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FORM 10-K
PMC SIERRA INC - PMCS
Filed: February 22, 2008 (period: December 30, 2007)
Annual report which provides a comprehensive overview of the company for the past year

Table of contents

  • Page 1
    FORM 10-K PMC SIERRA INC - PMCS Filed: February 22, 2008 (period: December 30, 2007) Annual report which provides a comprehensive overview of the company for the past year

  • Page 2
    ... and Supplementary Data. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. ITEM 9A. Controls and Procedures. ITEM 9B. Other Information. PART III ITEM 10. Directors, Executive Officers and Corporate Governance. ITEM 11. Executive Compensation. ITEM...

  • Page 3
    ...FORM OF CHANGE OF CONTROL AGREEMENT) EX-12.1 (STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES) EX-21.1 (SUBSIDIARIES OF THE REGISTRANT) EX-23.1 (CONSENT OF DELOITTE TOUCHE LLP) EX-31.1 (CERTIFICATION PURSUANT TO SECTION 302 (CHIEF EXECUTIVE OFFICER)) EX-31.2 (CERTIFICATION PURSUANT TO...

  • Page 4
    ... The aggregate market value of the voting stock held by nonaffiliates of the Registrant, based upon the closing sale price of the Common Stock on June 30, 2007 as reported by the NASDAQ Global Market, was approximately $1.1 billion. Shares of Common Stock held by each executive officer and director...

  • Page 5
    ... may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of February 15, 2008, the Registrant had 218,380,467 shares of Common Stock outstanding. Source: PMC SIERRA INC, 10-K, February 22, 2008

  • Page 6
    Table of Contents DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for Registrant's 2008 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K Report. Source: PMC SIERRA INC, 10-K, February 22, 2008

  • Page 7
    ... Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Security Ownership of Certain Beneficial Owners and Management...

  • Page 8
    ...network service providers and enterprises. We provide superior semiconductor solutions for our customers by leveraging our intellectual property, design expertise and systems knowledge across a broad range of applications and industry protocols. PMC-Sierra was incorporated in the State of California...

  • Page 9
    ...; competition and pricing; critical accounting policies and estimates; customer product inventory levels, needs and order levels; demand for networking, storage and consumer equipment; net revenues; gross profit; research and development expenses; selling, general and administrative expenditures...

  • Page 10
    ... in increasing requirements for service providers and enterprises to upgrade and improve their network infrastructure and storage management capabilities. Enterprises, corporations, small offices and home offices are expanding their networks to better capture, store, and access large quantities...

  • Page 11
    ... information into formats for transportation across various networks is the Internet Protocol (IP). As networks slowly converge over time, more data-centric and hybrid multi-service equipment is required to handle voice, video, and data services over the IP. In Asia and some parts of North America...

  • Page 12
    ... and businesses connect to their data storage either directly or indirectly, the latter using network-attached systems (NAS) or storage area networks (SAN). Fibre Channel protocol, which is the standard for the transfer of information between computers and storage devices (hard disk drives), is...

  • Page 13
    ... capacity storage systems. Controller products based on Fibre Channel, SAS, and SATA, are enabling technologies for building network-attached storage system architectures that meet cost and capacity needs. Microprocessor-based System-On-Chips (SOCs): these devices perform the high-speed computations...

  • Page 14
    ... PMC. 2. Expand our breadth of product solutions in the enterprise storage systems market. We are broadening our product line in the enterprise storage markets. In addition to our Fibre Channel product line, we have leading edge high-performance interconnect devices designed on protocols such as SAS...

  • Page 15
    ... field application engineers, technical marketing and systems engineers. We also provide more detailed information and support for our product line through our corporate website and special customer-accessible extranet sites. We believe that providing comprehensive product service and support is...

  • Page 16
    ...assembly of their products. Sales to Cisco Systems and EMC Corporation through distributors, contract manufacturers and direct sales each represented more than 10% of our total revenues in 2007. Because we do business outside the United States, we are subject to risks related to changes in political...

  • Page 17
    ... and software. These devices and reference designs are targeted for use in enterprise, storage and service provider markets. Increasingly, our OEM customers that serve these end markets are demanding complete solutions with software support and complex feature sets and we are developing products to...

