SanDisk 2010 Annual Report Download - page 222

Notes To Consolidated Financial Statements
The Company assesses its valuation allowance recorded against deferred tax assets on a regular and periodic
basis. The assessment of valuation allowance against deferred tax assets requires estimations and significant
judgment. The Company continues to assess and adjust its valuation allowance based on operating results and
market evolvements. During fiscal year 2010, based on weighing both the positive and negative evidence
available, including but not limited to, earnings history, projected future outcomes, industry and market trends
and the nature of each of the deferred tax assets, the Company determined that it is able to realize most of the
U.S. federal and state deferred tax assets with the exception of certain net operating losses. As a result, the
Company released $306.0 million of valuation allowance related to federal and state deferred tax assets, with the
remaining valuation allowance primarily related to certain U.S. and foreign loss carry forwards that the Company
believes are not more likely than not to be realized.
The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the Act) enacted
December 17, 2010 retroactively extended the research and development tax credit through December 2011. As a
result, the Company recognized a benefit related to federal research credit of $10.0 million in its fiscal year 2010
income tax provision. The Act has also extended the exemption of certain intercompany transactions from federal
taxation through 2011, for which a tax benefit has been reflected in the fiscal year 2010 income tax provision.
The Company has federal, state and foreign net operating loss carryforwards of $47.3 million,
$116.0 million and $5.4 million, respectively. The net operating losses will begin to expire in fiscal year 2014 if
not utilized. The Company also has California research credit carryforwards of $13.1 million. California R&D
credit can be carried forward to future years indefinitely. Some of these carryforwards are subject to annual
limitations, including Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended, for U.S.
tax purposes and similar state provisions.
The Company provides for U.S. income taxes on the earnings of foreign subsidiaries unless the earnings are
considered indefinitely invested outside of the U.S. No provision has been made for U.S. income taxes or foreign
withholding taxes on $195.4 million of cumulative unremitted earnings of certain foreign subsidiaries as of
January 2, 2011, since the Company intends to indefinitely reinvest these earnings outside the U.S. If these
earnings were distributed to the U.S., the Company would be subject to additional U.S. income taxes and foreign
withholding taxes reduced by available foreign tax credits.
The tax benefit (charge) associated with the exercise of stock options was applied to capital in excess of par
value in the amount of $26.8 million, zero and ($3.9) million in fiscal years 2010, 2009 and 2008, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance at December 28, 2008 ........................................................ $ 124,437
Additions:
Tax positions related to current year ........................................... 29,263
Tax positions related to prior years ............................................ 26,064
Balance at January 3, 2010 ........................................................... $ 179,764
Additions:
Tax positions related to current year ........................................... 10,547
Tax positions related to prior years ............................................ 14,584
Reductions:
Tax positions related to prior years ............................................ (28,597)
Expiration of statute of limitations ............................................. (4,238)
Balance at January 2, 2011 ........................................................... $ 172,060
The total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, is
$70.1 million at January 2, 2011. The Company recognizes interest and penalties related to unrecognized tax
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