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Income Taxes
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6 Months Ended |
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Jun. 30, 2012
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| Income Tax Disclosure [Abstract] | |
| Income Taxes |
Income Taxes
The Company recorded an income tax provision benefit of $6 million in the second quarter of 2012 and an income tax provision of $3 million in the second quarter of 2011. For the six months ended June 30, 2012, the Company recorded an income tax provision benefit of $38 million. For the six months ended July 2, 2011, the Company recorded an income tax provision of $5 million.
In the second quarter of 2012, the income tax provision benefit of $6 million was due to $9 million of tax benefit associated with the successful negotiation of a tax holiday in a foreign jurisdiction net of $3 million of foreign taxes in profitable locations. The $38 million income tax provision benefit recorded in the first six months of 2012 was due a tax benefit of $36 million relating to the SeaMicro acquisition, a $1 million tax benefit for the tax effects of items credited directly to other comprehensive income, a $9 million tax benefit associated with the successful negotiation of a tax holiday in a foreign jurisdiction net of $8 million of foreign taxes in profitable locations. The tax impact of the transfer of the Company's remaining shares of capital stock in GF during the first quarter of 2012 was not material due to the existence of the U.S. valuation allowance.
In the second quarter of 2011, the income tax provision of $3 million was primarily due to foreign taxes in profitable locations. The income tax provision of $5 million recorded in the first six months of 2011 was primarily due to foreign taxes in profitable locations of $7 million offset by $2 million of U.S. tax benefits from the monetization of U.S. tax credits. The tax impact of the non-cash gain related to the dilution of the Company's equity interest in GF during the first quarter of 2011 was not material due to the existence of the U.S. valuation allowance.
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 against which the Company was able to release a portion of its U.S. valuation allowance which provided for a discrete income tax provision benefit of approximately $36 million in the first quarter of 2012.
As of June 30, 2012, substantially all of the Company's U.S. and Canadian deferred tax assets, net of deferred tax liabilities, continue to be subject to a valuation allowance. The realization of these assets is dependent on substantial future taxable income which at June 30, 2012, in management's estimate, is not more likely than not to be achieved.
The Company's gross unrecognized tax benefits decreased by $4 million during the second quarter of 2012 for unrecognized tax benefits in foreign jurisdictions. The total gross unrecognized tax benefits as of June 30, 2012 were approximately $62 million. The Company has recognized $2 million of liabilities for unrecognized tax benefits as of June 30, 2012. The net impact on the tax provision for the net decrease in gross unrecognized tax benefits in the second quarter of 2012 was a tax provision benefit of $4 million. There were no material changes to penalties or interest in the second quarter of 2012.
During the 12 months beginning July 1, 2012, the Company believes that it is reasonably possible that there will be no material changes in its unrecognized tax benefits. However, the resolution and/or closure of open audits are highly uncertain.
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