Adaptec 2010 Annual Report Download - page 44

Download and view the complete annual report

Please find page 44 of the 2010 Adaptec annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 105

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105

that we may consider when determining when to conduct an impairment test include: (i) any future declines in our operating results;
(ii) a decline in the valuation of technology company stocks, including the valuation of our common stock; (iii) a further significant
slowdown in the worldwide economy or the semiconductor industry; or (iv) any failure to meet the performance projections included
in our forecasts of future operating results.
To determine whether impairment exists, we first compare the undiscounted cash flows of the assets to their carrying value. If
the asset’s carrying value exceeds its estimated undiscounted cash flows, we would write the asset to its estimated fair value based on
expected discounted cash flows. Significant management judgment is required in the forecasts of future operating results and discount
rates used in the discounted cash flow method of valuation. It is possible, however, that the plans may change and estimates used may
prove to be inaccurate. If our actual results, or the plans and estimates used in future impairment analyses, are lower than the original
estimates used to assess the recoverability of these assets, we could incur additional impairment charges.
There was no impairment to goodwill or intangible assets in 2010, except for the asset impairment of $4.9 million relating to
certain intangible assets that were made redundant by assets acquired with our purchase of the Channel Storage business from
Adaptec. The carrying value of these assets was no longer recoverable based on expected future cash flows associated with these
assets. Accordingly, the carrying value was written down to zero. This impairment charge was included in the consolidated statement
of operations in research and development expenses. Changes in the estimated fair values of these assets in the future could result in
significant impairment charges or changes to our expected amortization.
The aggregation of operating segments into one reportable segment requires the management to evaluate whether there are
similar expected long-term economic characteristics for each operating segment, and is an area of significant judgment. If the
expected long-term economic characteristics were to become dissimilar, then we could be required to re-evaluate the number of
reportable segments and potentially the goodwill associated with those segments.
Stock-Based Compensation
Since January 1, 2006, we have recognized compensation expense for all share-based payment awards. Under ASC Topic 718,
Compensation—Stock Compensation, we measure the fair value of awards of equity instruments and recognize the cost, net of an
estimated forfeiture rate, on a straight-line basis over the period during which services are provided in exchange for the award,
generally the vesting period.
Calculating the fair value of stock-based compensation awards requires the input of highly subjective assumptions, including the
expected life of the awards and expected volatility of our stock price. Expected volatility is a statistical measure of the amount by
which a stock price is expected to fluctuate during a period. Our estimates of expected volatilities are based on a weighted historical
and market-based implied volatility. In order to determine the expected life of the awards, we use historical data to estimate option
exercises and employee terminations; separate groups of employees that have similar historical exercise behavior, such as directors or
executives, are considered separately for valuation purposes. The expected forfeiture rate applied in calculating stock-based
compensation cost is estimated using historical data and is updated annually.
The assumptions used in calculating the fair value of stock-based awards involve estimates that require management judgment.
If factors change and we use different assumptions, our stock-based compensation expense could change significantly in the future. In
addition, if our actual forfeiture rate is different from our estimate, our stock-based compensation expense could change significantly
in the future.
Restructuring Charges—Facilities
In calculating the cost to dispose of our excess facilities, we had to estimate the amount to be paid in lease termination
payments, the future lease and operating costs to be paid until the lease is terminated, and the
43