3Ware 2003 Annual Report Download - page 65

APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Income Taxes
The Company utilizes the liability method of accounting for income taxes as set forth in SFAS No. 109,
“Accounting for Income Taxes”. Under the liability method, deferred taxes are determined based on the
temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax
rates. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will
not be realized.
Stock-Based Compensation
The Company has in effect several stock option plans under which non-qualified and incentive stock options
have been granted to employees and non-employee directors. The Company also has in effect an employee stock
purchase plan (Note 6). The Company accounts for stock-based awards to employees in accordance with
Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and the
related Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation—An
Interpretation of APB Opinion No. 25”. The Company has adopted the disclosure-only alternative of SFAS 123,
“Accounting for Stock-Based Compensation” (“SFAS 123”), as amended by SFAS 148, “Accounting for Stock-
Based Compensation—Transition and Disclosure” (“SFAS 148”).
Pro forma information regarding net income and net income per share is required and has been determined
as if the Company had accounted for its stock-based awards under the fair value method, instead of the guidelines
provided by APB 25. The fair value of the awards was estimated at the date of grant using the Black Scholes
option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully transferable. Option valuation models
require the input of highly subjective assumptions, including the expected life and stock price volatility. Because
the Company’s options have characteristics significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of
management, the existing models do not necessarily provide a reliable single measure of the fair value of its
options.
The per share fair value of options granted in connection with stock option plans and rights granted in
connection with the employee stock purchase plans reported below has been estimated at the date of grant with
the following weighted average assumptions:
Employee Stock Options
Employee Stock
Purchase Plans
Fiscal Years Ended
March 31,
Fiscal Years Ended
March 31,
2001 2002 2003 2001 2002 2003
Expected life (years) ................................ 4.0 4.0 3.9 0.8 0.5 1.1
Risk-free interest rate ............................... 6.0% 4.5% 2.8% 5.0% 3.2% 1.6%
Volatility ......................................... 1.33 1.05 1.03 1.33 1.08 1.03
Dividend yield ..................................... 0% 0% 0% 0% 0% 0%
Weighted average fair value .......................... $52.86 $13.36 $4.22 $21.04 $9.05 $2.19
F-10