n Revenue is generally recognized when persuasive evidence of an arrangement exists, delivery has occurred, the product price is fixed or determinable, collection of the resulting receivable is reasonably assured, and product returns are reasonably estimable. For product sales, revenue is generally recognized upon shipment of the product to our customer in accordance with the title transfer terms of the sales agreement, generally FOB shipping point. In the case of consigned inventory, revenue is recognized when the end customer assumes ownership of the product. Contracts that contain multiple deliverables are evaluated to determine the units of accounting, and the consideration from the arrangement is allocated to each unit of accounting based on the relative selling price and corresponding terms of the contract. We use vendor-specific objective evidence of selling price. When this evidence is not available, we are generally not able to determine third-party evidence of selling price because of the extent of customization among competing products or services from other companies. We record revenue associated with installation services when all contractual obligations are complete. In instances where customer acceptance is required, revenue is deferred until all acceptance criteria have been met. Contracts that include both installation services and product sales are evaluated for revenue recognition in accordance with contract terms. As a result, depending on contract terms, installation services may be considered a separate deliverable or may be considered a combined single unit of accounting with the delivered product. Generally, either the purchaser, ADTRAN, or a third party can perform the installation of our products. Shipping fees are recorded as revenue and the related cost is included in cost of sales.  Revenue is recorded net of discounts.  n A significant portion of Enterprise Networks products are sold in the United States through a non-exclusive distribution network of major technology distributors. These organizations then distribute or provide fulfillment services to an  extensive network of value-added resellers and system integrators. Value-added resellers and system integrators may be  affiliated with us as a channel partner, or they may purchase from the distributor on an unaffiliated basis. Additionally,  with certain limitations, our distributors may return unused and unopened product for stock-balancing purposes when  these returns are accompanied by offsetting orders for products of equal or greater value. n We carry our inventory at the lower of cost or market, with cost being determined using the first-in, first-out method.  We use standard costs for material, labor, and manufacturing overhead to value our inventory. Our standard costs are  updated on at least a quarterly basis and any variances are expensed in the current period; therefore, our inventory costs  approximate actual costs at the end of each reporting period. We write down our inventory for estimated obsolescence or unmarketable inventory by an amount equal to the difference between the cost of inventory and the estimated fair value based upon assumptions about future demand and market conditions. If actual future demand or market  conditions are less favorable than those projected by management, we may be required to make additional inventory  write-downs. Our reserve for excess and obsolete inventory was $23.0 million and $12.0 million at December 31, 2013  and 2012, respectively. Inventory write-downs charged to the reserve were $0.4 million, $0.5 million and $0.7 million for the years ended December 31, 2013, 2012 and 2011, respectively. n The objective of our short-term investment policy is to preserve principal and maintain adequate liquidity with appropriate diversification, while achieving market returns. The objective of our long-term investment policy is principal preservation and total return; that is, the aggregate return from capital appreciation, dividend income, and  interest income. These objectives are achieved through investments with appropriate diversification in fixed and variable  rate income securities, public equity, and private equity portfolios. Our investment policy provides limitations for issuer  concentration, which limits, at the time of purchase, the concentration in any one issuer to 5% of the market value of our  total investment portfolio. We have experienced significant volatility in the market prices of our publicly traded equity  investments. These investments are recorded on the consolidated balance sheets at fair value with unrealized gains and  losses reported as a component of accumulated other comprehensive income, net of tax. The ultimate realized value on  these equity investments is subject to market price volatility.  We have categorized our cash equivalents held in money market funds and our investments held at fair value into  a three-level fair value hierarchy based on the priority of the inputs to the valuation technique for the cash equivalents  and investments as follows: Level 1 – Values based on unadjusted, quoted prices in active markets for identical assets or  liabilities; Level 2 – Values based on inputs other than quoted prices included within Level 1 that are directly or indirectly  observable for the asset or liability; Level 3 – Values based on unobservable inputs for the asset or liability. These inputs  include information supplied by investees. At December 31, 2013, we categorized $53.6 million and $311.5 million of our  available-for-sale investments as Level 1 and Level 2, respectively, and $3.9 million of our cash equivalents as Level 1. At  December 31, 2012, we categorized $47.2 million and $395.9 million of our available-for-sale investments as Level 1 and  Level 2, respectively, and $28.1 million of our cash equivalents as Level 1.  Financial Results 19