This excerpt taken from the WDC 10-K filed Aug 20, 2008.
Temporary differences and carryforwards, which give rise to a significant portion of deferred tax assets and liabilities as of June 27, 2008 and June 29, 2007 were as follows (in millions):
In addition to the deferred tax assets presented above, the Company had additional NOL and credit benefits related to stock-based compensation deductions of approximately $43 million and $106 million at June 27, 2008 and June 29, 2007, respectively, including $11 million as of June 27, 2008 related to the Acquisition. The deductions related to stock based compensation resulted in a $19 million tax benefit and the use of NOL and credit carryforwards related to stock
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
based compensation resulted in a $70 million tax benefit during the year ended June 27, 2008. In accordance with the provisions of SFAS 123(R), shareholders equity was increased by $89 million during 2008 for these benefits.
Beginning in the year ended June 27, 2008, deferred tax assets are presented before any reduction for liabilities relating to unrecognized tax benefits. The increase to the deferred tax assets for the fiscal year ended June 27, 2008 relates primarily to 1) the acquisition of Komag and its net deferred tax assets of $92 million and 2) the reclassification of $50 million of liabilities for unrecognized tax benefits that were previously recorded net in deferred tax assets.
As of the end of fiscal 2007, the Company determined that it is more likely than not that its net deferred tax assets will be realized. Accordingly, the Company eliminated its remaining valuation allowance which resulted in the recognition of additional net deferred tax assets of $125 million. The realization of the deferred tax assets is primarily dependent on the Companys ability to generate sufficient earnings in certain jurisdictions in future years. The Company released the remainder of the valuation allowance for its deferred tax assets based on the weight of available evidence including the history of cumulative pretax income and the increased likelihood of the Companys ability to generate profits in the future. The amount of deferred tax assets considered realizable may increase or decrease in subsequent periods based on fluctuating industry or Company conditions.