INCOME TAXES

The components of United States and foreign income (loss) from continuing operations before income taxes are as follows:



	Fiscal Years Ended January 31,
	2012			2011			2010
	(in thousands)
United States	$	(116,444	)	$	(32,412	)	$	(185,946	)
Foreign	128,376			(37,819		)	(42,269		)
Income (loss) before income taxes	$	11,932		$	(70,231	)	$	(228,215	)

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



	Fiscal Years Ended January 31,
	2012			2011			2010
	(in thousands)
Current income tax (benefit) provision:
U.S. Federal	$	(35,223	)	$	(41,527	)	$	15,760
U.S. States	2,255			1,529			(366		)
Foreign	38,974			34,219			12,586
Total current income tax (benefit) provision	$	6,006		$	(5,779	)	$	27,980
Deferred income tax provision (benefit):
U.S. Federal, net of federal benefit of state	$	39,186		$	43,458		$	(43,763	)
U.S. State	1,072			1,530			3,729
Foreign	(3,313		)	(1,977		)	5,029
Total deferred income tax provision (benefit)	$	36,945		$	43,011		$	(35,005	)
Total income tax provision (benefit)	$	42,951		$	37,232		$	(7,025	)

The reconciliation of the U.S. federal statutory income tax rate to the effective tax rate on loss before income tax provision and equity in (losses) earnings of consolidated affiliate is as follows:



	Fiscal Years Ended January 31,
	2012			2011			2010
	(in thousands)
U.S. federal statutory income tax rate	35.0		%	35.0		%	35.0		%
Income tax provision (benefit) at the U.S. statutory rate	$	4,176		$	(24,581	)	$	(79,875	)
Valuation allowance	13,556			23,109			39,630
Foreign rate differential	(17,063		)	5,333			28,373
US tax effects of foreign operations	8,246			19,421			58,526
Impairment of goodwill and intangible assets	—			—			1,156
Tax contingencies	12,217			18,497			6,758
Stock based compensation	13,355			3,118			6,745
Non-deductible expenses	4,013			3,966			(16		)
Foreign exchange	(484		)	(558		)	(2,181		)
Change in tax laws	(1,707		)	372			1,227
Basis difference in investment in affiliates	10,898			14,045			(1,681		)
State tax provision	4,095			2,807			(2,452		)
Tax credits	3,599			(6,144		)	(3,868		)
Return to provision and other adjustments	(4,820		)	—			—
Dividend received deduction	—			—			(9,787		)
Gain on sale of subsidiary stock	—			1,277			—
Tax Incentive	(8,846		)	(2,114		)	(9,762		)
Discontinued operations/APIC/OCI allocation	—			(20,604		)	(36,894		)
Transaction cost	2,025			—			—
Other, net	(309		)	(712		)	(2,924		)
Total income tax provision (benefit)	$	42,951		$	37,232		$	(7,025	)
Effective Income Tax Rate	360.0		%	(53.0		)%	3.1		%

The significant differences that impact the effective tax rate relate to changes to the valuation allowance, tax contingencies, dividend received deduction, the difference between the U.S. federal statutory rate and the rates in foreign jurisdictions, the Ulticom Sale (for the fiscal years ended January 31, 2011 and 2010), income tax provision to income tax return and other opening adjustments, the U.S. tax effect on foreign earnings, and the re-measurement of certain foreign assets. In addition, other significant changes include the investments in affiliates and certain non-deductible executive compensation expenses.

