v2.3.0.15
Income Taxes
12 Months Ended
Sep. 30, 2011
Income Taxes [Abstract] 
Income Taxes

7. Income Taxes

The components of our income before provision for income taxes are as follows:

 

                         
     Fiscal Year Ended  
     September 25,
2009		      September 24,
2010		      September 30,
2011		  
     (in thousands)  

U.S.

    $ 357,401       $ 401,936       $ 350,189   

Foreign

      14,018         35,076         90,454   
    

 

 

     

 

 

     

 

 

  

Total

    $ 371,419       $ 437,012       $ 440,643   
    

 

 

     

 

 

     

 

 

  

The provision for income taxes consists of the following:

 

                         
     Fiscal Year Ended  
     September 25,
2009		     September 24,
2010		     September 30,
2011		  
     (in thousands)  

Current:

                         

Federal

    $ 80,298      $ 109,050      $ 71,336   

State

      13,213        18,382        18,069   

Foreign

      28,325        41,942        33,567   
    

 

 

    

 

 

    

 

 

  

Total current

      121,836        169,374        122,972   

Deferred:

                         

Federal

      7,187        (12,790 )      3,638   

State

      1,433        (1,149 )      9,756   

Foreign

      (3,383 )      (1,250 )      (6,305 ) 
    

 

 

    

 

 

    

 

 

  

Total deferred

      5,237        (15,189 )      7,089   
    

 

 

    

 

 

    

 

 

  

Provision for income taxes

    $ 127,073      $ 154,185      $ 130,061   
    

 

 

    

 

 

    

 

 

  

 

We recognize licensing revenue gross of withholding taxes, which our licensees remit directly to their local tax authorities, and for which we receive a related foreign tax credit in our income tax provision. Withholding taxes were $22.8 million, $31.6 million and $32.2 million in fiscal 2009, 2010, and 2011, respectively. The foreign current tax includes this withholding tax expense and the appropriate foreign tax credit benefit is included in the current federal and foreign taxes.

In the fiscal quarter ended December 31, 2010, we initiated a policy to indefinitely reinvest a portion of the earnings of certain operations outside of the U.S. As a result, we have not provided deferred U.S. income taxes or foreign withholding taxes on undistributed earnings of approximately $71.4 million, which are permanently reinvested outside the U.S. Upon distribution of these earnings, we could be subject to both U.S. income taxes, adjusted for any foreign tax credits, and withholding taxes, estimated at approximately $20.7 million as of September 30, 2011.

In the fiscal quarter ended December 31, 2010, we also completed a restructuring of our international operations, which resulted in the release of a deferred tax liability of $11.0 million related to the amortization of an intangible asset from a prior year acquisition.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, using enacted tax rates in effect for the year in which the differences are expected to reverse. A summary of the tax effects of the temporary differences is as follows:

 

                 
     September 24,
2010		     September 30,
2011		  
     (in thousands)  

Deferred income tax assets:

                 

Investments

    $ 2,045      $ 1,932   

Accounts receivable

      713        417   

Inventories

      2,513        3,304   

Net operating loss

      4,210        2,987   

U.S. state taxes

      5,911        5,749   

Accrued expenses

      18,874        9,216   

Stock-based compensation

      16,531        19,547   

Revenue recognition

      72,411        67,154   

Foreign tax credits

      4,625        3,528   

Other

      5,654        6,040   
    

 

 

    

 

 

  

Total gross deferred income tax assets

      133,487        119,874   

Less: valuation allowance

      —          —     
    

 

 

    

 

 

  

Total deferred income tax assets

      133,487        119,874   

Deferred income tax liabilities:

                 

Translation adjustment

      (2,161 )      (837 ) 

Intangibles

      (12,281 )      (595 ) 

International earnings

      (1,622 )      (1,485 ) 

Depreciation and amortization

      (5,272 )      (11,422 ) 

Unrealized gain on investments

      (992 )      (558 ) 
    

 

 

    

 

 

  

Deferred income tax assets, net

    $ 111,159      $ 104,977   
    

 

 

    

 

 

  

The above deferred income tax assets, net have been classified in the accompanying consolidated balance sheets as follows:

                 

Current deferred income tax assets

    $ 102,758      $ 90,869   

Long-term deferred income tax assets, net

      8,401        14,108   
    

 

 

    

 

 

  

Deferred income tax assets, net

    $ 111,159      $ 104,977   
    

 

 

    

 

 

  

 

Based upon the level of historical taxable income and projections for future taxable income over periods in which the deferred tax assets are deductible, we believe it is more likely than not that the benefits of these deductible differences will be realized; therefore, a valuation allowance is not required.

As of September 30, 2011, we had net operating loss carryovers for Australia tax purposes of $1.2 million. These loss carryovers have no expiration dates. As part of an acquisition in April 2009, we acquired net operating loss carryovers for federal and California tax purposes of $9.7 million and $9.6 million, respectively. The losses carried forward for federal and California tax purposes as of September 30, 2011 were $7.2 million and $9.6 million, respectively, and will expire in fiscal 2029 if unused.

