Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Income Taxes

Q. Income Taxes

        The components of income (loss) before provision for (benefit from) income taxes during the three years ended December 31, 2011 consisted of the following:

	2011			2010			2009
	(in thousands)
United States	$	343,515		$	(719,859	)	$	(621,455	)
Foreign		(283,070	)		(34,767	)		(20,723	)
Income (loss) before provision for income taxes	$	60,445		$	(754,626	)	$	(642,178	)

        The components of provision for income taxes during the three years ended December 31, 2011 consisted of the following:

	2011			2010		2009
	(in thousands)
Current taxes:
United States	$	22,275		$	—	$	—
Foreign		(561	)		—		—
State		8,655			—		—
	$	30,369		$	—	$	—
Deferred taxes:
United States	$	19,629		$	—	$	—
Foreign		(32,692	)		—		—
State		1,960			—		—
	$	(11,103	)	$	—	$	—
Provision for income taxes	$	19,266		$	—	$	—

        The Company's federal statutory income tax rate for 2011 was 35% and for 2010 and 2009 was 34%. The Company had income from operations in 2011 and incurred losses from operations in 2010 and 2009. The Company recorded a valuation allowance against its net operating losses and other net deferred tax assets due to uncertainties related to the realizability of these tax assets.

        The difference between the Company's "expected" tax provision (benefit), as computed by applying the U.S. federal corporate tax rate to income (loss) before provision for income taxes, and actual tax is reconciled as follows:

	2011			2010			2009
	(in thousands)
Income (loss) before provision for income taxes	$	60,445		$	(754,626	)	$	(642,178	)
Expected tax provision (benefit)		21,156			(256,574	)		(218,341	)
State taxes, net of federal benefit		10,624			(46,108	)		(38,965	)
Foreign rate differential		43,629			632			674
Tax credits		(51,086	)		(23,292	)		(13,027	)
Unbenefited operating losses		(6,286	)		322,551			260,741
Non-deductible expenses		1,953			2,158			8,244
Other		(724	)		633			674
Income tax provision	$	19,266		$	—		$	—

        For federal income tax purposes, as of December 31, 2011, the Company has net operating loss carryforwards of approximately $2.7 billion, and tax credits of $121.9 million, which may be used to offset future federal income and tax liability, respectively. For state income tax purposes, the Company has net operating loss carryforwards of approximately $1.8 billion, and tax credits of approximately $56 million, which may be used to offset future state income and tax liability, respectively. These operating loss carryforwards began to expire in 2006, and the tax credit carryforwards began to expire in 2005. After consideration of all the evidence, both positive and negative, management has established a valuation allowance for the full amount of the 2011 deferred tax asset because it is more likely than not that the deferred tax asset will not be realized. In future periods, if management determines that it is more likely than not that the deferred tax asset will be realized, (i) the valuation allowance would be decreased, (ii) a portion or all of the deferred tax asset would be reflected on the Company's consolidated balance sheet and (iii) the Company would record non-cash benefits in its statements of operations related to the reflection of the deferred tax asset on the Company's consolidated balance sheet.

        Unrecognized tax benefits during the two years ended December 31, 2011 consisted of the following:

	2011			2010
	(in thousands)
Unrecognized tax benefits beginning of year	$	2,374		$	1,858
Gross change for current year positions		2,564			516
Increase for prior period positions		—			—
Decrease for prior period positions		—			—
Decrease due to settlements and payments		(23	)		—
Decrease due to statute limitations		(560	)		—
Unrecognized tax benefits end of year	$	4,360		$	2,374

        The Company had gross unrecognized tax benefits of $4.4 million as of December 31, 2011 and $2.4 million as of December 31, 2010. At December 31, 2011, $4.4 million represented the amount of unrecognized tax benefits that, if recognized, would result in a reduction of the Company's effective tax rate. In the next twelve months it is reasonably possible that the Company will reduce the balance of its unrecognized tax benefits by $0.5 million due to the application of statute of limitations and settlements with taxing authorities, all of which would reduce the Company's effective tax rate.

        Deferred tax assets and liabilities are determined based on the difference between financial statement and tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The components of the deferred taxes at December 31 were as follows:

	2011			2010
	(in thousands)
Deferred tax assets:
Net operating loss	$	870,367		$	944,275
Tax credit carryforwards		167,759			112,467
Property and equipment		15,537			22,483
Intangibles		71,076			—
Deferred revenues		59,939			138,809
Stock-based compensation		90,563			81,211
Inventory		23,883			38,810
Accrued expenses and other		30,636			30,078
Unrealized Loss		245			—
Gross deferred tax assets		1,330,005			1,368,133
Valuation allowance		(1,329,775	)		(1,368,133	)
Total deferred tax assets		230			—
Deferred tax liabilities:
Contingent consideration		(14,241	)		—
Acquired intangibles		(229,696	)		(160,278	)
Net deferred tax liabilities	$	(243,707	)	$	(160,278	)

        Generally, tax return deductions are allowable on stock-based compensation plans, but, may arise in different amounts and periods from when stock-based compensation expense is recognized in the financial statements. If the tax return deduction for an award exceeds the cumulative stock-based compensation expense recognized in the financial statements, any excess tax benefit is recognized as additional paid-in capital when the deduction reduces income tax payable. The net tax amount of the unrealized excess tax benefits as of December 31, 2011 was approximately $114 million. As of December 31, 2011, the gross amount of this excess tax deduction in the net operating loss carryforward was approximately $525 million.

        The valuation allowance decreased by $38.4 million from December 31, 2010 to December 31, 2011 because the Company had net income in 2011.

        The Company files United States federal income tax returns and income tax returns in various state, local and foreign jurisdictions. The Company is no longer subject to any tax assessment from an income tax examination in the United States before 2007 and any other major taxing jurisdiction for years before 2005, except where the Company has net operating losses or tax credit carryforwards that originate before 2005. The Company completed an examination by the Internal Revenue Service with respect to 2006 in June 2009 with no material changes. The Company is currently under examination by Revenue Quebec for the year ended March 11, 2009 and the year ended December 31, 2007. No adjustments have been reported. The Company is not under examination by any other jurisdictions for any tax year.

        The Company currently intends to reinvest the total amount of its unremitted earnings in the local international jurisdiction or to repatriate the earnings only when tax-effective. As such, the Company has not provided for U.S. federal income taxes on the unremitted earnings of its international subsidiaries. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company would be subject to U.S. federal income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of the unrecognized deferred U.S. federal income tax liability is not practical due to the complexity associated with this hypothetical calculation; however, unrecognized foreign tax credits would be available to reduce some portion of the U.S. federal income tax liability.