Adaptec 2011 Annual Report Download - page 51

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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business. PMC-Sierra, Inc (the "Company" or "PMC") is a semiconductor innovator transforming networks that connect, move and store
digital content. Building on a track record of technology leadership, the Company is driving innovation across storage, optical and mobile networks. PMC's
highly integrated solutions increase performance and enable next generation services to accelerate the network transformation.
Basis of presentation. The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the United
States Securities and Exchange Commission ("SEC") and United States Generally Accepted Accounting Principles ("GAAP"). The Company's 2011 fiscal
year consisted of 53 weeks and fiscal years 2010, and 2009 consisted of 52 weeks and ended on the last Sunday in December. The Company's reporting
currency is the U.S. dollar. The accompanying consolidated financial statements include the accounts of PMC-Sierra, Inc. and any of its subsidiaries. As at
December 31, 2011 and December 26, 2010, all subsidiaries included in these consolidated financial statements were wholly owned by PMC. All inter-
company accounts and transactions have been eliminated.
Estimates. The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for, but not limited to, stock-based
compensation, purchase accounting assumptions including those used to calculate the fair value of intangible assets and goodwill, the valuation of
investments, accounting for doubtful accounts, inventory reserves, depreciation and amortization, asset impairments, sales returns, warranty costs, income
taxes including uncertain tax positions, restructuring costs, assumptions used to measure the fair value of the debt component of our senior convertible notes,
accounting for employee benefit plans, and contingencies (see Note 11. Commitments and Contingencies). Actual results could differ materially from these
estimates.
Cash and cash equivalents, short-term investments and long-term investment securities. Cash equivalents are defined as highly liquid interest-earning
instruments with maturities at the date of purchase of three months or less. Short-term investments are investments with original maturities greater than three
months, but less than one year. Investments with maturities beyond one year are classified as long-term investment securities.
Management classifies investments as available-for-sale or held-to-maturity at the time of purchase and re-evaluates such designation as of each
balance sheet date. Investments classified as held-to-maturity securities are stated at amortized cost with corresponding premiums or discounts amortized
against interest income over the life of the investment. Marketable equity and debt securities not classified as held-to-maturity are classified as available-for-
sale and reported at fair value. The cost of securities sold is based on the specific identification method. Unrealized gains and losses on these investments, net
of any related tax effect are included in equity as a separate component of stockholders' equity. For debt securities, if an impairment is considered other than
temporary, the entire difference between the amortized cost and the fair value is recognized in earnings in the period this determination is made.
Allowance for Doubtful Accounts. The allowance for doubtful accounts is based on the Company's assessment of the collectability of customer
accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, age of the accounts receivable
balances, and economic conditions that may affect a customer's ability to pay.
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.
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