Income Taxes

12 Months Ended

Jan. 31, 2011

Income Taxes

Income Taxes

22. INCOME TAXES

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

	Fiscal Years Ended January 31,
	2011			2010			2009
	(in thousands)
United States	$	(32,412	)	$	(185,946	)	$	(228,474	)
Foreign		(37,819	)		(42,269	)		(74,096	)
Total loss before income taxes	$	(70,231	)	$	(228,215	)	$	(302,570	)

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

	Fiscal Years Ended January 31,
	2011			2010			2009
	(in thousands)
Current income tax (benefit) provision:
U.S. Federal	$	(41,527	)	$	15,760		$	(15,387	)
U.S. States		1,529			(366	)		17
Foreign		34,219			12,586			8,921
Total current income tax (benefit) provision	$	(5,779	)	$	27,980		$	(6,449	)
Deferred income tax provision (benefit):
U.S. Federal, net of federal benefit of state	$	43,458		$	(43,763	)	$	35,045
U.S. State		1,530			3,729			15,953
Foreign		(1,977	)		5,029			4,298
Total deferred income tax provision (benefit)	$	43,011		$	(35,005	)	$	55,296
Total income tax provision (benefit)	$	37,232		$	(7,025	)	$	48,847

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,
	2011			2010			2009
	(in thousands)
U.S. federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Income tax provision at the U.S. statutory rate	$	(24,581	)	$	(79,875	)	$	(105,899	)
Valuation allowance		23,109			39,630			106,337
Foreign rate differential		5,333			18,611			15,857
US tax effects of foreign operations		19,421			58,526			8,574
Impairment of goodwill and intangible assets		—			1,156			16,157
Tax contingencies		18,497			6,758			(6,414	)
Stock based compensation		3,118			6,745			5,294
Non-deductible expenses		3,966			(16	)		4,012
Foreign exchange		(558	)		(2,181	)		6,751
Change in tax laws		372			1,227			—
Basis difference in investment in affiliates		14,045			(1,681	)		(945	)
State tax provision		2,807			(2,452	)		(1,062	)
Tax credits		(6,144	)		(3,868	)		(1,890	)
Dividend received deduction		—			(9,787	)		—
Gain on sale of subsidiary stock		1,277			—			—
Tax Incentive		(2,114	)		—			—
Discontinued operations/APIC/OCI allocation		(20,604	)		(36,894	)		—
Other, net		(712	)		(2,924	)		2,075
Total income tax provision (benefit)	$	37,232		$	(7,025	)	$	48,847
Effective Income Tax Rate		(53.0	%)		3.1	%		(16.1	%)

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 U.S. tax effect on foreign earnings, the re-measurement of certain foreign assets and the Ulticom Sale. 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,
	2011			2010
	(in thousands)
Deferred tax assets:
Accrued expenses	$	10,361		$	28,366
Deferred revenue		116,812			144,909
Loss carryforwards		176,679			152,834
Stock-based and other compensation		43,610			54,178
Fair value of financial instruments		8,362			40,235
Tax credits		63,440			53,651
Other		21,932			20,801
Total deferred tax assets	$	441,196		$	494,974
Deferred tax liabilities:
Deferred cost of revenue	$	(61,302	)	$	(71,032	)
Investment in affiliate		(14,937	)		(19,794	)
Goodwill and other intangible assets		(50,865	)		(60,019	)
Other		(617	)		(2,215	)
Total deferred tax liabilities	$	(127,721	)	$	(153,060	)
Valuation allowance		(319,679	)		(319,789	)
Net deferred income tax (liability) asset	$	(6,204	)	$	22,125
Recognized as:
Current deferred income tax assets	$	39,644		$	49,554
Noncurrent deferred income tax assets		20,766			16,497
Current deferred income tax liabilities		(13,661	)		(11,770	)
Noncurrent deferred income tax liabilities		(52,953	)		(32,156	)
Total	$	(6,204	)	$	22,125

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 $154.7 million, $207.4 million and $271.2 million as of January 31, 2011, 2010 and 2009, 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, 2011, $162.2 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,
	2011		2010
	(In thousands)
U.S. Federal NOLs	$	672,427	$	603,603
U.S. State NOLs		421,228		370,159
Foreign NOLs		871,901		755,914
Total	$	1,965,556	$	1,729,676

The U.S. federal net operating loss carry forwards expire in various years ending from January 31, 2016 to January 31, 2031. The U.S. state net operating loss carry forwards expire in various years ending from January 31, 2012 to January 31, 2031. As of January 31, 2011, all but $57.4 million of these foreign NOLs have indefinite carryforward periods. Certain of these 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 $42.2 million and $38.7 million as of January 31, 2011 and 2010, respectively. The utilization of these carryforwards is subject to limitations. The federal AMT credit has no expiration date. The foreign tax credit carryforwards expire in various years ending from January 31, 2012 to 2031.

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, 2011 and 2010:

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

The balances of unrecognized tax benefits as of January 31, 2011 and 2010 are $389.8 million and $370.0 million of which $109.9 million and $100.2 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 $54.9 million and $46.2 million million for interest and penalties as of January 31, 2011 and 2010, respectively.

The Company estimates that it is reasonably possible that the balance of unrecognized tax benefits as of January 31, 2011 may decrease by approximately $10.1 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 $4.6 million, $4.7 million and $0.8 million, respectively.

The significant tax jurisdictions in which the Company is currently under examination by tax authorities include Israel, India, Canada, Brazil, the United Kingdom, United States, Hong Kong, New York State, New York City, California, Minnesota and Texas. The Company is currently in discussions with the Israeli tax authorities regarding tax adjustments to the fiscal years ended January 31, 2005 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 tax jurisdictions. As of January 31, 2011 the Company was subject to income tax examination in these major jurisdictions:

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

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,
	2011			2010
	(in thousands)
Valuation allowance, beginning of the year	$	(319,789	)	$	(285,658	)
Additional paid-in capital		5,771			(5	)
Provision for income taxes		(24,187	)		(4,393	)
Tax Contingencies		1,877			(33,893	)
Reductions resulting from discontinued operations/APIC		20,604			—
Cumulative translation adjustment and other		(3,955	)		4,160
Valuation allowance, end of the year	$	(319,679	)	$	(319,789	)