Income Taxes

12 Months Ended

Oct. 29, 2011

Income Taxes [Abstract]

Income Taxes

14.   Income Taxes

The reconciliation of income tax computed at the U.S. federal statutory rates to income tax expense is as follows:

	2011			2010			2009
U.S. federal statutory tax rate		35.0	%		35.0	%		35.0	%
Income tax provision reconciliation:
Tax at statutory rate:	$	371,506		$	315,583		$	104,105
Irish income subject to lower tax rate		(143,938	)		(129,741	)		(50,972	)
State income taxes, net of federal benefit		1,162			2,622			406
Valuation reserve		(6,700	)		—			—
Research and development tax credits		(14,681	)		(1,045	)		(5,153	)
Settlement of tax examination		(10,804	)		—			—
Net foreign tax in excess of U.S. federal statutory tax rate		338			1,315			1,123
Other, net		3,670			1,706			527
Total income tax provision	$	200,553		$	190,440		$	50,036

For financial reporting purposes, income before income taxes includes the following components:

	2011		2010		2009
Pretax income:
Domestic	$	355,819	$	289,748	$	1,133
Foreign		705,628		611,917		296,311
Income from continuing operations before income taxes	$	1,061,447	$	901,665	$	297,444

The components of the provision for income taxes are as follows:

	2011			2010			2009
Current:
Federal tax (benefit)	$	92,103		$	117,097		$	(5,191	)
Foreign		104,959			79,055			43,007
State		1,787			4,154			625
Total current	$	198,849		$	200,306		$	38,441
Deferred (prepaid):
Federal	$	9,399		$	(6,159	)	$	16,718
State		(5,762	)		(173	)		315
Foreign		(1,933	)		(3,534	)		(5,438	)
Total deferred (prepaid)	$	1,704		$	(9,866	)	$	11,595

The Company continues to intend to reinvest certain of its foreign earnings indefinitely. Accordingly, no U.S. income taxes have been provided for approximately $2,805 million of unremitted earnings of international subsidiaries. As of October 29, 2011, the amount of unrecognized deferred tax liability on these earnings was $736 million.

The significant components of the Company’s deferred tax assets and liabilities for the fiscal years ended October 29, 2011 and October 30, 2010 are as follows:

	2011			2010
Deferred tax assets:
Inventory reserves	$	23,503		$	24,495
Deferred income on shipments to distributors		34,061			32,870
Reserves for compensation and benefits		21,164			26,199
Tax credit carryovers		41,468			50,384
Stock-based compensation		91,417			75,827
Depreciation		4,781			4,553
Other		(592	)		1,251
Total gross deferred tax assets		215,802			215,579
Valuation allowance		(34,768	)		(50,384	)
Total deferred tax assets		181,034			165,195
Deferred tax liabilities:
Depreciation		(36,624	)		(12,185	)
Undistributed earnings of foreign subsidiaries		(24,025	)		(24,229	)
Other		(1,829	)		(3,106	)
Total gross deferred tax liabilities		(62,478	)		(39,520	)
Net deferred tax assets	$	118,556		$	125,675

The valuation allowances of $34.8 million and $50.4 million at October 29, 2011 and October 30, 2010, respectively, are a valuation allowance for the Company’s state credit carryovers that began expiring in 2008.

The Company has provided for potential liabilities due in the various jurisdictions in which the Company operates. Judgment is required in determining the worldwide income tax expense provision. In the ordinary course of global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of cost reimbursement arrangements among related entities. Although the Company believes its estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in the historical income tax provisions and accruals. Such differences could have a material impact on the Company’s income tax provision and operating results in the period in which such determination is made.

As of October 29, 2011 and October 30, 2010, the Company had a liability of $9.7 million and $18.4 million, respectively, for gross unrealized tax benefits, all of which, if settled in the Company’s favor, would lower the Company’s effective tax rate in the period recorded. In addition, as of October 29, 2011 and October 30, 2010, the Company had a liability of approximately $11.1 million and $9.9 million, respectively, for interest and penalties. The Company includes interest and penalties related to unrecognized tax benefits within the provision for taxes in the consolidated statements of income. The total liability as of October 29, 2011 and October 30, 2010 of $20.8 million and $28.3 million, respectively, for uncertain tax positions is classified as non-current, and is included in other non-current liabilities, because the Company believes that the ultimate payment or settlement of these liabilities may not occur within the next twelve months. The consolidated statements of income for fiscal years 2011, 2010 and 2009 include $0.9 million, $1.8 million and $1.7 million, respectively, of interest and penalties related to these uncertain tax positions. Over the next fiscal year, the Company anticipates the liability to be reduced by $5.2 million for a tax settlement payment and the possible expiration of income tax statute of limitations.

The following table summarizes the changes in the total amounts of unrealized tax benefits for fiscal 2009 through fiscal 2011.

