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)arrangement, revenue for all elements of the arrangement is deferred until installation is complete.Revenue from services other than installation is recognized as services are rendered and accepted bythe customer. A number of the Company’s contracts for the supply of products have included paymentsupon the achievement of substantive milestones for Non-Recurring Engineering (‘‘NRE’’) during theproduct development phase. For these contracts, the product development phase constituted a separateearnings process and revenue relating to the NRE payments received has been recognized upon theachievement of the applicable milestones. Up-front fees received on execution of a contract arerecognized over the estimated contract life. Revenue related to NRE payments amounted toapproximately $757, $1,500 and $1,700 in the years ended November 30, 2005, 2004 and 2003respectively.Research and development. Amounts spent by the Company for research and development effortsare recorded as research and development expenses when incurred.Warranty expense. The Company generally offers warranties between one and three years.Estimated future warranty obligations related to product sales are charged to operations in the periodin which the related revenue is recognized. These estimates are based on historical warranty experienceand other relevant information of which the Company is aware. During the years ended November 30,2005, 2004 and 2003, warranty expense was $2,046, $1,561 and $1,291, respectively.Shipping and handling costs. Shipping and handling costs charged to customers are included inrevenues and the associated expense is recorded in cost of revenues for all periods presented.Advertising. Advertising costs are expensed as incurred and amounted to $21, $28, $12 during theyears ended November 30, 2005, 2004, and 2003, respectively.Pensions and 401(k) plan. Retirement benefits are provided for UK and Malaysian employees bydefined contribution pension plans whereby the assets of the plans are held separately from those ofthe Company and are independently administered. The Company also makes contributions to a 401(k)savings plan for U.S. employees. Contributions by the Company to defined contribution pension plansare charged to current income as they become payable and amounted to $3,572, $2,609 and $2,115during the years ended November 30, 2005, 2004 and 2003, respectively.Income taxes. Provision for income taxes is based on income before taxes. Deferred tax assets andliabilities are recognized principally for the expected tax consequences of temporary differencesbetween the tax bases of assets and liabilities and their reported amounts.Net earnings per share. Basic net earnings per share is computed by dividing net income by theweighted-average number of common shares and class B ordinary and preferred ordinary sharesoutstanding, during the period, excluding the dilutive effect of share options. Diluted net earnings pershare gives effect to all potentially dilutive common and ordinary share equivalents outstanding duringthe period. Previously existing Xyratex Group Limited class A ordinary and preferred ordinary and Cordinary shares and options to purchase class A preferred ordinary and class C ordinary shares are notincluded in the computation of basic or diluted net earnings per share since these classes of shareswere subject to repurchase provisions and transferability restrictions which did not lapse until thecompletion of the IPO. Following the completion of the IPO the Xyratex Limited common shares, forF-8