Seagate 2005 Annual Report Download - page 84

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Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Deferred tax expense of $33 million for fiscal year 2006 related to the recording of a valuation allowance against deferred tax assets of
Seagate that were considered to be no longer realizable as a result of the Maxtor acquisition and Seagate filing U.S. tax returns with Maxtor on
a consolidated basis in subsequent years.
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 June 30, 2006, the Company had recorded $78 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 2007 and 2008. With the acquisition of
Maxtor, the realizability of U.S. deferred tax assets was determined on a consolidated return basis. As a result, Maxtor’
s deferred tax assets that
were determined to be realizable were recorded as a reduction of goodwill and Seagate deferred tax assets that were determined to be no longer
realizable were written off with a charge to income tax expense at the date of acquisition. 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 2006, 2005 and 2004, the valuation allowance increased by $327 million, $111 million and $125 million, respectively.
Approximately $424 million of the increase in valuation allowance as of June 30,
82
June 30,
2006
July 1,
2005
(in millions)
Deferred Tax Assets
Accrued warranty
$
108
$
97
Inventory valuation accounts
26
19
Receivable reserves
26
9
Accrued compensation and benefits
86
45
Depreciation
192
118
Restructuring allowance
46
—
Other accruals and deferred items
95
45
Net operating losses and tax credit carry
-
forwards
522
353
Capitalized research and development
62
2
Other assets
14
11
Total Deferred Tax Assets
1,177
699
Valuation allowance
(979
)
(652
)
Net Deferred Tax Assets
$
198
$
47
Deferred Tax Liabilities
Unremitted earnings of certain foreign entities
$
(38
)
$
—
Acquired intangibles assets
(82
)
—
Total Deferred Tax Liabilities
$
(120
)
$
—
Net Deferred Tax Assets
$
78
$
47
As Reported on the Balance Sheet
Other current assets
$
45
$
12
Other assets, net
33
35
Net Deferred Tax Assets
$
78
$
47