Closing Agreement with respect to the years under examination for Komag. This agreement resulted in an immaterial
benefit to our income tax provision. We have also received RARs from the IRS that seek adjustments to income before
income taxes of approximately $970 million in connection with unresolved issues related primarily to transfer pricing
and certain other intercompany transactions. We disagree with the proposed adjustments. In May 2011, we filed a
protest with the IRS Appeals Office regarding the proposed adjustments. Meetings with the Appeals Office began in
February 2012. In January 2012, the IRS commenced an examination of our fiscal years 2008 and 2009 and Komag's
period ended September 5, 2007.
resolved in a manner not consistent with management's expectations, we could be required to adjust our provision for
income taxes in the period such resolution occurs. As of June 29, 2012, 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 sig-
nificant change in the amount of our unrecognized tax benefits would most likely result from additional information
or settlements relating to the examination of our tax returns.
ta. The arbitration involves claims brought by Seagate Technology LLC against us and a now former employee, alleg-
ing misappropriation of confidential information and trade secrets. The arbitrator issued an interim award against us
in the amount of $525 million plus pre-award interest. On January 23, 2012, the arbitrator issued a final award add-
ing pre-award interest in the amount of $105.4 million, for a total award of $630.4 million. On January 23, 2012, we
filed a petition in the District Court of Hennepin County, Minnesota to have the final arbitration award vacated. A
hearing on the petition to vacate was held on March 1, 2012. Interest (as simple interest, not compounding) on the
final award ($630.4 million) also accrues at the Minnesota statutory rate of 10% per year while we pursue our motion
to vacate the award, and if necessary, an appeal if the motion to vacate the award is unsuccessful. We intend to pursue
vigorously our motion to vacate the award and, if necessary, to appeal the award if it is confirmed by the District
Court of Hennepin County Minnesota. We do not believe it is probable that the arbitrator's award will be sustained
and accordingly has not recorded any cost or liability for the arbitrator's award in excess of the amount previously
accrued by us ($25 million). We cannot make any assurances that we will be successful in our efforts to vacate the
award or to overturn the award on appeal. If we are unsuccessful in these efforts, payment of the award, including
interest, would adversely affect our financial condition, results of operations and cash flows. We will also be required
to record a liability for the award if we should determine it is probable we will be required to pay the award.
resulted primarily from a $5 decrease in ASP from $50 to $45, partially offset by the increase in unit shipments.
enue. For 2011, these programs represented 11% of gross revenues compared to 8% in 2010. These amounts generally
vary according to several factors including industry conditions, seasonal demand, competitor actions, channel mix and
overall availability of product.
primarily due to an aggressive pricing environment, resulting in a lower ASP.