Harman Kardon 2007 Annual Report Download - page 69

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The following deferred taxes are recorded:
Assets/(liabilities)
June 30,
($000s omitted) 2007 2006
Federal net operating loss carryforwards $ --- 31,087
Federal tax credits 206,110 26,515
Inventory costing differences 8,816 8,350
Capitalized research and development 52,925 45,659
Foreign tax loss and credit carryforwards 23,475 13,727
Non-qualified stock options – GAAP deductions 12,075 10,441
Valuations and other allowances 64,014 63,550
Total gross deferred tax asset $ 367,415 199,329
Less valuation allowance
(110,765) (3,674)
Deferred tax asset $ 256,650 195,655
Total gross deferred tax liability from fixed asset depreciation $ (8,545) (7,327)
Foreign statutory accounting including royalty payments (18,907) (15,148)
Total gross deferred tax liability $ (27,451) (22,475)
Net deferred tax asset $ 229,199 173,180
We have Federal research credit, alternative minimum tax credit and foreign income tax credit
carryforwards valued at $20.9 million, $1.4 million and $183.7 million, respectively. The research credit
carryforward will begin to expire in 2021. The alternative minimum tax credit does not expire. The
foreign tax credit will begin to expire in 2013. A $98.6 million valuation allowance has been recorded for
U. S. Federal foreign tax credits. Additionally, we have an Austrian net operating loss carryforward
valued at $5.3 million that will not expire and other foreign tax loss carryforwards before valuation
allowance of $18.2 million that begin to expire in 2009. A valuation allowance has been established for
certain of the foreign net operating loss carryforwards. Management believes the results of future
operations will generate sufficient taxable income to realize the net deferred tax asset.
During the fourth quarter of fiscal 2007, we changed our accounting for U.S. foreign tax credits.
Previously, we did not record the tax benefit of U.S. foreign tax credits resulting from German income
tax. We have changed our position because recent case law has provided a probable degree of certainty
regarding the treatment of these foreign tax credits. We have amended previously filed U.S. Federal
income tax returns to claim foreign tax credits for German income tax for which our company is legally
liable. The tax years that were amended are 2003 through 2006. For fiscal years 2008 and beyond, the
Internal Revenue Service has issued proposed regulations that will preclude taxpayers from claiming
foreign tax credits using the same methodology. We intend to follow the proposed regulations.
We have not provided U.S. Federal or foreign withholding taxes on foreign subsidiary undistributed
earnings as of June 30, 2007, because these foreign earnings are intended to be permanently reinvested.
The U.S. Federal income tax liability, if any, that would be payable if such earnings were not permanently
reinvested would not be material.
Cash paid for Federal, state and foreign income taxes were $144.7 million, $135.7 million and $130.3
million, during fiscal years ended June 30, 2007, 2006 and 2005, respectively.