3Ware 2000 Annual Report Download - page 28

26 2000
AMCC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash equivalents, short-term investments, accounts receivable, accounts payable, accrued liabilities
and long-term debt approximates fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of
available-for-sale securities and trade receivables. The Company believes that the credit risk in its trade receivables is mit-
igated by the Company’s credit evaluation process, relatively short collection terms and dispersion of its customer base.
The Company generally does not require collateral and has not experienced significant losses on trade receivables from
any particular customer or geographic region for any period presented.
The Company invests its excess cash in debt instruments of the U.S. Treasury, governmental agencies and corporations with
strong credit ratings. The Company has established guidelines relative to diversification and maturities that attempt to main-
tain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and
interest rates. The Company has not experienced any significant losses on its cash equivalents or short-term investments.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted accounting principles requires manage-
ment to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures
made in the accompanying notes to the financial statements. These estimates include assessing the collectability of
accounts receivable, the use and recoverability of inventory, estimates to complete engineering contracts, costs of future
product returns under warranty and provisions for contingencies expected to be incurred. Actual results could differ from
those estimates.
INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. The Company’s inventory
valuation process is done on a part-by-part basis. Lower of cost or market adjustments, specifically identified on a part-
by-part basis, reduce the carrying value of the related inventory and take into consideration reductions in sales prices,
excess inventory levels and obsolete inventory. Once established, these adjustments are considered permanent and are
not reversed until the related inventory is sold or disposed.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over the estimated useful lives of the assets (3 to 7 years)
using the straight line method. Leasehold improvements are stated at cost and amortized over the useful life of the asset.
Property and equipment under capital leases are recorded at the net present value of the minimum lease payments and
are amortized over the useful life of the assets.
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, 2000, the Company has not experienced any
such impairments.
ADVERTISING COST
Advertising costs are expensed as incurred.