8x8 2016 Annual Report Download - page 62

Download and view the complete annual report

Please find page 62 of the 2016 8x8 annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 149

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149

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.
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 Consolidated Statements of Operations.
Construction in progress primarily relates to costs to acquire or internally develop software for internal use not fully completed as of March 31, 2016.
ACCOUNTINGFORLONG-LIVEDASSETS
The Company reviews the recoverability of its long-lived assets, such as property and equipment, definite lived intangibles or capitalized software, when events or
changes in circumstances occur that indicate that the carrying value of the asset or asset group may not be recoverable. Examples of such events could include a
significant disposal of a portion of such assets, an adverse change in the market involving the business employing the related asset or a significant change in the
operation or use of an asset. 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. See Note 5 for further discussion on impairment charges incurred as of March 31,
2016.
GOODWILLANDOTHERINTANGIBLEASSETS
Goodwill and intangible assets with indefinite useful lives are not amortized. Goodwill represents the excess fair value of consideration transferred over the fair
value of net assets acquired in business combinations. The carrying value of goodwill and indefinite lived intangible assets are not amortized, but are tested
annually for impairment and more often if there is an indicator of impairment. The Company has determined that it has two reporting units, and allocates goodwill
to the reporting units for the purposes of the annual test for impairment.
The Company's annual goodwill impairment test is performed on January 1 each year. No goodwill impairment charges were recorded in the periods presented.
Intangible assets with finite useful lives are amortized on a straight-line basis over the periods benefited. Amortization expense for the customer relationship
intangible asset is included in sales and marketing expenses. Amortization expense for technology is included in cost of service revenue.
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,DEVELOPMENTANDSOFTWARECOSTS
The Company accounts for software to be sold or otherwise marketed in accordance with ASC 985-20, CostsofSoftwaretobeSold,LeasedorMarketed(ASC
985-20) which requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. The Company defines
establishment of technological feasibility as the completion of a working model. Software development costs for software to be sold or otherwise marketed
incurred prior to the establishment of technological feasibility are included in research and development and are expensed as incurred. 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.
In fiscal 2016 and 2015, the Company capitalized approximately $0 of software development costs in accordance with ASC 985-20. At March 31, 2016 and 2015,
total capitalized software development costs included in other long-term assets was approximately $0 and $1.0 million, respectively, and accumulated amortization
costs related to capitalized software was approximately $0 million and $0.5 million, respectively.
57