Adaptec 2008 Annual Report Download - page 58

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Impairment of long-lived assets. The Company reviews its long-lived assets, other than goodwill, for
impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not
be recoverable. To determine recoverability, the Company compares the carrying value of the assets to the
estimated future undiscounted cash flows. Measurement of an impairment loss for long-lived assets held for use
is based on the fair value of the asset determined through discounted cash flows. Long-lived assets classified as
held for sale are reported at the lower of carrying value and fair value less estimated selling costs. For assets to be
disposed of other than by sale, an impairment loss is recognized when the carrying value is not recoverable and
exceeds the fair value of the asset.
Accrued liabilities. The components of accrued liabilities are as follows:
(in thousands)
December 28,
2008
December 30,
2007
Accrued compensation and benefits ............................. $22,079 $25,114
Other accrued liabilities ....................................... 29,311 28,503
$51,390 $53,617
Foreign currency translation. For all foreign operations, the U.S. dollar is used as the functional currency.
Monetary assets and liabilities in foreign currencies are translated into U.S. dollars using the exchange rate as of
the balance sheet date. Revenues and expenses are translated at average rates of exchange during the year. Gains
and losses from foreign currency transactions are reported separately as Foreign exchange gain (loss) under
Other income (expense) on the Consolidated Statements of Operations.
Derivatives and Hedging Activities. Fluctuating foreign exchange rates may significantly impact PMC’s net
income and cash flows. The Company periodically hedges forecasted foreign currency transactions related to
certain operating expenses. All derivatives are recorded in the balance sheet at fair value. For a derivative
designated as a fair value hedge, changes in the fair value of the derivative and of the hedged item attributable to
the hedged risk are recognized in net income (loss). For a derivative designated as a cash flow hedge, the
effective portions of changes in the fair value of the derivative are recorded in other comprehensive income and
are recognized in net income (loss) when the hedged item affects net (loss) income. Ineffective portions of
changes in the fair value of cash flow hedges are recognized in net income (loss). If the derivative used in an
economic hedging relationship is not designated in an accounting hedging relationship or if it becomes
ineffective, changes in the fair value of the derivative are recognized in net income (loss). During the year ended
December 28, 2008, all hedges were designated as cash flow hedges.
Fair value of financial instruments. The estimated fair value of financial instruments has been determined
by the Company using available market information and appropriate valuation methodologies as prescribed
under Statement of Financial Accounting Standards No. 157, Fair Value Measurements, (“SFAS 157”).
However, considerable judgment is required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
The use of different market assumptions and/or estimation methodologies could have a significant effect on
the estimated fair value amounts. The fair value of the Company’s short-term investments, investment securities,
derivative instruments are estimated using available market information and appropriate valuation. The fair value
of investments in public companies is determined using quoted market prices for those securities. The fair value
of investments in private entities is not readily determinable due to the illiquid market for these investments. The
fair value of the deposits for wafer fabrication capacity is not readily determinable because the timing of the
related future cash flows is not determinable and there is no market for the sale of these deposits (see Note 4. Fair
Value Measurements).
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