Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 29, 2012
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The provision (benefit) for income taxes consists of:
 
2012
 
2011
 
2010
 
(In millions)
Current:
 
 
 
 
 
U.S. Federal
$
—

 
$
(3
)
 
$
(4
)
U.S. State and Local
—

 
1

 
—

Foreign National and Local
6

 
4

 
47

Total
$
6

 
$
2

 
$
43

Deferred:
 
 
 
 
 
U.S. Federal
(37
)
 
—

 
—

Foreign National and Local
(3
)
 
(6
)
 
(5
)
Total
$
(40
)
 
$
(6
)
 
$
(5
)
Provision (benefit) for income taxes
$
(34
)
 
$
(4
)
 
$
38


Income (loss) before income taxes consists of the following:
 
2012
 
2011
 
2010
 
(In millions)
U.S.
$
(1,242
)
 
$
318

 
$
987

Foreign
25

 
173

 
(478
)
Total pre-tax income (loss)
$
(1,217
)
 
$
491

 
$
509


Deferred income taxes reflect the net tax effects of tax carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the balances for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 29, 2012 and December 31, 2011 are as follows:
 
December 29,
2012
 
December 31,
2011
 
(In millions)
Deferred tax assets:
 
 
 
Net operating loss carryovers
$
1,455

 
$
991

Deferred distributor income
55

 
63

Inventory valuation
53

 
25

Accrued expenses not currently deductible
118

 
111

Acquired intangibles
385

 
427

Tax deductible goodwill
323

 
375

Federal and state tax credit carryovers
395

 
358

Foreign capitalized research and development costs
36

 
85

Foreign research and development ITC credits
316

 
272

Discount of convertible notes
40

 
59

Other
291

 
275

Total deferred tax assets
3,467

 
3,041

Less: valuation allowance
(3,401
)
 
(2,978
)
 
66

 
63

Deferred tax liabilities:
 
 
 
Capitalized interest
—

 
(1
)
Acquired intangibles
(33
)
 
—

Investments
—

 
(31
)
Other
(16
)
 
(17
)
Total deferred tax liabilities
(49
)
 
(49
)
Net deferred tax assets
$
17

 
$
14



The breakdown between current and long-term deferred tax assets and deferred tax liabilities as of December 29, 2012 and December 31, 2011 is as follows:
 
December 29,
2012
 
December 31,
2011
 
(In millions)
Current deferred tax assets
$
1

 
$
1

Non-current deferred tax assets
16

 
13

Net deferred tax assets
$
17

 
$
14


Current deferred tax assets and current deferred tax liabilities are included in captions “Prepaid expenses and other current assets” and “Accrued Liabilities,” respectively, on the consolidated balance sheet. Non-current deferred tax assets and non-current deferred tax liabilities are included in captions “Other assets” and “Other long-term liabilities,” respectively, on the consolidated balance sheet.
As of December 29, 2012, substantially all of the Company’s U.S. and foreign deferred tax assets, net of deferred tax liabilities, continued to be subject to a valuation allowance. The realization of these assets is dependent on substantial future taxable income which, at December 29, 2012, in management’s estimate, is not more likely than not to be achieved. In 2012, the net valuation allowance increased by $423 million primarily for increases in deferred tax assets related to the net operating losses generated from pre-tax book losses net of the benefit relating to the SeaMicro acquisition. Purchase accounting for the SeaMicro acquisition required the establishment of a deferred tax liability related to the book tax basis differences of identifiable intangible assets that increased goodwill. The deferred tax liability created an additional source of U.S. future taxable income which resulted in a release of a portion of the Company's U.S. valuation allowance. In 2011, the net valuation allowance decreased by $245 million primarily for decreases in deferred tax assets related to the utilization of net operating losses due to pre-tax book income and a change in the book to tax basis in investments. In 2010, the net valuation allowance decreased by $56 million primarily for decreases in deferred tax assets related to the utilization of net operating losses due to pre-tax book income and the utilization of foreign research and development credits to offset prior period audit adjustments, net of an increase in U.S. deferred tax assets, primarily for foreign tax credits arising from withholding taxes.
As of December 29, 2012 and December 31, 2011, the Company had $192 million and $202 million, respectively, of deferred tax assets subject to a valuation allowance that related to excess stock option deductions, which are not presented in the deferred tax asset balances. As of December 29, 2012 and December 31, 2011, $10 million of deferred tax assets subject to valuation allowance related to a deductible discount for tax only associated with the Company’s 6.00% Convertible Senior Notes due 2015 (the 6.00% Notes). The tax benefit from these deductions will increase capital in excess of par when realized.
The following is a summary of the various tax attribute carryforwards the Company had as of December 29, 2012. The amounts presented below include amounts related to excess stock option deductions, as discussed above.
Carryforward
Federal
 
State /
Provincial
 
Expiration
 
(In millions)
 
 
US-net operating loss carryovers
$
3,907

 
$
251

 
2013 to 2032
US-credit carryovers
$
478

 
$
177

 
2018 to 2031
Canada-net operating loss carryovers
$
347

 
$
347

 
2025 to 2028
Canada-credit carryovers
$
404

 
$
24

 
2012 to 2032
Canada-R&D pools
$
135

 
$
135

 
no expiration
Barbados-net operating loss carryovers
$
299

 
N/A

 
2013 to 2017
Other foreign net operating loss carryovers
$
12

 
N/A

 
various

Utilization of $123 million of the Company’s U.S. federal net operating loss carryforwards are subject to annual limitations as a result of the SeaMicro acquisition and prior purchase transactions.

