Adaptec 2008 Annual Report Download - page 60

Research and development expenses. The Company expenses research and development (“R&D”) costs as
incurred. R&D costs include payroll and related costs, materials, services and design tools used in product
development, depreciation, and other overhead costs including facilities and computer equipment costs.
Intellectual property (“IP”) purchased from third parties is capitalized and amortized over the expected useful life
of the IP. For the years ended December 28, 2008, December 30, 2007 and December 31, 2006, research and
development expenses were $157.6 million, $159.1 million and $158.7 million.
Product warranties. The Company provides a limited warranty on most of its standard products and accrues
for the expected cost at the time of shipment. The Company estimates its warranty costs based on historical
failure rates and related repair or replacement costs. The following table summarizes the activity related to the
product warranty liability during fiscal 2008, 2007 and 2006:
Year ended
(in thousands)
December 28,
2008
December 30,
2007
December 31,
2006
Balance, beginning of the year ..................... $6,239 $ 4,331 $ 3,997
Accrual for new warranties issued .................. 1,139 2,098 1,541
Reduction for payments .......................... (1,303) (584) (759)
Adjustments related to changes in estimate of warranty
accrual ...................................... (44) 394 (448)
Balance, end of the year .......................... $6,031 $ 6,239 $ 4,331
Other Indemnifications. From time to time, on a limited basis, the Company indemnifies customers, as well
as suppliers, contractors, lessors, and others with whom it has contracts, against combinations of loss, expense, or
liability arising from various triggering events related to the sale and use of Company products, the use of their
goods and services, the use of facilities, the state of assets that we sell and other matters covered by such
contracts, normally up to a specified maximum amount. The Company evaluates estimated losses for such
indemnifications under Statement of Financial Accounting Standard No. 5, Accounting for Contingencies,as
interpreted by Financial Accounting Standard Board (“FASB”) Interpretation No. 45, Guarantor’s Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The
Company has no history of indemnification claims for such obligations and has not accrued any liabilities related
to such indemnifications in the Consolidated Financial Statements.
Stock-based compensation. The Company accounts for all share-based payment awards under Statement of
Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment, (“SFAS 123(R)”). SFAS 123(R)
requires the Company to measure the cost of 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 services are provided in exchange for the award, generally the vesting period. The Company adopted
SFAS 123(R) using the modified prospective transition method and therefore prior period results have not been
restated.
The Company applies the principles of the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) in
connection with SFAS 123(R), which requires all share-based payments to employees, to be recognized in the
financial statements based upon their respective grant-date fair values.
During 2008, the Company recognized $24.8 million in stock-based compensation expense or $0.06 per
share. No domestic tax benefits were attributed to the tax timing differences arising from stock-based
compensation expense because a full valuation allowance was maintained for all domestic deferred tax assets.
See Note 5. Stock-Based Compensation.
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