Changes in our effective tax rate or adverse outcomes resulting from examination of our income tax returns could adversely affect our results. for NetApp, Inc. (NTAP)

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NTAP » Topics » Changes in our effective tax rate or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.

These excerpts taken from the NTAP 10-K filed Jun 17, 2009.

Changes in our effective tax rate or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.

Our effective tax rate could be adversely affected by several factors, many of which are outside of our control, including:


	•	Earnings being lower than anticipated in countries where we are taxed at lower rates as compared to the U.S. statutory tax rate;

	•	Material differences between forecasted and actual tax rates as a result of a shift in the mix of pretax profits and losses by tax jurisdiction, our ability to use tax credits, or effective tax rates by tax jurisdiction that differ from our estimates;

	•	Changing tax laws or related interpretations, accounting standards, regulations, and interpretations in multiple tax jurisdictions in which we operate, as well as the requirements of certain tax rulings;

	•	An increase in expenses not deductible for tax purposes, including certain stock-based compensation expense, write-offs of acquired in-process research and development, and impairment of goodwill;

	•	The tax effects of purchase accounting for acquisitions and restructuring charges that may cause fluctuations between reporting periods;

	•	Changes related to our ability to ultimately realize future benefits attributed to our deferred tax assets, including those related to other-than-temporary impairments;

	•	Tax assessments resulting from income tax audits or any related tax interest or penalties could significantly affect our income tax expense for the period in which the settlements take place; and

	•	A change in our decision to indefinitely reinvest foreign earnings.

We receive significant tax benefits from sales to our non-U.S. customers. These benefits are contingent upon existing tax regulations in the United States and in the countries in which our international operations are located. Future changes in domestic or international tax regulations could adversely affect our ability to continue to realize these tax benefits. We have not provided for United States federal and state income taxes or foreign withholding taxes that may result on future remittances of undistributed earnings of foreign subsidiaries. The Obama administration recently announced several proposals to reform United States tax rules, including proposals that may result in a reduction or elimination of the deferral of United States income tax on our future unrepatriated earnings. Absent a restructuring of some legal entities and their functionality, some of the future unrepatriated earnings would be taxed at the United States federal income tax rate.

Additionally, the United States Court of Appeals for the Ninth Circuit on May 27, 2009 held in Xilinx Inc. v. Commissioner that stock-based compensation must be included in the research and development cost base of companies that have entered into a cost sharing arrangement and must, therefore, be allocated among the participants based on anticipated benefits. The Court’s reversal of the prior U.S. Tax Court decision will impact our estimate of tax benefits that were required to be recognized under Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109” (“FIN 48”). We are currently evaluating the impact of the Xilinx case on our provision for income taxes for the first quarter of fiscal 2010, but expect any final adjustment will be limited to a reduction of our unrecognized tax attributes.

Our international operations currently benefit from a tax ruling concluded in the Netherlands, which expires in 2010. If we are unable to negotiate a similar tax ruling upon expiration of the current ruling, our effective tax rate could increase and our operating results could be adversely affected. Our effective tax rate could also be adversely affected by different and evolving interpretations of existing law or regulations, which in turn would negatively impact our operating and financial results as a whole. Our effective tax rate could also be adversely affected if there is a change in international operations and how the operations are managed and structured. The price of our common stock could decline to the extent that our financial results are materially affected by an adverse change in our effective tax rate.

We are currently undergoing federal income tax audits in the United States and several foreign tax jurisdictions. The rights to some of our intellectual property (“IP”) are owned by certain of our foreign subsidiaries, and payments are made between U.S. and foreign tax jurisdictions relating to the use of this IP in a qualified cost sharing arrangement. In recent years, several other U.S. companies have had their foreign IP arrangements challenged as part of IRS examinations, which has resulted in material proposed assessments and/or pending litigation with respect to those companies. During fiscal 2009, we received Notices of Proposed Adjustments from the IRS in connection with federal income tax audits conducted with respect to our fiscal 2003 and 2004 tax years. If the ultimate determination of income taxes assessed under the current IRS audit or under audits being conducted in any of the other tax jurisdictions in which we operate results in an amount in excess of the tax provision we have recorded or reserved for, our operating results, cash flows and financial condition could be adversely affected.

Changes
in our effective tax rate or adverse outcomes resulting from
examination of our income tax returns could adversely affect our
results.

