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 year ended
June 29, 2012 (in millions):
Unrecognized tax benefit at July 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$245
Gross increases related to current year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
Settlements/lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(18)
HGST acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39
Unrecognized tax benefit at June 29, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$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 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 2012. In foreign jurisdictions,
with few exceptions, the Company is subject to examination for all years subsequent to fiscal 2006. The Company is
no longer subject to examination by the Internal Revenue Service ("IRS") for periods prior to 2006, 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 has completed its field examination of the federal income tax returns for fiscal years 2006 and 2007 for
the Company and calendar years 2005 and 2006 for Komag, Incorporated ("Komag"), which was acquired by the
Company on September 5, 2007. In September 2011, the Company received a final Revenue Agent Report ("RAR")
and Closing Agreement with respect to the years under examination for Komag. This agreement resulted in an imma-
terial benefit to the Company's income tax provision. The Company has 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. The Company disagrees with the
proposed adjustments. In May 2011, the Company 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 the Company's fiscal years 2008 and 2009 and Komag's period ended September 5, 2007.
The Company believes that adequate provision has been made for any adjustments that may result from tax
audits. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Compa-
ny'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 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 significant change in the amount of the Company's unrecognized tax benefits would
most likely result from additional information or settlements relating to the examination of the Company's tax
returns.
Note 10.
Fair Value Measurements
Financial assets and liabilities that are remeasured and reported at fair value at each reporting period are classified
and disclosed in one of the following three levels:
Level 1.
Quoted prices in active markets for identical assets or liabilities.
Level 2.
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can
be corroborated by observable market data for substantially the full term of the assets or liabilities.
78