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These excerpts taken from the WDC 10-K filed Aug 20, 2008. Adoption
of FIN 48
Effective as of June 30, 2007, the Company adopted the
provisions of FIN 48. FIN 48 contains a two-step
approach to recognizing and measuring uncertain tax positions
accounted for in accordance with SFAS No. 109,
“Accounting for
Table of Contents
WESTERN
DIGITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Income Taxes.” First, the tax position is evaluated for
recognition by determining if it is more likely than not that
the position will be sustained on audit, including resolution of
related appeals or litigation processes, if any. If the tax
position is deemed “more-likely-than-not” to be
sustained, the tax position is then assessed to determine the
amount of benefit to be recognized in the financial statements.
The amount of the benefit that may be recognized is the largest
amount that has a greater than 50% likelihood of being realized
upon ultimate settlement.
The adoption of FIN 48 at the beginning of fiscal year 2008
did not result in an adjustment for unrecognized tax benefits.
The total amount of gross unrecognized tax benefits as of the
date of adoption was $58 million which had previously been
presented as a reduction to deferred tax assets of
$47 million and an inclusion in other long term liabilities
of $11 million as of June 29, 2007. With the exception
of certain unrecognized tax benefits that are directly
associated with the tax position taken, unrecognized tax
benefits are now presented gross in the Company’s balance
sheet. Interest and penalties related to unrecognized tax
benefits are recognized on liabilities recorded for uncertain
tax positions and are recorded in the provision for income
taxes. As of the date of adoption of FIN 48, and at
June 27, 2008, such interest and penalties were not
material.
As of June 27, 2008 the Company had approximately
$107 million of unrecognized tax benefits, which included
$32 million of unrecognized tax benefits related to Komag.
The following is a tabular reconciliation of the total amounts
of unrecognized tax benefits for the year:
Gross increases related to prior year tax positions includes
$32 million recorded in purchase accounting for the Komag
acquisition.
Included in the balance of unrecognized tax benefits at
June 27, 2008 are $75 million of tax benefits that, if
recognized, would affect the effective tax rate.
The Company files U.S. federal, U.S. state, and
foreign tax returns. For federal tax returns, the Company is
subject to examination for fiscal years 2004 through 2008. For
state returns, with few exceptions, the Company is subject to
tax examinations for 2003 through 2008. In foreign
jurisdictions, with few exceptions, the Company is subject to
examination for all years subsequent to fiscal 2000. The Company
is no longer subject to examination by the Internal Revenue
Service (“IRS”) for periods prior to 2004 and by the
state taxing authorities for periods prior to 2003, 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 future period.
The IRS is scheduled to commence an examination of the fiscal
years ended 2006 and 2007 for the Company and calendar years
2005 and 2006 for Komag in August 2008. Additionally, the
Company’s French subsidiary is under examination by the
local tax authorities 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 June 27, 2008, 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 Company’s tax examination of uncertain tax positions.
Table of Contents
WESTERN
DIGITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As of June 27, 2008, the Company had investments of
$3 million in U.S. government securities and
$28 million in auction-rate securities primarily backed by
insurance products. The auction-rate securities are expected to
be held until secondary markets become available and as a result
have been reclassified to long-term investments as of
June 27, 2008. These investments are currently accounted
for as available-for-sale securities and recorded at fair value
within other non-current assets in the consolidated balance
sheet. The estimated fair values of these investments are
subject to fluctuation. Unrealized holding gains and losses are
generally recorded in other comprehensive income. However, if a
decline in fair value is determined to be other-than-temporary,
the cost basis is written down to fair value through earnings.
During the year ended June 27, 2008, the Company realized
$3 million in losses on sales and recognized
$10 million in other-than-temporary impairment losses on
these auction-rate securities.
The Company completed the Acquisition on September 5, 2007
through a cash tender offer by State M Corporation (“State
M”), an indirect wholly-owned subsidiary of the Company,
for all outstanding shares of Komag’s common stock, which
was followed by a merger of State M and Komag whereby Komag
became an indirect wholly-owned subsidiary of the Company and
changed its name to WD Media. WD Media’s results of
operations since the date of the Acquisition are included in the
accompanying consolidated financial statements.
Adoption of FIN 48 Effective as of June 30, 2007, the Company adopted the provisions of FIN 48. FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109, “Accounting for
Table of ContentsWESTERN DIGITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Income Taxes.” First, the tax position is evaluated for recognition by determining if it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to be recognized in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The adoption of FIN 48 at the beginning of fiscal year 2008 did not result in an adjustment for unrecognized tax benefits. The total amount of gross unrecognized tax benefits as of the date of adoption was $58 million which had previously been presented as a reduction to deferred tax assets of $47 million and an inclusion in other long term liabilities of $11 million as of June 29, 2007. With the exception of certain unrecognized tax benefits that are directly associated with the tax position taken, unrecognized tax benefits are now presented gross in the Company’s balance sheet. Interest and penalties related to unrecognized tax benefits are recognized on liabilities recorded for uncertain tax positions and are recorded in the provision for income taxes. As of the date of adoption of FIN 48, and at June 27, 2008, such interest and penalties were not material. As of June 27, 2008 the Company had approximately $107 million of unrecognized tax benefits, which included $32 million of unrecognized tax benefits related to Komag. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the year:
Gross increases related to prior year tax positions includes $32 million recorded in purchase accounting for the Komag acquisition. Included in the balance of unrecognized tax benefits at June 27, 2008 are $75 million of tax benefits that, if recognized, would affect the effective tax rate. The Company files U.S. federal, U.S. state, and foreign tax returns. For federal tax returns, the Company is subject to examination for fiscal years 2004 through 2008. For state returns, with few exceptions, the Company is subject to tax examinations for 2003 through 2008. In foreign jurisdictions, with few exceptions, the Company is subject to examination for all years subsequent to fiscal 2000. The Company is no longer subject to examination by the Internal Revenue Service (“IRS”) for periods prior to 2004 and by the state taxing authorities for periods prior to 2003, 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 future period. The IRS is scheduled to commence an examination of the fiscal years ended 2006 and 2007 for the Company and calendar years 2005 and 2006 for Komag in August 2008. Additionally, the Company’s French subsidiary is under examination by the local tax authorities 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 June 27, 2008, 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 Company’s tax examination of uncertain tax positions.
Table of ContentsWESTERN DIGITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of June 27, 2008, the Company had investments of $3 million in U.S. government securities and $28 million in auction-rate securities primarily backed by insurance products. The auction-rate securities are expected to be held until secondary markets become available and as a result have been reclassified to long-term investments as of June 27, 2008. These investments are currently accounted for as available-for-sale securities and recorded at fair value within other non-current assets in the consolidated balance sheet. The estimated fair values of these investments are subject to fluctuation. Unrealized holding gains and losses are generally recorded in other comprehensive income. However, if a decline in fair value is determined to be other-than-temporary, the cost basis is written down to fair value through earnings. During the year ended June 27, 2008, the Company realized $3 million in losses on sales and recognized $10 million in other-than-temporary impairment losses on these auction-rate securities.
The Company completed the Acquisition on September 5, 2007 through a cash tender offer by State M Corporation (“State M”), an indirect wholly-owned subsidiary of the Company, for all outstanding shares of Komag’s common stock, which was followed by a merger of State M and Komag whereby Komag became an indirect wholly-owned subsidiary of the Company and changed its name to WD Media. WD Media’s results of operations since the date of the Acquisition are included in the accompanying consolidated financial statements. | EXCERPTS ON THIS PAGE:
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