Adaptec 2005 Annual Report Download - page 75

Table of Contents
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and
operating loss and tax credit carry forwards. Valuation allowances are provided if, after considering available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized.
On July 13, 2006, the FASB issued interpretation No. 48, “Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109” (“FIN
48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with FASB Statement No. 109,
“Accounting for Income Taxes” and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or
expected to be taken on a tax return. Under FIN 48, the impact of an uncertain income tax position on the income tax return must be recognized at the largest
amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has
less than a 50% likelihood of being sustained. Additionally, FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized a $4.7 million net
decrease in the liability for unrecognized tax benefits which was accounted for as a reduction to the retained deficit. Included in this opening adjustment was a
$6.9 million increase in the liability for unrecognized tax benefits relating to additional uncertain tax positions the Company identified as existing at
December 31, 2006.
In addition, the Company had $44.2 million for the payment of interest and penalties accrued at December 31, 2006. Upon adoption of FIN 48 on January 1,
2007, the Company decreased its accrual for interest and penalties to $32.6 million. The Company recognizes interest and penalties related to income tax
liabilities as a component of income tax expense.
Further, as part of the implementation of FIN 48, the Company reclassified $57 million from current income taxes payable to current liability for unrecognized
tax benefit and $42 million from long term income taxes payable to long term liability for unrecognized tax benefit. In addition, the Company reclassified $27.5
million of tax benefits to the deferred tax asset account with a corresponding increase to the unrecognized tax benefit account.
Included in the balance of unrecognized tax benefits at January 1, 2007, are $125 million of tax benefits that, if recognized, would affect the effective tax rate.
The Company does not reasonably estimate that the 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 in the calculation of basic net income (loss) per share. Diluted net income (loss) per share is
computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent
shares consist of stock options, shares issuable on our Employee Share Purchase Plan and common shares issuable on conversion of our senior convertible notes.
69
Source: PMC SIERRA INC, 10-K, February 22, 2008