Western Digital 2014 Annual Report Download - page 90

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the years ended
June 27, 2014, June 28, 2013 and June 29, 2012 (in millions):
2014 2013 2012
Unrecognized tax benefit at beginning of period .................................. $240 $280 $245
Gross increases related to current year tax positions ............................... 27 29 14
Gross increases related to prior year tax positions ................................. 26 10 —
Gross decreases related to prior year tax positions ................................. (5) (8) —
Settlements .............................................................. — (64) (18)
Lapse of statute of limitations ................................................ — (7) —
Acquisitions ............................................................. 12 — 39
Unrecognized tax benefit at end of period ....................................... $300 $240 $280
The Company’s unrecognized tax benefits are primarily included within long-term liabilities in the Company’s
consolidated balance sheets. The entire balance of unrecognized tax benefits at June 27, 2014, June 28, 2013 and
June 29, 2012, 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 2008 through 2013. In foreign jurisdictions,
with few exceptions, the Company is subject to examination for all years subsequent to fiscal 2007. The Company is
no longer subject to examination by the IRS for periods prior to 2008, 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 previously completed its field examination of the Company’s federal income tax returns for fiscal years
2006 and 2007 and issued Revenue Agent Reports that proposed adjustments to income before income taxes of
approximately $970 million primarily related to transfer pricing and intercompany payable balances. The Company
disagreed with the proposed adjustments and filed a protest with the IRS Appeals Office. In June 2013, the Company
reached an agreement with the IRS to resolve the transfer pricing issue. This agreement resulted in a decrease in the
amount of net operating loss and tax credits realized, but did not have an impact to the Company’s consolidated
statements of income. The proposed adjustment relating to intercompany payable balances for fiscal years 2006 and
2007 will be addressed in conjunction with the IRS’s examination of the Company’s fiscal years 2008 and 2009,
which commenced in January 2012. In addition, in January 2012, the IRS commenced an examination of the 2007
fiscal period ended September 5, 2007 of Komag. In February 2013, the IRS commenced an examination of calendar
years 2010 and 2011 of HGST, which was acquired by the Company on March 8, 2012.
The Company believes that adequate provision has been made for any adjustments that may result 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 not consistent with management’s expectations, the Company could be
required to adjust its provision for income taxes in the period such resolution occurs. As of June 27, 2014, 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 liability for unrecognized tax bene-
fits would most likely result from additional information or settlements relating to the examination of the Company’s
tax returns.
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