3Ware 2000 Annual Report Download - page 29

27 2000
AMCC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REVENUES
Revenues related to product sales are generally recognized when the products are shipped to the customer. Recognition
of revenues and the related cost of revenues on shipments to distributors that are subject to terms of sale allowing for
price protection 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 and 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 direc-
tor 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 state-
ment 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.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” which establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. Management does not believe this will have a material effect on the Company’s
operations. Implementation of this standard has recently been delayed by the FASB for a 12-month period. The Company
will now adopt SFAS 133 as required for its first quarterly filing of fiscal year 2002.
RECLASSIFICATION
Certain prior period amounts have been reclassified to conform to the current period presentation.