8x8 2005 Annual Report Download - page 52

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PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and
amortization are computed using the straight-line method. Estimated useful lives of three years are used for
equipment and software and five years for furniture and fixtures. Amortization of leasehold improvements is
computed using the shorter of the remaining facility lease term or the estimated useful life of the improvements.
Property and equipment at March 31, 2005 and 2004 was comprised of the following:
Maintenance, repairs and ordinary replacements are charged to expense. Expenditures for improvements that extend
the physical or economic life of the property are capitalized. Gains or losses on the disposition of property and
equipment are recorded in the loss from operations.
IMPAIRMENT OF LONG-LIVED ASSETS
8x8 reviews the recoverability of its long-lived assets, such as plant and equipment when events or changes in
circumstances occur that indicate that the carrying value of the asset or asset group may not be recoverable. The
assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset or
asset group from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related
operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for
the difference between estimated fair value and carrying value. The measurement of impairment requires
management to estimate future cash flows and the fair value of long-lived assets.
WARRANTY EXPENSE
The Company accrues for estimated product warranty cost upon revenue recognition. Accruals for product
warranties are calculated based on the Company’s historical warranty experience adjusted for any specific
requirements.
RESEARCH AND SOFTWARE DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred. Software development costs incurred prior to
the establishment of technological feasibility are included in research and development and are expensed as
incurred. The Company defines establishment of technological feasibility as the completion of a working model.
Software development costs incurred subsequent to the establishment of technological feasibility through the period
of general market availability of the product are capitalized, if material. To date, all software development costs
have been expensed as incurred. In accordance with American Institute of Certified Public Accountants Statement
of Position No. 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” the
Company capitalizes purchase and implementation costs of internal use software.
March 31,
2005 2004
(in thousands)
Raw materials and work-in-process..........................................................
.
$1,267$ 57
Finished goods............................................................................................
.
333 41
$1,600$ 98
March 31,
2005 2004
(in thousands)
Machinery and computer equipment........................................................ $ 3,372 $ 4,233
Furniture and fixtures..................................................................................
.
121 693
Licens ed software........................................................................................ 1,059 2,613
Leasehold improvements............................................................................ 172 903
4,724 8,442
Less: accumulated depreciation and amortization....................................
.
(2,936) (8,284)
$ 1,788 $ 158