Crucial 2015 Annual Report Download - page 35

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Income Taxes
Our effective tax rates were 6.0%, 4.7%, and 0.6% for 2015, 2014, and 2013, respectively. Our effective tax rates reflect
the following:
• operations in tax jurisdictions, including Singapore and Taiwan, where our earnings are indefinitely reinvested and the
effective tax rates in these jurisdictions are significantly lower than the U.S. statutory rate;
• operations outside the U.S., including Singapore and, to a lesser extent Taiwan, where we have tax incentive
arrangements that decrease our effective tax rates; and
• a valuation allowance against substantially all of our U.S. net deferred tax assets.
Income taxes for 2015 and 2014 included $80 million and $59 million, respectively, related to changes in amounts of net
deferred tax assets associated with the MMJ Group. Income taxes for 2013 included benefits of $19 million from the favorable
resolution of prior year tax matters and a change in tax laws applicable to prior years. The remaining tax provision for 2015,
2014, and 2013 primarily reflects taxes on our other non-U.S. operations. Income taxes on U.S. operations for 2015, 2014, and
2013 were substantially offset by changes in the valuation allowance.
We have a full valuation allowance for our net deferred tax asset associated with our U.S. operations. Management
continues to evaluate future projected financial performance to determine whether such performance is sufficient evidence to
support a reduction in or reversal of the valuation allowances. The amount of the deferred tax asset considered realizable could
be adjusted if significant positive evidence increases.
We operate in a number of locations outside the U.S., including Singapore and, to a lesser extent, Taiwan, where we have
tax incentive agreements that are conditional upon meeting certain business operations and employment thresholds. The effect
of tax incentive arrangements, which expire in whole or in part at various dates through 2030, reduced our tax provision for
2015, 2014, and 2013 by $338 million (benefitting our diluted earnings per share by $0.29), $286 million ($0.24 per diluted
share), and $141 million ($0.13 per diluted share), respectively.
(See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Income
Taxes.")
Equity in Net Income (Loss) of Equity Method Investees
We recognize our share of earnings or losses from equity method investments, generally on a two-month lag. Equity in net
income (loss) of equity method investees, net of tax, included the following:
For the year ended 2015 2014 2013
Inotera $ 445 $ 465 $ (79)
Tera Probe 1 11 —
Other 1 (2)(4)
$ 447 $ 474 $ (83)
Our share of earnings for 2015 included $49 million for the net effect of Inotera's full release of its valuation allowance
against net deferred tax assets related to its net operating loss carryforward and the resulting tax provision in subsequent
periods. As a result of the release, Inotera's future net income is subject to tax provisions. Our equity in net income of Inotera
declined for 2015 as compared to 2014 due to a decrease in Inotera's operating results as a result of declines in average selling
prices.
Since January 2013, we have purchased all of Inotera's DRAM output at prices reflecting a discount from market prices for
our comparable components under a supply agreement. In the second quarter of 2015, we executed the 2016 Supply
Agreement, to be effective beginning on January 1, 2016, which will replace the current agreement. Under the 2016 Supply
Agreement, the price for DRAM products sold to us will be based on a formula that equally shares margin between Inotera and
us. In 2015 and in 2014, our cost of products purchased from Inotera was significantly higher than our cost of similar products
manufactured in our wholly-owned facilities, due to the pricing formula of the current agreement and strong market conditions.
Under the market conditions prevailing in the fourth quarter of 2015, costs of products purchased under the current agreement
were higher than they would have been under the pricing formula of the 2016 Supply Agreement.