Seagate 2007 Annual Report Download - page 53

Table of Contents
Net Other Income (Expense)
The change in Net other expense was primarily due to the positive impacts of approximately $21 million in gains from asset sales and a
$15 million decrease in interest expense due to costs related to the early redemption in fiscal year 2007 of our previously outstanding 8% Senior
Notes due 2009, partially offset by a $16 million decrease in interest income due primarily to lower yields and the recognition of a $4 million
loss related to deferred compensation plan assets compared to a gain of $19 million in the prior fiscal year. The corresponding gain or loss on
deferred compensation plan liabilities is offset against compensation expenses in cost of revenue and operating expenses.
Income Taxes
We recorded a provision for income taxes of $67 million for the fiscal year ended June 27, 2008 compared to a benefit from income taxes
of $352 million for the fiscal year ended June 29, 2007. We are a foreign holding company incorporated in the Cayman Islands with foreign and
U.S. subsidiaries that operate in multiple taxing jurisdictions. As a result, our worldwide operating income is either subject to varying rates of tax
or is exempt from tax due to tax holidays or tax incentive programs we operate under in China, Malaysia, Singapore, Switzerland and Thailand.
These tax holidays or incentives are scheduled to expire in whole or in part at various dates through 2020.
Our provision for income taxes recorded for the fiscal year ended June 27, 2008 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) a decrease in our valuation allowance for certain deferred tax assets, and (iii) tax
expense related to intercompany transactions. Our provision for income taxes recorded for the fiscal year ended June 29, 2007 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 the net
effect of (i) a decrease in our valuation allowance for certain deferred tax assets and (ii) the tax benefit related to the aforementioned tax holidays
and tax incentive programs.
Based on our foreign ownership structure and subject to (i) potential future increases in our valuation allowance for deferred tax assets and
(ii) limitations imposed by Internal Revenue Code Section 382 (“IRC Section 382”) on usage of certain tax attributes (further described below),
we anticipate that our effective tax rate in future periods will generally be less than the U.S. federal statutory rate. 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 unremitted earnings of certain foreign subsidiaries, as these earnings will not be subject to tax in the Cayman Islands or U.S. federal
income tax if remitted to our foreign parent holding company.
As of June 27, 2008, the deferred tax asset valuation allowance recorded was $433 million. Approximately $22 million of this amount
relates to deferred tax assets acquired in the Maxtor acquisition for which the related benefit will be credited directly to goodwill when and if
realized. The net increase in the valuation allowance in
52
Fiscal Years Ended
(Dollars in millions)
June 27,
2008
June 29,
2007
Change
%
Change
Other income (expense), net
$
(47
)
$
(53
)
$
6
-
11
%
Fiscal Years Ended
(Dollars in millions)
June 27,
2008
June 29,
2007
Change
%
Change
Provision for (benefit from) income taxes
$
67
$
(352
)
$
419
-
119
%