3Ware 2005 Annual Report Download - page 72

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APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Research and Development
Research and development costs are expensed as incurred. Substantially all research and development
expenses are related to new product development and designing significant improvements to existing products.
Advertising Cost
Advertising costs are expensed as incurred.
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. 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”).
In accordance with the requirements of the disclosure-only alternative of SFAS 123, set forth below are the
assumptions used and a pro forma illustration of the effect on net loss and net loss per share if the Company had
valued stock-based awards to employees using the Black-Scholes option pricing model instead of applying the
guidelines provided by APB 25. In arriving at an option valuation, the Black-Scholes model considers, among
other factors, the expected life of the option and the expected volatility of the Company’s stock price.
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,
2005 2004 2003 2005 2004 2003
Expected life (years) ................................. 4.0 4.0 3.9 1.3 1.2 1.1
Risk-free interest rate ................................ 3.8% 2.5% 2.8% 2.2% 1.5% 1.6%
Volatility .......................................... 0.77 1.00 1.03 0.80 1.03 1.03
Dividend yield ..................................... 0% 0% 0% 0% 0% 0%
Weighted average fair value ........................... $2.16 $3.66 $4.22 $1.83 $2.20 $2.19
F-10