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Table of Contents
Notes to Consolidated Financial Statements — (Continued)
(c) Fiscal 2003 excludes a reversal of approximately $24.4 million in deferred tax expense included in prior periods as a component
of accumulated other comprehensive income associated with UMC shares that were fraudulently sold in the third quarter of 2003
and approximately $8.9 million in a similar reversal of deferred tax expense previously included in accumulated other
comprehensive income associated with the 35 million UMC shares that the Company disposed of in an authorized sale in the
third quarter of 2003.
(d) In accordance with Statement of Financial Accounting Standards No. 52 (SFAS 52), Foreign Currency Translation, the
Company translates, net of tax impact, its investments accounted for under the equity method for those investees whose
functional currency is other than the United States dollar. These translations relate to the Company’s investments in FlashVision
and Flash Partners and were recorded in fiscal 2004 and all prior periods have been restated. The effect of this adjustment was to
increase translation gain by $8.0 million and $7.1 million in 2003 and 2002, respectively. The amount of income tax expense
allocated to translation gain was $3.2 million and $9.4 million at January 2, 2005 and December 28, 2003, respectively.
Accumulated other comprehensive income (loss) presented in the accompanying consolidated balance sheets consists of the
accumulated gains and losses on available−for−sale marketable securities, net of taxes, for all periods presented (in thousands):
2004 2003
Accumulated net unrealized gain (loss) on:
Available−for−sale short−term investments $ (2,332) $ 433
Available−for−sale investments in foundries 457 38,673
Currency translation gain 20,768 15,184
Total accumulated other comprehensive income $ 18,893 $ 54,290
Accumulated other comprehensive income included unrealized gains, net of taxes, on the Company’s investment in (i) UMC of
$0.5 million at January 2, 2005 and $4.7 million at December 28, 2003 and (ii) Tower of zero and $34.0 million at the same dates,
respectively. The amount of income tax expense (benefit) allocated to unrealized gain/loss on investments was $0.3 million and
($3.2) million at January 2, 2005 and December 28, 2003, respectively. The amount of income tax expense allocated to unrealized
gain on available−for−sale securities was immaterial at January 2, 2005 and December 28, 2003, respectively.
Deferred Compensation. In 2004, the Company recorded deferred compensation as a part of its purchase price allocation relating
to an immaterial business acquisition that occurred during the fiscal year.
Note 3: Compensation and Benefits
Stock Based Compensation. SFAS 123R will require the Company to change its method of accounting for share based
compensation, by recognizing the fair value of share based compensation as an expense in its consolidated financial statements,
beginning in July 2005. Until such date, as permitted by SFAS 148, the Company is accounting for employee stock based
compensation using the intrinsic value method and accordingly, no expense has been recognized for options granted to employees or
directors under the plans as the grant price is set at the fair market value of the stock on the day of grant. The Company accounts for
its employee purchase plan using the intrinsic value method and accordingly, does not recognize any expense for the 15% discount on
the fair market value of the shares of stock sold under the Company’s employee stock purchase plan. The 15% discount is applied to
the fair market value of the shares either at the beginning or the end of the purchase period, whichever is lower.
During the fourth quarter of 2004, the Company reviewed both the actual volatility in the trading market for its common stock and
the implied volatility of tradable forward call options to purchase shares of its common stock as part of its efforts to make a thorough
and accurate estimate of volatility to use in valuing share based compensation. Based on such review, the Company revised the
volatility factor it used to estimate F−15