8x8 2001 Annual Report Download - page 44

NETERGY NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangible assets are amortized using the straight-line method over lives of two to five years. The Company periodically
evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of goodwill and other intangible
assets may warrant revision or that the remaining balance may not be recoverable. When factors indicate that goodwill and other intangible
assets should be evaluated for possible impairment, the Company uses an estimate of undiscounted future net cash flows over the remaining
life of the asset to determine if impairment has occurred. Assets are grouped at the lowest level for which there are identifiable cash flows that
are largely independent from other asset groups. An impairment in the carrying value of an asset is assessed when the undiscounted, expected
future operating cash flows derived from the asset are less than its carrying value. If the Company determines an asset has been impaired, the
impairment is recorded based on the fair value of the impaired asset. See Note 4 regarding the charge for impairment of intangible assets
recorded in the fourth quarter of fiscal 2001. As of March 31, 2001, accumulated amortization of intangible assets was approximately $1.4
million.
WARRANTY EXPENSE
The Company accrues for the estimated cost that may be incurred under its product warranties upon revenue recognition.
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.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign subsidiaries are translated from their respective functional currencies at exchange rates in effect
at the balance sheet date, and revenues and expenses are translated at average exchange rates prevailing during the year. If the functional
currency is the local currency, resulting translation adjustments are reflected as a separate component of stockholders' equity. If the functional
currency is the United States (U.S.) dollar, resulting conversion adjustments are included in the results of operations. Foreign currency
transaction gains and losses, which have been immaterial, are included in results of operations. Total assets of the Company's foreign
subsidiaries were $3.8 million, $1.6 million, and $656,000 as of March 31, 2001, 2000, and 1999, 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.
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