| Income Taxes |
INCOME TAXES
The following table provides details of income taxes:
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(Dollar amounts in thousands) |
Three months ended
December 31, |
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Six months ended
December 31, |
2011 |
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2010 |
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2011 |
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2010 |
Income before income taxes |
$ |
146,907 |
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$ |
251,191 |
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$ |
394,169 |
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$ |
474,503 |
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Provision for taxes |
$ |
36,110 |
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$ |
65,699 |
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$ |
91,377 |
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$ |
134,815 |
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Effective tax rate |
24.6 |
% |
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26.2 |
% |
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23.2 |
% |
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28.4 |
% |
The Company’s estimated annual effective tax rate for the fiscal year ending June 30, 2012 is approximately 23.0%.
The difference between the actual effective tax rate of 24.6% during the quarter and the estimated annual effective tax rate of 23.0% is primarily due to the tax impact of the following items during the three months ended December 31, 2011:
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Tax expense was increased by $5.1 million due to shortfalls from employee stock activity. A shortfall arises when the tax deduction is less than book compensation. Windfalls are recorded as increases to capital in excess of par value. Shortfalls are recorded as decreases to capital in excess of par value to the extent that cumulative windfalls exceed cumulative shortfalls. Shortfalls in excess of cumulative windfalls are recorded as provision for income taxes.
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Tax expense was decreased by $2.7 million due to a non-taxable increase in the value of the assets held within the Company’s Executive Deferred Savings Plan.
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Tax expense was lower as a percentage of income during the three months ended December 31, 2011 compared to the three months ended December 31, 2010 primarily due to:
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A decrease in tax expense of $3.0 million during the three months ended December 31, 2011 related to state income taxes as a result of the adoption of California budget legislation, signed on February 20, 2009, which allows a taxpayer to elect an alternative method to attribute taxable income to California for tax years beginning on or after January 1, 2011; and
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A decrease in tax expense of $7.1 million during the three months ended December 31, 2011 related to an increase in the proportion of the Company's earnings generated in jurisdictions with tax rates lower than the U.S. statutory tax rate; partially offset by
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An increase in tax expense of $8.8 million during the three months ended December 31, 2011 related to shortfalls from employee stock activity. The Company incurred a tax expense of $5.1 million due to shortfalls from employee stock activity during the three months ended December 31, 2011 compared to a tax benefit of $3.7 million due to windfalls from employee stock activity during the three months ended December 31, 2010.
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Tax expense was lower as a percentage of income during the six months ended December 31, 2011 compared to the six months ended December 31, 2010 primarily due to:
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A tax benefit of $18.3 million recognized during the six months ended December 31, 2011 resulting from a decrease in the Company's unrecognized tax benefits due to the settlement of a U.S. federal income tax examination;
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A tax benefit of $18.0 million recognized during the six months ended December 31, 2011 resulting from a decrease in reserves for uncertain tax positions taken in prior years;
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A decrease in tax expense of $7.7 million during the six months ended December 31, 2011 related to state income taxes as a result of the adoption of California budget legislation, signed on February 20, 2009, which allows a taxpayer to elect an alternative method to attribute taxable income to California for tax years beginning on or after January 1, 2011; and
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A decrease in tax expense of $18.7 million during the six months ended December 31, 2011 related to an increase in the proportion of the Company's earnings generated in jurisdictions with tax rates lower than the U.S. statutory tax rate; partially offset by
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An increase in tax expense of $23.6 million during the six months ended December 31, 2011 related to a migration of a portion of the Company's manufacturing to Singapore; and
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An increase in tax expense of $9.0 million during the six months ended December 31, 2011 related to a non-deductible decrease in the value of the assets held within the Company's Executive Deferred Savings Plan. The Company incurred a tax expense of $2.5 million due to a non-deductible decrease in the value of the assets held within the Company's Executive Deferred Savings Plan during the six months ended December 31, 2011 compared to a tax benefit of $6.5 million due to a non-taxable increase in the value of the assets held within the Company's Executive Deferred Savings Plan during the six months ended December 31, 2010.
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In the normal course of business, the Company is subject to examination by tax authorities throughout the world. The Company is subject to U.S. federal income tax examination for all years beginning from the fiscal year ended June 30, 2010. The Company is subject to state income tax examinations for all years beginning from the fiscal year ended June 30, 2007. The Company is also subject to examinations in other major foreign jurisdictions, including Singapore, for all years beginning from the fiscal year ended June 30, 2007. It is possible that certain examinations may be concluded in the next twelve months. The Company believes it is possible that it may recognize up to $2.4 million of its existing unrecognized tax benefits within the next twelve months as a result of the lapse of statutes of limitations and the resolution of examinations with various tax authorities.
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