The table below displays reconciliation between statutory federal income taxes and the total provision (benefit) for income taxes.
 
Tax
 
Rate
 
(In millions except for percentages)
2012
 
 
 
Statutory federal income tax expense
$
(426
)
 
35.0
 %
State taxes, net of federal benefit
1

 
(0.1
)%
Foreign income at other than U.S. rates
(13
)
 
1.1
 %
US valuation allowance generated
406

 
(33.4
)%
Credit monetization
(2
)
 
0.2
 %
 
$
(34
)
 
2.8
 %
2011
 
 
 
Statutory federal income tax expense
$
172

 
35.0
 %
State taxes, net of federal benefit
1

 
0.2
 %
Foreign income at other than U.S. rates
(2
)
 
(0.4
)%
US valuation allowance utilized
(171
)
 
(34.8
)%
Credit monetization
(4
)
 
(0.8
)%
 
$
(4
)
 
(0.8
)%
2010
 
 
 
Statutory federal income tax expense
$
178

 
35.0
 %
State taxes, net of federal benefit
1

 
0.2
 %
Foreign income at other than U.S. rates
(24
)
 
(4.7
)%
Foreign losses not benefited
51

 
10.0
 %
US valuation allowance utilized
(164
)
 
(32.3
)%
Alternative minimum tax
(2
)
 
(0.4
)%
Credit monetization
(2
)
 
(0.4
)%
 
$
38

 
7.4
 %

The Company has made no provision for U.S. income taxes on approximately $386 million of cumulative undistributed earnings of certain foreign subsidiaries through December 29, 2012 because it is the Company’s intention to permanently reinvest such earnings. If such earnings were distributed, the Company would incur additional income taxes of approximately $137 million (after an adjustment for foreign tax credits). These additional income taxes may not result in income tax expense or a cash payment to the Internal Revenue Service, but may result in the utilization of deferred tax assets that are currently subject to a valuation allowance.
The Company's operations in Malaysia currently operate under tax holidays, which will expire in 2013. These tax holidays may be extended if specific conditions are met. The net impact of the tax holidays was to decrease the Company's net loss by $11 million in 2012, less than $.02 per share, diluted. The net impact of the tax holidays increased the Company's net income by $9 million and $7 million, in 2011 and 2010, respectively, less than $.01 per share, diluted in each year.
.
A reconciliation of the gross unrecognized tax benefits is as follows:
 
2012
 
2011
 
2010
 
(In millions)
Balance at beginning of year
$
69

 
$
42

 
$
166

Increases for tax positions taken in prior years
3

 
28

 
—

Decreases for tax positions taken in prior years
(4
)
 
(4
)
 
(8
)
Increases for tax positions taken in the current year
3

 
8

 
7

Decreases for settlements with taxing authorities
(15
)
 
(5
)
 
(119
)
Decreases for lapsing of the statute of limitations
—

 
—

 
(4
)
Balance at end of year
$
56

 
$
69

 
$
42



The amount of unrecognized tax benefits that would impact the effective tax rate was $2 million, $4 million, and $8 million as of December 29, 2012, December 31, 2011 and December 25, 2010, respectively. The Company had accrued interest related to unrecognized tax benefits of $2 million as of December 29, 2012 and December 31, 2011 and $10 million as of December 25, 2010. The Company had no accrued penalties related to unrecognized tax benefits as of December 29, 2012 and December 31, 2011 and $1 million of accrued penalties as of December 25, 2010. The Company recognizes potential accrued interest and penalties to unrecognized tax benefits as interest expense and income tax expense, respectively.
The Company had no charge related to interest expense or penalty expense in its consolidated statement of operations in 2012. The Company recorded a reduction of interest expense of $2 million and a decrease of $1 million of penalty expense in its consolidated statement of operations in 2011. The Company recorded a reduction of interest expense of $6 million and a decrease of $4 million of penalty expense in its consolidated statement of operations in 2010. During the 12 months beginning December 30, 2012, the Company does not expect to reduce its unrecognized tax benefits. The Company does not believe it is reasonably possible that other unrecognized tax benefits will materially change in the next 12 months. However, the resolutions and/or closure of open audits are highly uncertain.
As of December 25, 2010, the Canada Revenue Agency, or CRA, had completed its audit of ATI for the years 2000 through 2004 and issued its final Notice of Assessment. The CRA is currently auditing international transactions for the years 2005 through 2010. During the second quarter of 2010 the U.S. Internal Revenue Service completed its audit of the U.S. Federal income tax returns for the years ending 2004 through 2006 inclusive. As of December 31, 2011 the German tax authorities completed their audit of AMD's former German subsidiaries for the tax years 2001 through 2004. The Company was notified that the German tax authorities will begin an audit in 2013. AMD and its subsidiaries have several foreign, foreign provincial, and U.S. state audits in process at any one point in time. The Company has provided for uncertain tax positions that require a liability under the adopted method to account for uncertainty in income taxes. The Company has not recognized any current or long-term deferred tax assets under a valuation allowance as a result of the application of uncertainty in income taxes in ASC 740 for unrecognized tax benefits as of December 29, 2012.