Income Taxes

Income (loss) before taxes, net (income) loss attributable to noncontrolling interests and equity in net income (loss) of equity method investees and income tax (provision) benefit consisted of the following:



	2011			2010			2009
Income (loss) before taxes, net (income) loss attributable to noncontrolling interests and equity in net income (loss) of equity method investees:
Foreign	$	294		$	537		$	(427	)
U.S.	257			1,383			(1,425		)
	$	551		$	1,920		$	(1,852	)
Income tax (provision) benefit:
Current:
Foreign	$	(89	)	$	(24	)	$	(12	)
State	(1		)	(4		)	—
U.S. federal	—			66			12
	(90		)	38			—
Deferred:
Foreign	(113		)	(14		)	(1		)
U.S. federal	—			(5		)	—
	(113		)	(19		)	(1		)
Income tax (provision) benefit	$	(203	)	$	19		$	(1	)

Income tax (provision) benefit computed using the U.S. federal statutory rate reconciled to income tax (provision) benefit was as follows:



	2011			2010			2009
U.S. federal income tax (provision) benefit at statutory rate	$	(193	)	$	(672	)	$	648
Foreign operations	(119		)	135			(135		)
Debt repurchase premium	(20		)	—			—
State taxes, net of federal benefit	(5		)	(22		)	39
Change in valuation allowance	103			424			(572		)
Tax credits	17			3			18
Gain on acquisition of Numonyx	—			153			—
Other	14			(2		)	1
Income tax (provision) benefit	$	(203	)	$	19		$	(1	)

State taxes reflect tax credits of $10 million, $6 million and $7 million for 2011, 2010 and 2009, respectively.

Deferred income taxes reflect the net tax effects of temporary differences between the bases of assets and liabilities for financial reporting and income tax purposes. Deferred tax assets and liabilities consist of the following as of the end of the periods shown below:



	2011			2010
Deferred tax assets:
Net operating loss and credit carryforwards	$	1,581		$	1,336
Inventories	159			354
Accrued salaries, wages and benefits	99			124
Deferred income	55			92
Basis differences in investments in joint ventures	21			71
Property, plant and equipment	—			36
Other	50			55
Gross deferred tax assets	1,965			2,068
Less valuation allowance	(1,446		)	(1,627		)
Deferred tax assets, net of valuation allowance	519			441

Deferred tax liabilities:
Debt discount	(138		)	(92		)
Unremitted earnings on certain subsidiaries	(117		)	(97		)
Property, plant and equipment	(107		)	—
Product and process technology	(50		)	(45		)
Intangible assets	(24		)	(33		)
Other	(13		)	(6		)
Deferred tax liabilities	(449		)	(273		)

Net deferred tax assets	$	70		$	168

Reported as:
Current deferred tax assets (included in other current assets)	$	26		$	39
Noncurrent deferred tax assets (included in other noncurrent assets)	60			145
Noncurrent deferred tax liabilities (included in other noncurrent liabilities)	(16		)	(16		)
Net deferred tax assets	$	70		$	168

We have a valuation allowance against substantially all U.S. net deferred tax assets. As of September 1, 2011, our federal, state and foreign net operating loss carryforwards were $2.9 billion, $2 billion and $529 million, respectively. If not utilized, substantially all of our federal and state net operating loss carryforwards will expire in 2022 to 2031 and the foreign net operating loss carryforwards will begin to expire in 2015. As of September 1, 2011, our federal and state tax credit carryforwards were $206 million and $215 million, respectively. If not utilized, substantially all of our federal and state tax credit carryforwards will expire in 2013 to 2031. As a consequence of prior business acquisitions, utilization of the tax benefits for some of the tax carryforwards is subject to limitations imposed by Section 382 of the Internal Revenue Code and some portion or all of these carryforwards may not be available to offset any future taxable income.

The changes in valuation allowance of $(181) million and $(379) million in 2011 and 2010, respectively, are primarily due to utilization of U.S. net operating losses and certain tax credit carryforwards. The decrease in the valuation allowance in 2010 was offset with an increase in the valuation allowance of $64 million related to deferred tax assets of Numonyx consisting primarily of net operating losses in foreign jurisdictions.

Provision has been made for deferred taxes on undistributed earnings of non-U.S. subsidiaries to the extent that dividend payments from such companies are expected to result in additional tax liability. Remaining undistributed earnings of $631 million as of September 1, 2011 have been indefinitely reinvested; therefore, no provision has been made for taxes due upon remittance of these earnings. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable.

Below is a reconciliation of the beginning and ending amount of unrecognized tax benefits:



	2011			2010			2009
Beginning unrecognized tax benefits	$	88		$	1		$	1
Increases related to tax positions taken during current year	28			11			—
Foreign currency translation increases (decreases) to tax positions	6			—			—
Increases related to tax positions from prior years	4			14			—
Decreases related to tax positions from prior years	(3		)	—			—
Settlements with tax authorities	(2		)	(1		)	—
Unrecognized tax benefits acquired in current year	—			63			—
Expiration of foreign statutes of limitations	—			—			(1		)
Other	—			—			1
Ending unrecognized tax benefits	$	121		$	88		$	1

Included in the unrecognized tax benefits balance as of September 1, 2011, September 2, 2010 and September 3, 2009 were $113 million, $87 million, and $1 million, respectively, of unrecognized income tax benefits, which if recognized, would affect our effective tax rate. In connection with the acquisition of Numonyx in fiscal 2010, we accrued a $66 million liability related to uncertain tax positions on the tax years of Numonyx open to examination. We recorded an indemnification asset for a significant portion of these unrecognized income tax benefits related to uncertain tax positions. We recognize interest and penalties related to income tax matters within income tax expense. As of September 1, 2011 and September 2, 2010, accrued interest and penalties related to uncertain tax positions was $16 million and $6 million.

We are unable to reasonably estimate possible increases or decreases in uncertain tax positions that may occur within the next 12 months due to the uncertainty of the timing of the resolution and/or closure on audits. However, we do not anticipate any such change would be material.

We currently operate in several tax jurisdictions where we have arrangements that allow us to compute our tax provision at rates below the local statutory rates that expire in whole or in part at various dates through 2026. These arrangements benefitted our tax provision in 2011 and 2010 by approximately $72 million (approximately $0.07 per diluted share) and approximately $69 million (approximately $0.07 per diluted share), respectively.

We and our subsidiaries file income tax returns with the United States federal government, various U.S. states and various foreign jurisdictions throughout the world. Our U.S. federal and state tax returns remain open to examination for 2006 through 2011. In addition, tax years open to examination in multiple foreign taxing jurisdictions range from 2004 to 2011. We are currently under examination in various taxing jurisdictions in which we conduct business operations. We believe that adequate amounts of taxes and related interest and penalties have been provided for, and any adjustments as a result of the examinations are not expected to adversely impact our financial condition.