Note 14 — Income Taxes

The (benefit from)/ provisions for income taxes consisted of the following:


	Year Ended December 31,
	2012			2011			2010
	(In thousands)
Current:
Federal	$	10,400		$	(2,850	)	$	176
State		1,717			336			1,521
Foreign		20,141			13,601			(1,243	)

Total current taxes		32,258			11,087			454

Deferred:
Federal		(50,645	)		(7,240	)		3,494
State		(157	)		211			344
Foreign		(2,416	)		(280	)		(1,122	)

Total deferred taxes		(53,218	)		(7,309	)		2,716

Total	$	(20,960	)	$	3,778		$	3,170

The following table summarizes the domestic and foreign components of income before income taxes:


	Year Ended December 31,
	2012		2011			2010
	(In thousands)
Domestic	$	65,341	$	(31,636	)	$	(115,078	)
Foreign		109,927		125,426			152,652

Income before income taxes	$	175,268	$	93,790		$	37,574

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


	December 31,
	2012			2011
	(In thousands)
Deferred tax assets:
Tax credit carryovers	$	413,225		$	408,444
Net operating loss carryforwards		968,648			989,989
Capital loss carryover		5,148			552
Future deductions for purchased intangible assets		184,366			152,507
Depreciation and amortization		97,867			120,764
Pension and post-retirement benefits		206,218			220,747
Future deductions for reserves and other		91,964			155,618

Total deferred tax assets		1,967,436			2,048,621
Valuation allowance		(1,781,702	)		(1,902,187	)

Net deferred tax assets		185,734			146,434

Deferred tax liabilities:
Tax deductible goodwill		(18,517	)		(17,120	)
Purchased intangible assets		(157,331	)		(130,219	)

Total deferred tax liabilities		(175,848	)		(147,339	)

Total net deferred tax asset/(liabilities)	$	9,886		$	(905	)

Valuation allowances reduce the deferred tax assets to the amount that, based upon all available evidence, is more likely than not to be realized. The deferred tax assets’ valuation allowance is primarily attributable to U.S. tax credit carryovers and net operating loss carryovers that could not be benefited under existing carry-back rules. Approximately $102.0 million of the valuation allowance at December 31, 2012 relates to tax benefits from stock option deductions, which will be credited to equity if and when realized. The Company recognized a tax benefit of approximately $42.4 million in 2012 due to the release of valuation allowance resulting from the net deferred tax liabilities arising from the SandForce acquisition. Management continues to monitor the realizability of the Company’s deferred tax assets. Historically, the Company has sustained losses from its U.S. operations, however, based on recent and projected trends of profitability, it is reasonably possible the Company will determine that a significant portion of its U.S. deferred tax assets are more likely than not to be realized in the foreseeable future. The American Taxpayers Relief Act of 2012 (the “Act”) was signed into law on January 2, 2013. The Act retroactively extends research credits for a two year period beginning January 1, 2012 through December 31, 2013. The Company will calculate research credits accordingly in the first quarter of 2013. The provisions of the Act are not expected to have a material impact on the Company’s effective tax rate.

As of December 31, 2012, the Company had federal, state and foreign net operating loss carryovers of approximately $2,367.7 million, $1,416.5 million and $206.4 million, respectively. The federal net operating losses will begin expiring in 2020 through 2032. Certain state net operating losses expire from 2013 through 2032. The foreign net operating losses will begin expiring in 2017. Approximately $2,163.2 million of the federal net operating loss carryover and $1,051.6 million of the state net operating loss carryover relate to acquisitions and are subject to certain limitations under Section 382 of the Internal Revenue Code of 1986. As of December 31, 2012, the Company had tax credits of approximately $462.5 million, which begin expiring in 2013.

