3Ware 2005 Annual Report Download - page 73

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APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over
the options’ vesting periods. The Company’s pro forma information under SFAS 123 and SFAS 148 is as
follows:
Fiscal Years Ended March 31,
2005 2004 2003
(In thousands, except per share amounts)
Net loss—as reported ......................................... $(127,373) $(104,877) $ (745,541)
Plus: Reported stock-based compensation ......................... 9,340 21,203 131,886
Less: Fair value stock-based compensation ........................ (94,000) (340,970) (435,940)
Net loss—pro forma .......................................... $(212,033) $(424,644) $(1,049,595)
Reported basic and diluted loss per share .......................... $ (0.41) $ (0.34) $ (2.47)
Pro forma basic and diluted loss per share ......................... $ (0.69) $ (1.39) $ (3.48)
The Company evaluates the assumptions used to value stock awards under SFAS 123 on a quarterly basis.
Based on guidance provided in SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”), and SAB
No. 107, Share-Based Payment, in the three months ended March 31, 2005 the Company refined its volatility
assumption from 0.92% to 0.60% based on historical data over the estimated life of the option. The Company
believes that its current assumptions generate a more representative estimate of fair value.
In December 2004 the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”),
which is a revision of SFAS 123. SFAS 123R requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the financial statements based on their fair values and does not
allow the previously permitted pro forma disclosure as an alternative to financial statement recognition.
SFAS 123R supersedes APB 25 and related interpretations and amends SFAS No. 95, Statement of Cash Flows.
SFAS 123R is scheduled to be effective beginning in the first quarter of fiscal 2007. SFAS 123R allows for either
prospective recognition of compensation expense or retroactive recognition, which may date back to the original
issuance of SFAS 123 or only to interim periods in the year of adoption. The Company is currently evaluating
these transition methods.
The adoption of the SFAS 123R fair value method will have a significant impact on the Company’s reported
results of operations, although it will have no impact on the Company’s overall financial position. The impact of
adoption of SFAS 123R cannot be predicted at this time because that will depend on the fair value and number of
share-based payments granted in the future. However, had the Company adopted SFAS 123R in prior periods, the
magnitude of the impact of that standard would have approximated the impact of SFAS 123 assuming the
application of the Black-Scholes model as illustrated in the table above.
Derivative Financial Instruments
The Company uses foreign exchange forward contracts to hedge expense commitments that are
denominated in currencies other than the US dollar. The purpose of the Company’s foreign currency hedging
activities is to fix the dollar value of specific commitments and payments to foreign vendors. At March 31, 2005,
the Company had foreign exchange contracts with a notional value of $9.1 million outstanding. The Company
accounts for derivatives pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended. This standard requires that all derivative instruments be recognized in the financial
statements and measured at fair value regardless of the purpose or intent for holding them. The classification of
gains and losses resulting from changes in the fair values of derivatives is dependent on the intended use of the
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