Adaptec 2008 Annual Report Download - page 81

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.
The Company’s estimated tax provision rate increased significantly at the end of 2006 due to an increase in
its 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,
in 2006, the Company increased its provision for periods prior to 2006 by $29.9 million.
Significant components of the Company’s deferred tax assets and liabilities are as follows:
(in thousands)
December 28,
2008
December 30,
2007
Deferred tax assets:
Net operating loss carryforwards ...................................... $186,839 $ 210,718
Capital loss ....................................................... 1,744 38,780
Credit carryforwards ............................................... 33,783 68,238
Reserves and accrued expenses ....................................... 16,424 13,681
Intangible assets ................................................... 14,388 11,347
Depreciation and amortization ........................................ 9,451 9,332
Restructuring and other charges ....................................... 4,001 5,680
State tax loss carryforwards .......................................... 6,674 8,200
Deferred income ................................................... 1,700 2,700
Unrealized loss on investment ........................................ 1,412 —
Total deferred tax assets ............................................. 276,416 368,676
Valuation allowance ................................................ (268,908) (322,750)
Deferred tax liabilities:
Acquired intangible assets and goodwill ................................ (19,512) (15,924)
Capital gain ...................................................... (3,393) —
Depreciation ...................................................... (263) —
Capitalized technology & other ....................................... (239) (355)
Unrealized gain on investments ....................................... — (744)
Total net deferred taxes ................................................. $ (15,899) $ 28,903
At December 28, 2008, the Company has approximately $533.8 million of federal net operating losses,
which will expire through 2027. The Company also has approximately $222.5 million of state tax loss
carryforwards, which expire through 2017. A portion of our net operating losses were used in 2006 and 2008 to
reduce the taxes otherwise payable on intercompany dividends. The utilization of a portion of these net operating
losses may be subject to annual limitations under federal and state income tax legislation. Substantially all of our
net operating losses and capital losses relate to the Company’s domestic operations and no tax benefit has been
recorded for these losses.
Included in the credit carry-forwards are $7.3 million of investment tax credits, which expire through 2028,
$16.7 million of federal research and development credits which expire through 2025, $4.3 million of federal
alternative minimum tax credits which carryforward indefinitely, $11.0 million of state research and
development credits which do not expire, and $0.5 million of state manufacturer’s investment credits which
expire through 2012.
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