Seagate 2007 Annual Report Download - page 58

Table of Contents
dates through 2020. 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.
Our provision for income taxes recorded for the fiscal year ended June 30, 2006 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) the tax benefit related to the
aforementioned tax holidays and tax incentive programs, (ii) an increase in our valuation allowance for certain deferred tax assets, and
(iii) utilization of research tax credits generated in that year.
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, we anticipated 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.
During fiscal year ended June 29, 2007, we reduced our valuation allowance recorded in prior years for our deferred tax assets by $641
million. This release of valuation allowance was largely due to the completion during fiscal 2007 of the restructuring of our intercompany
arrangements, which enabled us to forecast our U.S. profits with greater certainty and the recording of a U.S. taxable gain in connection with the
intercompany sale of certain Maxtor intangible assets as described below. As a result of the valuation allowance release, we recorded a U.S.
deferred tax benefit of $319 million and a $322 million reduction in the goodwill originally recorded in connection with the Maxtor acquisition.
The reduction in goodwill was required in accordance with SFAS No. 109 as a result of the reversal of valuation allowance that had been
previously recorded as of the date of acquisition against Maxtor related deferred tax assets primarily for tax net operating loss carryovers. The
valuation allowance was reduced primarily to reflect the realization of acquired Maxtor net operating loss carryforwards due to increased
forecasts of future U.S. taxable income and a $296 million gain for U.S. tax purposes from the intercompany sale of certain intellectual property
rights to a foreign subsidiary. Approximately $120 million of tax expense associated with the gain on the intercompany sale of intangibles has
been capitalized in accordance with Accounting Research Bulletin No. 51, Consolidated Financial Statements (ARB No. 51) and is being
amortized to income tax expense over a sixty-month period, which approximates the expected useful life of the intangibles sold in the
intercompany transaction.
As of June 29, 2007, we recorded net deferred tax assets of $768 million, the realization of $663 million of which is primarily dependent
on our ability to generate sufficient taxable income in future periods. Although realization is not assured, we believe that it is more likely than
not that these deferred tax assets will be realized. The amount of deferred tax assets considered realizable, however, may increase or decrease in
subsequent quarters, when we reevaluate our estimates of future taxable income.
Liquidity and Capital Resources
The following is a discussion of our principal liquidity requirements and capital resources.
We had approximately $1.1 billion in cash, cash equivalents and short-term investments at June 27, 2008, which includes $990 million of
cash and cash equivalents, which was flat from fiscal year 2007. During fiscal year 2008, cash provided by operating activities and cash provided
by employee stock option exercises and employee stock purchases were offset by capital expenditures, the repurchase of our common shares,
dividends paid to shareholders and the acquisition of MetaLINCS, Inc. (“MetaLINCS”).
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