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59
the recognition and measurement principles of APB Opinion No. 25 and related interpretations. The
following table illustrates the effect on net income and earnings per share if we had applied the fair value
recognition provisions of SFAS No. 123 to employee stock-based compensation (in thousands, except per
share data):
Fiscal Year Ended March 31,
2006 2005 2004
Net income—as reported........................................ $34,269 $ 62,790 $ 35,839
Add: Stock-based employee compensation expense included in
reported net income,net of related tax benefit ................. 1,153-54
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax benefit .......................................... (13,389) (12,996 ) (14,890)
Net income—pro forma ......................................... $22,033 $ 49,794 $ 21,003
Earnings per share:
Basic—as reported ......................................... $ 0.55 $ 1.07 $0.63
Basic—pro forma.......................................... $ 0.35 $ 0.85 $0.37
Diluted—asreported ....................................... $ 0.52 $ 1.04 $0.61
Diluted—pro forma........................................ $ 0.34 $ 0.82 $0.36
The fair value of options granted under the stock option plans during the fiscal years ended March 31,
2006, 2005 and 2004, respectively, has been estimated at the date of grant using a Black-Scholes option
pricing model with the followingweighted average assumptions:
Fiscal Year Ended March 31
2006 2005 2004
Dividend yield ................................... 0% 0% 0%
Anticipated volatility ............................. 51% 57% 69%
Weighted average risk-freeinterest rate ............ 4.11% 3.48% 2.60%
Expected lives................................... 3 years 4 years 4 years
The Black-Scholes option pricing model requires the input of highly subjective assumptions, including the
expected stock price volatility. For purposes of the above pro forma disclosure, the fair value of employee
stock-based compensationgranted is amortized over the period(s) in which the related employee services
are rendered. Accordingly, the pro forma stock-based compensation cost for any period will typically relate
to awards granted in both the current period and prior periods.
We have granted common stock warrants to non-employees in connection with the acquisition of licensing
rights for intellectual property. In accordance with EITF No. 96-18, “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring or in Connection with Selling Goods or Services,”
the fair value of common stock warrants granted is determined as of the measurement date and is
capitalized, expensed and amortized consistent with our policies relating to license costs.
Income Taxes. Deferred income taxes are provided for temporary differences between the financial
statement and income tax bases of our assets and liabilities, based on enacted tax rates. A valuation
allowance is provided when it is more likely than not that some portion or all o f the deferred income tax
assets will not be realized.
Basic and Diluted Earnings Per Share.Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted earnings per share is
computed by dividing net income by the weighted average number of common shares outstanding for the
period, increased by common stock equivalents. Common stock equivalents are calculated using the