Deferred income taxes are provided for the effects of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes. Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows:



	Fiscal Years Ended January 31,
	2012			2011
	(in thousands)
Deferred tax assets:
Deferred revenue	111,979			116,812
Loss carryforwards	210,292			176,679
Stock-based and other compensation	25,749			43,610
Tax credits - net of foreign withholding taxes	59,626			63,440
Other	26,114			40,655
Total deferred tax assets	$	433,760		$	441,196
Deferred tax liabilities:
Deferred cost of revenue	$	(68,715	)	$	(61,302	)
Investment in affiliate	(23,717		)	(14,937		)
Goodwill and other intangible assets	(51,782		)	(50,865		)
Other	(904		)	(617		)
Total deferred tax liabilities	$	(145,118	)	$	(127,721	)
Valuation allowance	(340,579		)	(319,679		)
Net deferred income tax (liability) asset	$	(51,937	)	$	(6,204	)
Recognized as:
Current deferred income tax assets	$	23,555		$	39,644
Noncurrent deferred income tax assets	19,321			20,766
Current deferred income tax liabilities	(9,798		)	(13,661		)
Noncurrent deferred income tax liabilities	(85,015		)	(52,953		)
Total	$	(51,937	)	$	(6,204	)

The Company’s operations in Israel have been granted “Approved Enterprise” status by the Investment Center for the Israeli Ministry of Industry, Trade and Labor, which makes the Company eligible for tax benefits under the Israeli Law for Encouragement of Capital Investments, 1959. Under the terms of the program, income attributable to an Approved Enterprise is exempt from income tax for a period of two years and is subject to a reduced income tax rate for the subsequent five to fifteen years (generally 10-15%, depending on the percentage of foreign investment in the Company).

U.S. income and foreign withholding taxes have not been recorded on permanently reinvested earnings of certain subsidiaries aggregating $255.9 million, $154.7 million and $207.4 million as of January 31, 2012, 2011 and 2010, respectively. At this time, determination of the amounts of deferred U.S. federal and state income taxes and foreign withholding taxes related to these foreign subsidiaries is not practicable. As of January 31, 2012, $170.3 million of earnings from certain subsidiaries are not considered to be permanently reinvested and therefore, related deferred U.S. income taxes and foreign withholding taxes were provided. A portion of the earnings of subsidiaries in the following countries are not considered permanently reinvested: Australia, Israel, Brazil, Canada, Hong Kong, New Zealand, Mexico, Portugal, Netherlands, and the United Kingdom.

The Company has net operating loss carryforwards for tax purposes (“NOLs”) and other deferred tax benefits that are available to offset future taxable income.

The Company’s gross NOLs for tax return purposes are as follows:



	Fiscal Years Ended January 31,
	2012		2011
	(In thousands)
U.S. Federal NOLs	$	946,997	$	672,427
U.S. State NOLs	610,284		421,228
Foreign NOLs	861,426		871,901
Total	$	2,418,707	$	1,965,556

The U.S. federal net operating loss carry forwards expire in various years ending from January 31, 2016 to January 31, 2032. The U.S. state net operating loss carry forwards expire in various years ending from January 31, 2013 to January 31, 2032. As of January 31, 2012, all but $9.3 million of the foreign NOLs have indefinite carryforward periods. Certain of the federal, state and foreign loss carryforwards and credits are subject to Internal Revenue Code Section 382 or similar provisions, which impose limitations on their utilization following certain changes in ownership of the entity generating the loss carryforward. The table above reflects gross NOLs for tax return purposes which are different from the NOLs for financial statement purposes, primarily due to the reduction of NOLs for financial statement purposes under the FASB’s guidance on accounting for uncertainty in income taxes. The Company has U.S. federal, state and foreign tax credit carryforwards of approximately $75.1 million and $42.2 million as of January 31, 2012 and 2011, respectively. The utilization of these carryforwards is subject to limitations. The federal AMT credit has no expiration date. The foreign tax credit carryforwards generally expire in various years ending from January 31, 2012 to 2017.

In accordance with the FASB’s guidance relating to accounting for uncertainty in income taxes the Company recognizes unrecognized tax benefits in non-current tax liabilities. The following table reconciles the amounts recorded for unrecognized tax benefits for the fiscal years ended January 31, 2012 and 2011:



