Seagate 2011 Annual Report Download - page 55

Table of Contents
rates of tax or is exempt from tax due to tax holidays or tax incentive programs we operate under in Malaysia, Singapore and Thailand. These tax
holidays or incentives are scheduled to expire in whole or in part at various dates through 2020.
Our income tax provision recorded for fiscal year 2012 differed from the provision for income taxes that would be derived by applying the
Irish statutory rate of 25% to income before income taxes, primarily due to the net effect of (i) tax benefits related to non-U.S. earnings
generated in jurisdictions that are subject to tax holidays or tax incentive programs and are considered indefinitely reinvested outside of Ireland,
and (ii) a decrease in valuation allowance for certain U.S. deferred tax assets. The acquisition of Samsung's HDD business did not have a
significant impact on our effective tax rate in fiscal year 2012. Our income taxes provision recorded for the comparative fiscal year ended July 1,
2011 differed the provision for income taxes that would be derived by applying the Irish statutory rate of 25% to income before income taxes
primarily due to the net effect of (i) tax benefits related to non-U.S. earnings generated in jurisdictions that are subject to tax holidays or tax
incentive programs and are considered indefinitely reinvested outside of Ireland, (ii) income tax expense related to intercompany transactions,
(iii) a decrease in valuation allowance for certain deferred tax assets, and (iv) non-U.S. losses with no tax benefit.
Based on our non-U.S. ownership structure and subject to (i) potential future increases in our valuation allowance for deferred tax assets;
and (ii) a future change in our intention to indefinitely reinvest earnings from our subsidiaries outside of Ireland, we anticipate that our effective
tax rate in future periods will generally be less than the Irish statutory rate.
At June 29, 2012, our deferred tax asset valuation allowance was approximately $1.1 billion.
At June 29, 2012, we had net deferred tax assets of $490 million. The realization of these deferred tax assets is primarily dependent on our
ability to generate sufficient U.S. and certain non-U.S. 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 periods when we re-evaluate the underlying basis for our estimates of future U.S. and certain non-
U.S. taxable
income.
At June 29, 2012, the use of approximately $346 million and $90 million of our U.S. net operating loss and tax credit carryforwards,
respectively, is subject to an aggregate annual limitation of $45 million pursuant to U.S. tax law. If certain ownership changes occur in the
foreseeable future, there may be an additional annual limitation on our ability to use our total U.S. federal and state net operating loss and credit
carryforwards of $2.7 billion, $1.8 billion, and $363 million, respectively. It is reasonably possible that such a change could occur. If these
ownership changes were to occur, we estimate a one-time charge for additional U.S. income tax expense of approximately $400 to $500 million
may be recorded in the period such change occurs. This additional income tax expense results from a decrease in our net U.S. deferred tax assets
recorded through a combination of the write off of deferred tax assets and associated changes to our valuation allowance. We also estimate that
the ensuing additional annual limitation on our ability to use tax attribute carryovers may result in increased U.S. income tax expense associated
with such change of approximately $50 to $75 million each year.
As of June 29, 2012 and July 1, 2011, we had approximately $135 million and $128 million, respectively, of unrecognized tax benefits
excluding interest and penalties. The unrecognized tax benefits that, if recognized, would impact the effective tax rate is $135 million and
$128 million as of June 29, 2012 and July 1, 2011, respectively, subject to certain future valuation allowance reversals.
It is our policy to include interest and penalties related to unrecognized tax benefits in the provision for taxes on the Consolidated
Statements of Operations. During fiscal year 2012, we recognized a net tax expense for interest and penalties of $2 million as compared to a net
tax expense for interest and penalties of less than $1 million and a net tax benefit of $1 million during fiscal year 2011 and fiscal year 2010,
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