Adaptec 2011 Annual Report Download - page 53

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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 as prescribed under GAAP, for example the Company used the income approach to value certain
investment securities. See Note 7. Investment Securities. 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 use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. The fair
value of the Company's cash equivalents, short-term investments, long-term investment securities, derivative instruments, debt component of its senior
convertible notes, and employee post-retirement healthcare benefits are estimated using available market information and appropriate valuation. 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 (see Note 4. Fair Value
Measurements).
The carrying values of accounts receivable and accounts payable approximate fair value because of their short term to 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 $67.9 million, or $99.38 per $100 face value as of
December 31, 2011.
As of and for the year ended December 31, 2011, 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 31, 2011, there was one distributor that accounted for 21% of accounts receivables, and two other customers that each accounted for 16%
and 11% of accounts receivables, respectively. At December 26, 2010, there was one distributor and one other customer that accounted for 18% and 11% 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 2011 and 2010, there were three outside wafer foundries that
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 sales made both directly to customers and through
distributors.
The Company recognizes revenues on goods shipped directly to customers at the time of shipping, as that is when title passes and all revenue
recognition criteria specified above are met.
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