certain strategic management and operational activities in overseas subsidiaries and its foreign earnings are taxed at rates that are generally lower than in the United States. The Company does not expect to remit earnings from its foreign subsidiaries.

At December 31, 2011, the Company had $118.0 million of remaining net operating loss carry forwards in the United States from acquisitions. The utilization of these net operating loss carry forwards are limited in any one year pursuant to Internal Revenue Code Section 382 and begin to expire in 2019. At December 31, 2011, the Company had $42.7 million of remaining net operating loss carry forwards in foreign jurisdictions that do not expire.

At December 31, 2011, the Company had research and development tax credit carry forwards of approximately $60.3 million that begin to expire in 2024.

A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows:



	Year Ended December 31,
	2011		2010		2009
Federal statutory taxes	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	1.7		3.3		3.6
Foreign operations	(14.5	)	(16.8	)	(24.1	)
Permanent differences	1.2		1.1		2.8
Tax credits	(7.1	)	(10.4	)	(23.9	)
Stock option compensation	0.1		(0.4	)	1.2
Change in accruals for uncertain tax positions	1.4		5.3		8.8
Other	(0.4	)	0.1		(1.9	)
	17.4	%	17.2	%	1.5	%

The Company’s effective tax rate generally differs from the U.S. federal statutory rate of 35% due primarily to lower tax rates on earnings generated by the Company’s foreign operations that are taxed primarily in Switzerland. The Company has not provided for U.S. taxes for those earnings because it plans to reinvest all of those earnings indefinitely outside the United States.

The Company and one or more of its subsidiaries is subject to U.S. federal income taxes, as well as income taxes of multiple state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non- U.S. income tax examinations by tax authorities for years prior to 2004.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2011 and 2010 is as follows (in thousands):




Balance at January 1, 2010	$	48,165
Additions based on tax positions related to the current year	8,134
Additions for tax positions of prior years	15,629
Reductions related to the expiration of statutes of limitations	(1,838		)
Settlements	—

Balance at December 31, 2010	70,090
Additions based on tax positions related to the current year	8,656
Additions for tax positions of prior years	722
Reductions related to the expiration of statutes of limitations	(269		)
Settlements	—

Balance at December 31, 2011	$	79,199

The Company's unrecognized tax benefits may change significantly over the next 12 months due to the IRS settlement discussed below.

The Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. During the year ended December 31, 2011, the Company recognized $0.2 million of expense related to interest and penalties. The Company has approximately $1.4 million for the payment of interest and penalties accrued at December 31, 2011.

In June 2010, the Company reached a settlement in principle with the Internal Revenue Service (“IRS”) regarding certain previously disclosed income tax deficiencies asserted in a Revenue Agent’s Report (the “RAR”). Under the terms of the settlement in principle, the Company would agree to an assessment of income tax deficiencies in full settlement of all open claims under the RAR and would resolve with finality for future years all of the transfer pricing issues raised in the RAR. Based on this, the Company incurred a charge of $13.1 million in 2010 in accordance with the authoritative guidance. Among other things, the authoritative guidance requires application of a “more likely than not” threshold to the recognition and non-recognition of tax positions. It further requires that a change in management judgment related to prior years’ tax positions be recognized in the quarter of such change.

The final settlement requires the finalization of tax deficiency calculations with the IRS and a written agreement signed by the IRS. This process could take several more months to complete. There can be no assurances that a final written agreement will be obtained or that this matter will otherwise be resolved in our favor. An adverse outcome of this matter could have a material adverse effect on our results of operations and financial condition.