Qualcomm 2005 Annual Report Download - page 70
Download and view the complete annual report
Please find page 70 of the 2005 Qualcomm annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Notes to Consolidated Financial Statements continued
66 qualcomm 2005
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. 25, Sept. 26, Sept. 28,
2005 2004 2003
Expected income tax provision
at federal statutory tax rate $ 983 $ 809 $548
State income tax provision,
net of federal benefi t 109 91 61
One-time dividend 35 — —
Foreign income taxed at other
than U.S. rates (290) (215) (59)
Valuation allowance (78) (44) —
Tax credits (66) (49) (32)
Other (27) (4) 18
Income tax expense $ 666 $ 588 $536
The Company has not provided for United States income taxes and
foreign withholding taxes on a cumulative total of approximately
$1.2 billion of undistributed earnings from certain non-United States
subsidiaries indefi 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 management 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 fi 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 distribution does not change the Company’s
intention to indefi nitely reinvest undistributed earnings of certain
of its foreign subsidiaries in operations outside the United States.
The Company had net deferred tax assets as follows (in millions):
Sept. 25, Sept. 26,
2005 2004
Accrued liabilities, reserves and other $199 $ 139
Deferred revenues 76 133
Unrealized losses on marketable securities 5 5
Unused net operating losses 13 —
Capital loss carryover 161 249
Tax credits 346 454
Unrealized losses on investments 137 169
Total gross deferred assets 937 1,149
Valuation allowance (69) (139)
Total net deferred assets $868 $1,010
Purchased intangible assets (17) (8)
Deferred contract costs (18) (26)
Unrealized gains on marketable securities (50) (33)
Other basis differences (1) (43)
Total deferred liabilities $ (86) $ (110)
The Company believes, more likely than not, that it will have suffi cient
taxable income after stock option related deductions to utilize the
majority of its deferred tax assets. As of September 25, 2005, the
Company has provided a valuation allowance on net capital losses of
$62 million. The valuation allowance related to capital losses refl ects
the uncertainty surrounding the Company’s ability to generate suffi -
cient capital gains to utilize all capital losses.
Deferred tax assets, net of valuation allowance, decreased by approx-
imately $142 million from September 26, 2004 to September 25,
2005 primarily due to the use of tax credits as a result of continued
profi table operations in excess of tax benefi ts from stock option
expense, partially offset by a decrease in the valuation allowance
related to capital loss carryover.
At September 25, 2005 and September 26, 2004, the Company had
federal, state and foreign taxes payable of approximately $69 million
and $27 million, respectively, included in other current liabilities.
At September 25, 2005, the Company had unused federal and state
income tax credits of $670 million and $93 million, respectively,
generally expiring from 2006 through 2024. The Company does not
expect these credits to expire unused.
Cash amounts paid for income taxes, net of refunds received, were
$168 million, $127 million and $125 million for fi scal 2005, 2004
and 2003, respectively. The income taxes paid primarily relate to
foreign withholding taxes.
NOTE 7. CAPITAL STOCK
Preferred Stock
The Company has 8,000,000 shares of preferred stock authorized for
issuance in one or more series, at a par value of $0.0001 per share. In
conjunction with the distribution of preferred share purchase rights,
4,000,000 shares of preferred stock are designated as Series A
Junior Participating Preferred Stock and such shares are reserved
for issuance upon exercise of the preferred share purchase rights.
At September 25, 2005 and September 26, 2004, no shares of pre-
ferred stock were outstanding.
Preferred Share Purchase Rights Agreement
The Company has a Preferred Share Purchase Rights Agreement
(Rights Agreement) to protect stockholders’ interests in the event
of a proposed takeover of the Company. Under the original Rights
Agreement, adopted on September 26, 1995, the Company declared
a dividend of one preferred share purchase right (a Right) for each
share of the Company’s common stock outstanding. Pursuant to the
Rights Agreement, as amended and restated on September 26, 2005,
each Right entitles the registered holder to purchase from the
Company a one one-thousandth share of Series A Junior Participating
Preferred Stock, $0.0001 par value per share, subject to adjustment
for subsequent stock splits, at a purchase price of $180. The Rights
are exercisable only if a person or group (an Acquiring Person)
acquires benefi cial ownership of 15% or more of the Company’s
outstanding shares of common stock without Board approval. Upon
exercise, holders, other than an Acquiring Person, will have the right,
subject to termination, to receive the Company’s common stock or
other securities, cash or other assets having a market value, as
defi ned, equal to twice such purchase price. The Rights, which expire