Our effective tax rate could be adversely affected by several
factors, many of which are outside of our control, including:


	•	Earnings being lower than anticipated in countries where we are taxed at lower rates as compared to the U.S. statutory tax rate;

	•	Material differences between forecasted and actual tax rates as a result of a shift in the mix of pretax profits and losses by tax jurisdiction, our ability to use tax credits, or effective tax rates by tax jurisdiction that differ from our estimates;

	•	Changing tax laws or related interpretations, accounting standards, regulations, and interpretations in multiple tax jurisdictions in which we operate, as well as the requirements of certain tax rulings;

	•	An increase in expenses not deductible for tax purposes, including certain stock-based compensation expense, write-offs of acquired in-process research and development, and impairment of goodwill;

	•	The tax effects of purchase accounting for acquisitions and restructuring charges that may cause fluctuations between reporting periods;

	•	Changes related to our ability to ultimately realize future benefits attributed to our deferred tax assets, including those related to other-than-temporary impairments;

	•	Tax assessments resulting from income tax audits or any related tax interest or penalties could significantly affect our income tax expense for the period in which the settlements take place; and

	•	A change in our decision to indefinitely reinvest foreign earnings.

We receive significant tax benefits from sales to our
non-U.S. customers.
These benefits are contingent upon existing tax regulations in
the United States and in the countries in which our
international operations are located. Future changes in domestic
or international tax regulations could adversely affect our
ability to continue to realize these tax benefits. We have not
provided for United States federal and state income taxes or
foreign withholding taxes that may result on future remittances
of undistributed earnings of foreign subsidiaries. The Obama
administration recently announced several proposals to reform
United States tax rules, including proposals that may result in
a reduction or elimination of the deferral of United States
income tax on our future unrepatriated earnings. Absent a
restructuring of some legal entities and their functionality,
some of the future unrepatriated earnings would be taxed at the
United States federal income tax rate.

Additionally, the United States Court of Appeals for the Ninth
Circuit on May 27, 2009 held in Xilinx Inc. v.
Commissioner that stock-based compensation must be included in
the research and development cost base of companies that have
entered into a cost sharing arrangement and must, therefore, be
allocated among the participants based on anticipated benefits.
The Court’s reversal of the prior U.S. Tax Court
decision will impact our estimate of tax benefits that were
required to be recognized under Financial Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109”
(“FIN 48”). We are currently evaluating the
impact of the Xilinx case on our provision for income taxes for
the first quarter of fiscal 2010, but expect any final
adjustment will be limited to a reduction of our unrecognized
tax attributes.

Our international operations currently benefit from a tax ruling
concluded in the Netherlands, which expires in 2010. If we are
unable to negotiate a similar tax ruling upon expiration of the
current ruling, our effective tax rate could increase and our
operating results could be adversely affected. Our effective tax
rate could also be adversely affected by different and evolving
interpretations of existing law or regulations, which in turn
would negatively impact our operating and financial results as a
whole. Our effective tax rate could also be adversely affected
if there is a change in international operations and how the
operations are managed and structured. The price of our common
stock could decline to the extent that our financial results are
materially affected by an adverse change in our effective tax
rate.

We are currently undergoing federal income tax audits in the
United States and several foreign tax jurisdictions. The rights
to some of our intellectual property (“IP”) are owned
by certain of our foreign subsidiaries, and payments are made
between U.S. and foreign tax jurisdictions relating to the
use of this IP in a qualified cost sharing arrangement. In
recent years, several other U.S. companies have had their
foreign IP arrangements challenged as part of IRS examinations,
which has resulted in material proposed assessments
and/or
pending litigation with respect to those companies. During
fiscal 2009, we received Notices of Proposed Adjustments from
the IRS in connection with federal income tax audits conducted
with respect to our fiscal 2003 and 2004 tax years. If the
ultimate determination of income taxes assessed under the
current IRS audit or under audits being conducted in any of the
other tax jurisdictions in which we operate results in an amount
in excess of the tax provision we have recorded or reserved for,
our operating results, cash flows and financial condition could
be adversely affected.

EXCERPTS ON THIS PAGE:

10-K (2 sections)	Jun 17, 2009

Network Appliance (NTAP)

NTAP » Topics » Changes in our effective tax rate or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.

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