8x8 2002 Annual Report Download - page 49

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assets, liabilities and equity and disclosure of contingent liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. On an on-
going basis, the Company evaluates
its estimates, including, but not limited to, those related to bad debts, investments, goodwill and intangible assets,
income taxes, restructuring and impairment charges, and other contingencies. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results could differ from those estimates under different assumptions or
conditions.
REVENUE RECOGNITION
Product revenue --
The Company recognizes revenue from product sales upon shipment to OEMs and end users
provided that persuasive evidence of an arrangement exists, the price is fixed, title has transferred, collection of
resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining
significant obligations. Reserves for returns and allowances for OEM and end user sales are recorded at the time of
shipment. The Company defers recognition of revenue on sales to distributors and resellers where the right of return
exists until products are resold to the end user.
License and other revenue -- The Company recognizes revenue from license contracts when a non-cancelable, non-
contingent license agreement has been signed, the software product has been delivered, no uncertainties exist
surrounding product acceptance, fees from the agreement are fixed and determinable, and collection is probable. The
Company uses the residual method to recognize revenue when a license agreement includes one or more elements to be
delivered at a future date if evidence of the fair value of all undelivered elements exists. If evidence of the fair value of
the undelivered elements does not exist, revenue is deferred and recognized when delivery occurs. When the Company
enters into a license agreement requiring that the Company provide significant customization of the software products,
the license and consulting revenue is recognized using contract accounting. Revenue from maintenance agreements is
recognized ratably over the term of the maintenance agreement, which in most instances is one year. The Company
recognizes royalties upon notification of sale by its licensees. Revenue from consulting, training, and development
services is recognized as the services are performed.
CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with an original maturity of three months or less to be cash
equivalents. Management determines the appropriate classification of debt and equity securities at the time of purchase
and reevaluates the classification at each reporting date. The cost of the Company's investments is determined based
upon specific identification.
Investments classified as available-for-
sale are reported at fair value, based upon quoted market prices, with unrealized
gains and losses, net of related tax, if any, included in Accumulated Other Comprehensive Loss in the Consolidated
Balance Sheet. At March 31, 2001, the Company classified an investment in marketable equity securities valued at
$388,000 as available-for-
sale. The investment was recorded in Other Current Assets in the Consolidated Balance
Sheet. The Company realized a gain of $131,000 on the sale of this investment during the year ended March 31, 2002.
The Company realized a loss on investments classified as available-for-
sale of approximately $205,000 during the year
ended March 31, 2000. Realized and unrealized gains and losses for all other investments were not significant for the
years ended March 31, 2002, 2001, and 2000.
INVENTORY
Inventory is stated at the lower of standard cost, which approximates actual cost using the first-in, first-
out method, or
market. Inventory at March 31, 2002 and 2001 was comprised of the following:
March 31,
--------------------
2002 2001
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(in thousands)