Adaptec 2005 Annual Report Download - page 71

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Table of Contents
Fair value of financial instruments. The estimated fair value of financial instruments has been determined by the Company using available market information
and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
The carrying values of cash equivalents, accounts receivable and accounts payable approximate fair value because of their short maturities.
The fair value of the Company’s short-term investments, and investment in bonds and notes are determined using estimated market prices provided for those
securities (see Note 7). The fair value of investments in public companies is determined using quoted market prices for those securities. The fair value of
investments in private entities is not readily determinable due to the illiquid market for these investments. The fair value of the deposits for wafer fabrication
capacity is not readily determinable because the timing of the related future cash flows is not determinable and there is no market for the sale of these deposits.
Our 2.25% senior convertible notes are not listed on any securities exchange or included in any automated quotation system, but have been traded over the
counter, on the Portal Market or under Rule 144 of the Securities Act of 1933. The exchange prices from these trades are not always available to us and may not
be reliable. Trades under the Portal Market do not reflect all trades of the securities and the figures recorded are not independently verified. The price of our
senior convertible notes as quoted by Bloomberg on December 30, 2007 was $103.90 per $100 in face value, resulting in an aggregate fair value of
approximately $233.8 million.
As of and for the year ended December 30, 2007, the use of derivative financial instruments was not material to the results of operations or our financial position
(see “Derivatives and Hedging Activities” in this Note.)
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 30, 2007, approximately 24% (2006—21%) 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 periods 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.
65
Source: PMC SIERRA INC, 10-K, February 22, 2008