SanDisk 2012 Annual Report Download - page 202

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 SanDisk Corporation and
its foreign subsidiaries. The Company is contesting these adjustments through the IRS Appeals Office and cannot
predict when a resolution will be reached.
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.
The IRS recently initiated an examination of the Company’s federal income tax returns for fiscal years 2009
through 2011. The Company does not expect a resolution of this audit to be reached during the next twelve
months. In addition, the Company is currently under audit by various state and international tax authorities.
While the Company believes that it has an adequate provision for the years under audit, there is still a possibility
that an adverse outcome from these matters could have a material effect on its financial position, results of
operations or liquidity.
The aggregate dollar and per share effects of tax holidays available to the Company for fiscal years 2012,
2011 and 2010 were immaterial to its financial results.
Note 12: Net Income per Share
The following table sets forth the computation of basic and diluted net income per share (in thousands,
except per share amounts):
Fiscal years ended
December 30,
2012
January 1,
2012
January 2,
2011
Numerator for basic net income per share:
Net income ................................................... $ 417,404 $ 986,990 $ 1,300,142
Denominator for basic net income per share:
Weighted average common shares outstanding ....................... 242,076 239,484 232,531
Basic net income per share ................................... $ 1.72 $ 4.12 $ 5.59
Numerator for diluted net income per share:
Net income ................................................... $ 417,404 $ 986,990 $ 1,300,142
Interest on the 1% Convertible Notes due 2035, net of tax ..............——98
Net income for diluted net income per share ..................... $ 417,404 $ 986,990 $ 1,300,240
Denominator for diluted net income per share:
Weighted average common shares outstanding ....................... 242,076 239,484 232,531
Incremental common shares attributable to exercise of outstanding
employee stock options, SARs and ESPP (assuming proceeds would be
used to purchase common stock), and RSUs ....................... 3,177 5,069 5,977
Effect of dilutive 1% Convertible Notes due 2035 .................... — — 393
Shares used in computing diluted net income per share ............ 245,253 244,553 238,901
Diluted net income per share ............................. $ 1.70 $ 4.04 $ 5.44
Anti-dilutive shares excluded from net income per share calculation .......... 70,309 68,079 75,079
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