(10) INCOME TAXES

The components of our income (loss) before provision for (benefit from) income taxes for the fiscal years ended March 31, 2013, 2012 and 2011 are as follows (in millions):



	Year Ended March 31,
	2013			2012			2011
Domestic	$	(15	)	$	(51	)	$	(189	)
Foreign	154			69			(90		)
Income (loss) before provision for (benefit from) income taxes	$	139		$	18		$	(279	)

Provision for (benefit from) income taxes for the fiscal years ended March 31, 2013, 2012 and 2011 consisted of (in millions):



	Current			Deferred			Total
Year Ended March 31, 2013
Federal	$	—		$	5		$	5
State	—			1			1
Foreign	39			(4		)	35
	$	39		$	2		$	41
Year Ended March 31, 2012
Federal	$	36		$	(89	)	$	(53	)
State	3			(2		)	1
Foreign	(11		)	5			(6		)
	$	28		$	(86	)	$	(58	)
Year Ended March 31, 2011
Federal	$	(23	)	$	2		$	(21	)
State	(6		)	3			(3		)
Foreign	23			(2		)	21
	$	(6	)	$	3		$	(3	)

The differences between the statutory tax expense (benefit) rate and our effective tax expense (benefit) rate, expressed as a percentage of income (loss) before provision for (benefit from) income taxes, for the fiscal years ended March 31, 2013, 2012 and 2011 were as follows:



	Year Ended March 31,
	2013		2012		2011
Statutory federal tax expense (benefit) rate	35.0	%	35.0	%	(35.0	)%
State taxes, net of federal benefit	(5.0	)%	(33.5	)%	(5.8	)%
Differences between statutory rate and foreign effective tax rate	(15.2	)%	(33.5	)%	12.3	%
Valuation allowance	35.0	%	(195.1	)%	23.7	%
Research and development credits	(8.6	)%	(39.2	)%	(2.4	)%
Non-deductible acquisition-related costs and tax expense from integration restructurings	—		16.7	%	—
Differences between book and tax on sale of strategic investments	(15.2	)%	—		(8.6	)%
Expiration of statutes of limitations	—		(266.8	)%	—
Non-deductible stock-based compensation	21.5	%	205.6	%	12.1	%
Acquisition-related contingent consideration	(16.5	)%	—		—
Other	(1.5	)%	(11.4	)%	2.6	%
Effective tax expense (benefit) rate	29.5	%	(322.2	)%	(1.1	)%

Undistributed earnings of our foreign subsidiaries amounted to approximately $1,381 million as of March 31, 2013. Those earnings are considered to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various foreign countries. It is not practicable to determine the income tax liability that might be incurred if these earnings were to be distributed.

The components of net deferred tax assets, as of March 31, 2013 and 2012 consisted of (in millions):



	As of March 31,
	2013			2012
Deferred tax assets:
Accruals, reserves and other expenses	$	179		$	182
Tax credit carryforwards	214			201
Stock-based compensation	46			49
Unrealized gain on marketable equity securities	—			14
Net operating loss & capital loss carryforwards	286			273
Total	725			719
Valuation allowance	(510		)	(487		)
Deferred tax assets, net of valuation allowance	215			232
Deferred tax liabilities:
Depreciation	(16		)	(19		)
State effect on federal taxes	(56		)	(52		)
Amortization	(34		)	(44		)
Prepaids and other liabilities	(11		)	(22		)
Total	(117		)	(137		)
Deferred tax assets, net of valuation allowance and deferred tax liabilities	$	98		$	95

The valuation allowance increased by $23 million in fiscal year 2013, primarily due to the increase in deferred tax assets for U.S. tax losses and tax credits that are not currently considered to be more likely than not to be realized.

As of March 31, 2013, we have federal net operating loss (“NOL”) carry forwards of approximately $588 million of which approximately $221 million is attributable to various acquired companies. These acquired net operating loss carry forwards are subject to an annual limitation under Internal Revenue Code Section 382. The federal NOL, if not fully realized, will begin to expire in 2029. Furthermore, we have state net loss carry forwards of approximately $799 million of which approximately $137 million is attributable to various acquired companies. The state NOL, if not fully realized, will begin to expire in 2016. We also have U.S. federal, California and Canada tax credit carry forwards of $119 million, $113 million and $26 million, respectively. The U.S. federal tax credit carry forwards will begin to expire in 2017. The California and Canada tax credit carry forwards can be carried forward indefinitely.

