Adaptec 2010 Annual Report Download - page 59

As of and for the year ended December 26, 2010, the use of derivative financial instruments was not material to the results of
operations or the Company’s financial position (see “Derivatives and Hedging Activities” in this Note).
Concentrations. The Company maintains its cash, cash equivalents, short-term investments, and long-term investment securities
in investment grade financial instruments with high-quality financial institutions, thereby reducing credit risk concentrations.
At December 26, 2010, there was one distributor and one other customer that accounted for 18% and 11% of accounts
receivables, respectively. At December 27, 2009, there was one distributor and one other customer that accounted for 18% and 12%
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 2010, there were three outside wafer
foundries that supplied more than 95% of our semiconductor wafer requirements. In 2009, 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 26, 2010, December 27, 2009, and December 28,
2008 research and development expenses were $187.5 million, $149.2 million, and $157.6 million.
58