  • Page 18
    ..., LSI Logic, Marvell, Maxim, and Texas Instrument. Many of these companies are well financed, have significant communications semiconductor technology assets and established sales channels, and depend on the market in which we participate for the bulk of their revenues. 12 Source: PMC SIERRA INC...

  • Page 19
    ... products. This license may be terminated only if we do not make the required royalty payments or breach confidentiality obligations. PMC, PMCS, PMC-Sierra and our logo are our registered trademarks and service marks. We own other trademarks and service marks not appearing in this Annual Report...

  • Page 20
    ... price of our securities to decline, and you may lose part or all of your investment. We are subject to rapid changes in demand for our products due to variations in our turns business; short order lead time; customer inventory levels; production schedules; and fluctuations in demand. Our revenues...

  • Page 21
    ...revenues should they change their ordering pattern. The loss of a key customer could materially impact our results of operations. We depend on a limited number of customers for a major portion of our revenues. Through direct, distributor and subcontractor purchases, Cisco Systems and EMC Corporation...

  • Page 22
    ...high-speed networking products. The competition for such employees is intense. We do not have employment agreements in place with many of our key personnel. As employee incentives, we issue common stock options and restricted stock grants that are subject to time vesting, and, in the case of options...

  • Page 23
    ... of current or future competitors, reducing our future revenues. With the shortening product life and design-in cycles in many of our customers' products, our competitors may have more opportunities to supplant our products in next generation systems. 17 Source: PMC SIERRA INC, 10-K, February 22...

  • Page 24
    ...for existing and new products. While some industry analysts may use design wins as a metric for future revenues, many design wins have not, and will not, generate any revenues for us, as customer projects are cancelled or unsuccessful in their end market. In the event a design win generates revenues...

  • Page 25
    ... product life spans and new manufacturing and design technologies. Our products often must be redesigned because manufacturing yields on prototypes are unacceptable or customers redefine their products to meet changing industry standards or customer specifications. As a result, we develop products...

  • Page 26
    ... these companies could be jeopardized. Our business strategy contemplates acquisition of other products, technologies, or businesses, which could adversely affect our operating performance. Acquiring products, intellectual property, technologies, or businesses from third parties is a core part of...

  • Page 27
    ... sufficient supplies of other components needed in their product offerings to meet their production projections and target quantities. Some of our products are used by customers in conjunction with a number of other components, such as transceivers, microcontrollers and digital signal processors. If...

  • Page 28
    ... test our products. However, even if we use these new subcontractors, we will continue to be subject to all of the risks described above. Our business is vulnerable to interruption by earthquake, fire, power loss, telecommunications failure, terrorist activity and other events beyond our control. We...

  • Page 29
    ... be sold. In addition, our competitors may be able to design around our patents. To protect our product technology, documentation and other proprietary information, we enter into confidentiality agreements with our employees, customers, consultants and strategic partners. We require our employees to...

  • Page 30
    ...-to-earnings multiple may have made our stock attractive to momentum, hedge or day-trading investors who often shift funds into and out of stocks rapidly, exacerbating price fluctuations in either direction particularly when viewed on a quarterly basis. Securities class action litigation has often...

  • Page 31
    ... which we declared a dividend of one share purchase right for each outstanding share of common stock. If certain events occur, including if an investor tenders for or acquires more than 15% of our outstanding common stock, stockholders (other than the acquirer) may exercise their rights and receive...

  • Page 32
    ... in connection with our workforce reduction activities. Our Canadian operations are located in Burnaby, British Columbia where we lease 173,000 square feet of office space in three separate buildings. These locations support a significant portion of our product development, manufacturing, marketing...

  • Page 33
    ...facts establishing that a litigation demand on the board of directors of the Company would have been futile ... scope of their allegations. The Company filed motions to dismiss the Amended... also took argument on a motion to compel the production of certain documents filed by the plaintiffs December 26,...

  • Page 34
    ... for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Stock Price Information. Our Common Stock trades on the NASDAQ Global Select Market under the symbol PMCS. The following table sets forth, for the periods indicated, the high and low closing sale...