The total unrecognized tax benefits as of March 31, 2013 and 2012 were $297 million and $274 million, respectively. Of these amounts, $46 million and $43 million of liabilities would be offset by prior cash deposits to tax authorities for issues pending resolution as of March 31, 2013 and 2012, respectively. A reconciliation of the beginning and ending balance of unrecognized tax benefits is summarized as follows (in millions):



Balance as of March 31, 2011	$	273
Increases in unrecognized tax benefits related to prior year tax positions	7
Decreases in unrecognized tax benefits related to prior year tax positions	(4		)
Increases in unrecognized tax benefits related to current year tax positions	58
Decreases in unrecognized tax benefits related to settlements with taxing authorities	(1		)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations	(54		)
Changes in unrecognized tax benefits due to foreign currency translation	(5		)
Balance as of March 31, 2012	274
Increases in unrecognized tax benefits related to prior year tax positions	2
Decreases in unrecognized tax benefits related to prior year tax positions	(2		)
Increases in unrecognized tax benefits related to current year tax positions	30
Decreases in unrecognized tax benefits related to settlements with taxing authorities	—
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations	(5		)
Changes in unrecognized tax benefits due to foreign currency translation	(2		)
Balance as of March 31, 2013	$	297

A portion of our unrecognized tax benefits will affect our effective tax rate if they are recognized upon favorable resolution of the uncertain tax positions. As of March 31, 2013, approximately $106 million of the unrecognized tax benefits would affect our effective tax rate and approximately $177 million would result in adjustments to deferred tax valuation allowance. As of March 31, 2012, approximately $98 million of the unrecognized tax benefits would affect our effective tax rate and approximately $163 million would result in corresponding adjustments to the deferred tax valuation allowance.

Interest and penalties related to estimated obligations for tax positions taken in our tax returns are recognized in income tax expense in our Consolidated Statements of Operations. The combined amount of accrued interest and penalties related to tax positions taken on our tax returns and included in non-current other liabilities was approximately $23 million as of March 31, 2013, as compared to $21 million as of March 31, 2012. Accrued interest expense related to estimated obligations for unrecognized tax benefits increased by approximately $2 million during fiscal year 2013. There is no material change in accrued penalties during fiscal year 2013.

We file income tax returns in the United States, including various state and local jurisdictions. Our subsidiaries file tax returns in various foreign jurisdictions, including Canada, France, Germany, Switzerland and the United Kingdom. The IRS has completed its examination of our federal income tax returns through fiscal year 2008. As of March 31, 2013, the IRS had proposed certain adjustments to our tax returns. The effects of these adjustments have been considered in estimating our future obligations for unrecognized tax benefits and are not expected to have a material impact on our financial position or results of operations. Some of these proposed adjustments are pending resolution by the Appeals division of the IRS. Furthermore, the IRS is currently examining our returns for fiscal years 2009 through 2011. We are also currently under income tax examination in Canada for fiscal years 2004 and 2005, in Germany for fiscal years 2008 through 2011, and in Italy for fiscal years 2008 through 2011. We remain subject to income tax examination for several other jurisdictions including Canada for fiscal years after 2005, in France for fiscal years after 2011, in Germany for fiscal years after 2011, in the United Kingdom for fiscal years after 2011, and in Switzerland for fiscal years after 2007.

On January 18, 2011, we received a Corporation Notice of Reassessment (the “Notice”) from the Canada Revenue Agency (“CRA”) claiming that we owe additional taxes, plus interest and penalties, for the 2004 and 2005 tax years. The incremental tax liability asserted by the CRA is $44 million, excluding interest and penalties. The Notice primarily relates to transfer pricing in connection with the reimbursement of costs for services rendered to our U.S. parent company by one of our subsidiaries in Canada. We do not agree with the CRA’s position and we have filed a Notice of Objection with the appeals department of the CRA. We do not believe the CRA’s position has merit and accordingly, we have not adjusted our liability for uncertain tax positions as a result of the Notice. If, upon resolution, we are required to pay an amount in excess of our liability for uncertain tax positions for this matter, the incremental amounts due would result in additional charges to income tax expense. In determining such charges, we would consider whether any correlative relief should be included in the form of additional tax deductions in the U.S should we decide to seek such relief.

The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although potential resolution of uncertain tax positions involve multiple tax periods and jurisdictions, it is reasonably possible that a reduction of up to $80 million of unrecognized tax benefits may occur within the next 12 months, some of which, depending on the nature of the settlement or expiration of statutes of limitations, may affect the Company’s income tax provision and therefore benefit the resulting effective tax rate. The actual amount could vary significantly depending on the ultimate timing and nature of any settlements.