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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Effective Tax Rate
Reconciliation of the U.S. Federal statutory rate to the Company’s effective tax rate is as follows for the three
years ended July 3, 2015:
2015 2014 2013
U.S. Federal statutory rate ............................................. 35% 35% 35%
Tax rate differential on international income ............................... (29) (28) (19)
Tax effect of U.S. permanent differences .................................. 1 2 —
State income tax, net of federal tax ....................................... — — 8
Income tax credits ................................................... (2) (1) (4)
Other ............................................................. 2 — —
Effective tax rate .................................................... 7% 8% 20%
Tax Holidays and Carryforwards
A substantial portion of the Company’s manufacturing operations in Malaysia, the Philippines, Singapore and
Thailand operate under various tax holidays and tax incentive programs which will expire in whole or in part at vari-
ous dates from 2016 through 2025. Certain of the holidays may be extended if specific conditions are met. The net
impact of these tax holidays and tax incentives was to increase the Company’s net earnings by $641 million ($2.70 per
diluted share), $905 million ($3.74 per diluted share), and $899 million ($3.65 per diluted share) in 2015, 2014 and
2013, respectively.
As of July 3, 2015, the Company had federal and state NOL carryforwards of $515 million and $422 million,
respectively. In addition, as of July 3, 2015, the Company had various federal and state tax credit carryforwards of
$417 million combined. The NOL carryforwards available to offset future federal and state taxable income expire at
various dates from 2021 to 2035 and 2020 to 2035, respectively. Approximately $100 million of the credit carryfor-
wards available to offset future taxable income expire at various dates from 2017 to 2035. The remaining amount is
available indefinitely. NOLs and credits relating to Komag, Incorporated (“Komag”), HGST, sTec, Virident and
Amplidata are subject to limitations under Sections 382 and 383 of the Internal Revenue Code. The Company does
not expect these limitations to result in a reduction in the total amount of Komag, sTec, Virident or Amplidata’s
NOLs and credits ultimately realized. The Company expects the total amount of HGST’s NOLs and credits ultimately
realized will be reduced by $39 million and $25 million, respectively.
Uncertain Tax Positions
With the exception of certain unrecognized tax benefits that are directly associated with the tax position taken,
unrecognized tax benefits are presented gross in the Company’s balance sheet. Interest and penalties related to
unrecognized tax benefits are recognized in liabilities recorded for uncertain tax positions and are recorded in the
provision for income taxes. As of July 3, 2015, such interest and penalties were not material. As of July 3, 2015, the
Company had $350 million of unrecognized tax benefits.
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