Provision for Income Taxes

The following table presents the provision for income taxes and the effective tax rate (in thousands, except percentages):



	Three months ended						Six months ended
	July 1, 2012			July 3, 2011			July 1, 2012			July 3, 2011
Provision for income taxes	$	6,017		$	116,353		$	58,180		$	223,157
Effective tax rate	31.7		%	31.9		%	31.4		%	32.1		%

The provision for income taxes for the three and six months ended July 1, 2012 differs from the U.S. statutory tax rate primarily due to the tax impact of earnings from foreign operations, state taxes, non-deductibility of certain share-based compensation and tax-exempt interest income. The provision for income taxes for the three and six months ended July 3, 2011 differs from the U.S. statutory tax rate primarily due to the tax impact of earnings from foreign operations, state taxes, tax-exempt interest income and the benefit from federal and California R&D credits. Earnings and taxes resulting from foreign operations are largely attributable to the Company’s Irish, Chinese, Israeli and Japanese entities. As of July 1, 2012, the Company believes that most of its deferred tax assets are more likely than not to be realized, except for certain loss and credit carry forwards in the U.S. and foreign tax jurisdictions, for which the Company has provided a valuation allowance.

Unrecognized tax benefits were $183.1 million and $185.8 million as of July 1, 2012 and January 1, 2012, respectively. Unrecognized tax benefits that would impact the effective tax rate in the future were approximately $83.5 million at July 1, 2012. Income tax expense for the three and six months ended July 1, 2012 and July 3, 2011 included interest and penalties of $0.7 million, $1.5 million, $0.7 million and $1.3 million, respectively.

The Company is subject to U.S. federal income tax as well as income taxes in multiple state and foreign jurisdictions. In February 2012, the Internal Revenue Service (“IRS”) completed its field audit of the Company’s federal income tax returns for the years 2005 through 2008 and issued the Revenue Agent’s Report. The most significant proposed adjustments are comprised of related party transactions between the U.S. parent company and its foreign subsidiaries. The Company is contesting these adjustments through the IRS Appeals Office.

The Company strongly believes the IRS’s position regarding the intercompany transactions is inconsistent with applicable tax laws, judicial precedent and existing Treasury regulations, and that the Company’s previously reported income tax provisions for the years in question are appropriate. The Company believes that an adequate provision has been made for the adjustments from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner that is not consistent with management’s expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs.

In addition, the Company is currently under audit by various state and international tax authorities. The Company cannot reasonably estimate the outcome of these examinations, or provide assurance that the outcome of these examinations will not materially harm the Company’s financial position, results of operations or liquidity.