Seagate 2007 Annual Report Download - page 100

Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
—
(
Continued)
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 $214 million in fiscal year 2008 ($0.40 per share, diluted), $194 million in fiscal year 2007 ($0.33 per share, diluted),
and $197 million in fiscal year 2006 ($0.38 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.
Effective at the beginning of the first quarter of fiscal year 2008, the Company adopted the provisions of FIN 48. FIN 48 contains a two-
step approach to recognizing and measuring uncertain tax positions accounted for in accordance with FASB Statement No. 109, Accounting for
Income Taxes
. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is
more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The
second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.
As a result of the implementation of FIN 48, the Company increased its liability for net unrecognized tax benefits at the date of adoption.
The Company accounted for the increase primarily as a cumulative effect of a change in accounting principle that resulted in a decrease to
retained earnings of $3 million and an increase to goodwill of $25 million. The total amount of gross unrecognized tax benefits as of the date of
adoption was $385 million excluding interest and penalties. At June 27, 2008, the Company had approximately $374 million in total
unrecognized tax benefits excluding interest and penalties. The total unrecognized tax benefits that, if recognized, would impact the effective tax
rate were $63 million and $75 million as of June 29, 2007 and June 27, 2008, respectively.
The following table summarizes the activity related to our gross unrecognized tax benefits from June 30, 2007 to June 27, 2008:
The Company’s policy to include interest and penalties related to unrecognized tax benefits in the provision for taxes on the condensed
Consolidated Statements of Operations did not change as a result of implementing the
99
Fiscal Year Ended
June 27,
2008
(In millions)
Balance of unrecognized tax benefits at June 30, 2007
$
385
Gross increase for tax positions of prior year
3
Gross decrease for tax positions of prior years
(13
)
Gross increase for tax positions of current year
12
Gross decrease for tax positions of current year
(3
)
Settlements
(1
)
Lapse of statute of limitations
(9
)
Balance of unrecognized tax benefits at June 27, 2008
$
374