extended through December 31, 2013. The differences between the effective tax rate and the U.S. Federal statutory
rate are primarily due to tax holidays in Malaysia, the Philippines, Singapore and Thailand that expire at various dates
from 2014 through 2025, the current year generation of income tax credits and the effect of California Proposition 39.
proposition reduces our future income apportioned to California, making it less likely for us to realize certain Cal-
ifornia deferred tax assets. As a result, we recorded an $88 million charge in 2013 to reduce our previously recognized
California deferred tax assets as of December 28, 2012.
penalties recognized on such amounts were not material.
income taxes of approximately $970 million primarily related to transfer pricing and intercompany payable balances.
We disagreed with the proposed adjustments and filed a protest with the IRS Appeals Office. In June 2013, we
reached an agreement with the IRS to resolve the transfer pricing issue. This agreement resulted in a decrease in the
amount of net operating loss and tax credits realized, but did not have an impact to our consolidated statements of
income. The proposed adjustment relating to intercompany payable balances for fiscal years 2006 and 2007 will be
addressed in conjunction with the IRS's examination of our fiscal years 2008 and 2009, which commenced in January
2012. In addition, in January 2012, the IRS commenced an examination of the 2007 fiscal period ended September 5,
2007 of Komag, Incorporated ("Komag"). In February 2013, the IRS commenced an examination of calendar years
2010 and 2011 of HGST, which was acquired by us on March 8, 2012.
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 28, 2013, 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 liability for unrecognized tax benefits would most likely result from additional
information or settlements relating to the examination of our uncertain tax positions.
ta. The arbitration involves claims brought by Seagate against us and a now former employee, alleging misappropria-
tion 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 adding 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 peti-
tion in the District Court of Hennepin County, Minnesota to have the final arbitration award vacated, and a hearing
on the petition to vacate was held on March 1, 2012. On October 12, 2012, the District Court of Hennepin County,
Minnesota vacated, in full, the $630.4 million final arbitration award and ordered that a rehearing be held concerning
certain trade secret claims before a new arbitrator. On October 30, 2012, Seagate initiated an appeal of the District
Court's decision with the Minnesota Court of Appeals. Oral arguments in the appeal were held on April 24, 2013. On
July 22, 2013, the Minnesota Court of Appeals reversed the District Court's decision and remanded for entry of an
order and judgment confirming the arbitration award. We strongly disagree with the decision of the Court of
Appeals, believe that the District Court's decision was correct, and will file a petition for review with the Minnesota
Supreme Court. If the Minnesota Supreme Court elects not to hear our petition for review or affirms the Court of
Appeals decision, the District Court is expected to enter an order and judgment confirming the $630.4 million final
arbitration award, plus post-award interest on the $525 million initial award at the statutory rate of 10% from Jan-
uary 24, 2012. No judgment will be entered while we are petitioning the Minnesota Supreme Court. We will con-