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Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company’s deferred tax assets
and liabilities were as follows:
At July 2, 2004, the Company had recorded $58 million of deferred tax assets. The realization of the deferred tax assets is primarily
dependent on the Company generating sufficient U.S. taxable income in fiscal years 2005 and 2006. Although realization is not assured, the
Company’s management believes that it is more likely than not these deferred tax assets will be realized. The amount of deferred tax assets
considered realizable, however, may increase or decrease, when the Company reevaluates the underlying basis for its estimates of future U.S.
and certain foreign taxable income.
In fiscal year 2004, the valuation allowance increased by $125 million. In fiscal years 2003 and 2002, the valuation allowance decreased
by $70 million and $20 million, respectively. Approximately $125 million of the valuation allowance as of July 2, 2004 was attributable to the
U.S. income tax benefits of stock option deductions, the benefit of which will be credited to additional paid-in capital when, and if, realized.
At July 2, 2004, the Company had U.S. and foreign net operating loss carryforwards of approximately $433 million and $124 million,
respectively, which will expire at various dates beginning in 2005, if not utilized. At July 2, 2004, the Company had U.S. tax credit
carryforwards of $74 million, which will expire at various dates beginning in 2006, if not utilized.
Utilization of the U.S. net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the
ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation
may result in the expiration of net operating loss or tax credit carry-forwards before utilization.
82
July 2,
2004
June 27,
2003
(in millions)
Deferred Tax Assets
Accrued warranty
$
51
$
53
Inventory valuation accounts
21
28
Receivable reserves
13
17
Accrued compensation and benefits
53
48
Depreciation
106
103
Restructuring allowance
14
4
Other accruals
37
37
Acquisition related items
2
2
Net operating losses and tax credit carry
-
forwards
288
189
Other assets
14
9
Total Deferred Tax Assets
599
490
Valuation allowance
(541
)
(416
)
Net Deferred Tax Assets
$
58
$
74
As Reported on the Balance Sheet
Other current assets
$
15
$
49
Other assets, net
43
25
Net Deferred Tax Assets
$
58
$
74