Seagate 2007 Annual Report Download - page 99

Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
—
(
Continued)
At June 27, 2008, the Company had recorded $890 million of net deferred tax assets. The realization of $808 million of these deferred tax
assets is primarily dependent on the Company’
s ability to generate sufficient U.S. and certain foreign taxable income in future periods. 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.
At June 27, 2008, the Company had U.S. federal, state and foreign tax net operating loss carryforwards of approximately $2 billion, $896
million and $690 million, respectively, which will expire at various dates beginning in 2009 if not utilized. At June 27, 2008, the Company had
U.S. federal and state tax credit carryforwards of $238 million and $87 million, respectively, which will expire at various dates beginning in
2009, if not utilized. These net operating losses and tax credit carryforwards have not been audited by the relevant tax authorities and could be
subject to adjustment on examination. Of the $2 billion of loss carryovers noted above, approximately $859 million will be credited to
Additional Paid-in Capital upon recognition.
As a result of the Maxtor acquisition, Maxtor underwent a change in ownership within the meaning of Section 382 of the Internal Revenue
Code (IRC Sec. 382) on May 19, 2006. In general, IRC Section 382 places annual limitations on the use of certain tax attributes such as net
operating losses and tax credit carryovers in existence at the ownership change date. As of June 27, 2008, approximately $1.3 billion and $337
million of U.S. federal and state net operating losses, respectively, and $36 million of tax credit carryovers acquired from Maxtor are generally
subject to an annual limitation of approximately $110 million. Certain amounts may be accelerated into the first five years following the
acquisition pursuant to IRC Section 382 and published notices.
On January 3, 2005, the Company underwent a change in ownership under IRC Section 382 due to the sale of common shares to the public
by its then largest shareholder, New SAC. Based on an independent valuation as of January 3, 2005, the annual limitation for this change is
$44.8 million. As of June 27, 2008, there is $453 million of U.S. net operating loss carryforwards and $110 million of U.S. tax credit
carryforwards subject to IRC Section 382 limitation associated with the January 3, 2005 change. To the extent management believes it is more
likely than not that the deferred tax assets associated with tax attributes subject to IRC Section 382 limitations will not be realized, a valuation
allowance has been provided.
The applicable statutory rate in the Cayman Islands was zero for the Company for fiscal years ended June 27, 2008, June 29, 2007 and
June 30, 2006. 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.
98
Fiscal Years Ended
June 27,
2008
June 29,
2007
June 30,
2006
(In millions)
Provision at U.S. notional statutory rate
$
465
$
196
$
323
State income tax provision (benefit), net of U.S. notional income tax benefit
12
(41
)
7
Permanent differences
10
14
13
Valuation allowance
(41
)
(279
)
65
Use of current year U.S. tax credit
(1
)
(27
)
(11
)
Foreign earnings not subject to U.S. notional income tax
(406
)
(227
)
(309
)
Tax expense related to intercompany transactions
24
19
—
Other individually immaterial items
4
(7
)
(4
)
Provision for (benefit from) income taxes
$
67
$
(352
)
$
84