SanDisk 2012 Annual Report Download - page 152

Provision for Income Taxes.
FY 2012
Percent
Change FY 2011
Percent
Change FY 2010
(In millions, except percentages)
Provision for income taxes .............. $ 209.5 (57%) $ 489.8 211% $ 157.3
Effective income tax rates ............... 33.4% 33.2% 10.8%
Our fiscal year 2012 provision for income taxes differs from the U.S. statutory tax rate primarily due to the
tax impact of earnings from foreign operations, state taxes, non-deductibility of certain share-based
compensation and tax-exempt interest income. Earnings and taxes resulting from foreign operations are largely
attributable to our Irish, Chinese, Israeli and Japanese entities.
Our fiscal year 2011 provision for income taxes differs from the U.S. statutory tax rate primarily due to the
tax impact of earnings from foreign operations, state taxes, tax-exempt interest income and benefit from federal
and California research and development credits. Earnings and taxes resulting from foreign operations are largely
attributable to our Irish, Chinese, Israeli and Japanese entities.
Our fiscal year 2010 provision for income taxes was primarily related to income taxes on our U.S. and
foreign operations, partially offset by the release of valuation allowances that were previously recorded against
our U.S. federal and state deferred tax assets and favorable adjustments to uncertain tax positions related to
specific tax jurisdictions.
We are subject to U.S. federal income tax as well as income taxes in multiple state and foreign jurisdictions.
In February 2012, the IRS completed its field audit of our 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. We are contesting these
adjustments through the IRS Appeals Office and cannot predict when a resolution will be reached.
We strongly believe that the IRS’s position regarding the intercompany transactions is inconsistent with
applicable tax laws, judicial precedent and existing Treasury regulations, and that our previously reported income
tax provisions for the years in question are appropriate. We believe 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 our tax audits are resolved in a manner that is not consistent with our expectations, we
could be required to adjust our provision for income tax in the period such resolution occurs.
The IRS recently initiated an examination of our federal income tax returns for fiscal years 2009 through
2011. We do not expect a resolution of this audit to be reached during the next twelve months. In addition, we are
currently under audit by various state and international tax authorities. While we believe that we have 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 our financial position, results of operations or liquidity.
The American Taxpayer Relief Act of 2012 enacted on January 2, 2013 retroactively extended the federal
research and development tax credit and exemption of certain intercompany transactions from federal taxation
through December 31, 2013. As a result, we expect that our income tax provision for the first quarter of fiscal
year 2013 will include a discrete tax benefit which will reduce our effective tax rate for the first quarter of fiscal
year 2013 and to a lesser extent our effective annual fiscal year 2013 tax rate. The financial statement benefit
related to the retroactive 2012 federal research and development tax credit is expected to be approximately $8
million.
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