Adaptec 2008 Annual Report Download - page 67

completion of each project was estimated to determine the discount rates to be applied to the valuation of the
in-process technology. Based upon the level of completion and the risk associated with in-process technology, we
applied discount rates that ranged from 20%—23% to value the projects acquired.
The fair value for each project is as follows:
(in thousands)
Estimated
fair value
EPON products ............................................................ $18,500
AFE projects .............................................................. 2,000
Total in-process research and development .................................. $20,500
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible
assets acquired. In accordance with Statement of Financial Accounting Standard No. 142, Goodwill and Other
Intangible Assets, goodwill will not be amortized but will instead be tested for impairment annually or more
frequently if certain indicators are present.
The pro forma financial information presented below gives effect to the acquisitions of Passave and the
Storage Semiconductor Business as if both acquisitions had occurred as of the beginning of each fiscal year
presented below. If the acquisitions had occurred at the beginning of 2005, the $35.3 million charge for
in-process research and development and acquisition-related costs would have been expensed in 2005.
Amortization of intangible assets would have been higher by $43.3 million, and $6.0 million, in 2005 and 2006,
respectively. In addition, stock-based compensation would have been higher by $17.4 million and $3.9 million in
2005 and 2006, respectively, due to amortization of expense associated with unvested options assumed with
exercise prices below fair market value on the acquisition date.
The pro forma results do not purport to represent what the Company’s results of operations actually would
have been if the transactions had occurred on the date indicated or what the results of operations will be in future
periods.
(in thousands, unaudited)
December 31,
2006
December 31,
2005
Pro forma revenues .......................................... $461,429 $446,387
Pro forma net loss ........................................... (66,454) (64,775)
Pro forma basic and diluted net loss per share ...................... $ (0.33) $ (0.32)
NOTE 3. 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 28, 2008, the Company had twelve currency forward contracts outstanding that qualified and
were designated as cash flow hedges. The U.S. dollar notional amount of these contracts was $43.6 million and
the contracts had a fair value of $4.6 million loss. No portion of the hedging instrument’s gain or loss was
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