	Fiscal Years Ended January 31,
	2012			2011			2010
	(In thousands)
Gross unrecognized tax benefits as of February 1	$	389,799		$	370,034		$	365,549
Increases related to tax positions taken in prior years	11,600			2,271			4,006
Decreases related to tax positions taken in prior years	(4,869		)	(21,960		)	(11,010		)
Increases related to tax positions in current year	20,151			40,440			22,094
Decreases related to tax positions in current year	—			—			(4,969		)
Decreases due to settlements with taxing authorities	(369		)	—			(1,358		)
Reductions resulting from lapse in statute of limitations	(9,032		)	(2,969		)	(11,531		)
Increases (decreases) related to foreign currency exchange rate fluctuations	(3,396		)	1,983			7,253
Gross unrecognized tax benefits as of January 31	$	403,884		$	389,799		$	370,034

The balances of unrecognized tax benefits as of January 31, 2012 and 2011 are $403.9 million and $389.8 million of which $132.9 million and $109.9 million represent the amounts that, if recognized, may impact the effective income tax rate in future periods.

The Company recognized interest and penalties related to unrecognized tax benefits in its income tax provision. The Company accrued $54.8 million and $54.9 million for interest and penalties as of January 31, 2012 and 2011, respectively.

The Company estimates that it is reasonably possible that the balance of unrecognized tax benefits as of January 31, 2012 may decrease by approximately $8.5 million in the next twelve months, as a result of lapse of statutes of limitation and settlements with tax authorities. These unrecognized tax benefits relate to permanent establishment, events related to majority-owned subsidiaries and other tax positions in the amounts of $2.2 million, $4.0 million and $2.3 million, respectively.

The significant tax jurisdictions in which the Company is currently under examination by tax authorities include Brazil, Canada, France, Hong Kong, India, Israel, the United Kingdom, New York State, New York City and California. The Company is currently in discussions with the Israeli tax authorities regarding tax adjustments to the fiscal years ended January 31, 2006 and through January 31, 2010. The Company anticipates that it is reasonably possible that new tax matters could be raised by tax authorities that may require increases or decreases to the balance of unrecognized tax benefits; however, an estimate of such increases or decreases cannot be made.

The Company files income tax returns in the U.S. federal, various state and local, and foreign jurisdictions, with varying statute of limitations. As of January 31, 2012, the Company remains subject to assessment in the event of examination in these major tax jurisdictions for the periods outlined below:



Jurisdiction		Tax Years Ended
United States		January 31, 1999 - January 31, 2012
Israel		January 31, 2006 - January 31, 2012
United Kingdom		January 31, 2005 - January 31, 2012
India		March 31, 2002, March 31, 2004 - March 31, 2012
France		January 31, 2008 - January 31, 2012
Brazil		January 31, 2004 - January 31, 2005, January 31, 2007- January 31, 2011
Canada		January 31, 2007 - January 31, 2012
Hong Kong		March 31, 2003 - January 31, 2012
Various U.S. States		January 31, 1999 - January 31, 2012
New York City		January 31, 2000 - January 31, 2012

The Company regularly assesses the adequacy of its provisions for income tax contingencies in accordance with the FASB’s guidance. As a result, the Company may adjust the liabilities for unrecognized tax benefits for the impact of new facts and developments, such as changes to interpretations of relevant tax law, assessments from taxing authorities, settlements with taxing authorities, and lapses of statutes of limitations.

The Company maintains valuation allowances where it is more-likely-than-not that all or a portion of a deferred tax asset may not be realized. Changes in valuation allowances are included in the Company’s tax provision in the period of change except for items related to additional paid-in capital. In determining whether a valuation allowance is warranted, the Company evaluates factors such as prior earnings history, expected future earnings, reversal of existing taxable temporary differences, carry-back and carry-forward periods and tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset.

The Company’s activity in the valuation allowance is as follows:



	Fiscal Years Ended January 31,
	2012			2011
	(in thousands)
Valuation allowance, beginning of the year	$	(319,679	)	$	(319,789	)
Additional paid-in capital	477			5,771
Provision for income taxes	(60,111		)	(24,187		)
Tax Contingencies	39,437			1,877
Reductions resulting from discontinued operations/APIC	—			20,604
Cumulative translation adjustment and other	(703		)	(3,955		)
Valuation allowance, end of the year	$	(340,579	)	$	(319,679	)