Adaptec 2002 Annual Report Download - page 52

NOTE 1. Summary of Significant Accounting Policies
Description of business. PMC−Sierra, Inc (the "Company" or "PMC") designs, develops, markets and supports
high−speed broadband communications and storage semiconductors and MIPS−based processors for service
provider, enterprise, storage, and wireless networking equipment. The Company offers worldwide technical and
sales support through a network of offices in North America, Europe and Asia.
Basis of presentation. The accompanying Consolidated Financial Statements include the accounts of
PMC−Sierra, Inc. and its wholly owned subsidiaries. All significant inter−company accounts and transactions
have been eliminated. The Company's fiscal year ends on the last Sunday of the calendar year. For ease of
presentation, the reference to December 31 has been utilized as the fiscal year end for all financial
statement captions. Fiscal years 2002 and 2001 each consisted of 52 weeks. Fiscal year 2000 consisted of 53
weeks. The Company's reporting currency is the United States dollar.
Estimates. The preparation of financial statements and related disclosures in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates
are used for, but not limited to, the accounting for doubtful accounts, inventory reserves, depreciation and
amortization, asset impairments, sales returns, warranty costs, income taxes, restructuring costs and other
special charges, and contingencies. Actual results could differ from these estimates.
Cash equivalents, short−term investments and investments in bonds and notes. Cash equivalents are defined as
highly liquid debt instruments with maturities at the date of purchase of 90 days or less. Short−term
investments are defined as money market instruments or bonds and notes with original maturities greater than
90 days, but less than one year. Investments in bonds and notes are defined as bonds and notes with original
or remaining maturities greater than 365 days. Any investments in bonds and notes maturing within one year
of the balance sheet date are reclassified to and reported as short−term investments.
Under Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", management classifies investments as available−for−sale or held−to−maturity at the time
of purchase and re−evaluates such designation as of each balance sheet date. Investments classified as
held−to−maturity securities are stated at amortized cost with corresponding premiums or discounts amortized
against interest income over the life of the investment. Marketable equity and debt securities not
classified as held−to−maturity are classified as available−for−sale and reported at fair value. The cost of
securities sold is based on the specific identification method. Unrealized gains and losses on these
investments, net of any related tax effect are included in equity as a separate component of stockholders'
equity.
Restricted cash. Restricted cash consists of cash pledged with a bank as
collateral for letters of credit issued as security for leased facilities.
Inventories. Inventories are stated at the lower of cost (first−in, first out) or market (estimated net
realizable value). Cost is computed using standard cost, which approximates actual average cost. The Company
provides inventory allowances on obsolete inventories and inventories in excess of twelve−month demand for
each specific part.
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