Seagate 2008 Annual Report Download - page 105

Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
6. Income Taxes (Continued)
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 decrease the Company's net
loss by approximately $79 million in fiscal year 2009 ($0.16 per share, diluted), and to increase the Company's net income by $214 million in
fiscal year 2008 ($0.40 per share, diluted) and $194 million in fiscal year 2007 ($0.33 per share, diluted).
The Company consists of a Cayman parent holding company with various foreign and U.S. subsidiaries. As of the fiscal year ended July 3,
2009, the Company's U.S. subsidiaries have an accumulated deficit. Accumulated earnings of approximately $114 million of certain of the
Company's foreign subsidiaries are considered indefinitely reinvested in their local country operations. Dividend distributions from these
subsidiaries may be subject to foreign withholding taxes when, and if, distributed. Determination of the withholding tax, however, is not
practicable. The actual distribution of these earnings to the Cayman parent holding company will not be subject to tax in the Cayman Islands.
Effective at the beginning of fiscal year 2008, the Company adopted the provisions of FIN 48, Accounting for Uncertainty in Income Taxes
(FIN 48). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS
No. 109. 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
103
Fiscal Years Ended
(Dollars in millions)
July 3,
2009
June 27,
2008
June 29,
2007
Provision at U.S. notional statutory rate
$
(971
)
$
465
$
196
State income tax provision (benefit), net of U.S. notional income tax benefit
6
12
(41
)
Permanent differences
9
10
14
Non
-
deductible goodwill impairments
802
—
—
Valuation allowance
307
(41
)
(279
)
Use of current year U.S. tax credit
—
(
1
)
(27
)
Foreign losses with no tax benefits
263
46
133
Foreign earnings not subject to U.S. notional income tax
(138
)
(452
)
(360
)
Tax expense related to intercompany transactions
27
24
19
Other individually immaterial items
6
4
(7
)
Provision for (benefit from) income taxes
$
311
$
67
$
(352
)