Adaptec 2008 Annual Report Download - page 61

Interest income, net. The components of interest income, net are as follows:
Year ended
(in thousands)
December 28,
2008
December 30,
2007
December 31,
2006
Interest income ................................. $8,094 $15,051 $13,942
Interest expense on long-term debt .................. (3,234) (5,137) (4,963)
$ 4,860 $ 9,914 $ 8,979
Income taxes. Income taxes are reported under Statement of Financial Accounting Standard No. 109,
Accounting for Income Taxes, (“SFAS 109”) and, accordingly, deferred income taxes are recognized using the
asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax
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 SFAS 109, 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 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. See
Note 15. Income taxes.
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 the Company’s senior convertible notes.
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