  • Page 35
    Table of Contents Stock Performance Graph The following graph shows a comparison of cumulative total stockholder returns for PMC, the line-of-business index for semiconductors and related devices (SIC code 3674) furnished by Georgeson Shareholder Communications Inc., and the S&P 500 Index. The graph...

  • Page 36
    ... in Cost of revenues; $16.2 million stock-based compensation expense included in Research and development expenses; $19.9 million stock-based compensation expense, $2.4 million for employee-related taxes, and $0.2 million acquisition-related relocation expenses included in Selling, general and...

  • Page 37
    ... restructurings, $1.3 million elimination of a provision for employee-related taxes included in Selling, general and administrative expenses, $9.2 million gain on sale of investments, $5.1 million recovery of prior year taxes, $9.4 million tax recovery based on agreements and assessments with a tax...

  • Page 38
    ... tax recovery relating to prior years. Results include $0.5 million stock-based compensation expense included in Cost of revenues, $5.5 million stock-based compensation expense included in Research and development expenses, $5.4 million stock-based compensation expense included in Selling, general...

  • Page 39
    ... storage. These products are backward compatible with our 4 Gbps Fibre Channel products, allowing our customers to preserve their software investments. We will continue to expand our FTTH product offerings for the Asian market in the coming year. Our largest end market for EPON solutions is Japan...

  • Page 40
    ... as video picture sharing, peer-to-peer and data storage. We are closely aligning with leading OEM customers who supply carriers who are investing in their networks to enable delivery of residential video services. We are well positioned for these network upgrade opportunities with solutions that...

  • Page 41
    ...presence in the Fiber-to-the-home market, which is concentrated in Japan, Korea, China and Taiwan, and increased manufacturing outsourcing into Asia by our OEM customers. Gross Profit ($ millions) 2007 Change 2006 Change 2005 Gross profit Percentage of net revenues $ 291.1 65% 5% $ 278.5 66% 32...

  • Page 42
    ... manufacturing logistics teams into a single location through our restructuring activities, as well as tightly managing our manufacturing costs. Gross profit as a percentage of revenues decreased to 66% in 2006 from 72% in 2005 primarily as a result of the following factors the acquisitions changed...

  • Page 43
    ... was a $2.2 million increase in professional fees related to our settlement of litigation inherited from our Passave acquisition and the ongoing examination of our historic transfer pricing practices and policies of certain companies within the PMC-Sierra group. In 2007, we also received a capital...

  • Page 44
    ... alternative uses existed. Projects acquired from Passave included Ethernet Passive Optical Network (EPON) and Analog Front End (AFE) products, which are based on technology that provides a low-cost method of deploying optical access lines between a carrier's central office and a customer site and...

  • Page 45
    ...activity related to excess facility and severance accruals under the Company's restructuring plans during the three years ended December 30, 2007, by year of plan, were as follows: Excess facility and contract termination costs By Year of Plan 2005...2005... By Year of Plan 2006 2005 - $ - $ Total ...

  • Page 46
    ... the termination of 26 employees from production control, quality assurance, and product engineering. As a result, we recorded total second quarter restructuring charges of $7.6 million, including $6.7 million for termination benefits and a $0.9 million write-down of equipment and software assets...

  • Page 47
    ...of personnel that occurred with the acquisition of the Storage Semiconductor Business. We reversed a further $0.5 million in 2007 as we completed a portion of our lease obligation at this site. The October 2001 restructuring plan included the termination of 341 employees, the consolidation of excess...

  • Page 48
    ... Efforts to exit these sites are ongoing, but the payments related to these facilities could extend to 2011. Other Income and Expenses ($ millions) 2007 Change 2006 Change 2005 Interest income, net Percentage of net revenues Foreign exchange loss Percentage of net revenues Loss on extinguishment of...

  • Page 49
    ... company, and a $1.3 million loss on sales of other short-term investments that were redeemed prior to maturity to fund the acquisition of the Storage Semiconductor Business. In 2005, we received $2.2 million as final satisfaction of the mortgage owed to us for a property we sold in 2003. As part...

