Seagate 2008 Annual Report Download - page 56

Table of Contents
The change in Net other expense was primarily due to a $40 million decrease in interest income as a result of lower yields on cash, cash
equivalents and short-term investments, and a $38 million decline in the value of the deferred compensation plan assets. The corresponding gain
or loss on deferred compensation plan liabilities is primarily reported in operating expenses.
Income Taxes
We recorded a provision for income taxes of $311 million for fiscal year 2009 compared to a provision for income taxes of $67 million for
fiscal year 2008. We are a foreign holding company incorporated in the Cayman Islands with foreign and U.S. subsidiaries that operate in
multiple taxing jurisdictions. As a result, our worldwide operating income is either subject to varying rates of tax or is exempt from tax due to
tax holidays or tax incentive programs we operate under in China, Malaysia, Singapore, Switzerland and Thailand. These tax holidays or
incentives are scheduled to expire in whole or in part at various dates through 2020.
Our provision for income taxes for fiscal year 2009 differed from the provision for income taxes that would be derived by applying a
notional U.S. 35% rate to income before income taxes primarily due to the net effect of (i) non-deductible goodwill impairments, (ii) an increase
in our valuation allowance for certain deferred tax assets, (iii) foreign losses with no tax benefit, (iv) the tax benefit related to the aforementioned
tax holidays and tax incentive programs, and (v) tax expense related to intercompany transactions. Our provision for income taxes recorded for
the fiscal year ended June 27, 2008 differed from the provision for income taxes that would be derived by applying a notional U.S. 35% rate to
income before income taxes primarily due to the net effect of (i) the tax benefit related to the aforementioned tax holidays and tax incentive
programs, (ii) a decrease in our valuation allowance for certain deferred tax assets, and (iii) tax expense related to intercompany transactions.
Based on our foreign ownership structure and subject to (i) potential future increases in our valuation allowance for deferred tax assets and
(ii) limitations imposed by Internal Revenue Code Section 382 (IRC Section 382) on usage of certain tax attributes (further described below), we
anticipate that our effective tax rate in future periods will generally be less than the U.S. federal statutory rate. Dividend distributions received
from our U.S. subsidiaries may be subject to U.S. withholding taxes when and if distributed. Deferred tax liabilities have not been recorded on
unremitted earnings of certain foreign subsidiaries, as these earnings will not be subject to tax in the Cayman Islands or U.S. federal income tax
if remitted to our foreign parent holding company.
In fiscal year 2009, the deferred tax asset valuation allowance was $1,313 million. The valuation allowance for deferred tax assets increased
by approximately $880 million in fiscal year 2009. The increase in valuation allowance resulted primarily from the liquidation of our wholly
owned subsidiary, Maxtor, effective June 1, 2009 and represents the net effects of the extinguishment of all deferred tax assets related to
historical carryover tax attributes of Maxtor and the increase in deferred tax assets related to losses incurred in connection with the liquidation
transaction. As of June 27, 2008, the deferred tax asset valuation allowance was $433 million. Approximately $22 million of this amount relates
to deferred tax assets acquired in the Maxtor acquisition for which the related benefit would have been credited to goodwill if realized. The net
increase in the valuation allowance in fiscal year 2008 was $34 million.
At July 3, 2009, we had net deferred tax assets of $469 million. The realization of $416 million of these deferred tax assets is primarily
dependent on our ability to generate sufficient U.S. and certain foreign 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,
54
Fiscal Years Ended
(Dollars in millions)
July 3,
2009
June 27,
2008
Change
%
Change
Provision for income taxes
$
311
$
67
$
244
364
%