Income Taxes

The Company’s effective tax rate differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside of the U.S.

In the fourth quarter of fiscal year 2010, in connection with the Sierra Monolithics, Inc. acquisition, the Company modified its previous assertion that all of its earnings were permanently reinvested offshore and concluded that $120.0 million of foreign earnings were not permanently reinvested offshore. Of this amount, $50.0 million was actually repatriated to the U.S., leaving $70.0 million of unrepatriated foreign subsidiary earnings.

In the first quarter of fiscal year 2013, in connection with the acquisition of Gennum, the Company reviewed its assertion regarding the amount of foreign subsidiary earnings that were considered to be permanently reinvested offshore and concluded that due to post-acquisition foreign operating cash needs, all of its foreign subsidiary earnings, including the aforementioned $70.0 million, are considered to be permanently reinvested offshore. This change in assertion resulted in the recognition of a one-time tax benefit of $23.4 million in the first quarter of fiscal year 2013.

In the second quarter of fiscal year 2013, the overall statutory tax rate in Canada increased as a result of newly enacted tax legislation. The impact of this tax law change resulted in a $3.4 million discrete charge to the Canadian tax provision and a corresponding adjustment to the Company’s deferred tax liabilities.

Also in the second quarter of fiscal year 2013, the Company concluded that it could not reasonably or reliably forecast its annual effective tax rate on a full year basis. Accordingly, the Company recorded a tax benefit based on a year-to-date effective tax rate rather than an estimated full year effective tax rate.

The gross unrecognized tax benefits (before federal impact of state items) were $13.8 million at both July 29, 2012 and January 29, 2012. Included in each of the balances of unrecognized tax benefits at July 29, 2012 and January 29, 2012, are $11.6 million of net tax benefits (after federal impact of state items) that, if recognized, would impact the effective tax rate. The liability for uncertain tax positions is reflected on the Unaudited Consolidated Condensed Balance Sheets as follows:



(in thousands)	July 29, 2012		January 29, 2012
Accrued liabilities	$	473	$	437
Other long-term liabilities	11,123		11,159
Total accrued taxes	$	11,596	$	11,596

As of July 29, 2012, it was reasonably possible that the total amounts of unrecognized tax benefits would decrease by up to $0.5 million within twelve months as a result of statutes of limitations for the taxing authority to challenge the position expiring. If recognized, this decrease will impact the effective tax rate.

The Company’s policy is to include net interest and penalties related to unrecognized tax benefits within the (benefit) provision for taxes. The Company had approximately $243,000 of net interest and penalties accrued at July 29, 2012 and January 29, 2012.

Tax years prior to 2008 (the Company’s fiscal year 2009) are generally not subject to examination by the Internal Revenue Service (“IRS”) except for items involving tax attributes that have been carried forward to tax years whose statute of limitations remains open. For state returns, the Company is generally not subject to income tax examinations for years prior to 2007 (the Company’s fiscal year 2008). The Company has a primary significant tax presence in Switzerland for which Swiss tax filings have been examined through fiscal year 2009. The Company is also subject to routine examinations by various foreign tax jurisdictions in which it operates.