  • Page 50
    ... practices of certain companies within the PMC-Sierra group. As a result, we increased our provision for periods prior to 2006 by $29.9 million. We recorded $7.1 million tax expense in the first quarter of 2006 for withholding and other taxes on the repatriation of funds used to purchase the Storage...

  • Page 51
    ... a stock price is expected to fluctuate during a period. Our estimates of expected volatilities are based on a weighted historical and market-based implied volatility. In order to determine the expected life of the awards, we use historical data to estimate option exercises and employee terminations...

  • Page 52
    ...% of the estimated total future operating costs and lease obligations for the site. In the first quarter of 2007, we recorded charges of $2.8 million related to the closure of our design centers in Saskatoon and Winnipeg, Canada, and exit of a portion of our Santa Clara facility. The total remaining...

  • Page 53
    ...million stock-based compensation expense. As in past quarters this could vary depending on the volumes of products sold, since many of our costs are fixed. Margins will also vary depending on the mix of products sold. We expect our first quarter 2008 research and development and selling, general and...

  • Page 54
    ... we issued $225 million aggregate principal amount of 2.25% senior convertible notes due 2025 (the "Notes") and have recorded these Notes as long-term debt. Issuance costs of $6.8 million have been deferred and are being amortized over seven years. 48 Source: PMC SIERRA INC, 10-K, February 22, 2008

  • Page 55
    ... 15, 2012, 2015 and 2020 respectively. Holders may convert the notes into the right to receive the conversion value (i) when our stock price exceeds 120% of the approximately $8.80 per share initial conversion price for a specified period, (ii) in certain change in control transactions, and (iii...

  • Page 56
    ... to rapid technological and economic changes. Accordingly, we regularly review our capital structure in light of such market changes and changes in our business or finance strategy. In addition, we may contemplate mergers and acquisitions of other companies or assets as part of our business strategy...

  • Page 57
    ... of joint operating activity. The task force provided indicators to help identify collaborative arrangements and provides for reporting of such arrangements on a gross or net basis pursuant to guidance in existing authoritative literature. The task force also expanded disclosure requirements about...

  • Page 58
    ... will fluctuate as a result of changes in the price of our common stock, changes in market interest rates and changes in our credit worthiness. Our 2.25% senior convertible Notes are not listed on any exchange or included in any automated quotation system, but are registered for resale under the...

  • Page 59
    ... portion of our revenues from sales to customers located outside the United States including Canada, Europe, the Middle East and Asia. We are subject to risks typical of an international business including, but not limited to, differing economic conditions, changes in political climate, differing...

  • Page 60
    ... second quarter of 2006 we recorded a charge of $3.2 million for impairment of an investment in a private company. We may record additional impairment charges should we determine that our investments have incurred a non-temporary decline in value. 54 Source: PMC SIERRA INC, 10-K, February 22, 2008

  • Page 61
    ... Financial Statements Reports on Internal Control Over Financial Reporting included in Item 9A: Management's Annual Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm Schedules for each of the three years in the period ended December 30...

  • Page 62
    ... for each of the three years in the period ended December 30, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken...

  • Page 63
    ... liabilities Liability for unrecognized tax benefit PMC special shares convertible into 2,065 (2006-2,099) shares of common stock Commitments and contingencies (Note 10) Stockholders' equity Common stock, par value $.001; 900,000 shares authorized; 217,285 shares issued and outstanding (2006-210,650...

  • Page 64
    ... PMC-Sierra, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except for per share amounts) (unaudited) Year Ended December 31, 2006 Net revenues Cost of revenues Gross profit Other costs and expenses: Research and development Selling, general and administrative Amortization of purchased...

  • Page 65
    ... of non-cash investing and financing activities: Issuance of common stock and assumption of stock options on acquisition Conversion of PMC-Sierra special shares into common stock See notes to the consolidated financial statements. 59 December 30, 2007 December 31, 2005 $ (49,104) 35,334 - 45,891...

  • Page 66
    ... options on acquisition of Passave Inc. Conversion of special shares into common stock Issuance of common stock under stock benefit plans Stock-based compensation expense Balances at December 31, 2006 Net loss Adjustments related to adoption of FIN48 Other comprehensive income (loss): Change in fair...

