
Note 13.	Income Taxes

Income before income taxes consists of the following components:


	2011		2010		2009
	(In thousands)

United States	$	32,561	$	58,604	$	130,573
International		112,222		51,103		38,435

	$	144,783	$	109,707	$	169,008

The components of income taxes are as follows:


	2011			2010		2009
	(In thousands)

Current:
Federal	$	(6,431	)	$	42,350	$	32,147
State		2,890			4,158		7,524
Foreign		4,809			2,252		3,888

Total current		1,268			48,760		43,559

Deferred:
Federal		5,553			5,578		17,465
State		253			109		(511	)
Foreign		(1,381	)		312		(294	)

Total deferred		4,425			5,999		16,660

	$	5,693		$	54,759	$	60,219

The deferred tax expense (benefit) associated with the change in unrealized gains and losses on the Company’s investment securities of $(0.5) million, $0.3 million and $2.2 million in fiscal 2011, 2010 and 2009, respectively, were recorded in other comprehensive income.

A reconciliation of the income tax provision with the amount computed by applying the federal statutory tax rate to income before income taxes is as follows:


	2011			2010			2009
	(In thousands)

Expected income tax provision at the statutory rate	$	50,674		$	38,397		$	59,153
State income taxes, net of federal tax benefit		1,911			2,282			7,370
Tax rate differential on foreign earnings and other international related tax items		(35,460	)		17,864			997
Benefit from research and other credits		(7,704	)		(4,732	)		(5,370	)
Stock-based compensation		4,096			3,294			3,681
Resolution of prior period tax matters		(10,013	)		(696	)		(8,892	)
Valuation allowance		1,766			(1,581	)		3,469
Other, net		423			(69	)		(189	)

	$	5,693		$	54,759		$	60,219

The Company implemented a globalization initiative to expand its worldwide footprint beginning in fiscal 2005. As part of this initiative, certain intellectual property and other rights were licensed to one of the Company’s international subsidiaries. During the fourth quarter of fiscal 2010, the license agreement was amended which resulted in a fully paid-up license. The Company recorded a tax charge of $29.7 million in fiscal 2010 related to the globalization initiative, primarily due to the amendment to the license agreement. As a result of the amendment, the Company determined that all payment obligations under the license agreement had been satisfied in fiscal 2010 and, accordingly, the Company realized an increased tax benefit in fiscal 2011 due to its foreign operations generating a higher portion of its taxable income, which is taxed at more favorable rates.

The components of the deferred tax assets and liabilities are as follows:


	2011			2010
	(In thousands)

Deferred tax assets:
Reserves and accruals not currently deductible	$	22,206		$	22,642
Stock-based compensation		14,570			14,859
Net operating loss carryforwards		14,443			13,924
Research credits		6,618			4,132
Investment securities		1,545			1,238
Foreign tax credits		1,157			2,571
Capital loss carryovers		484			1,061
Property and equipment		—			2,887
Other		1,553			1,434

Total gross deferred tax assets		62,576			64,748
Valuation allowance		(3,654	)		(1,888	)

Total deferred tax assets, net of valuation allowance		58,922			62,860

Deferred tax liabilities:
State income taxes		6,036			2,973
Property and equipment		4,086			—
Research and development expenditures		3,348			8,573
Purchased intangible assets		2,365			3,421

Total deferred tax liabilities		15,835			14,967

Net deferred tax assets	$	43,087		$	47,893

Based upon the Company’s current and historical pre-tax earnings, management believes it is more likely than not that the Company will realize the full benefit of the existing net deferred tax assets as of April 3, 2011, except for the deferred tax assets related to certain investment securities, capital loss carryovers, and certain state net operating losses and tax credits. Management believes the existing net deductible temporary differences will reverse during periods in which the Company generates net taxable income or that there would be sufficient tax carrybacks available; however, there can be no assurance that the Company will generate any earnings or any specific level of continuing earnings in future years.

The Company’s deferred tax assets related to investment securities and capital loss carryovers consist primarily of temporary differences related to other-than-temporary impairments on the Company’s investment securities and realized losses on dispositions of investment securities that are subject to limitations on deductibility. As a result of limitations on the deductibility of capital losses and other factors, management is currently unable to assert that it is more likely than not that the Company will realize the full benefit of these deferred tax assets. Accordingly, the Company had previously recorded a valuation allowance against these deferred tax assets. The balance of this valuation allowance was $1.5 million and $1.9 million as of April 3, 2011 and March 28, 2010, respectively.

The Company’s deferred tax assets relating to state net operating losses and state tax credits include attributes related to a subsidiary that files state tax returns on a separate filing basis in certain tax jurisdictions. Based on various factors, including historical operating results, management is currently unable to assert that it is more likely than not that the Company will realize the benefit of these deferred tax assets. Accordingly, the Company recorded a valuation allowance against these deferred tax assets of $2.2 million during fiscal 2011.

As of April 3, 2011, the Company has federal net operating loss carryforwards of $21.0 million, which will expire between fiscal 2021 and 2029, if not utilized, and state net operating loss carryforwards of $76.5 million, which will expire between fiscal 2017 and 2031, if not utilized. The Company also has state capital loss carryovers of $16.5 million which will expire between fiscal 2013 and 2015, if not utilized, and state tax credit carryforwards of $6.4 million, of which the majority have no expiration date. The net operating loss and tax credit carryforwards relating to acquired companies are subject to limitations on the timing of utilization.

The Company has made no provision for U.S. income taxes or foreign withholding taxes on the earnings of its foreign subsidiaries, as these amounts are intended to be indefinitely reinvested in operations outside the United States. As of April 3, 2011, the cumulative amount of undistributed earnings of the Company’s foreign subsidiaries was $274.5 million. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the U.S. federal income tax liability that would be payable if such earnings were not reinvested indefinitely.

The Company is no longer subject to federal income tax examinations prior to fiscal 2008 and California income tax examinations prior to fiscal 2009. The Company’s federal consolidated income tax returns for fiscal years 2008 and 2009 are currently under examination by the Internal Revenue Service. With limited exceptions, the Company is no longer subject to other state and foreign income tax examinations by taxing authorities for periods prior to fiscal 2008. Management does not believe that the results of these examinations will have a material impact on the Company’s financial condition or results of operations.

A rollforward of the activity in the gross unrecognized tax benefits is as follows:


	2011			2010
	(In thousands)

Balance at beginning of year	$	65,385		$	41,526
Additions based on tax positions related to the current year		1,781			33,354
Additions for tax positions of prior years		472			2,215
Reductions for tax positions of prior years		(2,834	)		(4,502	)
Settlements with taxing authorities		—			(5,603	)
Lapses of statute of limitations		(7,294	)		(1,605	)

Balance at end of year	$	57,510		$	65,385

If the unrecognized tax benefits as of April 3, 2011 were recognized, $55.7 million, net of $1.8 million of tax benefits from foreign tax credits and state income taxes, would favorably affect the Company’s effective income tax rate. It is reasonably possible that the Company’s liability for uncertain tax positions may be reduced by as much as $1.8 million as a result of either the settlement of tax positions with various tax authorities or by virtue of the statute of limitations expiring through the end of fiscal 2012.

In addition to the unrecognized tax benefits noted above, the Company had accrued $3.4 million and $3.3 million of interest expense, net of the related tax benefit, and penalties as of April 3, 2011 and March 28, 2010, respectively. The Company recognized interest expense (benefit), net of the related tax effect, and penalties aggregating $0.1 million, $(0.1) million and $(1.2) million during fiscal 2011, 2010 and 2009, respectively.