Adaptec 2009 Annual Report Download - page 61

Annual Report
At December 27, 2009, there was one distributor and one other customer that accounted for 18% and 12%
of accounts receivables, respectively. 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. 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. In 2009 and 2008, two
outside wafer foundries supplied more than 95% of our semiconductor wafer requirements.
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. There are sales to distributors for which revenues are recognized
on a sell-through basis, utilizing information provided by the distributor. These distributors are 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 these distributors. PMC personnel are often
involved in the sales from these distributors to end customers and the Company may utilize inventory at these
distributors to satisfy product demand by other customers.
PMC recognizes revenues from some 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 or determinable and the amount of future returns and pricing
allowances to be granted in the future can be reasonably estimated and are accrued. Accordingly, revenues are
recorded net of these estimated amounts.
The Company has consignment inventory which is held for specific customers, either at the Company’s
warehouse facility or 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’s product sales are subject to warranty claims against regular mechanical or electrical failure. PMC
maintains accruals for potential returns based on its historical experience.
Research and development expenses. The Company expenses research and development (“R&D”) costs as
incurred. R&D costs include payroll and related costs, materials, services and design tools used in product
development, depreciation, and other overhead costs including facilities and computer equipment costs.
Intellectual property (“IP”) purchased from third parties is capitalized and amortized over the expected useful life
of the IP. For the years ended December 27, 2009, December 28, 2008, and December 30, 2007 research and
development expenses were $149.2 million, $157.6 million, and $159.1 million.
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