  • Page 67
    ... semiconductors and microprocessor-based System-on-Chips (SOCs) for metro, access, Fiber-To-The-Home, wireless infrastructure, storage, laser printers and customer premise equipment. The Company offers worldwide technical and sales support through a network of offices in North America, Europe and...

  • Page 68
    ... market pricing and the Company's volume requirements change in relation to sales of its products. In each year, the Company is entitled to receive a refund of a portion of the deposits based on the annual purchases from these suppliers compared to the target levels in the wafer supply agreements...

  • Page 69
    ...2,573 500 $ 18,904 Goodwill. Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. The Company performs a two-step process on an annual basis, or more frequently if necessary, to determine...

  • Page 70
    ... are reported separately as foreign exchange gain (loss) under Other income (expense) on the Statement of Operations. Derivatives and Hedging Activities. Fluctuating foreign exchange rates may significantly impact PMC's net income and cash flows. The Company periodically hedges forecasted...

  • Page 71
    ...arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectibility is reasonably assured. PMC generates revenues from direct sales, sales to distributors and sales of consignment inventory. The Company recognizes revenues on goods shipped directly to customers at...

  • Page 72
    ...utilize inventory at the major distributor to satisfy product demand by other customers. PMC recognizes revenues from minor distributors at the time of shipment. These distributors are also given business terms to return a portion of inventory and receive credits for changes in selling prices to end...

  • Page 73
    ... the fair value method to measuring stock-based compensation expense. If the Company had accounted for stock-based compensation in accordance with the fair value method as prescribed by SFAS 123, net loss and net loss per share for 2005 would have been: 67 Source: PMC SIERRA INC, 10-K, February...

  • Page 74
    ... by executive officers. As these options had exercise prices in excess of the current market value of the Company's common stock, based on the closing price of $6.34 per share on October 28, 2005, and were not fully achieving their original objectives of incentive compensation and employee retention...

  • Page 75
    ... unrecognized tax benefit will change significantly within the next twelve months. Net income (loss) per common share. Basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the period. The PMC-Sierra Ltd. Special Shares have been included...

  • Page 76
    ... about a company's operating segments. Operating segments are revenue-producing components of a company for which separate financial information is produced internally for the company's management. In all periods presented, the Company operated in one reportable segment: networking products. Recent...

  • Page 77
    ... the Fibre Channel controller market, the design capabilities of its engineering team, and the growth opportunities for standard semiconductor solutions in the enterprise storage market. The Storage Semiconductor Business was part of Agilent's Semiconductor Products Group (as defined in the Purchase...

  • Page 78
    ... using the income approach by determining cash flow projections related to the identified projects. The assumptions included information on revenues from existing products and future expected trends for each technology, with an estimated useful life of 5 to 9 years. The rates used to discount the...

  • Page 79
    ...date. PMC purchased Passave due to its market share leadership in Passive Optical Networking solutions. This acquisition fits with PMC's strategic intent to address the high-growth Fiber Access market and is aligned with PMC's developments in Customer Premises Equipment. The final purchase price was...

  • Page 80
    ... acquisition. PMC acquired IPR&D projects related to EPON and AFE products from Passave. The value assigned to IPR&D was calculated using the income approach by determining cash flow projections related to identified projects. The assumptions included information on revenues from existing products...

  • Page 81
    ...be in future periods. December 31, 2006 December 31, 2005 (in thousands) Pro forma revenues Pro forma net loss Pro forma basic and diluted net loss per share NOTE 3. Derivative Instruments $ 461,429 (66,454) (0.33) $ 446,387 (64,775) (0.32) $ $ The Company generates revenues in U.S. dollars...

  • Page 82
    ... including the expected stock price volatility and expected life. The Company's estimates of expected volatilities are based on a weighted historical and market-based implied volatility. The Company uses historical data to estimate option exercises and employee terminations within the valuation...

  • Page 83
    ...The fair values of the Company's stock option and ESPP awards were estimated using the following weighted average assumptions: Stock Options: December 30, 2007 December 31, 2006 December 31, 2005 Expected life (years) Expected volatility Risk-free interest rate Employee Share Purchase Plan: 4.1 61...

