Adaptec 2006 Annual Report Download - page 86

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Table of Contents
As of December 31, 2006 there was $70.0 million of total unrecognized compensation cost related to nonvested stock-based compensation arrangements granted
under the Company’s stock option plans, which is expected to be recognized over a period of 3.2 years.
The fair value of the Company’s stock option awards granted to employees during the year ended December 31, 2006 was estimated using a lattice-binomial
valuation model. Prior to the second quarter of 2005, the fair value of the Company’s stock option awards to employees was estimated, for disclosure purposes
under SFAS 123, using a Black-Scholes option pricing model which was developed for use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. The Company believes that the binomial model provides a better estimate of the fair value of stock option awards because
it considers the contractual term of the option, the probability that the option will be exercised prior to the end of its contractual life, and the probability of
termination or retirement of the option holder in computing the value of the option. Both models require the input of highly subjective assumptions including the
expected stock price volatility and expected life.
The Company’s estimates of expected volatilities are based on a weighted historical and market-based implied volatility. The Company uses historical data to
estimate option exercises and employee terminations within the valuation model; separate groups of employees that have similar historical exercise behavior are
considered separately for valuation purposes. The expected term of options granted is derived from the output of the stock option valuation model and represents
the period of time that granted options are expected to be outstanding. The risk-free rate for periods within the contractual life of the stock option is based on the
U.S. Treasury yield curve in effect at the time of the grant.
The fair values of the Company’s stock option and ESPP awards were estimated using the following weighted average assumptions:
Stock Options:
December31,
2006
December31,
2005
December26,
2004
Expected life (years) 3.9 3.8 2.9
Expected volatility 58% 60% 96%
Risk-free interest rate 4.8% 3.9% 2.2%
Employee Share Purchase Plan:
December31,
2006
December31,
2005
December26,
2004
Expected life (years) 1.3 1.3 1.5
Expected volatility 50% 53% 99%
Risk-free interest rate 4.9% 3.5% 1.6%
During 2005, management re-examined certain assumptions related to the level of expected volatility used in the Company’s option pricing model. As a result,
volatility for the years ended December 31, 2006 and December 31, 2005 was calculated using a weighted historical and market-based implied volatility. For the
year ended December 26, 2004, volatility was calculated using 5-year historical volatility.
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Source: PMC SIERRA INC, 10-K, March 01, 2007 Powered by Morningstar® Document Research℠