Download Annual Report, 2.44 MB - Xyratex

XYRATEX LTDNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)(U.S. dollars and amounts in thousands, except per share data, unless otherwise stated)2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)Fiscal year. The Company’s fiscal year ends on November 30.Principles of consolidation. The consolidated financial statements include the accounts ofXyratex Ltd and its wholly and majority-owned subsidiaries. Wholly and majority-owned subsidiaries areall entities over which the Group has the power to control the entity’s financial and operating policiesAll significant intercompany accounts and transactions have been eliminated.Use of estimates. The preparation of the consolidated financial statements in conformity withaccounting principles generally accepted in the United States requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingentassets and liabilities at the date of the consolidated financial statements and the reported amount ofrevenues and expenses during the reporting periods. Some of the more significant estimates includeallowances for doubtful accounts, inventory valuation reserves, depreciation, amortization andimpairment of long-lived assets, deferred tax asset valuation allowance and warranty reserves. Actualresults could differ from those estimates.Foreign currency. The U.S. dollar is the functional currency of all operations as most revenues andexpenses are incurred in U.S. dollars. As such, non-monetary assets and liabilities of operations locatedoutside of the U.S. are remeasured into U.S. dollars using historical exchange rates. Monetary assetsand liabilities are remeasured using the current rate at each balance sheet date. Revenue and expensesare generally translated at a monthly exchange rate, being the actual rate at the beginning of eachmonth, except for those expenses related to balance sheet amounts that are remeasured at historicalexchange rates. Gains or losses from foreign currency remeasurement are included in current income.Net foreign currency remeasurement gains (losses) of $500, $(927) and $(764) are included in sellinggeneral and administrative—other, in the years ended November 30, 2005, 2004 and 2003, respectively.Net foreign currency remeasurement gains (losses) of $nil, $1,192 and $(97) are included in provision(benefit) for income taxes in the years ended November 30, 2005, 2004 and 2003, respectively.Comprehensive income (loss). In addition to net income, comprehensive income (loss) includescharges or credits to equity that are not the result of transactions with shareholders. For the Company,this includes unrealized gains and losses on forward foreign currency contracts and foreign currencyoptions. The Company has included components of comprehensive income (loss) within theConsolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss).Revenue recognition. Revenue from product sales is recognized once delivery has occurredprovided that persuasive evidence of an arrangement exists, the price is fixed or determinable, andcollectibility is reasonably assured. Delivery is considered to have occurred when title and risk of losshave transferred to the customer. In certain instances, the Company requires advanced deposits for aportion of the sales price in advance of shipment. These amounts are recorded as deferred revenueuntil the revenue recognition criteria above are met. For sales that include customer-specifiedacceptance criteria, revenue is recognized after the acceptance criteria have been met. For sales thatinclude installation services as part of the arrangement and objective and reliable evidence of their fairvalue is available, such installation services are considered a separate element of the arrangement andtherefore revenue relating to the delivery of equipment is recognized on delivery. Where no objectiveand reliable evidence is available for the fair value of installation services which are part of the overallF-7