SanDisk 2007 Annual Report Download - page 126

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accounted for as a reduction to the January 1, 2007 balance of retained earnings. A reconciliation of the beginning
and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance at January 1, 2007 ................................................ $38,629
Additions based on tax positions related to current year ......................... 30,983
Additions for tax positions of prior years.................................... 3,051
Reductions for tax positions of prior years................................... (2,161)
Reductions due to expiration of statute of limitations ........................... (308)
Balance at December 30, 2007 ............................................. $70,194
The total amount of unrecognized tax positions that would impact the effective tax rate is approximately
$54 million at December 30, 2007. The Company recognizes interest and penalties related to unrecognized tax
benefits in income tax expense. The liability related to unrecognized tax benefits included accrued interest and
penalties of approximately $10 million and $5 million at December 30, 2007 and December 31, 2006, respectively.
Tax expense for the years ended December 30, 2007 and January 1, 2006 included approximately $3 million of
interest expense in each year. Tax expense for the year ended December 31, 2006 included approximately $2 million
of interest expense offset by interest benefit of approximately $3 million related to unrecognized tax benefits
previously recognized resulting in a net benefit of approximately $1 million.
It is reasonably possible that the unrecognized tax benefits could decrease by approximately $4 million within
the next 12 months as a result of the expiration of statutes of limitation. The Company is currently under audit by
several tax authorities. Because timing of the resolution and/or closure of these audits is highly uncertain it is not
possible to estimate other changes to the amount of unrecognized tax benefits for positions existing at December 30,
2007.
The Company is subject to United States federal income tax as well as income taxes in many state and foreign
jurisdictions. The federal statute of limitations on assessment remains open for the tax years 2004 through 2006, and
the statutes of limitation in state jurisdictions remain open in general from tax years 2002 through 2006. The major
foreign jurisdictions remain open for examination in general for tax years 2001 through 2006.
The tax benefit associated with the exercise of stock options was credited to capital in excess of par value in the
amount of $18.4 million, $61.5 million and $95.6 million in fiscal years 2007, 2006 and 2005, respectively. In fiscal
years 2007 and 2006, the tax benefit associated with the exercise of stock options credited to goodwill was
$0.6 million and $4.6 million, respectively.
F-30
Notes to Consolidated Financial Statements — (Continued)