Qualcomm 2006 Annual Report Download - page 83

qualcomm 2006 69
During scal 2006, the Internal Revenue Service and the California
Franchise Tax Board completed audits of the Company’s tax returns
for scal 2001 and 2002, resulting in adjustments to the Company’s
net operating loss and credit carryover amounts for those years.
The tax provision was reduced by $73 million during scal 2006
to reect the expected impacts of the audits on both the reviewed
and open tax years.
The Company had net deferred tax assets and deferred tax liabilities
as follows (in millions):
Sept. 24, Sept. 25,
2006 2005
Accrued liabilities, reserves and other $ 169 $191
Share-based compensation 164 —
Capitalized start-up and organizational costs 46 —
Deferred revenue 55 76
Unrealized losses on marketable securities 43 5
Unused net operating losses 59 13
Capital loss carryover 82 161
Tax credits 129 346
Unrealized losses on investments 145 137
Property, plant and equipment — 8
Other basis differences 22 —
Total gross deferred assets 914 937
Valuation allowance (22) (69)
Total net deferred assets $ 892 $868
Purchased intangible assets (79) (17)
Deferred contract costs (6) (18)
Unrealized gains on marketable securities (67) (50)
Property, plant and equipment (10) —
Other basis differences — (1)
Total deferred liabilities $(162) $ (86)
The Company believes, more likely than not, that it will have suf-
cient taxable income after stock option related deductions to utilize
the majority of its deferred tax assets. As of September 24, 2006,
the Company has provided a valuation allowance on net capital
losses of $16 million. The valuation allowance related to capital
losses reects the uncertainty surrounding the Company’s ability
to generate sufcient capital gains to utilize all capital losses.
At September 24, 2006 and September 25, 2005, the Company
had federal, state and foreign taxes payable of approximately
$137 million and $69 million, respectively, included in other
current liabilities.
At September 24, 2006, the Company had unused federal income
tax credits of $534 million, with $522 million expiring from 2012
through 2026, and state income tax credits of $96 million, which
do not expire. The Company does not expect its federal income tax
credits to expire unused.
Cash amounts paid for income taxes, net of refunds received, were
$172 million, $168 million and $127 million for scal 2006, 2005
and 2004, respectively. The income taxes paid primarily relate to
foreign withholding taxes.
The foreign component of the income tax provision consists
primarily of foreign withholding taxes on royalty income included
in United States earnings.
The components of income from continuing operations before
income taxes by United States and foreign jurisdictions were as
follows (in millions):
Year Ended
Sept. 24, Sept. 25, Sept. 26,
2006 2005 2004
United States $1,445 $1,570 $1,571
Foreign 1,711 1,239 742
$3,156 $2,809 $2,313
The following is a reconciliation of the expected statutory federal
income tax provision to the Company’s actual income tax provision
(in millions):
Year Ended
Sept. 24, Sept. 25, Sept. 26,
2006 2005 2004
Expected income tax provision
at federal statutory tax rate $1,105 $ 983 $ 809
State income tax provision,
net of federal benet 168 109 91
One-time dividend — 35 —
Foreign income taxed at other
than U.S. rates (525) (290) (215)
Valuation allowance (46) (78) (44)
Tax credits (46) (66) (49)
Other 30 (27) (4)
Income tax expense $ 686 $ 666 $ 588
The Company has not provided for United States income taxes and
foreign withholding taxes on a cumulative total of approximately
$2.7 billion of undistributed earnings from certain non-United States
subsidiaries indenitely invested outside the United States.
Should the Company repatriate foreign earnings, the Company
would have to adjust the income tax provision in the period man-
agement determined that the Company would repatriate the
earnings. On October 22, 2004, the American Jobs Creation Act
of 2004 (the Jobs Creation Act) was signed into law. The Jobs
Creation Act created a temporary incentive for corporations in the
United States to repatriate accumulated income earned abroad by
providing an 85 percent dividends received deduction for certain
dividends from controlled foreign corporations. In the fourth quarter
of scal 2005, the Company repatriated approximately $0.5 billion
of foreign earnings qualifying for the special incentive under the
Jobs Creation Act and recorded a related expense of approximately
$35 million for federal and state income tax liabilities. This distri-
bution does not change the Company’s intention to indenitely
reinvest undistributed earnings of certain of its foreign subsidiaries
in operations outside the United States.