Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
 12 Months Ended
Sep. 29, 2013
Notes to Financial Statements [Abstract]  
Note 4 - Income Taxes
Note 4. Income Taxes
The components of the income tax provision were as follows (in millions):
 
2013
 
2012
 
2011
Current provision:
 
 
 
 
 
Federal
$
324

 
$
140

 
$
179

State
15

 
1

 
57

Foreign
1,068

 
934

 
670

 
1,407

 
1,075

 
906

Deferred (benefit) provision:
 
 
 
 
 
Federal
(32
)
 
208

 
170

State
6

 
(16
)
 
62

Foreign
(32
)
 
12

 
(6
)
 
(58
)
 
204

 
226

 
$
1,349

 
$
1,279

 
$
1,132


The foreign component of the income tax provision consists primarily of foreign withholding taxes on royalty fees 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):
 
2013
 
2012
 
2011
United States
$
3,798

 
$
3,525

 
$
2,984

Foreign
4,396

 
3,037

 
2,703

 
$
8,194

 
$
6,562

 
$
5,687


The following is a reconciliation of the expected statutory federal income tax provision to the Company’s actual income tax provision for continuing operations (in millions):
 
2013
 
2012
 
2011
Expected income tax provision at federal statutory tax rate
$
2,868

 
$
2,297

 
$
1,991

State income tax provision, net of federal benefit
26

 
24

 
283

Foreign income taxed at other than U.S. rates
(1,362
)
 
(1,045
)
 
(1,074
)
Tax credits
(195
)
 
(36
)
 
(151
)
Valuation allowance
(3
)
 
55

 
42

Revaluation of deferred taxes
8

 
—

 
69

Other
7

 
(16
)
 
(28
)
 
$
1,349

 
$
1,279

 
$
1,132


The Company’s QCT segment’s non-United States headquarters is located in Singapore. The Company has obtained tax incentives in Singapore, which are effective through March 2027, that result in a tax exemption for the first five years provided that the Company meets specified employment and investment criteria. The Company’s Singapore tax rate will increase in fiscal 2017 and again in fiscal 2027 as a result of expiration of these incentives. Had the Company established QCT’s non-United States headquarters in Singapore without these tax incentives, the Company’s income tax expense would have been higher and impacted earnings per share attributable to Qualcomm as follows (in millions, except per share amounts):
 
2013
 
2012
Additional income tax expense
$
758

 
$
193

Reduction to basic earnings per share
$
0.44

 
$
0.11

Reduction to diluted earnings per share
$
0.43

 
$
0.11


The revaluation of deferred taxes represents the impact of paying current taxes at a higher state effective tax rate than the effective tax rate that will be in effect when the resulting deferred tax asset or liability is scheduled to reverse. The Company has not recorded a deferred tax liability of approximately $7.6 billion related to the United States federal and state income taxes and foreign withholding taxes on approximately $21.6 billion of undistributed earnings of certain non-United States subsidiaries indefinitely invested outside the United States. Should the Company decide to repatriate the foreign earnings, the Company would have to adjust the income tax provision in the period management determined that the earnings will no longer be indefinitely invested outside the United States.
The Company files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. The Company is currently a participant in the Internal Revenue Service (IRS) Compliance Assurance Process, whereby the IRS and the Company endeavor to agree on the treatment of all tax issues prior to the tax return being filed. The IRS completed its examination of the Company’s tax return for fiscal 2011 and issued a final revenue agent’s report during the third quarter of fiscal 2013, resulting in no change to the income tax provision. The Company is no longer subject to United States federal income tax examinations for years prior to fiscal 2012. The Company is subject to examination by the California Franchise Tax Board for fiscal years after 2008. The Company is also subject to income taxes in other taxing jurisdictions in the United States and around the world, many of which are open to tax examinations for periods after fiscal 2000. The Company does not expect the impact of any future state or foreign audits to be material.
The Company had deferred tax assets and deferred tax liabilities as follows (in millions):
 
