17.	INCOME TAXES

The provision for income taxes consists of the following (in thousands):

 

		Year Ended December 31,
		2011				2010				2009
Federal:
Current		$	704,412			$	852,822			$	719,777
Deferred			68,391				(29,854	)			(47,608	)
			772,803				822,968				672,169
State:
Current			62,631				139,819				153,376
Deferred			(17,450	)			17,464				9,150
			45,181				157,283				162,526
Foreign:
Current			39,921				43,094				42,860
Deferred			4,040				454				(1,191	)
			43,961				43,548				41,669
Provision for income taxes		$	861,945			$	1,023,799			$	876,364

Foreign pre-tax income was $1.48 billion, $1.37 billion and $1.33 billion in 2011, 2010 and 2009, respectively. The cumulative unremitted foreign earnings that are considered to be permanently invested outside the United States and for which no U.S. taxes have been provided, were approximately $5.84 billion and $4.48 billion as of December 31, 2011 and 2010, respectively. The residual U.S. tax liability, if such amounts were remitted, would be approximately $2.05 billion and $1.60 billion as of December 31, 2011 and 2010, respectively.

The difference between the provision for income taxes and the amount computed by applying the U.S. federal statutory income tax rate to income before provision for income taxes is as follows (in thousands):

 

		Year Ended December 31,
		2011				2010				2009
Income before provision for income taxes		$	3,651,004			$	3,913,548			$	3,501,956
Tax at federal statutory rate		$	1,277,852			$	1,369,742			$	1,225,685
State taxes, net of federal benefit			27,894				106,250				111,095
Foreign earnings at different rates			(443,879	)			(435,767	)			(399,993	)
Research and other credits			(32,403	)			(33,072	)			(43,045	)
Net unbenefitted stock compensation			14,860				13,188				4,269
Other			17,621				3,458				(21,647	)
Provision for income taxes		$	861,945			$	1,023,799			$	876,364

 

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 our deferred tax assets and liabilities are as follows (in thousands):

 

		December 31,
		2011				2010
Deferred tax assets:
Net operating loss carryforwards		$	260,907			$	308,854
Stock-based compensation			156,715				142,242
Reserves and accruals not currently deductible			116,564				109,806
Deferred revenue			37,314				49,194
Depreciation related			45,223				58,875
Research and other credit carryforwards			30,350				25,151
Capitalized intangibles			5,227				5,839
Other, net			58,172				88,669
Total deferred tax assets before valuation allowance			710,472				788,630
Valuation allowance			(9,209	)			(13,040	)
Total deferred tax assets			701,263				775,590
Deferred tax liabilities:
Intangibles			(330,184	)			(322,168	)
Unremitted foreign earnings			(15,928	)			(15,928	)
Other			(14,562	)			(20,774	)
Total deferred tax liabilities			(360,674	)			(358,870	)
Net deferred tax assets		$	340,589			$	416,720

The valuation allowance decreased by $3.8 million for the year ended December 31, 2011 and increased by $11.9 million and $1.1 million for the years ended December 31, 2010 and 2009, respectively. We have concluded, based on the standard set forth in the FASB Accounting Standards Codification related to Income Taxes, that it is more likely than not that we will not realize any benefit from the deferred tax assets related to certain state net operating loss and credit carryforwards.

At December 31, 2011, we had U.S. federal net operating loss carryforwards of approximately $594.4 million. The federal net operating loss carryforwards will start to expire in 2016, if not utilized. We also had federal tax credit carryforwards of approximately $21.3 million which will start to expire in 2016, if not utilized. In addition, we had state net operating loss and tax credit carryforwards of approximately $1.45 billion and $27.5 million, respectively. The state net operating loss and tax credit carryforwards will start to expire in 2012 if not utilized.

Utilization of net operating losses and tax credits may be subject to an annual limitation due to ownership change limitations provided in the Internal Revenue Code of 1986, as amended, and similar state provisions. This annual limitation may result in the expiration of the net operating losses and credits before utilization.

We file federal, state and foreign income tax returns in many jurisdictions in the United States and abroad. For federal income tax purposes, the statute of limitations is open for 2003 and onwards. For certain acquired entities, the statute of limitations is open for all years from inception due to our utilization of their net operating losses and credits carried over from prior years. For California income tax purposes, the statute of limitations is open for 2002 and onwards.

 

Our income tax returns are audited by federal, state and foreign tax authorities. We are currently under examination by the Internal Revenue Service (IRS) for the 2008 and 2009 tax years and by various state and foreign jurisdictions. There are differing interpretations of tax laws and regulations, and as a result, significant disputes may arise with these tax authorities involving issues of the timing and amount of deductions and allocations of income among various tax jurisdictions. We periodically evaluate our exposures associated with our tax filing positions.

At December 31, 2011 and 2010, we have total federal, state and foreign unrecognized tax benefits of $146.9 million and $126.5 million, respectively. Of the total unrecognized tax benefits, $120.6 million and $106.5 million at December 31, 2011 and 2010, respectively, if recognized, would reduce our effective tax rate in the period of recognition. We have continued to classify interest and penalties related to unrecognized tax benefits as part of our income tax provision in our Consolidated Statements of Income. As of December 31, 2011 and 2010, we had accrued interest and penalties related to unrecognized tax benefits of $17.7 million and $12.3 million, respectively.

As of December 31, 2011, we believe that it is reasonably possible that our unrecognized tax benefits will not significantly change in the next 12 months as we do not expect to have clarification from the IRS and other tax authorities around any of our uncertain tax positions.

The following is a rollforward of our total gross unrecognized tax benefit liabilities for the years ended December 31, 2011, 2010 and 2009 (in thousands):

 

		December 31,
		2011				2010				2009
Balance, beginning of period		$	126,516			$	106,506			$	121,424
Tax positions related to current year:
Additions			21,113				24,320				25,036
Reductions			—				(3,303	)			(8,380	)
Tax positions related to prior years:
Additions			11,171				25,581				37,014
Reductions			(4,896	)			(23,474	)			(36,277	)
Settlements			(3,067	)			(2,160	)			(31,517	)
Lapse of statute of limitations			(3,929	)			(954	)			(794	)
Balance, end of period		$	146,908			$	126,516			$	106,506