  • Page 84
    ...) 27,321,505 25,099,305 17,559,272 Number of Options Weighted average price per share 9.55 6.67 4.87 10.77 14.01 9.74 9.85 10.85 Aggregate intrinsic value per share 6.67 6.52 5.76 $ $ $ 0.47 0.51 0.51 No adjustment has been recorded for fully vested options that expired during the year...

  • Page 85
    ...619 1.89 4,043,287 In 1991, the Company adopted an Employee Stock Purchase Plan ("ESPP") under Section 423 of the Internal Revenue Code. The ESPP allows eligible participants to purchase shares of the Company's common stock through payroll deductions at a purchase price of 85% of the lower of the...

  • Page 86
    ...activity related to excess facility and severance accruals under the Company's restructuring plans during the three years ended December 30, 2007, by year of plan, were as follows: Excess facility and contract termination costs By Year of Plan 2005...2005... By Year of Plan 2006 2005 - $ - $ Total ...

  • Page 87
    ... of 26 employees from production control, quality assurance, and product engineering. As a result, the Company recorded total second quarter restructuring charges of $7.6 million, including $6.7 million for termination benefits and a $0.9 million write-down of equipment and software assets whose...

  • Page 88
    ... that occurred with the acquisition of the Storage Semiconductor Business. The Company reversed a further $0.5 million in 2007 as it completed a portion of the lease obligation at this site. The October 2001 restructuring plan included the termination of 341 employees, the consolidation of excess...

  • Page 89
    ... of the companies and venture funds. As of December 30, 2007 the Company had deposits of $4 million related to long-term design tool contracts. These costs are recorded as other assets and are being amortized according to usage over the contract term, which ends in 2010. 83 Source: PMC SIERRA INC...

  • Page 90
    ... if the Company fails to comply with its obligations to register the notes and the common stock issuable upon conversion of the notes or the registration statement does not become effective within the specified time periods. In no event will liquidated damages accrue 84 Source: PMC SIERRA INC, 10...

  • Page 91
    ...Company on January 18, 2005 for a total of $70.2 million in cash, which included $1.1 million in accrued interest and a $1.0 million call premium. These notes bore interest at 3.75% payable semi-annually and were convertible into an aggregate of approximately 6.5 million shares of PMC's common stock...

  • Page 92
    ... laws. The Company is a nominal defendant in the cases, but any recovery in the litigation would be paid to the Company, rather than to...(2006-$4.2 million; 2005-$4.2 million) related to excess facilities, which were accrued as part of the restructuring programs. 86 Source: PMC SIERRA INC, 10-K, ...

  • Page 93
    ...a class and for certain extraordinary corporate transactions involving LTD. If LTD files for bankruptcy, is liquidated or dissolved, the special shares receive as a preference the number of shares of PMC common stock issuable on conversion plus a nominal amount per share plus unpaid dividends, or at...

  • Page 94
    ... benefit plan, which was assumed in connection with the acquisition of the Storage Semiconductor Business, provides retiree medical benefits to eligible United States employees who meet certain age and service requirements upon retirement from the Company. These benefits are provided from the...

  • Page 95
    ...311 2,108 Despite the net loss for 2007, income taxes were incurred primarily from a $28 million additional accrual relating to an ongoing FIN 48 liability arising from the examination of our historic transfer pricing policies and practices of certain companies within the PMC Group by a certain tax...

  • Page 96
    ... from a tax authority examining the historic transfer pricing policies and practices of certain companies within the PMC-Sierra group. As a result, in 2006, the Company increased its provision for periods prior to 2006 by $29.9 million. Significant components of the Company's deferred tax assets and...

  • Page 97
    ....7 million in 2007, 2006, and 2005, respectively. The Company recorded $7.1 million tax expense related to earnings it repatriated in 2006 to fund the purchase of the Storage Semiconductor Business in 2006. This distribution does not change the Company's intent to indefinitely reinvest undistributed...

