SanDisk 2012 Annual Report Download - page 200

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s provision for income taxes differs from the amount computed by applying the federal
statutory rates to income before taxes as follows:
Fiscal years ended
December 30,
2012
January 1,
2012
January 2,
2011
U.S. federal statutory rate ............................................ 35.0% 35.0% 35.0%
State taxes, net of federal benefit ...................................... (0.3) 0.5 (0.6)
Non-deductible share-based compensation expense ....................... 1.3 0.4 0.2
Valuation allowance ................................................ 0.2 0.4 (17.4)
Tax-exempt interest income .......................................... (1.9) (0.9) (0.7)
Foreign earnings at other than U.S. rates ................................ (1.2) (1.8) (5.1)
Other ............................................................ 0.3 (0.4) (0.6)
Effective income tax rates ....................................... 33.4% 33.2% 10.8%
The Company’s earnings and taxes resulting from foreign operations are largely attributable to its Irish,
Chinese, Israeli and Japanese entities.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax return reporting
purposes. Significant components of the Company’s net deferred tax assets were as follows (in thousands):
December 30,
2012
January 1,
2012
Deferred tax assets:
Deferred income on shipments to distributors and retailers and deferred revenue
recognized for tax purposes ................................................ $ 46,679 $ 32,833
Accruals and reserves not currently deductible ................................... 51,636 62,812
Depreciation and amortization not currently deductible ............................ 54,474 59,464
Deductible share-based compensation .......................................... 61,014 62,864
Unrealized loss on investments ............................................... 9,879 9,620
Unrealized foreign exchange loss .............................................. 45,122 78,360
Net operating loss carryforwards .............................................. 40,092 33,871
Tax credit carryforward ..................................................... 25,187 16,939
Other .................................................................... 22,218 26,747
Gross deferred tax assets ................................................ 356,301 383,510
Valuation allowance ............................................................ (37,259) (25,614)
Deferred tax assets, net of valuation allowance ....................................... 319,042 357,896
Deferred tax liabilities:
Acquired intangible assets ................................................... (3,820) (1,864)
Unrealized gain on investments ............................................... (9,324) (6,201)
Unrealized foreign exchange gain ............................................. (43,327) (66,006)
U.S. taxes provided on unremitted earnings of foreign subsidiaries ................... (28,844) (28,844)
Total deferred tax liabilities ...................................................... (85,315) (102,915)
Net deferred tax assets .......................................................... $ 233,727 $ 254,981
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 conditions. During fiscal years 2012 and 2011, 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
its deferred tax assets with the exception of certain loss and credit carryforwards. During fiscal year 2010, the
Company determined that it was able to realize most of the U.S. federal and state deferred tax assets with the
F-36