8x8 2000 Annual Report Download - page 44

8X8, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is the functional currency of the Company's foreign subsidiaries. Exchange gains and losses resulting from transactions
denominated in currencies other than the U.S. dollar are included in the results of operations for the year. To date, such amounts have not been
significant. Total assets of the Company's foreign subsidiaries were $1,644,000, $656,000 and $620,000 as of March 31, 2000, 1999 and 1998,
respectively. The Company does not undertake any foreign currency hedging activities.
INCOME TAXES
Income taxes are accounted for using the asset and liability approach. Under the asset and liability approach, a current tax liability or asset is
recognized for the estimated taxes payable or refundable on tax returns for the current year. A deferred tax liability or asset is recognized for
the estimated future tax effects attributed to temporary differences and carryforwards. If necessary, the deferred tax assets are reduced by the
amount of benefits that, based on available evidence, are not expected to be realized.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash
equivalents, short-term investments and trade accounts receivable. The Company places its cash and cash equivalents and short-term
investments primarily in market rate accounts with reputable financial institutions. The Company has not experienced any material losses
relating to any investment instruments. The Company sells its products to OEMs and distributors throughout the world. The Company performs
ongoing credit evaluations of its customers' financial condition and maintains an allowance for uncollectible accounts receivable based upon
the expected collectibility of all accounts receivable. At March 31, 2000, two customers accounted for 16% and 14% of accounts receivable,
respectively. At March 31, 1999, two customers accounted for 20% and 10% of accounts receivable, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments is determined by the Company, using available market information and valuation
methodologies considered to be appropriate. However, considerable judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair
value amounts. The carrying amounts of the Company's cash equivalents, short-term investments, accounts receivable, and nonmarketable
equity investments, approximate their fair values due to their short maturities. The fair value of the Company's convertible subordinated
debentures (see Note 7) of $7.7 million has been estimated using discounted cash flow analysis, based on the incremental borrowing rate
currently available to the Company for a loan with similar terms and maturity.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," and related interpretations thereof. The Company provides
additional pro forma disclosures as
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