SanDisk 2011 Annual Report Download - page 161

This is a TAB type table. Insert
conts here. Annual Report
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 conditions. During fiscal year 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 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 in fiscal year 2010.
The Company has federal and state net operating loss carryforwards of $62.9 million and $183.9 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 $19.1 million. California research credit can be carried forward to
future years indefinitely. Some of these carryforwards are subject to annual limitations, including under
Section 382 and Section 383 of the U.S. 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 $361.8 million of cumulative unremitted earnings of certain foreign subsidiaries as of
January 1, 2012, since the Company intends to indefinitely reinvest these earnings outside the U.S. The Company
determined that the calculation of the amount of unrecognized deferred tax liability related to these cumulative
unremitted earnings was not practicable. If these earnings were distributed to the Company’s U.S. entity, the
Company would be subject to additional U.S. income taxes and foreign withholding taxes would be reduced by
available foreign tax credits.
The tax benefit associated with the exercise of stock options was applied to capital in excess of par value in
the amount of $20.5 million, $26.8 million and zero in fiscal years 2011, 2010 and 2009, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
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
Additions:
Tax positions related to current year .................................................... 10,090
Tax positions related to prior years ..................................................... 4,489
Reductions:
Tax positions related to prior years ..................................................... (296)
Expiration of statute of limitations ..................................................... (517)
Balance at January 1, 2012 ................................................................... $ 185,826
The total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, is
$81.1 million at January 1, 2012. The Company recognizes interest and penalties related to unrecognized tax
benefits in income tax expense. Accrued interest and penalties included in the Company’s liability related to
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