SanDisk 2014 Annual Report Download - page 183

SANDISK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
return reporting purposes. Significant components of the Company’s net deferred tax assets were as
follows (in thousands):
December 28, December 29,
2014 2013
Deferred tax assets:
Deferred income on shipments to distributors and retailers and deferred
revenue recognized for tax purposes ........................... $ 65,002 $ 68,117
Accruals and reserves not currently deductible ........................ 98,342 63,236
Depreciation and amortization not currently deductible .................. 96,735 81,245
Deductible share-based compensation .............................. 32,679 28,684
Unrealized loss on investments .................................. 10,045 13,620
Unrealized foreign exchange loss ................................. 10,357 8,061
Net operating loss carryforwards ................................. 196,809 36,422
Tax credit carryforwards ....................................... 61,134 37,905
Other ................................................... 22,100 24,667
Gross deferred tax assets ................................... 593,203 361,957
Valuation allowance ............................................. (96,128) (52,105)
Deferred tax assets, net of valuation allowance ....................... 497,075 309,852
Deferred tax liabilities:
Acquired intangible assets ...................................... (146,955) (2,701)
Unrealized gain on investments .................................. (2,007) (5,939)
Unrealized foreign exchange gain ................................ — (3,127)
U.S. taxes provided on unremitted earnings of foreign subsidiaries .......... (28,844) (28,844)
Total deferred tax liabilities ................................. (177,806) (40,611)
Net deferred tax assets ................................. $ 319,269 $ 269,241
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 years 2014, 2013 and 2012, 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.
The Company has federal and state net operating loss carryforwards of $513.2 million and
$453.7 million, respectively. The net operating losses will begin to expire in fiscal year 2015 if not utilized.
The Company also has Federal and California research credit carryforwards of $13.1 million and
$77.3 million, respectively. Federal research credits can be carried forward 20 years, while California
research credits 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.
As of December 28, 2014, the Company had not made a provision for U.S. income taxes or foreign
withholding taxes on $969.1 million of undistributed earnings of foreign subsidiaries as the Company
intends to indefinitely reinvest these earnings outside the U.S. to fund its international capital expenditures
and operating requirements. The Company determined that it is not practicable to calculate the amount of
unrecognized deferred tax liability related to these cumulative unremitted earnings. If these earnings were
distributed to the U.S., the Company would be subject to additional U.S. income taxes and foreign
withholding taxes reduced by any available foreign tax credits.
F-43
Annual Report