3Ware 2002 Annual Report Download - page 60

APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business
The Company designs, develops, manufactures and markets high-performance, high-bandwidth silicon IC
solutions for the world’s wide area networks.
Basis of Presentation
The consolidated financial statements include all the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the
United States requires management 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, inventory valuation, costs of future product returns
under warranty, the valuation of deferred income taxes, the fair value and useful lives of intangible assets and the
valuation of strategic equity investments. Actual results could differ from those estimates.
Revenues
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 101 “Revenue
Recognition in Financial Statements” (“SAB 101”). SAB 101 requires that four basic criteria be met before
revenue can be recognized: 1) evidence an arrangement exists; 2) delivery has occurred; 3) the fee is fixed or
determinable; and 4) collectability is reasonably assured. Revenue is recognized upon determination that all
criteria for revenue recognition have been met. The criteria are usually met at the time of product shipment,
except for shipments to distributors with rights of return. Shipments to distributors with rights of return are
deferred until all return and cancellation privileges lapse. In addition, reductions to revenue are recorded for
estimated allowances such as returns and competitive pricing programs.
Cash and Cash Equivalents
Cash and cash equivalents consist of money market type funds and highly liquid debt instruments with
original maturities of three months or less at the date of purchase.
Short-Term Investments
The Company defines short-term investments as income-yielding securities which can be readily converted to
cash. Short-term investments consist of United States Treasury notes, obligations of U.S. government agencies,
State, Municipal and County governments notes and bonds and corporate bonds. The Company accounts for its
short-term investments under Statement of Financial Accounting Standard (“SFAS”) No. 115, “Accounting for
Certain Investments in Debt and Equity Securities”. Management determines the appropriate classification of such
securities at the time of purchase and re-evaluates such classification as of each balance sheet date. The investments
which are classified as available-for-sale are adjusted to market value at each period end with the offsetting gain or
loss reflected as a separate component of stockholders’ equity, net of tax. In addition, these investments are adjusted
for amortization of premiums and discounts to maturity and such amortization is included in interest income.
Realized gains and losses and declines in value judged to be other than temporary are determined based on the
specific indentification method and are reported in the statement of operations.
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