Balance, November 1, 2008	$	13,750
Additions for tax positions of 2009		4,411
Balance, October 31, 2009		18,161
Additions for tax positions of 2010		286
Balance, October 30, 2010	$	18,447
Additions for tax positions related to prior years		9,265
Reductions for tax positions related to prior years		(17,677	)
Settlements with taxing authorities		(370	)
Balance, October 29, 2011	$	9,665

Fiscal Years 2004 and 2005 IRS Examination

During the fourth quarter of fiscal 2007, the Internal Revenue Service (IRS) completed its field examination of the Company’s fiscal years 2004 and 2005. On January 2, 2008, the IRS issued its report for fiscal 2004 and 2005, which included four proposed adjustments related to these two fiscal years that the Company protested to the IRS Appeals Office. Two of the unresolved matters were one-time issues that pertain to Section 965 of the Internal Revenue Code related to the beneficial tax treatment of dividends paid from foreign owned companies under The American Jobs Creation Act. The other matters pertained to the computation of the research and development (R&D) tax credit and certain profits earned from manufacturing activities carried on outside the United States. The Company recorded a tax liability for a portion of the proposed R&D tax credit adjustment. These four items had an additional potential tax liability of $46 million. The Company concluded, based on discussions with its tax advisors, that these items were not likely to result in any additional tax liability. Therefore, the Company did not record a tax liability for these items.

During the second quarter of fiscal 2011, the Company reached settlement with the IRS Appeals Office on three of the four items under protest. The remaining unresolved matter is a one-time issue pertaining to Section 965 of the Internal Revenue Code related to the beneficial tax treatment of dividends from foreign owned companies under The American Jobs Creation Act. The Company will file a petition with the Tax Court with respect to this open matter. The potential liability for this adjustment is $36.5 million. The Company has concluded, based on discussions with its tax advisors, that this item is not likely to result in any additional tax liability. Therefore, the Company has not recorded any additional tax liability for this issue.

Fiscal Years 2006 and 2007 IRS Examination

During the third quarter of fiscal 2009, the IRS completed its field examination of the Company’s fiscal years 2006 and 2007. The IRS and the Company agreed on the treatment of a number of issues that have been included in an Issue Resolutions Agreement related to the 2006 and 2007 tax returns. However, no agreement was reached on the tax treatment of a number of issues for the fiscal 2006 and fiscal 2007 years, including the same R&D tax credit and foreign manufacturing issues mentioned above related to fiscal 2004 and 2005, the pricing of intercompany sales (transfer pricing) and the deductibility of certain stock option compensation expenses. The Company recorded taxes related to a portion of the proposed R&D tax credit adjustment. These four items had an additional potential total tax liability of $195 million. The Company concluded, based on discussions with its tax advisors that these items were not likely to result in any additional tax liability. Therefore, the Company did not record any additional tax liability for these items and appealed these proposed adjustments through the normal processes for the resolution of differences between the IRS and taxpayers.

During the second quarter of fiscal 2011, the Company reached an agreement with the IRS Appeals Office on three of the four protested items, two of which were the same issues settled relating to the 2004 and 2005 fiscal years. Transfer pricing remained as the only item under protest with the IRS Appeals Office related to the fiscal 2006 and fiscal 2007 years. The potential U.S. tax liability for this matter would have been $157.5 million. The Company concluded, based on discussions with its tax advisors, that this item was not likely to result in any additional tax liability. Therefore, the Company did not record a tax liability for this issue.

During the third quarter of fiscal 2011, the Company reached an agreement with the IRS Appeals Office on transfer pricing, the remaining item under protest related to the fiscal 2006 and fiscal 2007 years. Under this agreement, there is no tax owed on the transfer pricing issue for those years.

As a result of settling all but the one-time issue pertaining to Section 965 of the Internal Revenue Code related to the beneficial tax treatment of dividends from foreign owned companies under The American Jobs Creation Act for the fiscal 2004 through fiscal 2007 years at the IRS Appeals Office, the Company recorded a net $10.8 million tax benefit in the second quarter of fiscal 2011. The Company will file a petition with the Tax Court for the open matter.

Fiscal Years 2008 through 2010

The Company files U.S. federal, U.S. state and non-U.S. tax returns. The following major jurisdictions are no longer subject to examination: U.S. federal prior to fiscal year 2008 and Ireland prior to fiscal year 2007.

Although the Company believes its estimates of income tax payable are reasonable, no assurance can be given that the Company will prevail in the matters raised and that the outcome of one or all of these matters will not be different than that which is reflected in the historical income tax provisions and accruals. The Company believes such differences would not have a material impact on the Company’s financial condition but could have a material impact on the Company’s income tax provision, operating results and operating cash flows in the period in which such matters are resolved as well as for subsequent years.