Adaptec 2008 Annual Report Download - page 59

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The carrying values of cash equivalents, accounts receivable and accounts payable approximate fair value
because of their short maturities.
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 Company has incorporated independent market quotes in estimating the fair value of
the debt to be $50.9 million, or $74.50 per $100 face value as of December 28, 2008.
As of and for the year ended December 28, 2008, 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, investment
securities and long-term investments in investment grade financial instruments with high-quality financial
institutions, thereby reducing credit risk concentrations.
At December 28, 2008, there were two distributors that accounted for 14% and 11% of accounts receivables
and three other customers that each accounted for 11%, 11% and 10% of accounts receivables, respectively. At
December 30, 2007, appropriately 24% of accounts receivables 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.
PMC has a two-tier distribution network, distinguishing between major and minor distributors. The
Company currently has one major distributor 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. These distributors are also given
business terms to return a portion of inventory and receive credits for changes in selling prices to end customers.
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 warranty claims against regular mechanical or electrical failure. PMC
maintains accruals for potential returns based on its historical experience.
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