  • Page 98
    ...% in 2005. Net revenues from a second customer were 11% in 2007, and 12% in 2006 and 2005. In 2007 and 2006, the Company had two end customers, Cisco Systems and EMC Corporation, whose purchases represented greater than 10% of our total net revenues (2005 - Cisco Systems). 92 Source: PMC SIERRA INC...

  • Page 99
    .... Net Income (Loss) Per Share The following table sets forth the computation of basic and diluted net (loss) income per share: December 30, 2007 December 31, 2006 December 31, 2005 (in thousands, except per share amounts) Numerator: Net (loss) income Denominator: (1) Basic weighted average common...

  • Page 100
    ..., and that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. Management's Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and...

  • Page 101
    ... LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report, has issued an attestation report on the registrant's internal control over financial reporting. The report is included herein. Changes in Internal Controls over Financial...

  • Page 102
    ... opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other...

  • Page 103
    ..., in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 30, 2007 of the Company and our report dated February 22, 2008 expressed an unqualified...

  • Page 104
    ...Contents PART III ITEM 10. Directors, Executive Officers and Corporate Governance. The information concerning our directors and executive officers required by this Item is incorporated by reference from the information set forth in the sections entitled "Election of Directors", "Code of Business...

  • Page 105
    ... by reference from the information set forth in the section entitled "Executive Compensation Change of Control and Severance Agreements" in our Proxy Statement for the 2008 Annual Stockholder Meeting. ITEM 14. Principal Accountant Fees and Services The information required by this Item...

  • Page 106
    ... Terms of PMC-Sierra, Ltd. Special Shares Preferred Stock Rights Agreement, as amended and restated as of July 27, 2001, by and between the Registrant and American Stock Transfer and Trust Company Purchase and Sale Agreement dated October 28, 2005, between PMC-Sierra, Inc. and Avago Technologies Pte...

  • Page 107
    ... of Change of Control Agreement by and between the Registrant and the executive officers Net Building Lease dated May 15, 1996 by and between PMC-Sierra, Ltd. and Pilot Pacific Developments Inc. Building Lease Agreements between WHTS Freedom Circle Partners, LLC and the Registrant First Amendment...

  • Page 108
    ... between PMC-Sierra, Inc. and WB Mission Towers, L.L.C. Calculation of earnings per share (1) Statement of Computation of Ratio of Earnings to Fixed Charges Subsidiaries of the Registrant Consent of Deloitte & Touche LLP, Independent Registered Public Accountants Power of Attorney (2) Certification...

  • Page 109
    ... financial statements included in Item 8 of Part II of this Annual Report. Refer to Signature page of this Annual Report. (c) Financial Statement Schedules required by this item are listed on page 106 of this Annual Report on Form 10-K. 103 Source: PMC SIERRA INC, 10-K, February 22, 2008

  • Page 110
    ... report to be signed on its behalf by the undersigned, thereunto duly authorized. PMC-SIERRA, INC. (Registrant) Date: February 22, 2008 /s/ Michael W. Zellner Michael W. Zellner Vice President, (duly authorized officer) Chief Financial Officer and Principal Accounting Officer 104 Source: PMC SIERRA...

  • Page 111
    ...the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name Title Date /s/ Robert L. Bailey Robert L. Bailey /s/ Michael W. Zellner Michael W. Zellner...

  • Page 112
    ... 31, 2005 Allowance for warranty claims: December 30, 2007 December 31, 2006 December 31, 2005 106 Balance at beginning of year Write-offs Balance at end of year...997 $ 3,492 $ $ $ 2,492 1,093 712 $ $ $ (584) (759) (207) $ $ $ 6,239 4,331 3,997 Source: PMC SIERRA INC, 10-K, February 22, 2008

  • Page 113
    ....2 Form of Change of Control Agreement by and between the Registrant and the executive officers Statement of Computation of Ratio of Earnings to Fixed Charges Subsidiaries of the Registrant Consent of Deloitte & Touche LLP, Independent Registered Public Accountants Certification Pursuant to Section...

  • Page 114
    ... in control of the Company. NOW, THEREFORE, the Company and Executive, in consideration of the mutual promises set forth herein, hereby agree as follows: 1. Termination Without Cause or Constructive Termination in Connection With a Change in Control. If the Company terminates Executive's employment...