A reconciliation of the (benefit from)/provisions for income taxes with the amount computed by applying the statutory federal income tax rate to income before income taxes for the years ended December 31, 2012, 2011 and 2010 is as follows:


	Year Ended December 31,
	2012			2011			2010
	(In thousands)
Expected tax expense at federal statutory rate of 35%	$	61,344		$	32,826		$	13,151
State taxes, net of federal benefit		2,373			2,363			1,237
Foreign rate differential		(11,953	)		(25,607	)		(26,521	)
U.S. taxes on foreign earnings		5,043			32,793			36,128
Withholding taxes		7,842			8,770			5,933
Tax benefit related to valuation allowance release for SandForce acquisition		(42,365	)		—			—
Change in valuation allowance		(9,432	)		(23,439	)		2,921
Nondeductible expenses		5,241			8,049			5,731
Tax refunds/credits		(1,964	)		(2,926	)		(3,140	)
Tax benefit related to refundable R&D/alternative minimum tax credit		—			(530	)		—
Tax deduction for loss on liquidation of subsidiary		(18,200	)		—			—
Lapsed statute of limitations and tax audit settlements		(18,889	)		(16,796	)		(31,668	)
Intraperiod allocation of tax benefit to continuing operations		—			(11,725	)		(644	)
Other		—			—			42

Total tax (benefit)/provision	$	(20,960	)	$	3,778		$	3,170

The Company paid income taxes, net of refunds received, of $21.0 million, $11.8 million and $29.3 million for the years ended December 31, 2012, 2011 and 2010, respectively.

The Company has a tax holiday in effect for its business operations in Singapore effective January 1, 2009. The tax holiday allows for a reduced tax rate of 10% on the qualifying profits generated through December 31, 2018. For the years ended December 31, 2012, 2011 and 2010, the tax savings from this holiday were approximately $2.8 million, $2.0 million and $2.1 million, respectively, with no material per-share impact.

The Company has not provided for U.S. income and foreign withholding taxes on $58.5 million of cumulative undistributed earnings of various non-U.S. subsidiaries. Such earnings are intended to be reinvested in the non-U.S. subsidiaries for an indefinite period of time. It is not practicable to estimate potential U.S. deferred tax liabilities on the foreign undistributed earnings due to the complex interplay under U.S. tax rules of various tax attributes such as net operating loss carryforwards and foreign tax credits, the availability and timing of which are not estimable.

Uncertain Income Tax Positions

As of December 31, 2012 and 2011, the Company had $193.9 million and $171.0 million of unrecognized tax benefits, respectively. The $193.9 million as of December 31, 2012 is related to unrecognized tax benefits that, if realized, would affect the effective tax rate of the Company.

The Company is unable to make a reasonably reliable estimate as to when cash settlement with a taxing authority may occur. It is reasonably possible that the total amount of unrecognized tax benefits will increase or decrease in the next 12 months. Such changes could occur based on the normal expiration of statutes of limitations or the possible conclusion of ongoing tax audits in various jurisdictions around the world. If those events occur within the next 12 months, the Company estimates that unrecognized tax benefits, plus accrued interest and penalties, could decrease by up to $22.2 million.

The Company files income tax returns at the U.S. federal level and in various state and foreign jurisdictions. With some 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 before 2008.

The Company recognizes interest and penalties accrued in relation to unrecognized tax benefits as a tax expense. For the years ended December 31, 2012, 2011 and 2010, the Company recorded charges to tax expense of approximately $8.3 million, $6.3 million and $7.7 million for interest and penalties, respectively. Also, for the years ended December 31, 2012, 2011 and 2010, the Company recorded tax benefits of approximately $9.5 million, $8.6 million and $17.7 million for interest and penalties, respectively, as a result of reductions to tax positions taken in a prior year, lapses in statutes of limitations and audit settlements. As of December 31, 2012 and 2011, the Company had $28.4 million and $29.6 million, respectively, of accrued interest and penalties which are included in non-current income tax liabilities in the consolidated balance sheets.

The following table sets forth a reconciliation of the beginning and ending amounts of the gross unrecognized tax benefits, excluding related interest and penalties:


	Year Ended December 31,
	2012			2011			2010
	(In thousands)
Balance at January 1	$	170,994		$	151,898		$	163,859
Tax positions related to current year:
Additions		29,887			19,482			10,874
Tax positions related to prior years:
Additions		2,000			29,312			1,541
Reductions		—			(20,156	)		(800	)
Lapses in statute of limitations		(9,387	)		(9,580	)		(14,174	)
Payments		—			—			(9,780	)
Foreign exchange loss		400			38			378

Balance at December 31	$	193,894		$	170,994		$	151,898