Adaptec 2004 Annual Report Download - page 67

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Recently issued accounting standards. In December 2004, the Financial Accounting Standard Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) 123 (revised 2004), “Shared−Based Payment”. Revised SFAS 123 addresses the
requirements of an entity to measure the cost of employee services received in exchange for an award of equity instruments based on
the grant−date fair value of the award. The cost of such award will be recognized over the period during which an employee is
required to provide services in exchange for the award. The Company will adopt this Statement on a modified prospective basis in the
third quarter of fiscal 2005 and is currently evaluating the impact that this pronouncement will have on its financial position and
results of operations.
In December 2004, FASB issued SFAS 151, “Inventory Costs an amendment of ARB No. 43, Chapter 4”. This Statement requires
abnormal amounts of idle facility expense, freight, handling costs and wasted material be recognized as current−period charges
regardless of whether they meet the criterion of “so abnormal”. In addition, this Statement requires that allocation of fixed production
overhead to the costs of conversion be based on the normal capacity of the production facilities. This pronouncement will be effective
for the Company in fiscal 2006. Adoption of SFAS 151 is not expected to have a material impact on the Company’s financial position
or results of operations.
Reclassifications. Certain prior year amounts have been reclassified in order to conform to the 2004 presentation.
NOTE 2. Derivative Instruments
The Company generates revenues in U.S. dollars but incurs a portion of its operating expenses in various foreign currencies, primarily
the Canadian dollar. To minimize the short−term impact of foreign currency fluctuations on the Company’s operating expenses, the
Company uses currency forward contracts.
Currency forward contracts that are used to hedge exposures to variability in forecasted foreign currency cash flows are designated as
cash flow hedges. The maturities of these instruments are less than twelve months. For these derivatives, the gain or loss from the
effective portion of the hedge is initially reported as a component of other comprehensive income in stockholders’ equity and
subsequently reclassified to earnings in the same period in which the hedged transaction affects earnings. The gain or loss from the
ineffective portion of the hedge is recognized as interest income or expense immediately.
At December 31, 2004, the Company had six currency forward contracts outstanding that qualified and were designated as cash flow
hedges. The U.S. dollar notional amount of these six contracts was $66.3 million and the contracts had a fair value of $2.0 million.
No portion of the hedging instrument’s gain was excluded from the assessment of effectiveness and the ineffective portions of hedges
had no impact on earnings.
NOTE 3. Restructuring and Other Costs
In response to the severe economic downturn in the semiconductor industry in 2001, PMC implemented two restructuring plans aimed
at focusing development efforts on key projects and reducing operating costs. By the first quarter of 2003, the Company was still
operating in a
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