Note 14.

Income Taxes

Components of income (loss) before income taxes are as follows (in thousands):


	Years Ended December 31,
	2011			2010			2009
United States operations	$	(50,100	)	$	(49,650	)	$	(191,738	)
Foreign operations		5,671			15,327			(47,970	)

Income (loss) before income taxes	$	(44,429	)	$	(34,323	)	$	(239,708	)

Components of income tax expense (benefit) are as follows (in thousands):


	Years Ended December 31,
	2011			2010			2009
Current:
United States federal	$	422		$	(45,844	)	$	(3,400	)
State and local		920			(379	)		457
Foreign		5,314			9,150			2,009

Total current		6,656			(37,073	)		(934	)
Deferred:
United States federal		(22,006	)		—			5,741
State and local		(555	)		—			(741	)
Foreign		(1,424	)		622			(745	)

Total deferred		(23,985	)		622			4,255

Total income tax expense (benefit)	$	(17,329	)	$	(36,451	)	$	3,321

Income tax expense differs from “expected” income tax expense (computed by applying the U.S. federal income tax rate of 35%) due to the following (in thousands):


	Years Ended December 31,
	2011			2010			2009
United States federal tax expense (benefit) at statutory rate	$	(15,550	)	$	(12,013	)	$	(83,898	)
State taxes, net of United States federal tax benefit		1,320			(379	)		(284	)
Change in valuation allowance		(9,119	)		13,191			16,207
Non-deductible stock compensation		571			992			1,551
Non-deductible goodwill impairment charge		—			—			54,740
Impact of non-U.S. jurisdictional tax rate difference		(368	)		(1,173	)		5,206
Non-taxable income attributable to noncontrolling interest		—			1,018			9,193
Extraterritorial Income Exclusion and previously acquired NOLs		—			(32,232	)		—
Research and development tax credit		(1,372	)		(2,053	)		(1,727	)
Increase/(reversal) of unrecognized tax benefits		2,100			(4,410	)		2,137
Other		5,089			608			196

Total income tax expense (benefit)	$	(17,329	)	$	(36,451	)	$	3,321

Net deferred tax assets are comprised of the following (in thousands):


	December 31,
	2011			2010
Deferred tax assets:
United States federal net operating loss carryforwards	$	28,228		$	29,411
Deferred expenses		14,056			6,515
Research and development tax credit carryforwards		21,496			21,063
Alternative minimum tax credit carryforward		3,068			3,068
Net unrealized loss on investments		10,943			11,512
Capital loss carryforwards		5,297			5,302
Accrued loss on excess office facilities		997			1,696
Stock-based compensation		16,101			15,124
State net operating loss carryforwards		3,999			5,702
Foreign net operating loss carryforwards		20,582			3,092
Deferred revenue		495			1,150
Equipment, software, and leasehold improvements		8,133			10,285
Intangibles		48			47
Other		6,457			7,502

Gross deferred tax assets		139,900			121,469
Less valuation allowance		105,189			106,169

Gross deferred tax assets, net of valuation allowance		34,711			15,300

Deferred tax liabilities:
Other intangible assets		(1,550	)		(1,297	)
Net unrealized gains on investments		(3,904	)		(7,088	)
Other		(880	)		(1,236	)
Prepaid expenses		(1,445	)		(2,184	)
Capitalized software development costs		(3,504	)		(2,971	)

Gross deferred tax liabilities		(11,283	)		(14,776	)

Net deferred tax assets	$	23,428		$	524

Income tax receivables were $6.7 million and $14.6 million at December 31, 2011 and 2010, respectively. The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the appropriate taxing jurisdictions. During the year ended December 31, 2011, the Company released $22.6 million of the valuation allowance related to the Company’s deferred tax assets. These deferred tax assets relate primarily to capital loss carryforwards, and net operating loss carryforwards which the Company determined it will more likely than not be able to utilize due to the generation of sufficient taxable income in the future from the asset purchase agreement the Company entered into on January 26, 2012 with Intel Corporation pursuant to which it will sell certain patent assets and related rights for $120 million in cash. Of the total valuation allowance release, $22.6 million was recorded as an income tax benefit in the Consolidated Financial Statements. The Company maintains a partial valuation allowance of $105.2 million for its deferred tax assets due to uncertainty regarding their realization as of December 31, 2011. Adjustments could be required in the future if the Company estimates that the amount of deferred tax assets to be realized is more or less than the net amount the Company has recorded. Any increase or decrease in the valuation allowance could have the effect of increasing or decreasing the income tax provision in the statement of operations.

