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Table of Contents
NOTE 14. Income Taxes
The income tax provision, calculated under Statement of Financial Accounting Standard No. 109 (SFAS 109), consists of the following:
(in thousands)
December 30,
2007
December 31,
2006
December 31,
2005
Current:
Federal $ (258) $ 2,248 $ 263
State 4 4 3
Foreign 25,864 43,140 1,842
25,610 45,392 2,108
Deferred:
Federal 3,549 3,845 —
Foreign (12,311) — —
(8,762) 3,845 —
Provision for income taxes $ 16,848 $ 49,237 $ 2,108
Reconciliation between the Company’s effective tax rate and the U.S. Federal statutory rate is as follows:
Year ended
(in thousands)
December 30,
2007
December 31,
2006
December 31,
2005
Income (loss) before provision for income taxes $ (32,256) $ (50,655) $ 30,094
Federal statutory tax rate 35% 35% 35%
Income taxes at U.S. Federal statutory rate (11,290) (17,729) 10,533
Tax on intercompany dividend — 45,727 19,871
Adjustment of prior years due to change in estimate — 29,889 —
Change in liability for unrecognized tax benefit 28,296 — —
Non-deductible intangible asset amortization and in-process research and development 11,059 12,221 —
Non-deductible stock-based compensation 9,409 9,299 75
Non-deductible items and other (215) 5,875 (81)
Adjustment of prior year taxes and excess tax credits 23,628 (673) (3,924)
Incremental recovery on foreign earnings and other rate differentials and investment tax credits (33,357) (8,530) (35,677)
Valuation allowance (10,682) (26,842) 11,311
Provision for income taxes $ 16,848 $ 49,237 $ 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 authority. Of the $28 million
increase in our FIN 48 liability, $13.1 million is related to arrears interest. Our FIN 48 liability is partially offset by available investment tax credits earned in the
year of $18 million. The remainder of the provision for income taxes primarily relates to $6 million of deferred taxes recorded with respect to a past acquisition
and net $1 million due to various items, including revisions of prior estimates.
89
Source: PMC SIERRA INC, 10-K, February 22, 2008