  • Page 115
    ... by a Competitor of the Company. Accordingly, until one year after Executive's Separation from Service, Executive will not, as an employee, agent, consultant, advisor, independent contractor, general partner, officer, director, stockholder, investor or in any other capacity directly or indirectly...

  • Page 116
    ... its revenues from developing, manufacturing, marketing or selling any products which directly compete with the products manufactured, marketed or sold by the Company or its subsidiaries as at the date Executive's employment or consulting agreement (if applicable) terminates. Source: PMC SIERRA INC...

  • Page 117
    ... fide services Executive is to perform as an employee (or as a consultant or other independent contractor) permanently decreases to a level that is not more than 20% of the average level of services Executive rendered as an employee during the immediately preceding 36 months (or such shorter period...

  • Page 118
    ... all purposes. "Successor" shall include any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. Executive has no other right to assign this...

  • Page 119
    ... to payments made to Executive in connection with his employment hereunder. 13. Governing Law. This Agreement shall be governed by the laws of the State of Delaware (with the exception of its conflict of laws provisions). [Remainder of Page Intentionally Left Blank] Source: PMC SIERRA INC, 10...

  • Page 120
    ... has carefully read and fully understands all the provisions of this agreement, and is knowingly and voluntarily entering into this Agreement. PMC-SIERRA, INC.: Robert L. Bailey Chairman, President and CEO EXECUTIVE: Date [Executive Officer] Date Source: PMC SIERRA INC, 10-K, February 22, 2008

  • Page 121
    ...1542 of the Civil Code of the State of California or any other similar state statute, which states as follows (parentheticals added): A general release does not extend to claims which the creditor [i.e, me] does not know or suspect to exist in his favor at the time of executing the release, which if...

  • Page 122
    ...AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS; I AM AWARE OF MY RIGHT TO CONSULT WITH AN ATTORNEY OF MY OWN CHOOSING BEFORE SIGNING IT AND I HAVE BEEN ENCOURAGED TO CONSULT WITH SUCH AN ATTORNEY; AND I SIGN IT VOLUNTARILY: Signed: , 20 . Employee's Signature: Print Name: Source: PMC SIERRA INC, 10...

  • Page 123
    ...$ $ The ratio of earnings to fixed charges was computed by dividing earnings by fixed charges for the periods indicated. Earnings consist of income (loss) before provision for income taxes less income from equity investees plus fixed charges. Fixed charges consist of interest charges, amortization...

  • Page 124
    ... PMC-Sierra. PMC-Sierra US, Inc., organized under the laws of Delaware, doing business only under its official name, PMC-Sierra, or under PMC-Sierra, Inc. Palau Acquisition Corporation, organized under the laws of Delaware, doing business only under its official name, PMC-Sierra, or under PMC-Sierra...

  • Page 125
    ... of internal control over financial reporting appearing in the Annual Report on Form 10-K of PMC-Sierra Inc. for the year ended December 30, 2007. /s/ DELOITTE & TOUCHE LLP Independent Registered Public Accountants Vancouver, Canada February 22, 2008 Source: PMC SIERRA INC, 10-K, February...

  • Page 126
    ... end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual...

  • Page 127
    ... or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Robert L. Bailey Robert L. Bailey President and Chief Executive Officer b) Date: February 21, 2008 Source: PMC SIERRA INC, 10-K, February 22...

  • Page 128
    ... end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual...

  • Page 129
    ..., that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Michael W. Zellner Michael W. Zellner Vice President Chief Financial Officer and Principal Accounting Officer Date: February 21, 2008 Source: PMC SIERRA INC...

  • Page 130
    ... pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in my capacity as an officer of PMC-Sierra, Inc. ("PMC"), that, to my knowledge, the Annual Report of PMC on Form 10-K for the annual period ended December 30, 2007, fully complies with the requirements of Section 13 (a) or 15(d) of the...

  • Page 131
    ... pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in my capacity as an officer of PMC-Sierra, Inc. ("PMC"), that, to my knowledge, the Annual Report of PMC on Form 10-K for the annual period ended December 30, 2007, fully complies with the requirements of Section 13 (a) or 15(d) of the...