A reconciliation of the federal statutory tax rate to our effective tax rate for fiscal 2009, 2010, and 2011 is as follows:

 

                         
     Fiscal Year Ended  
     September 25,
2009		     September 24,
2010		     September 30,
2011		  

Federal statutory rate

      35.0 %     35.0 %     35.0 % 

State income taxes, net of federal effect

      3.3        3.2        4.7   

Stock-based compensation expense rate

      (0.1 )      (0.1 )      0.3   

Research and development tax credits

      (1.5 )      (0.8 )      (1.6 ) 

Tax exempt interest

      (0.8 )      (0.4 )      (0.3 ) 

U.S. manufacturing tax incentives

      (1.6 )      (1.8 )      (1.9 ) 

Foreign rate differential

      (0.1 )      (0.1 )      (4.6 ) 

Foreign reversal of deferred tax liabilities

      —          —          (2.5 ) 

Other

      —          0.2        0.4   
    

 

 

    

 

 

    

 

 

  

Effective tax rate

      34.2 %     35.2 %       29.5 % 
    

 

 

    

 

 

    

 

 

  

Our policy to indefinitely reinvest a portion of our undistributed earnings in certain foreign subsidiaries with tax rates lower than those in the U.S. resulted in a reduction to our fiscal 2011 tax rate. In the first quarter of fiscal 2011 we obtained a tax ruling that will reduce our foreign tax liability for the current and future years. The tax ruling resulted in a release of certain deferred tax liabilities associated with a prior year acquisition in our foreign operations. For fiscal 2012 and future years, we expect a reduction in our California tax rate. As a result, in fiscal 2011 we reduced certain deferred tax assets, which increased our tax rate in the current year. Additionally, in the fiscal quarter ended December 31, 2010, a change in the tax law retroactively reinstated the federal research and development tax credits for a portion of fiscal 2010. As a result, we recognized an increase in federal research and development tax credits for fiscal 2011, as compared to fiscal 2010, thereby further lowering our effective tax rate.

As of September 30, 2011, the total amount of gross unrecognized tax benefits was $8.7 million, of which $3.8 million, if recognized, would impact our effective tax rate. Our liability for unrecognized tax benefits is classified within non-current liabilities in our consolidated balance sheets.

 

The aggregate changes in the balance of gross unrecognized tax benefits, excluding interest and penalties, were as follows:

 

         
     (in thousands)  

Balance as of September 25, 2009

    $ 16,916   

Lapse of statute of limitations

      (2,143 ) 

Decreases in balances related to tax positions taken during prior years

      —     

Increases in balances related to tax positions taken during prior years

      520   

Increases in balances related to tax positions taken during the current year

      1,265   
    

 

 

  

Balance as of September 24, 2010

    $ 16,558   

Lapse of statute of limitations

      (1,097 ) 

Decreases in balances related to tax positions taken during prior years

      (8,083 ) 

Increases in balances related to tax positions taken during prior years

      1,006   

Increases in balances related to tax positions taken during the current year

      299   
    

 

 

  

Balance as of September 30, 2011

    $ 8,683   
    

 

 

  

To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced in the period that such determination is made and are reflected as a reduction of the overall income tax provision. At September 24, 2010, we had $0.9 million of accrued interest and $2.6 million of accrued penalties on unrecognized tax benefits. At September 30, 2011, we had $2.0 million of accrued interest and $2.4 million of accrued penalties on unrecognized tax benefits. In fiscal 2011 our current tax provision was reduced by penalties of $0.2 million and increased by interest expense of $1.1 million.

We file income tax returns in the U.S. on a federal basis and in several U.S. state and foreign jurisdictions. Our most significant tax jurisdictions are the U.S., the United Kingdom (U.K.), the Netherlands, and the state of California. Our tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. We are no longer subject to examinations by the Internal Revenue Service through the 2006 tax year, for U.S. federal tax purposes, and through the 2006 fiscal year by the appropriate governmental agencies for U.K. tax purposes. In addition, we are no longer subject to examination by the state of New York through the 2005 tax year for income tax purposes. Our California filings are no longer subject to examination through the 2004 tax year by the appropriate California agency. Other significant jurisdictions include Australia, Canada, and Sweden and they are no longer subject to examinations through the years 2003, 2006, and 2007, respectively. In the second quarter of fiscal 2011 we reached a tax settlement with the IRS for the tax years 2004 through 2006. In connection with the settlement, we reduced our gross unrecognized tax benefits by $8.1 million and recognized a $0.3 million tax benefit. We do not believe that the outcome of any ongoing examination will have a material impact on our financial statements.

We continue to monitor the progress of ongoing income tax controversies and the impact, if any, of the expected tolling of the statute of limitations in various taxing jurisdictions. Considering these facts, we do not currently believe there is a reasonable possibility of any significant change to our total unrecognized tax benefits within the next twelve months.