Seagate 2011 Annual Report Download - page 93

Table of Contents
SEAGATE TECHNOLOGY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes the activity related to the Company's gross unrecognized tax benefits:
It is the Company's policy to include interest and penalties related to unrecognized tax benefits in the provision for taxes on the
Consolidated Statements of Operations. During fiscal year 2012, the Company recognized a net tax expense for interest and penalties of
$2 million as compared to a net tax expense for interest and penalties of less than $1 million and a net tax benefit of $1 million during fiscal year
2011 and fiscal year 2010, respectively. As of June 29, 2012, the Company had $17 million of accrued interest and penalties related to
unrecognized tax benefits compared to $15 million in fiscal year 2011.
During the 12 months beginning June 30, 2012, the Company expects to reduce its unrecognized tax benefits by approximately $5 million
as a result of the expiration of certain statutes of limitation. The Company does not believe it is reasonably possible that other unrecognized tax
benefits will materially change in the next 12 months.
The Company is subject to taxation in many jurisdictions globally and is required to file U.S. federal, U.S. state and non-U.S. income tax
returns. In May 2011, the U.S. Internal Revenue Service (IRS) completed its field examination of the Company's U.S. federal income tax returns
for fiscal years ending in 2005 through 2007. The IRS issued a Revenue Agent's Report and proposed certain adjustments. The Company is
currently contesting one of these proposed adjustments through the IRS Appeals Office. The Company believes that the resolution of this
disputed issue will have no material impact on its financial statements.
With respect to U.S. state and non-
U.S. income tax returns, the Company is generally no longer subject to tax examinations for years ending
prior to fiscal year 2004. The Company is also no longer subject to tax examination of U.S. federal income tax returns for years prior to fiscal
year 2005.
8. Derivative Financial Instruments
The Company is exposed to foreign currency exchange rate, interest rate, and to a lesser extent, equity price risks relating to its ongoing
business operations. The Company enters into foreign currency forward exchange contracts in order to manage the foreign currency exchange
rate risk on forecasted expenses denominated in foreign currencies and to mitigate the remeasurement risk of certain foreign currency
denominated liabilities. The Company's accounting policies for these instruments are based on whether the instruments are classified as
designated or non-designated hedging instruments. The Company records all derivatives in the Consolidated Balance Sheets at fair value. The
effective portions of designated cash flow
87
Fiscal Years Ended
(Dollars in millions)
June 29,
2012
July 1,
2011
July 2,
2010
Balance of unrecognized tax benefits at the
beginning of the year
$
128
$
115
$
118
Gross increase for tax positions of prior years
1
30
2
Gross decrease for tax positions of prior years
(3
)
(24
)
(5
)
Gross increase for tax positions of current year
13
13
6
Gross decrease for tax positions of current year
—
—
—
Settlements
—
—
(
4
)
Lapse of statutes of limitation
(3
)
(10
)
(3
)
Non
-
U.S. exchange (gain)/loss
(1
)
4
1
Balance of unrecognized tax benefits at the end of
the year
$
135
$
128
$
115