Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

5. Income Taxes

     We recorded tax provisions of $6 million and $7 million for the three and nine months ended September 30, 2011, respectively, and tax provisions of $8 million and $9 million for the three and nine months ended September 30, 2010, respectively. Our effective tax rates were 2.2% and 1.0% for the three and nine months ended September 30, 2011, respectively, and 2.4% and 1.1% for the three and nine months ended September 30, 2010, respectively. The difference between our effective tax rates and the 35% federal statutory rate resulted primarily from foreign earnings taxed at rates lower than the federal statutory rate in the three and nine months ended September 30, 2011 and 2010, and tax benefits resulting primarily from the expiration of statutes of limitations for the assessment of taxes in various foreign jurisdictions of $6 million for the nine months ended September 30, 2011, and $7 million for the nine months ended September 30, 2010. As part of our acquisition of Innovision Research & Technology plc, we recorded a tax provision of $3 million for the three and nine months ended September 30, 2010 for certain acquired deferred tax assets. We also recorded a tax benefit of approximately $3 million in the nine months ended September 30, 2010 resulting primarily from the March 22, 2010 decision in the U.S. Court of Appeals for the Ninth Circuit case concerning Xilinx (as disclosed in prior periods). During the quarter ended June 30, 2011 we completed our analysis under Internal Revenue Code Sections 382 and 383 for our 2010 acquisition of Beceem Communications, Inc., and determined there was no resulting material limitation on our ability to utilize the acquired net operating loss and tax credit carryforwards.

     We utilize the asset and liability method of accounting for income taxes. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance. Forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence such as cumulative losses in recent years. As a result of our recent cumulative losses in the U.S. and certain foreign jurisdictions, and the full utilization of our loss carryback opportunities, we have concluded that a full valuation allowance should be recorded in such jurisdictions. In certain other foreign jurisdictions where we do not have cumulative losses, we had net deferred tax liabilities of $50 million and $17 million at September 30, 2011 and December 31, 2010, respectively. The increase in net deferred tax liabilities for the nine months ended September 30, 2011 primarily related to $43 million of net deferred tax liabilities from our acquisition of Provigent Inc. in April 2011.

     We file federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2007 through 2010 tax years generally remain subject to examination by federal and most state tax authorities. In foreign jurisdictions, the 2002 through 2010 tax years generally remain subject to examination by tax authorities.

     On June 30, 2011 we concluded the Internal Revenue Service (IRS) examination of our income tax returns for 2004 through 2006, executed a closing agreement covering the 2001 through 2006 tax years, and agreed to certain adjustments for the 2001 through 2006 tax years, primarily related to intercompany transfer pricing transactions. Those audit adjustments were offset by federal net operating losses and credits, and did not result in any income tax expense or cash tax liability for the Company. As a result of the IRS examination, taking into account effects on post-audit periods, we reduced our federal net operating losses by approximately $620 million and we reduced amounts relating to uncertain tax benefits by approximately $180 million as of September 30, 2011. This reduction in federal net operating loss carryforwards was fully offset with a reduction in our valuation allowance for deferred tax assets, and had no impact on our operating results or financial position. We are currently calculating the reduction of our state net operating loss carryforwards resulting from the IRS audit, and such reduction will be fully offset with a corresponding reduction in our valuation allowance for deferred tax assets and will not impact our operating results or financial position.

     In December, 2010 the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was enacted. A provision in this legislation provided for the extension of the research and development tax credit for qualifying expenditures paid or incurred from January 1, 2010 through December 31, 2011. As a result of this legislation, we generated federal research and development tax credits of $145 million for the year ended December 31, 2010 and expect to generate additional research and development tax credits for the year ended December 31, 2011. These tax credits, if unutilized, will carry forward to future periods. No tax benefit was recorded for these carryforwards since we have a full valuation allowance on our U.S. deferred tax assets.

     We operate under tax holidays in Singapore, which are effective through March 2014. The tax holidays are conditional upon our meeting certain employment and investment thresholds.