The net change in valuation allowance was a $1.0 million decrease and a $5.1 million increase during the years ended December 31, 2011 and 2010, respectively. The 2011 net decrease in valuation allowance is caused primarily by an increase in deferred tax assets related to pre-acquisition foreign net operating losses that the Company placed a valuation allowance on because it is not more likely than not that the Company can benefit these deferred tax assets in the future, netted with the valuation allowance release on U.S. deferred tax assets.

The Company’s United States federal net operating loss carryforwards totaled $80.7 million and $84.0 million at December 31, 2011 and 2010, respectively. These net operating loss carryforwards begin to expire between 2012 and 2032. In 2011, the remaining net operating loss carryforwards are from the U.S. taxable losses in 2010 and 2011 and acquired subsidiaries that are limited under Internal Revenue Code Section 382. The Company’s United States federal research and development tax credit carryforward totaled $21.5 million and $21.0 million at December 31, 2011 and 2010. The research and development credit carryforwards expire between 2020 and 2031. The Company’s alternative minimum tax credit carryforward totaled $3.1 million at both December 31, 2011 and December 31, 2010, and can be carried forward indefinitely.

In the fourth quarter of 2011, the Company received a cash payment of approximately $8.6 million and in the third quarter of 2010 received a cash payment of approximately $29.5 million, as the result of a refund of U.S. federal taxes previously paid. Of the 2011 amount, $2.5 million is related to the 2008 amended tax return that was filed as a result of the 2005 to 2007 Internal Revenue Service (IRS) examination related primarily to allowed deductions and taxes on foreign sales associated with the Company’s 2005 antitrust settlement with Microsoft Corporation. The remaining $6.1 million in refunds were related to net operating loss carryback and prior year tax overpayments. The Company recorded the related income tax benefit and tax receivable for both the 2011 and 2010 refunds in it is consolidated financial statements for the year ended December 31, 2010.

The Company recognizes tax liabilities in accordance with FASB ASC 740 (previously FIN No. 48, Accounting for Uncertainty in Income Taxes), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements. This pronouncement prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in the Company’s tax returns. As of December 31, 2011 and December 31, 2010, the Company had $16.7 million and $14.0 million of unrecognized tax benefits, respectively. Of the increase, $3.0 million is due to transfer pricing risk in foreign jurisdictions and $0.5 million is related to other prior year positions, partially offset by a decrease of $0.8 million related to the closure of a foreign subsidiary which had reserves related to transfer pricing and the expiration of the statute of limitations on state tax returns. The total amount of unrecognized tax benefits that would affect the Company’s effective tax rate if recognized is $13.5 million as of December 31, 2011 and $11.0 million as of December 31, 2010.

The Company elected to recognize accrued interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2011 and December 31, 2010, the Company had approximately $0.8 million and $0.7 million of accrued interest and penalties related to uncertain tax positions, respectively. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. We currently anticipate the closure of foreign income tax examinations in the next twelve months that may decrease the Company’s total unrecognized tax benefits by an amount up to $12.0 million as a result of the successful defense of the Company’s positions, the settlement and payment of a liability, or a combination thereof. Additionally, the Company anticipates that its total unrecognized tax benefits may increase by an amount up to $2.7 million as a result of a potential transfer pricing change.

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows (in thousands):


	Years Ended December 31,
	2011			2010			2009
Balance, beginning of year	$	14,033		$	59,826		$	10,455
Increases related to prior year tax positions		—			130			—
Decreases related to prior year tax positions		(768	)		(57,234	)		(820	)
Increases related to current year tax positions		3,518			11,311			50,191
Expiration of the statute of limitations		(62	)		—			—

Balance, end of year	$	16,721		$	14,033		$	59,826