Seagate 2005 Annual Report Download - page 50

Table of Contents
dates through 2015. Our provision for income taxes recorded for the fiscal year ended July 1, 2005 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 increase in our valuation allowance for certain foreign deferred
tax assets, (iii) a tax benefit related to a reduction in previously accrued foreign income taxes and (iv) utilization of U.S. research tax credits
generated in the current year. Our provision for income taxes for the fiscal year ended July 2, 2004 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, (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). Dividend distributions received from
our U.S. subsidiaries may be subject to U.S. withholding taxes when and if distributed. Deferred tax liabilities have not been recorded on
certain unremitted earnings of our foreign subsidiaries, as these earnings will not be subject to tax in the Cayman Islands or to U.S. federal
income taxes if remitted to our foreign parent holding company.
On January 3, 2005, we underwent a change in ownership within the meaning of Section 382 of the Internal Revenue Code (IRC Sec.
382) due to the sale of common shares to the public by our then largest shareholder, New SAC. Based upon an independent valuation as of
January 3, 2005, the annual limitation is $44.8 million. As of July 1, 2005, $409 million of U.S. net operating loss carryforwards and $123
million of U.S. tax credit carryforwards were subject to the Sec. 382 limitation associated with the January 3, 2005 change. A valuation
allowance has been provided for deferred tax assets associated with tax attributes subject to the IRC Section 382 limitations that we concluded
will not be realized. The impact of the IRC Sec. 382 limitation was to increase our current tax expense related to the tax benefit of stock options
credited to shareholders equity by approximately $15 million during fiscal year 2005.
In the fiscal year ended July 2, 2004, we recorded a $125 million income tax benefit from the reversal of $125 million of accrued income
taxes relating to tax indemnification amounts due to VERITAS pursuant to the Indemnification Agreement between Seagate Delaware, Suez
Acquisition Corporation and VERITAS. The tax indemnification amount was recorded by us in connection with the purchase of the operating
assets of Seagate Delaware and represented U.S. tax liabilities previously accrued by Seagate Delaware for periods prior to the acquisition date
of the operating assets. As a result of the conclusion of the tax audits with no additional tax liabilities due, management determined that the
$125 million accrual for the tax indemnification was no longer required and it was reversed in our third quarter of fiscal year 2004.
Liquidity and Capital Resources
The following is a discussion of our principal liquidity requirements and capital resources.
We had approximately $1.7 billion in cash, cash equivalents and short-term investments at June 30, 2006, which includes $910 million of
cash and cash equivalents. Cash and cash equivalents increased by $164 million during fiscal year 2006, up from $746 million at July 1, 2005.
This increase in cash and cash equivalents was primarily provided by cash from operations of approximately $1.5 billion, the net decrease in
short-term investments and cash received upon the acquisition of Maxtor, offset by capital additions, repayment of long-term debt, dividends
paid to shareholders and repurchases of common shares.
Until required for other purposes, our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of
90 days or less at the time of purchase. Our short-term investments consist primarily of readily marketable debt securities with remaining
maturities of more than 90 days at the time of purchase.
48