Western Digital 2010 Annual Report Download - page 79

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the year ended July 2,
2010 (in millions):
Unrecognized tax benefit at July 3, 2009......................................... $136
Gross increases related to prior year tax positions ................................... —
Gross decreases related to prior year tax positions ................................... (3)
Gross increases related to current year tax positions ................................. 98
Settlements/lapse of statute of limitations ........................................ (1)
Unrecognized tax benefit at July 2, 2010......................................... $230
The entire balance of unrecognized tax benefits at July 2, 2010, if recognized, would affect the effective tax rate.
The Company files U.S. Federal, U.S. state, and foreign tax returns. For both federal and state tax returns, with few
exceptions, the Company is subject to examination for fiscal years 2006 through 2009. In foreign jurisdictions, with few
exceptions, the Company is subject to examination for all years subsequent to fiscal 2005. The Company is no longer
subject to examination by the Internal Revenue Service (“IRS”) for periods prior to 2006, although carry forwards
generated prior to those periods may still be adjusted upon examination by the IRS or state taxing authority if they either
have been or will be used in a subsequent period.
The IRS is currently examining fiscal years 2006 and 2007 for the Company and calendar years 2005 and 2006 for
Komag. In the year ended July 2, 2010, the local tax authorities completed, with no material adjustment, their
examination of the Company’s French subsidiary for fiscal years 2003 through 2005.
Due to the risk that audit outcomes and the timing of audit settlements are subject to significant uncertainty, the
Company’s current estimate of the total amounts of unrecognized tax benefits could increase or decrease for all open tax
years. As of July 2, 2010, it is not possible to estimate the amount of change, if any, in the unrecognized tax benefits that
is reasonably possible within the next twelve months. Any significant change in the amount of the Company’s
unrecognized tax benefits would most likely result from additional information or settlements relating to the
examination of the Company’s uncertain tax positions.
Note 10. Fair Value Measurements
Financial assets and liabilities that are remeasured and reported at fair value at each reporting period are classified
and disclosed in one of the following three levels:
Level 1. Quoted prices in active markets for identical assets or liabilities.
Level 2. Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3. Inputs that are unobservable for the asset or liability and that are significant to the fair value of the assets
or liabilities.
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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)