Income Taxes Revenue Recognition Other Income (Expense) Stock-Based Compensation  Earnings Per Share Use of Estimates Reclassifications Recently Issued Accounting Standards 26 ADTRAN 2002 Annual Report The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from the difference between financial and tax bases of the company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Revenue is generally recognized upon shipment of the product to the customer in accordance with terms of the sales agreement, or in the case of remote customer located warehouses, upon delivery to the customer. Shipping fees are recorded as revenue and the related cost is included in cost of sales. Revenue is recorded net of discounts. Also, revenue is recorded when the product price is fixed and determinable, collection of the resulting receivable  is probable, and product returns are reasonably estimable. ADTRAN ™ participates in cooperative advertising and market development programs with certain customers. These programs are used to reimburse customers for certain forms of advertising and to provide sales incentives, and in general, allow customers credit up to a specified percentage of their net purchases. The costs associated with  these programs are estimated and accrued at the time of sale, and are included in either marketing expenses or as  a reduction of sales in the accompanying consolidated statements of income. Other income (expense) includes miscellaneous income, gains or losses on foreign currency translations, gains or  losses on the disposal of property, plant, and equipment, and raw material scrap sales. ADTRAN records compensation expense for all stock-based compensation plans using the intrinsic value method in which compensation expense, if any, is measured as the excess of the market price of the stock over the exercise price  of the award on the measurement date (see Note 7). Earnings per common share, and earnings per common share assuming dilution, are based on the weighted average number of common and, when dilutive, common equivalent shares outstanding during the year (see Note 11). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and  liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications have been made to the 2001 and 2000 consolidated financial statements in order to conform  to the 2002 presentation. These reclassifications had no effect on previously reported net income, cash flows from  operations, or total stockholders’ equity. In May 2002, the Financial Accounting Standards Board issued SFAS No. 145, Rescission of FAS Nos. 4, 44, and 64, Amendment of FAS 13, and Technical Corrections as of April 2002 . This statement rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt , and FASB Statement No. 64, Extinguishments of Debt Made  to Satisfy Sinking-Fund Requirements . The statement also rescinds FASB Statement No. 44, Accounting for Intangible  Assets of Motor Carriers , and amends FASB Statement No. 13, Accounting for Leases , to eliminate an inconsistency