Adaptec 2003 Annual Report Download - page 80

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losses, which will expire through 2023. Approximately $5.4 million of the federal net operating losses is subject to ownership change
limitations provided by the Internal Revenue Code of 1986. The Company also has approximately $303.1 million of state tax loss
carryforwards, which expire through 2023. The utilization of a portion of these state losses is also subject to ownership change
limitations provided by the various states’ income tax legislation.
Included in the credit carryforwards are $19.8 million of federal research and development credits which expire through 2023,
$497,000 of federal AMT credits which carryforward indefinitely, $12.6 million of state research and development credits which do
not expire, $1.8 million of state research and development credits which expire through 2008, and $1.5 million of state manufacturer’s
investment credits which expire through 2013.
Included in the above net operating loss carryforwards are $23.8 million and $8.4 million of federal and state net operating losses
related to acquisitions accounted for under the purchase method of accounting. The benefit of such losses, if and when realized, will
be credited first to reduce to zero any goodwill related to the respective acquisition, second to reduce to zero other non−current
intangible assets related to the respective acquisition, and third to reduce income tax expense.
Included in the deferred tax assets before valuation allowance are approximately $154.0 million of cumulative tax benefits related to
equity transactions, which will be credited to stockholder’s equity if and when realized.
The pretax income (loss) from foreign operations was $19.3 million, ($32.6 million) and ($154.1 million) in 2003, 2002, and 2001,
respectively. Undistributed earnings of the Company’s foreign subsidiaries are considered to be indefinitely reinvested and
accordingly, no provision for federal and state income taxes has been provided thereon. Upon distribution of those earnings in the
form of a dividend or otherwise, the Company would be subject to both US income taxes (subject to an adjustment for foreign tax
credits) and withholding taxes payable to the various foreign countries. It is not practical to estimate the income tax liability that
might be incurred on the remittance of such earnings.
NOTE 13. Segment Information
The Company has two operating segments: networking and non−networking products. The networking segment consists of
internetworking semiconductor devices and related technical service and support to equipment manufacturers for use in their
communications and networking equipment. The non−networking segment consists of a single medical device. The Company is
supporting this non−networking product for existing customers, but has decided not to develop any further products of this type.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The
Company evaluates performance based on gross profits from operations of the two segments.
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