Adaptec 2005 Annual Report Download - page 68

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Table of Contents
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.
Inventories (net of reserves of $9.8 million and $8.4 million at December 30, 2007 and December 31, 2006, respectively) were as follows:
(in thousands)
December 30,
2007
December 31,
2006
Work-in-progress $ 13,698 $ 17,463
Finished goods 20,548 17,042
$ 34,246 $ 34,505
In fiscal 2007, the Company decreased inventory reserves by $1.5 million (2006 - $2.3 million, 2005 - $1.8 million) for inventory that was scrapped during the
year.
Investments in private entities. The Company has investments in privately traded companies in which it has less than 20% of the voting rights and in which it
does not exercise significant influence. The Company monitors these investments for impairment and makes appropriate reductions in carrying values when
necessary. These investments are included in Investments and other assets on the Company’s balance sheet and are carried at cost, net of write-downs for
impairment.
Investments in public companies. In 2005 the Company had an investment in a publicly traded company in which it had less than 20% of the voting rights and in
which it did not exercise significant influence. These securities were classified as available-for-sale and reported at fair value, based upon quoted market prices,
with the unrealized gains or losses, net of any related tax effect, included as a separate component of stockholders’ equity. The Company sold this investment in
2006 (See Note 7. Investments and Other Assets).
Deposits for wafer fabrication capacity. The Company has wafer supply agreements with two independent foundries. Under these agreements, the Company has
deposits of $5.1 million (2006—$5.1 million) to secure access to wafer fabrication capacity. During 2007, the Company purchased $43.3 million ($42 million
and $34.7 million in 2006 and 2005, respectively) from these foundries. Purchases in any year may or may not be indicative of any future period since wafers are
purchased based on current market pricing and the Company’s volume requirements change in relation to sales of its products.
In each year, the Company is entitled to receive a refund of a portion of the deposits based on the annual purchases from these suppliers compared to the target
levels in the wafer supply agreements. In 2006, PMC renewed its supply agreements through December 30, 2008 with its two main foundries with no changes in
terms. No deposit refunds were received in 2007 and 2006.
Property and equipment, net. Property and equipment is stated at cost, net of write-downs for impairment, and accumulated depreciation. Depreciation is
calculated using the straight-line method over the estimated useful lives of the assets, ranging from two to five years. Leasehold improvements are capitalized
and amortized over the shorter of their estimated useful lives or the lease term.
62
Source: PMC SIERRA INC, 10-K, February 22, 2008