3Ware 2004 Annual Report Download - page 77

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APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business
The Company designs, develops and markets technology products for the communications and storage
equipment markets. AMCC’s products are essential for the transport, processing, switching, routing and storage
of information worldwide.
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.
During the year ended March 31, 2004 the Company completed two purchase acquisitions. The accompanying
consolidated financial statements include the results of each business acquired from the date of acquisition. See
Note 2.
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. The Company
regularly evaluates estimates and assumptions related to allowances for doubtful accounts, sales returns and
allowances, warranty reserves, inventory reserves, goodwill and purchased intangible asset valuations and useful
life, deferred income tax asset valuation allowances and restructuring costs. The Company bases its estimates and
assumptions on historical experience and on various other factors that it believes to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. The actual results experienced by the Company may
differ materially and adversely from management’s estimates. To the extent there are material differences
between the estimates and the actual results, future results of operations will be affected.
Revenue Recognition
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 101 “Revenue
Recognition in Financial Statements”,orSAB 101, as well as the recently issued SAB No. 104, “Revenue
Recognition.” The Company recognizes product revenue when the following fundamental criteria are met:
1) there is evidence that an arrangement exists; 2) delivery has occurred; 3) the fee is fixed or determinable; and
4) collectibility is reasonably assured. The Company recognizes revenue 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. Revenue from shipments to distributors with rights of return is
deferred until all return or cancellation privileges lapse. In addition, the Company records reductions to revenue
for estimated allowances such as returns and competitive pricing programs. These estimates are based on our
experience with product returns and the contractual terms of the competitive pricing programs. Shipping terms
are generally FOB shipping point. If actual returns or pricing adjustments exceed the Company’s estimates,
additional reductions to revenue would result.
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.
F-7