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Technology Stocks : Disk Drive Sector Discussion Forum -- Ignore unavailable to you. Want to Upgrade?

To: Gottfried who wrote (3544)	6/8/1998 11:16:00 AM
From: Sam	Read Replies (1) \| Respond to of 9256

GM and all, Here is another excerpt from Maxtor's filing, on "Certain Tax Risks" (my bold): CERTAIN TAX RISKS Due to the Company's operating losses, its net operating loss carry forward and its favorable tax status in Singapore, the Company's tax expense has represented only a small percentage of the Company's expenses. The Company's foreign and U.S. tax liability could increase substantially in future periods if the Company attains profitability. In December 1997 the Company's Singapore subsidiary, Maxtor Peripherals (S) Pte. Ltd ("Maxtor Singapore"), was granted pioneer tax status in Singapore, thus exempting it from paying Singapore income taxes until June 30, 2003, subject to the satisfaction of certain conditions. Maxtor Singapore is eligible for up to two additional two-year extensions of this pioneer tax status, subject to the satisfaction of the certain 14 <PAGE> 16 additional conditions. There can be no assurance that Maxtor Singapore will be able to satisfy or, if satisfied to maintain compliance with, the required conditions. If Maxtor Singapore is unable to satisfy and maintain compliance with the required condition and is unable to obtain a waiver of any such failure, it would lose its pioneer tax status, or would be ineligible for such extensions, which could have a material adverse effect on the Company's business, financial condition or results of operations. Since 1996, the Company has been a member of the HEA U.S. consolidated tax group for U.S. federal income tax purposes (the "HEA Tax Group"). On December 27, 1997, for federal income tax purposes, the Company had net operating loss ("NOL") carryforwards of approximately $616.7 million and tax credit carryforwards of approximately $18.8 million which will expire beginning in fiscal year 1999. Prior to the closing of the Offerings and the resulting deconsolidation of the Company from the HEA Tax Group, the Company intends to cause its Singapore subsidiary to pay a dividend which will utilize a substantial portion of the Company's NOL carryforwards. In addition, a substantial portion of the NOL carryforwards will be utilized by the HEA Tax Group for the 1998 tax year. As a result, after the Offerings, there will be a significant reduction in the NOL carryforward available to the Company for federal income tax purposes. Utilization and payment for the Company's NOL carryforwards by the HEA Tax Group is governed by a Tax Allocation Agreement among the Company, HEA and certain other affiliates of HEA, as amended (the "Tax Allocation Agreement"). Under the Tax Allocation Agreement, the Company is not reimbursed for utilization of any portion of the Company's NOL carryforwards or other tax attributes by other members of the HEA Tax Group. As a result of the Company's acquisition by HEA, utilization of approximately $253.0 million of the Company's NOL carryforwards and the deduction equivalent of approximately $18.3 million of tax credit carryforwards is limited to approximately $22.4 million per year. If, as is expected, investors acquire more than 50% of the Company's outstanding Common Stock in the Offerings, then the amount of the Company's U.S. federal taxable income for any tax year ending after the date of the Offerings which may be offset by the Company's NOL carryforwards remaining after deconsolidation will be limited to an amount equal to the value of the Common Stock immediately before the ownership change multiplied by the long-term tax exempt rate then in effect (e.g., 5.15% for ownership changes occurring during June 1998). *[My note: Can anyone explain the above more clearly to me?]* During the period that the Company is a member of the HEA Tax Group, the Company and its subsidiaries have filed or will file tax returns as part of the HEA Tax Group. After the Offerings, the Company will cease to be a member of the HEA Tax Group. However, the Company will remain liable for tax deficiencies of the entire HEA Tax Group which relate to the period during which the Company was a member of the HEA Tax Group. Although the Company believes that the HEA Tax Group will satisfy all tax obligations for such periods, there can be no assurance that all such obligations will be satisfied or that additional liabilities will not be assessed for such periods. The Company has agreed to indemnify and reimburse HEA if any member of the HEA Tax Group is required to pay any tax, interest or penalty to any taxing authority related to any additional Company separate tax return liability and if there is any additional consolidated or combined tax return liability resulting from revisions to the Company's taxable income. HEA has agreed to indemnify and reimburse the Company if the Company or any of its subsidiaries is required to pay any tax, interest or penalty to any taxing authority related to any separate tax return of any member of the HEA Tax Group other than the Company or its subsidiaries, and if the Company or any of its subsidiaries is required to pay to any taxing authority any amount in excess of the Company's share of the consolidated or combined tax return liability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Tax Matters."