September 29, 2013
 
September 30, 2012
Unearned revenues
$
1,305

 
$
1,340

Share-based compensation
497

 
623

Unrealized losses on marketable securities
293

 
232

Accrued liabilities and reserves
305

 
260

Unused net operating losses
91

 
105

Capitalized start-up and organizational costs
71

 
78

Tax credits
29

 
50

Other
49

 
102

Total gross deferred assets
2,640

 
2,790

Valuation allowance
(51
)
 
(142
)
Total net deferred assets
2,589

 
2,648

Unrealized gains on marketable securities
(536
)
 
(552
)
Intangible assets
(265
)
 
(261
)
Property, plant and equipment
(129
)
 
(115
)
Other
(27
)
 
(7
)
Total deferred liabilities
(957
)
 
(935
)
Net deferred assets
$
1,632

 
$
1,713

Reported as:
 
 
 
Current deferred tax assets
$
573

 
$
309

Non-current deferred tax assets
1,059

 
1,412

Non-current assets held for sale
2

 
—

Current deferred tax liabilities (1)
—

 
(1
)
Non-current deferred tax liabilities (1)
(2
)
 
(7
)
 
$
1,632

 
$
1,713

(1)
Current deferred tax liabilities and non-current deferred tax liabilities were included in other current liabilities and other liabilities, respectively, in the consolidated balance sheets.
At September 29, 2013, the Company had unused federal net operating loss carryforwards of $131 million expiring from 2021 through 2031, unused state net operating loss carryforwards of $604 million expiring from 2014 through 2033, and unused foreign net operating loss carryforwards of $75 million, which expire from 2014 through 2021. At September 29, 2013, the Company had unused tax credits of $25 million in foreign jurisdictions, which begin to expire in 2014. The Company does not expect its federal net operating loss carryforwards and its state income tax credits to expire unused.
The Company believes, more likely than not, that it will have sufficient taxable income after deductions related to share-based awards to utilize the majority of its deferred tax assets. At September 29, 2013, the Company has provided a valuation allowance on certain foreign deferred tax assets, state net operating losses and net capital losses of $21 million, $17 million and $13 million, respectively. The valuation allowances reflect the uncertainties surrounding the Company’s ability to generate sufficient future taxable income in certain foreign and state tax jurisdictions to utilize its net operating losses and the Company’s ability to generate sufficient capital gains to utilize all capital losses.
A summary of the changes in the amount of unrecognized tax benefits for fiscal 2013, 2012 and 2011 follows (in millions):
 
2013
 
2012
 
2011
Beginning balance of unrecognized tax benefits
$
86

 
$
96

 
$
353

Additions based on prior year tax positions
1

 
—

 
64

Reductions for prior year tax positions and lapse in statute of limitations
—

 
(18
)
 
(10
)
Additions for current year tax positions
145

 
10

 
12

Settlements with taxing authorities
(11
)
 
(2
)
 
(323
)
Ending balance of unrecognized tax benefits
$
221

 
$
86

 
$
96


The Company does not expect any unrecognized tax benefits recorded at September 29, 2013 to result in cash payment in fiscal 2014. Unrecognized tax benefits at September 29, 2013 included $218 million for tax positions that, if recognized, would impact the effective tax rate. The unrecognized tax benefits differ from the amount that would affect the Company’s effective tax rate primarily because the unrecognized tax benefits were included on a gross basis and did not reflect secondary impacts such as the federal deduction for state taxes, adjustments to deferred tax assets and the valuation allowance that might be required if the Company’s tax positions are sustained. The increase in unrecognized tax benefits in fiscal 2013 was primarily due to tax positions related to transfer pricing. The decrease in unrecognized tax benefits in fiscal 2012 was primarily due to settlement of the Company’s California tax examination for fiscal 2005 through fiscal 2008, which was partially offset by an increase in unrecognized tax benefits generated in fiscal 2012. The Company does not believe that it is reasonably possible that the total amounts of unrecognized tax benefits at September 29, 2013 will significantly increase or decrease in fiscal 2014. Interest expense related to uncertain tax positions was negligible in fiscal 2013, 2012 and 2011. The amount of accrued interest and penalties was negligible at September 29, 2013 and September 30, 2012.
Cash amounts paid for income taxes, net of refunds received, were $1.1 billion, $1.3 billion and $2.1 billion for fiscal 2013, 2012 and 2011, respectively.