Seagate 2004 Annual Report Download - page 87

Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Approximately $15 million of U.S. income tax benefits related to the exercise of certain employee stock options decreased accrued
income taxes and was credited to additional paid-in capital in the fiscal year ended July 1, 2005.
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 1, 2005, the Company had recorded $47 million of net deferred tax assets. The realization of the deferred tax assets is primarily
dependent on the Company generating sufficient U.S. and certain foreign taxable income in fiscal years 2006 and 2007. 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 years 2005 and 2004, the valuation allowance increased by $79 million and $125 million, respectively. In fiscal year 2003, the
valuation allowance decreased by $70 million. Approximately $113 million of the valuation allowance as of July 1, 2005 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 1, 2005, the Company had U.S. and foreign net operating loss carryforwards of approximately $409 million and $121 million,
respectively, which will expire at various dates beginning in 2006, if not utilized. At July 1, 2005, the Company had U.S. tax credit
carryforwards of $123 million, which will expire at various dates beginning in 2011, if not utilized.
On January 3, 2005, the Company underwent a change in ownership within the meaning of Section 382 of the Internal Revenue Code
(IRC Sec. 382) due to the sale of additional common shares to the public by its largest
83
July 1,
2005
July 2,
2004
(in millions)
Deferred Tax Assets
Accrued warranty
$
97
$
51
Inventory valuation accounts
19
21
Receivable reserves
9
13
Accrued compensation and benefits
45
53
Depreciation
118
106
Restructuring allowance
—
14
Other accruals and deferred items
45
37
Acquisition related items
1
2
Net operating losses and tax credit carry
-
forwards
323
288
Other assets
10
14
Total Deferred Tax Assets
667
599
Valuation allowance
(620
)
(541
)
Net Deferred Tax Assets
$
47
$
58
As Reported on the Balance Sheet
Other current assets
$
12
$
15
Other assets, net
35
43
Net Deferred Tax Assets
$
47
$
58