Citrix 2012 Annual Report Download - page 100

CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-34
A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows:
Year Ended December 31,
2012 2011 2010
Federal statutory taxes 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 1.9 1.7 3.3
Foreign operations (10.2)(14.5)(16.8)
Permanent differences (2.0) 1.2 1.1
Tax credits (4.7)(7.1)(10.4)
Stock option compensation 0.1 0.1 (0.4)
Change in accruals for uncertain tax positions (5.3) 1.4 5.3
Other (0.7)(0.4) 0.1
14.1% 17.4% 17.2%
The Company’s effective tax rate generally differs from the U.S. federal statutory rate of 35% due primarily to lower tax
rates on earnings generated by the Company’s foreign operations that are taxed primarily in Switzerland. The Company has not
provided for U.S. taxes for those earnings because it plans to reinvest all of those earnings indefinitely outside the United
States. It was not practicable to determine the amount of unrecognized deferred tax liability for temporary differences related to
investments in foreign subsidiaries.
The Company and certain of its subsidiaries are subject to U.S. federal income taxes, as well as income taxes of multiple
state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-
U.S. income tax examinations by tax authorities for years prior to 2009.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2012
and 2011 is as follows (in thousands):
Balance at January 1, 2011 $ 70,090
Additions based on tax positions related to the current year 8,656
Additions for tax positions of prior years 722
Reductions related to the expiration of statutes of limitations (269)
Settlements —
Balance at December 31, 2011 79,199
Additions based on tax positions related to the current year 2,459
Additions for tax positions of prior years 9,558
Reductions related to the expiration of statutes of limitations (33,594)
Settlements (13,718)
Balance at December 31, 2012 $ 43,904
The Company's unrecognized tax benefits may change significantly over the next 12 months.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense.
During the year ended December 31, 2012, the Company recognized $0.2 million of expense related to interest and penalties.
The Company has approximately $0.1 million for the payment of interest and penalties accrued at December 31, 2012.
In June 2010, the Company reached a settlement in principle with the Internal Revenue Service (“IRS”) regarding certain
previously disclosed income tax deficiencies asserted in a Revenue Agent’s Report (the “RAR”), the terms of which were
approved in June 2012 (the "Final Approval"). Under the terms of the settlement, the Company agreed to an assessment of
income tax deficiencies in full settlement of all open claims under the RAR and resolved with finality for future years all of the
transfer pricing issues raised in the RAR. Based on this, the Company incurred a charge of $13.1 million in 2010 in accordance
with the authoritative guidance. In connection with the Final Approval, the Company finalized the tax deficiency calculations
and formally closed all of its open issues with the IRS relating to the 2004 and 2005 tax years. Because there were no changes
from the agreement reached in 2010, no additional amounts have been included in income tax expense during 2012.