Western Digital 2004 Annual Report Download - page 58

Download and view the complete annual report

Please find page 58 of the 2004 Western Digital annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 74

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Reserves and accrued expenses not currently deductible include the following (in millions):
2004 2003
Sales related reserves and adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $42.4 $43.3
Accrued compensation and beneÑtsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10.8 10.9
Inventory reserves and adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.9 1.4
Other accrued liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13.2 10.6
Total deferred tax assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $68.3 $66.2
Remaining net undistributed earnings from foreign subsidiaries at July 2, 2004 on which no U.S. tax has been
provided, amounted to approximately $401.3 million. The net undistributed earnings are intended to Ñnance local
operating requirements. Accordingly, an additional United States tax provision has not been made on these earnings.
The Company determines deferred taxes for each of its tax-paying subsidiaries within each tax jurisdiction. The
deferred tax assets indicated above are attributable primarily to tax jurisdictions where a history of earnings has not been
established. The taxable earnings in these tax jurisdictions are 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.
Reconciliation of the United States federal statutory rate to the Company's eÅective tax rate is as follows:
2004 2003 2002
U.S. Federal statutory rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 35.0% 35.0% 35.0%
State income taxes, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.2 0.1 0.5
Tax rate diÅerential on international income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (43.8) (21.9) (63.1)
Tax eÅect of repatriation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.0 14.7 272.2
Utilization of NOL carryforward ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.0 (23.5) (218.2)
Change in valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8.7 (4.2) (28.0)
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2.4 3.8 (0.2)
EÅective tax rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2.5% 4.0% (1.8)%
Certain income of selected subsidiaries is taxed at substantially lower income tax rates as compared to local statutory
rates. The lower rates reduced income taxes and improved net income by $54.9 million ($0.25 per diluted share),
$33.6 million ($0.16 per diluted share) and $29.3 million ($0.15 per diluted share) in 2004, 2003 and 2002,
respectively. These lower rates are in eÅect in Thailand through 2011 and in Malaysia through 2014.
At July 2, 2004, the Company had federal and state net operating loss carryforwards of approximately
$603.0 million and $490.5 million, respectively. These loss carryforwards are available to oÅset future federal and state
taxable income through 2022 and 2014, respectively. In addition, the Company had various federal and state tax credit
carryforwards of approximately $47.5 million. Approximately $23.5 million of these credit carryforwards are available to
oÅset future taxable income through 2024, and the remaining $24.0 million are available indeÑnitely.
53