Adaptec 2006 Annual Report Download - page 25

Table of Contents
The final determination of our income tax liability may be materially different from our income tax provision.
We are subject to income taxes in both the United States and international jurisdictions. Significant judgment is required in determining our worldwide provision
for income taxes. In the ordinary course of our business, there are many transactions where the ultimate tax determination is uncertain. Additionally our
calculations of income taxes are based on our interpretations of applicable tax laws in the jurisdictions in which we file. Although we believe our tax estimates
are reasonable, there is no assurance that the final determination of our income tax liability will not be materially different than what is reflected in our income
tax provisions and accruals. Should additional taxes be assessed as a result of new legislation, an audit or litigation, if our effective tax rate should change as a
result of changes in federal, international or state and local tax laws, or if we were to change the locations where we operate, there could be a material effect on
our income tax provision and net income in the period or periods in which that determination is made, and potentially to future periods as well. For instance, our
estimated tax provision rate increased significantly at the end of 2006 due to an increase in our estimated tax liability following receipt in 2007 of a written
communication from a tax authority examining the historic transfer pricing policies and 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 and increased our 2006 expected tax rate from approximately 17% to 22%.
We may lose our ability to design or produce products, could face additional unforeseen costs or could lose access to key customers if any of the
nations in which we conduct business impose trade barriers or new communications standards.
We may have difficulty obtaining export licenses for certain technology produced for us outside the United States. If a foreign country imposes new taxes, tariffs,
quotas, and other trade barriers and restrictions or the United States and a foreign country develop hostilities or change diplomatic and trade relationships, we
may not be able to continue manufacturing or sub-assembly of our products in that country and may have fewer sales in that country. We may also have fewer
sales in a country that imposes new communications standards or technologies. This could inhibit our ability to meet our customers’ demand for our products and
lower our revenues.
If foreign exchange rates fluctuate significantly, our profitability may decline.
We are exposed to foreign currency rate fluctuations because a significant part of our development, test, and selling and administrative costs are in Canadian
dollars, and our selling costs are incurred in a variety of currencies around the world. The U.S. dollar has devalued significantly compared to the Canadian dollar
and this trend may continue. To protect against reductions in value and the volatility of future cash flows caused by changes in foreign
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Source: PMC SIERRA INC, 10-K, March 01, 2007 Powered by Morningstar® Document Research℠