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Income Taxes
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9 Months Ended |
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Sep. 29, 2012
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| Income Tax Disclosure [Abstract] | |
| Income Taxes |
Income Taxes
The Company did not record any income tax provision in the third quarter of 2012 and recorded an income tax provision benefit of $5 million in the third quarter of 2011. For the nine months ended September 29, 2012, the Company recorded an income tax provision benefit of $38 million. For the nine months ended October 1, 2011, the Company did not record any income tax provision. In the third quarter of 2012, the Company did not record any income tax provision due to foreign taxes in profitable locations of $2 million offset by $1 million tax benefit for the tax effects of items credited directly to other comprehensive income and $1 million of Canadian tax benefits from co-op tax credits. The $38 million income tax provision benefit recorded in the first nine months of 2012 was due to a tax benefit of $36 million relating to the SeaMicro acquisition, a $2 million tax benefit for the tax effects of items credited directly to other comprehensive income, a $1 million tax benefit for Canadian co-op tax credits, and a $9 million tax benefit associated with the successful negotiation of a tax holiday in a foreign jurisdiction net of $10 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 third quarter of 2011, the income tax provision benefit of $5 million was due to the reversal of $6 million of unrecognized tax benefits primarily due to a favorable audit resolution in a foreign jurisdiction, a $1 million U.S. tax benefit from the monetization of U.S. tax credits and a $1 million tax benefit for Canadian co-op tax credits offset by $3 million of foreign taxes in profitable locations. The Company did not record any income tax provision in the first nine months of 2011 due to foreign taxes in profitable locations of $10 million offset by the reversal of $6 million of unrecognized tax benefits, $3 million of U.S. tax benefits from the monetization of U.S. tax credits and $1 million of Canadian tax benefits from co-op tax credits.
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 September 29, 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 September 29, 2012, in management's estimate, is not more likely than not to be achieved.
The Company's gross unrecognized tax benefits increased by $3 million during the third quarter of 2012 for unrecognized tax benefits in foreign jurisdictions. The total gross unrecognized tax benefits as of September 29, 2012 were approximately $65 million. The Company has recorded $2 million of liabilities for unrecognized tax benefits as of September 29, 2012. There were no material changes to penalties or interest in the third quarter of 2012.
During the 12 months beginning September 30, 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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