3Ware 1999 Annual Report Download - page 31

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IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 121, “Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to Be Disposed Of,” the Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets’ carrying amounts. SFAS No. 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. Through March 31, 1999, the Company has not experienced any such impairments.
ADVERTISING COST
Advertising costs are expensed as incurred.
REVENUES
Revenues related to product sales are generally recognized when the products are shipped to the customer. Recognition of rev-
enues and the related cost of revenues on shipments to distributors that are subject to terms of sale allowing for price protec-
tion and right of return on products unsold by the distributor are deferred until the distributor’s ability to return the products
or its rights to price protection lapse or have been limited. Revenues on engineering design contracts are recognized using the
percentage-of-completion method based on actual cost incurred to date compared to total estimated costs of the project.
Deferred revenue represents both the margin on shipments of products to distributors that will be recognized when the
distributors ship the products to their customers or the right of return has lapsed and billings in excess of estimated earnings
on uncompleted engineering design contracts.
WARRANTY RESERVES
Estimated expenses for warranty obligations are accrued as revenue is recognized. Reserve estimates are adjusted periodically
to reflect actual experience.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Substantially all research and development expenses are related to
new product development, designing significant improvements to existing products and new process development.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued
to Employees” (“APB 25”), and related interpretations in accounting for its employee and director stock options because
the alternative fair value accounting provided for under SFAS No. 123, “Accounting for Stock-Based Compensation”
(“SFAS 123”), requires the use of option valuation models that were not developed for use in valuing employee and director
stock options. Under SFAS 123, compensation cost is determined using the fair value of stock-based compensation determined
as of the grant date and is recognized over the periods in which the related services are rendered. The statement also permits
companies to elect to continue using the current implicit value accounting method specified in APB 25 to account for stock-
based compensation and disclose in the footnotes to the financial statements the pro forma effect of using the fair value method
for its stock-based compensation.
RECLASSIFICATION
Certain prior period amounts have been reclassified to conform to the current period presentation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
29
1999
AMCC