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Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The applicable statutory rate in the Cayman Islands was zero for the Company for fiscal years ended June 29,
2007, June 30, 2006 and July 1, 2005. For purposes of the reconciliation between the provision for (benefit from)
income taxes at the statutory rate and the effective tax rate, a notional U.S. 35% rate is applied as follows:
A substantial portion of the Company’s manufacturing operations in China, Malaysia, Singapore, Switzerland
and Thailand operate under various tax holidays and tax incentive programs, which expire in whole or in part at
various dates through 2020. Certain of the tax holidays may be extended if specific conditions are met. The net
impact of these tax holidays and tax incentive programs was to increase the Company’
s net income by approximately
$194 million in fiscal year 2007 ($0.33 per share, diluted), an increase the Company’s net income by $197 million in
fiscal year 2006 ($0.38 per share, diluted), and an increase the Company’
s net income by approximately $133 million
in fiscal year 2005 ($0.26 per share, diluted).
The Company consists of a foreign parent holding company with various foreign and U.S. subsidiaries.
Dividend distributions received from the Company’s U.S. subsidiaries may be subject to U.S. withholding taxes
when, and if, distributed. Deferred tax liabilities have not been recorded on unremitted earnings of certain other
foreign subsidiaries, as these earnings will not be subject to tax in the Cayman Islands or U.S. federal income tax if
remitted to the foreign parent holding company.
The Internal Revenue Service is currently examining federal income tax returns of certain of the Company’s
U.S. subsidiaries for fiscal years ending in 2001 through 2004. The timing of the settlement of these examinations is
uncertain. The Company believes that adequate amounts of tax have been provided for any final assessments that
may result.
Prior to fiscal 2007, certain U.S. subsidiaries of the Company were included in certain unitary and combined
U.S. state tax returns with certain U.S. affiliates of New SAC and were parties to a tax sharing agreement effective
November 23, 2000. In January 2005, one of the U.S. subsidiaries, Certance (US) Holdings, Inc. (
“Certance”) was
sold to a third party and as a result, was excluded from the filing of any unitary or combined U.S. state returns in
fiscal 2005 or later years with the Company. As of June 29, 2007, there were no tax sharing agreements in effect with
any former New SAC affiliates.
85
Fiscal
Fiscal
Fiscal
Year
Year
Year
Ended
Ended
Ended
June 29,
June 30,
July 1,
2007
2006
2005
(In millions)
Provision at U.S. notional statutory rate
$
196
$
323
$
256
State income tax provision (benefit), net of U.S. notional income tax benefit
(41
)
7
3
Permanent differences
14
13
(2
)
Reduction in previously accrued foreign income taxes
(4
)
(2
)
(13
)
Valuation allowance
(279
)
65
11
Use of current year U.S. tax credit
(27
)
(11
)
(16
)
Foreign earnings not subject to U.S. notional income tax
(227
)
(309
)
(216
)
Tax expense related to intercompany transactions
19
—
—
Other individually immaterial items
(3
)
(2
)
2
Provision for (benefit from) income taxes
$
352
$
84
$
25