Adaptec 2006 Annual Report Download - page 54

Table of Contents
Stock-based compensation
On January 1, 2006, we adopted SFAS 123(R), which requires the recognition of compensation expense for all share-based payment awards. Under SFAS
123(R) we measure the fair value of awards of equity instruments and recognize the cost, net of an estimated forfeiture rate, on a straight-line basis over the
period during which services are provided in exchange for the award, generally the vesting period.
Calculating the fair value of stock-based compensation awards requires the input of highly subjective assumptions, including the expected life of the awards and
expected volatility of PMC’s stock price. Expected volatility is a statistical measure of the amount by which a stock price is expected to fluctuate during a period.
Our estimates of expected volatilities are based on a weighted historical and market-based implied volatility. In order to determine the expected life of the
awards, we use historical data to estimate option exercises and employee terminations; separate groups of employees that have similar historical exercise
behavior, such as directors or executives, are considered separately for valuation purposes. The expected forfeiture rate applied in calculating stock-based
compensation cost is estimated using historical data.
The assumptions used in calculating the fair value of stock-based awards involve estimates that require management judgment. If factors change and we use
different assumptions, our stock-based compensation expense could change significantly in the future. In addition, if our actual forfeiture rate is different from
our estimate, our stock-based compensation could change significantly in the future. See Notes 1 and 4 to the Consolidated Financial Statements for further
information on stock-based compensation.
Restructuring charges - Facilities
In calculating the cost to dispose of our excess facilities we had to estimate for each location the amount to be paid in lease termination payments, the future lease
and operating costs to be paid until the lease is terminated, and the amount of sublease revenues. This required us to estimate the timing and costs of each lease to
be terminated, the amount of operating costs for the affected facilities, and the timing and rate at which we might be able to sublease each site. To form our
estimates for these costs we performed an assessment of the affected facilities and considered the current market conditions for each site.
During 2001, we recorded total charges of $155 million for the restructuring of excess facilities as part of restructuring plans implemented that year. The total
remaining estimate of $5.1 million related to the 2001 restructuring plans represents 100% of the estimated total future operating costs and lease obligations for
the affected sites.
In the first quarter of 2003, we announced a further restructuring of our operations, which resulted in the closing of an additional four product development sites
and the recording of $9.6 million charge related to these facilities. During 2006 we reversed $2.3 million of this provision because a portion of the space was
re-occupied. The total remaining estimate of $0.5 million represents 100% of the estimated total future operating costs and lease obligations for the affected sites.
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Source: PMC SIERRA INC, 10-K, March 01, 2007 Powered by Morningstar® Document Research℠