Seagate 2004 Annual Report Download - page 35

Table of Contents
2003 was primarily due to decreases of $30 million in employee incentive compensation, a $6 million business development grant received in
fiscal year 2003, $4 million in legal expense and the absence of $4 million in product development expense incurred in the year-ago period by
Xiotech which we sold in fiscal year 2003. These decreases were partially offset by increases of $21 million in salaries as a result of increased
headcount and annual merit increases, $11 million in program materials and $7 million in depreciation.
Marketing and Administrative Expense. Marketing and administrative expense decreased by $67 million, or 19%, for fiscal year 2004
when compared with fiscal year 2003. The decrease in marketing and administrative expense from fiscal year 2003 was primarily due to the
absence of $16 million in marketing and administrative expense incurred by Xiotech which we sold in fiscal year 2003, and decreases of $12
million related to the discontinuation of an annual monitoring fee paid to certain New SAC investors, $7 million in compensation expense
pursuant to executive terminations all of which occurred in fiscal year 2003, as well as $18 million in employee incentive compensation and
$12 million in outside services.
Restructuring. During fiscal year 2004, we recorded $59 million in restructuring charges. Of the $59 million, $39 million was incurred
in our fourth fiscal quarter ended July 2, 2004 and was associated with the planned workforce reduction that we first announced in April 2004
and implemented in June 2004. The $39 million restructuring charge was comprised of employee termination costs relating to a workforce
reduction, primarily in our U.S. and Far East operations, of approximately 2,400 employees. The restructuring activities related to the charge
taken in our fourth quarter of fiscal year 2004 were substantially complete as of October 2004.
The remaining $20 million in restructuring charges were incurred through the nine months ended April 2, 2004 as a result of a
restructuring plan established to continue the alignment of our global workforce with existing and anticipated future market requirements,
primarily in our U.S. design centers and Far East operations. The restructuring costs were comprised of employee termination costs relating to
a reduction in our workforce of approximately 650 employees. These restructuring activities were substantially complete at July 2, 2004. Upon
completion of the fiscal year 2004 restructuring activities, we estimate that annual salary expense was reduced by approximately $95 million.
Net Other Income (Expense). Net other expense decreased $15 million, or 48%, for fiscal year 2004 when compared with fiscal year
2003. The decrease in net other expense from fiscal year 2003 was primarily due to a decrease of $8 million in write-downs of our investment
in a private company and a $4 million change in the value of the underlying assets of the rabbi trust associated with the deferred compensation
plan.
Income Taxes.
We recorded a benefit from income taxes of $101 million for the fiscal year ended July 2, 2004 compared to a provision
for income taxes of $19 million for the fiscal year ended June 27, 2003. We are a foreign holding company incorporated in the Cayman Islands
with foreign and U.S. subsidiaries that operate in multiple taxing jurisdictions. As a result, our worldwide operating income is either subject to
varying rates of tax or is exempt from tax due to tax holidays or tax incentive programs we operate under in China, Malaysia, Singapore and
Thailand. These tax holidays or incentives are scheduled to expire in whole or in part at various dates through 2015. The benefit for income
taxes recorded for the fiscal year ended July 2, 2004 differs from the provision for income taxes that would be derived by applying a notional
U.S. 35% rate to income before income taxes primarily due to the net effect of (i) the tax benefit related to the aforementioned tax holidays and
tax incentive programs, (ii) an additional valuation allowance recorded for U.S. deferred tax assets, and (iii) the reversal of the $125 million tax
indemnification amount for VERITAS (further described below). Our provision for income taxes for the fiscal year ended June 27, 2003
differed from the provision for income taxes that would be derived by applying a notional U.S. 35% rate to income before income taxes
primarily due to (i) the tax benefit related to the aforementioned tax holidays and tax incentive programs and (ii) the realization of deferred tax
assets that had previously been subject to a valuation allowance. Based on our foreign ownership structure and subject to potential future
increases in our valuation allowance for U.S. deferred tax assets, we anticipate that our effective tax rate in future periods will generally be less
than the U.S. federal statutory rate. Dividends received from our U.S. subsidiaries may be subject to U.S. withholding taxes when and if
distributed. Deferred
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