Adaptec 2006 Annual Report Download - page 52

Table of Contents
Provision for Income Taxes
Our provision for income taxes for the year ended December 31, 2006 was $49.2 million on a net loss before taxes of $50.7 million, or 97% of the net loss before
taxes, compared to a United States federal statutory tax rate of 35% (2005 – provision of $2.1 million or 7% of net income before taxes, 2004 – recovery of $
3.3 million or 7% of net income before taxes). Our effective tax rate represents a rate that is applicable to all of our operations crossing multiple tax jurisdictions
with tax rates that are different than the United States federal statutory tax rate. A significant portion of our net loss for 2006 consisted of expenses that have no
associated tax benefits due to their non-deductibility and the fact that deferred taxes in the U.S. are fully offset by a valuation allowance. These expenses include
amortization of non-deductible intangible assets and in-process research and development, and stock-based compensation. Our effective tax rate in all years
presented reflects recoveries and refunds of prior year taxes paid and tax credits received by our Canadian subsidiary for research and development expenses
incurred, offset by valuation allowances on losses carried forward.
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. 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 Semiconductor Business and recorded $3.8 million in net deferred tax expense associated with
both of the acquisitions.
Our 2005 provision for income taxes was affected by three factors. First, we decreased our expected annual effective tax rate from 25% to 20% based on a
sensitivity analysis that considered tax credits available to offset forecast levels of net income. Second, we reversed a $1.0 million accrual for state taxes based on
the completion of a tax audit. Third, we recovered $5.3 million in R&D tax credits in excess of amounts that had previously been recorded.
In 2004, we estimated that the effective tax rate applicable to our operations was 25%. However, we reduced our tax liabilities associated with current period
income primarily for amounts we have or expect to recover from prior year taxes as a result of agreements and assessments with the Canada Revenue Agency.
See Note 15 to the Consolidated Financial Statements for additional information regarding income taxes.
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Source: PMC SIERRA INC, 10-K, March 01, 2007 Powered by Morningstar® Document Research℠