SanDisk 2013 Annual Report Download - page 208

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax benefit from share-based plans was applied to capital in excess of par value in the amount of
$0.6 million, $11.7 million and $20.5 million in fiscal years 2013, 2012 and 2011, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in
thousands):
Balance at January 1, 2012 .................................................. $ 185,826
Additions:
Tax positions related to current year ...................................... 8,164
Tax positions related to prior years ....................................... 942
Reductions:
Tax positions related to prior years ....................................... (7,186)
Expiration of statute of limitations ....................................... (2,003)
Foreign currency translation adjustment ................................... (6,221)
Balance at December 30, 2012 ................................................ 179,522
Additions:
Tax positions related to current year ...................................... 8,255
Tax positions related to prior years ....................................... 15,938
Reductions:
Tax positions related to prior years ....................................... (1,737)
Expiration of statute of limitations ....................................... (7,419)
Foreign currency translation adjustment ................................... (9,309)
Balance at December 29, 2013 ................................................ $ 185,250
The total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized,
is $92.1 million at December 29, 2013. 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 unrecognized tax benefits at December 29, 2013 and December 30, 2012 was
$32.7 million and $32.2 million, respectively. Interest and penalties, net, included in the Company’s tax
expense was $2.2 million, $2.9 million and $3.2 million for fiscal years 2013, 2012 and 2011, respectively.
It is reasonably possible that the unrecognized tax benefits could decrease by approximately
$10.2 million within the next 12 months as a result of the expiration of statutes of limitation. The Company
is currently under audit by several tax authorities. Because timing of the resolution and/or closure of these
audits is highly uncertain it is not possible to estimate other changes to the amount of unrecognized tax
benefits for positions existing at December 29, 2013.
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
the Company’s U.S. parent entity 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 precedents 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.
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