Adaptec 2001 Annual Report Download - page 29

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Our annual effective tax rate for the year ended December 31, 2001 was a recovery of 2.7%.
Excluding the effects of non-deductible goodw ill, deferred stock compensation amortization,
and impairment of purchased intangibles, the effective income tax rate for 2001 was a recovery
of 21.7% compared to the statutory tax rate of 35%. Our effective tax rate was lower than the
statutory rate as a result of a valuation allowance provided on deferred tax assets that were
uncertain of being realized.
Our annual effective tax rate for the year ended December 31, 2000 was an expense of 57.6%
compared to a statutory tax rate of 35%. Our increased effective tax rate primarily reflects the
higher provision for income taxes for our Canadian subsidiary and the non-tax deductible
charges for in process research and development, goodw ill amortization, deferred stock
compensation and acquisition costs related to acquisitions completed during the year. These
factors were partially offset by the utilization of tax losses and other deferred tax assets for
which benefits were previously not recognized.
Our annual effective tax rate for the year ended December 31, 1999 was 36.5%, which
approximated the statutory tax rate of 35%.
We have provided a valuation allowance on certain of our deferred tax assets because of
uncertainty regarding their realizability.
See Note 12 to the Consolidated Financial Statements for additional information regarding
income taxes.
Recently issued accounting standards.
In July 2001, the Financial A ccounting Standards Board (FASB) issued Statement of Financial
Accounting Standard No. 141 (SFAS 141), "Business Combinations" and Statement of Financial
Accounting Standard No.142 (SFAS 142), "Goodw ill and Other Intangible Assets". SFA S 141
requires that business combinations be accounted for under the purchase method of accounting
and addresses the initial recognition and measurement of assets acquired, including goodw ill
and intangibles, and liabilities assumed in a business combination. SFA S 142 requires goodw ill
to be allocated to, and assessed as part of, a reporting unit. Further, SFA S 142 specifies that
goodwill will no longer be amortized but instead will be subject to impairment tests at least
annually. The impairment test is a two-step process. First, the fair value of a reporting unit is
compared to its carrying value to identify possible impairment and then, if necessary, the
impairment is measured through a deemed purchase price allocation. Under this standard, w e
will also be required to review the useful lives of acquired goodwill and intangible assets at
least annually.
We will adopt SFAS 141 and 142 on a prospective basis as of January 1, 2002. The adoption of
SFAS 141 is not expected to have a material effect on our financial position, results of
operations and cash flows unless we acquire significant additional companies.
In 2002, w e will no longer amortize goodwill pursuant to SFA S 142, thereby eliminating annual
goodwill amortization of approximately $2.0 million. Goodw ill amortization for the year ended
December 31, 2001 was $44.0 million. Unamortized goodwill as of December 31, 2001 was $7.1