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I'm having trouble understanding a company's Income Tax Footnote. The company in question is Cree and it would appear my trouble is related to an acquisition accounted for as a pooling-of-interests.

Going back to FY 1997 (pre-acquisition) the Footnote is pretty straight-forward. The Balance Sheet amounts for Deferred Tax Assets and Deferred Tax Liabilities foots to those listed in the Income Tax Footnote.

No problems here. A minor problem appears in FY 1998. In the Provision for Income Taxes section of the Footnote the deferred amount is $1,582,000, but in the area that deals with the temporary differences that give rise to deferred tax assets/liabilities the amount is $202,000.

This is prior to the acquisition. So here my question is: Why the difference?

The wheels really come off in FY 2000 (when the pooling takes place). The short version is that the Footnote and the Balance Sheet amounts do not balance.

In the Note there is a Gross deferred tax liability of $6,718 (FY 2000), but zero is shown on the Balance Sheet. Now, two years are represented here.

For FY 1999 this same note shows a Gross deferred tax liability of $4,650 which foots exactly to the Balance Sheet.

To further complicate the issue the Provision for Taxes shows $15,230 being deferred.

I'm completely flabbergasted by the FY 1998 issue. Whereas the FY 2000 I believe must relate to Pooling.

Somehow, although the Footnote calls for a Def. Tax Liability, in combining the companies it must 'disappear'.

This isn't a case of netting Def. Tax Assets/Liabilities together. They always break them out.

Any help here would be greatly appreciated.

Ryan
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