Income Taxes

6 Months Ended

Jul. 31, 2011

Income Taxes

Income Taxes

17. INCOME TAXES

The Company's quarterly provision for income taxes is measured using an annual effective tax rate, adjusted for discrete items that occur within the periods presented. The significant differences that impact the effective tax rate relate to the difference between the U.S. federal statutory rate and the rates in foreign jurisdictions, incremental valuation allowances, investments in affiliates and tax contingencies.

For the six months ended July 31, 2011, the Company recorded an income tax provision of $57.4 million, which represents an effective tax rate of (182.0%). The effective tax rate is negative due to the fact that the Company reported income tax expense on a consolidated pre-tax loss. The Company did not record an income tax benefit on the loss for the period, primarily because it maintains valuation allowances against certain of its U.S. and foreign net deferred tax assets. Further, the benefit of losses in other jurisdictions was offset by foreign withholding taxes, certain tax contingencies and taxes recorded with respect to investments in affiliates.

For the six months ended July 31, 2010, the Company recorded an income tax provision of $2.2 million, which represents an effective tax rate of (2.2%). The effective tax rate is negative due to the fact that the Company reported income tax expense on a consolidated pre-tax loss, primarily due to the mix of income and losses by jurisdiction. The Company did not record an income tax benefit on the loss for the period, primarily because it maintains a valuation allowance against certain of its U.S. and foreign net deferred tax assets. The income tax provision for the period is comprised of income tax expense recorded in non-loss jurisdictions, withholding taxes, and certain tax contingencies recorded in the six months ended July 31, 2010.

As required by the authoritative guidance on accounting for income taxes, the Company evaluates the realizability of deferred tax assets on a jurisdictional basis at each reporting date. Accounting for income taxes requires that a valuation allowance be established when it is more-likely-than-not that all or a portion of the deferred tax assets will not be realized. In circumstances where there is sufficient negative evidence indicating that the deferred tax assets are not more-likely-than-not realizable, the Company establishes a valuation allowance. The Company determined that there is sufficient negative evidence to maintain valuation allowances against certain of the Company's federal, state and foreign deferred tax assets as a result of historical losses in the most recent three-year period in the U.S. and certain state and foreign jurisdictions. The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

The Company regularly assesses the adequacy of the Company's provisions for income tax contingencies in accordance with the applicable authoritative guidance on accounting for income taxes. As a result, the Company may adjust the reserves 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 limitation. As of July 31, 2011, the total amount of unrecognized tax benefits that, if recognized, would impact the Company's effective tax rate were approximately $136.6 million. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits as of July 31, 2011 could decrease by approximately $10.7 million in the next twelve months as a result of settlements of certain tax audits or lapses of statutes of limitation. Such decreases may involve the payment of additional taxes, the adjustment of deferred taxes, including the need for additional valuation allowances and the recognition of tax benefits. The Company's income tax returns are subject to ongoing tax examinations in several jurisdictions in which the Company operates. The Company believes that it is reasonably possible that new issues may be raised by tax authorities or developments in tax audits may occur which would require increases or decreases to the balance of reserves for unrecognized tax benefits. However, an estimate of such changes cannot reasonably be made.

The Company's policy is to include interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes in the condensed consolidated statements of operations. The Company recorded ($1.3) million and $1.9 million of interest and penalties related to uncertain tax positions in its provision for income taxes for the three months ended July 31, 2011 and 2010, respectively. The benefit recorded for the three months ended July 31, 2011 was primarily a result the reversal of interest and penalties associated with a reduction in uncertain tax positions for which interest and penalties had been previously accrued, which is partially offset by continued accruals for interest and penalties on remaining uncertain tax positions. Accrued interest and penalties were $57.0 million and $54.9 million as of July 31, 2011 and January 31, 2011, respectively.