Adaptec 2005 Annual Report Download - page 82

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Table of Contents
contracts was $62.2 million and the contracts had a fair value of $2.2 million. No portion of the hedging instrument’s gain or loss was excluded from the
assessment of effectiveness and the ineffective portions of hedges had no impact on earnings.
NOTE 4. Stock-Based Compensation
At December 30, 2007, the Company has two stock-based compensation programs, which are described below. None of the Company’s stock-based awards are
classified as liabilities. The Company did not capitalize any stock-based compensation cost, and recorded compensation expense as follows:
Year ended
(in thousands) December 30, 2007 December 31, 2006
Cost of revenues $ 1,691 $ 1,809
Research and development 16,563 16,210
Selling, general and administrative 17,078 19,889
Total $ 35,332 $ 37,908
The Company received cash of $32.0 million from the exercise of stock-based awards during the year ended December 30, 2007. The total intrinsic value of
stock awards exercised during the year ended December 30, 2007, was $19.4 million.
As of December 30, 2007 there was $41.7 million of total unrecognized compensation cost related to nonvested stock options granted under the Company’s stock
option plans, which is expected to be recognized over a period of 2.3 years. As of December 30, 2007 there was $4.1 million of total unrecognized compensation
cost related to nonvested Restricted Stock Units (“RSUs”) awarded under the Company’s stock option plans, which is expected to be recognized over a period of
3.4 years.
The fair value of the Company’s stock option awards granted to employees during the year ended December 30, 2007 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
76
Source: PMC SIERRA INC, 10-K, February 22, 2008