8x8 2005 Annual Report Download - page 41

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38
with the requirements of Section 404 in a timely manner or with adequate compliance, we might be subject to
sanctions or investigation by regulatory authorities, such as the Securities Exchange Commission or the Nasdaq
SmallCap Market. Further, if our independent auditors are not satisfied with our internal control over financial
reporting or with the level at which it is documented, designed, operated or reviewed, they may decline to attest to
management's assessment or may issue a qualified report identifying a material weakness in our internal controls.
Any such action could adversely affect our financial results and could cause our stock price to decline.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency
Our financial market risk consists primarily of risks associated with international operations and related foreign
currencies. We derive a portion of our revenues from customers in Europe and Asia. In order to reduce the risk from
fluctuation in foreign exchange rates, the vast majority of our sales are denominated in U.S. dollars. In addition,
almost all of our arrangements with our contract manufacturers are denominated in U.S. dollars. We have a foreign
subsidiary and are exposed to market risk from changes in exchange rates. We have not entered into any currency
hedging activities. To date, our exposure to exchange rate volatility has not been significant; however, there can be
no assurance that there will not be a material impact in the future.
Investments
We maintain an investment portfolio of various holdings, types and maturities. These marketable securities are
generally classified as available for sale and, consequently, are recorded on the balance sheet at fair value with
unrealized gains or losses reported as a separate component of accumulated other comprehensive income. Part of
this portfolio includes investments in bank issues, corporate bonds and commercial papers. For additional
information regarding our investment policy, see note 1 of the Notes to Consolidated Financial Statements in Item 8.