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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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This is my understanding of the items, I'm not an accountant I'm just looking through the notes of the 10-Ks.

The problem is that you're comparing items from the income statement and the balance sheet. Provisions for income Taxes is the GAAP sanitized version of the company's cashflow. Deferred Tax Assets/Liabilties are credits and debits that influence the Income Tax Provision. Deferred Tax balance sheet items are not simply a running count of how much tax is owed or overpaid.

Marv
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The problem is that you're comparing items from the income statement and the balance sheet. Provisions for income Taxes is the GAAP sanitized version of the company's cashflow. Deferred Tax Assets/Liabilties are credits and debits that influence the Income Tax Provision. Deferred Tax balance sheet items are not simply a running count of how much tax is owed or overpaid


No, I understand the difference between the income statement accounting and balance sheet accounting.

For FY 1999 the Footnote shows a deferred tax liability that exactly matches that on the balance sheet. As it should.

For FY 2000 there is also a liability in the Footnote (in FY 2000 both 2000 and 1999 are shown). But unlike FY 1999 the balance sheet doesn't balance to the Footnote. In fact the balance sheet shows $-0- for a deferred tax liability.

Normally one might suspect that they are netting the def. asset and def. liability together. But this is not the case.

I've emailed their IR, but with no response.

I know it isn't vital, but that being said I would like to learn the accounting aspect of it.

Appreciate the response, marv.

Ryan
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