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Income Taxes (Notes)
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9 Months Ended |
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Sep. 28, 2013
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| Income Tax Disclosure [Abstract] | |
| Income Taxes |
Income Taxes
The Company recorded an income tax provision of $3 million in the third quarter of 2013 and did not record any income tax provision in the third quarter of 2012. For the nine months ended September 28, 2013, the Company recorded an income tax provision of $8 million. For the nine months ended September 29, 2012, the Company recorded an income tax benefit of $38 million.
In the third quarter of 2013, the income tax provision of $3 million was due to $2 million of foreign taxes in profitable locations and $1 million related to the reversal of previously recognized tax benefits associated with other comprehensive income. The $8 million income tax provision recorded in the nine months ended September 28, 2013 was due to $7 million of foreign taxes in profitable locations and $3 million related to the reversal of previously recognized tax benefits associated with other comprehensive income offset by $2 million of tax benefits for Canadian co-op credits and monetization of U.S. tax credits.
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 benefit recorded in the nine months ended September 29, 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.
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. This resulted in a discrete income tax benefit of approximately $36 million in the first quarter of 2012.
As of September 28, 2013, 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 28, 2013, in management's estimate, is not more likely than not to be achieved.
The Company's unrecognized tax benefits increased by $2 million during the third quarter of 2013 for unrecognized tax benefits in foreign jurisdictions. The total gross unrecognized tax benefits as of September 28, 2013 were approximately $56 million. The Company has recognized $3 million of liabilities for unrecognized tax benefits as of September 28, 2013. There were no material changes to accrued interest or penalties in the third quarter of 2013.
During the twelve months beginning September 28, 2013, 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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