Adaptec 2003 Annual Report Download - page 63

price may not be reliable as the figures cannot be independently verified and not all trades are reflected.
As of and for the year ended December 31, 2003, the use of derivative financial instruments was not material to our results of
operations or our financial position (see “Derivatives and Hedging Activities”)
Concentrations. The Company maintains its cash, cash equivalents, short−term investments and long−term investments in investment
grade financial instruments with high−quality financial institutions, thereby reducing credit risk concentrations.
At December 31, 2003, approximately 32% (2002 − 22%) of accounts receivable represented amounts due from one of the Company’s
distributors. The Company believes that this concentration and the concentration of credit risk resulting from trade receivables owing
from high−technology industry customers is substantially mitigated by the Company’s credit evaluation process, relatively short
collection terms and the geographical dispersion of the Company’s sales. The Company generally does not require collateral security
for outstanding amounts.
The Company relies on a limited number of suppliers for wafer fabrication capacity.
Revenue recognition. The Company recognizes product revenue when persuasive evidence of an arrangement exists, delivery has
occurred, the sales price is fixed or determinable, and collectibility is reasonably assured. PMC generates revenues from direct sales,
sales to distributors and sales of consignment inventory.
The Company recognizes revenues on goods shipped directly to customers at the time of shipping as that is when title passes to the
customer and all revenue recognition criteria specified above are met.
PMC has a two−tier distribution network, distinguishing between major and minor distributors. The Company currently has one major
distributor in North America for which it recognizes revenue on a sell−through basis, utilizing information provided by the
distributor. This distributor maintains significantly higher levels of inventory than minor distributors and is given business terms to
return a portion of inventory and receive credits for changes in selling prices to end customers, the magnitude of which, is not known
at the time goods are shipped to this distributor. PMC personnel are often involved in the sales from this distributor to end customers
and the Company may utilize inventory at the major distributor to satisfy product demand by other customers.
PMC recognizes revenues from minor distributors at the time of shipment. At the time of shipment, product prices are fixed and
determinable and the amount of future returns and pricing allowances to be granted in the future can be reasonably estimated and
accrued.
The Company has consignment inventory which is held at the customer’s premises. PMC recognizes revenue on these goods when
the customer uses them in production, as that is when title passes to the customer. These sales from consignment inventory are subject
to the same warranty terms that are applied to direct sales.
PMC product sales are subject to a one−year warranty against regular mechanical or electrical
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