Income Taxes

9 Months Ended

Sep. 29, 2012

Income Taxes

Income Taxes

13. Income Taxes

Provision for income taxes includes both domestic and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Income tax expense was $17.1 million and $3.0 million for the three months ended September 29, 2012 and October 1, 2011, respectively, resulting in effective tax rates of 63.0% and 20.9%, respectively. Income tax expense was $17.1 million and $13.9 million for the nine months ended September 29, 2012 and October 1, 2011, respectively, resulting in effective tax rates of 27.6% and 38.0%, respectively. The effective tax rate for the three months ended September 29, 2012 increased from the prior period, primarily due to the current period tax charge related to the intercompany license of certain technology associated with the acquisition of Ember, as well as the non-renewal of the federal research and development tax credit.  The effective tax rate for the nine months ended September 29, 2012 decreased from the prior period, primarily due to the release of prior year unrecognized tax benefits that were determined to be effectively settled during the current period along with one-time nondeductible costs associated with the acquisition of Spectra Linear in 2011.  The impact of these items was partially offset by the non-renewal of the federal research and development tax credit.

At September 29, 2012, the Company had gross unrecognized tax benefits of $4.3 million, $4.1 million of which would affect the effective tax rate if recognized. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company had a net decrease of $6.9 million during the nine months ended September 29, 2012, which was comprised of (a) a gross decrease of $8.4 million to its prior year unrecognized tax benefits related to an uncertain tax position that was determined to be effectively settled, a portion of which represented a foreign currency remeasurement adjustment and was recognized in other income (expense), net, and (b) a gross increase of $1.5 million to its current year unrecognized tax benefits.

The tax years 2005 through 2012 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company’s 2010 federal income tax return is under examination by the U.S. Internal Revenue Service. Although the outcome of tax audits is always uncertain, the Company believes that the results of the examination will not materially affect its financial position or results of operations.  The Company is not currently under audit in any other major taxing jurisdiction.