Western Digital 1998 Annual Report Download - page 44

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company is also subject to other legal proceedings and claims which arise in the ordinary course of its
business. Although occasional adverse decisions or settlements may occur, the Company believes that the final
disposition of such matters will not have a material adverse effect on its financial position, results of operations or
liquidity.
Note 5. Income Taxes
The domestic and international components of income (loss) before income taxes are as follows (in thousands):
1996 1997 1998
United States................................................................................... $ (10,877) $ 105,884 $(348,397)
International.................................................................................... 118,741 208,935 56,389
Income (loss) before income taxes ................................................. $ 107,864 $ 314,819 $(292,008)
The components of the provision (benefit) for income taxes are as follows (in thousands):
1996 1997 1998
Current
United States................................................................................. $ 400 $29,153 $(6,195)
International.................................................................................. 10,262 9,964 4,905
State.............................................................................................. 310 8,106 (501)
10,972 47,223 (1,791)
Deferred, net................................................................................... (2) — —
Provision (benefit) for income taxes............................................... $10,970 $47,223 $(1,791)
The tax benefits associated with the exercise of non-qualified stock options, the disqualifying disposition of stock
acquired with incentive stock options, and the disqualifying disposition of stock acquired under the employee stock
purchase plan reduce taxes currently payable as shown above by $20.2 and $2.3 million for 1997 and 1998,
respectively. Such benefits are credited to additional paid-in capital.
The total cash paid for income taxes was $4.5 million, $19.2 million and $16.9 million for the years ended
June 29, 1996, June 28, 1997 and June 27, 1998, respectively.
Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and
liabilities at June 28, 1997, and June 27, 1998 are as follows (in thousands):
1997 1998
Deferred tax assets:
NOL carryforward............................................................................................... $ 11,079 $ 83,649
Business credit carryforward............................................................................... 30,104 29,323
Reserves and accrued expenses not currently deductible..................................... 69,557 122,454
All other............................................................................................................... 1,854 18,920
112,594 254,346
Valuation allowance............................................................................................ (86,608) (254,297)
Total deferred tax assets.............................................................................. $ 25,986 $ 49
Deferred tax liabilities:
Unremitted income of foreign subsidiaries .......................................................... $ 40,640 $ 17,163
All other............................................................................................................... 5 3,148
Total deferred tax liabilities........................................................................ $ 40,645 $ 20,311
SFAS 109 requires deferred taxes to be determined for each tax paying component of an enterprise within each tax
jurisdiction. The deferred tax assets indicated above are attributable to tax jurisdictions where a history of earnings
has not been established. The taxable earnings in these tax jurisdictions is also subject to volatility. Therefore, the
Company believes a valuation allowance is needed to reduce the deferred tax asset to an amount that is more likely
than not to be realized. The Company increased this valuation allowance in 1998 because of the losses incurred in
these jurisdictions.