8x8 2006 Annual Report Download - page 56

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beginning of the year of adoption or for all periods presented) to reflect the SFAS No. 123 amounts in the income
statement.
In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107
(“SAB 107”) which provides guidance regarding the application of SFAS No. 123(R). SAB 107 expresses views of
the staff regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides the
staff’s views regarding the valuation of share-based payment arrangements for public companies. In particular, SAB
107 provides guidance related to share-based payment transactions with non-employees valuation methods
(including assumptions such as expected volatility and expected term), the accounting for certain redeemable
financial instruments issued under share-based payment arrangements, the classification of compensation expense,
first-time adoption of SFAS No. 123(R) in an interim period, capitalization of compensation cost related to share-
based payment arrangements, the accounting for income tax effects of share-based payment arrangements upon
adoption of SFAS No. 123(R), the modification of employee share options prior to adoption of SFAS No.
123(R) and disclosures in Management’s Discussion and Analysis (“MD&A”) subsequent to adoption of SFAS
No. 123(R).
On April 14, 2005, the SEC approved a rule that delays the effective date for SFAS No. 123(R) to annual periods
beginning after June 15, 2005. The adoption of SFAS No. 123(R) on April 1, 2006 is expected to have a material
impact on the Company’s consolidated results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections: a Replacement of
Accounting Principles Board Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”). SFAS No. 154
requires retrospective application for voluntary changes in accounting principle unless it is impracticable to do so or
another methodology is required by the standard. Retrospective application refers to the application of a different
accounting principle to previously issued financial statements as if that principle had always been used. SFAS No.
154’s retrospective application requirement replaces the requirement of APB Opinion No. 20 (“Accounting
Changes”) to recognize most voluntary changes in accounting principle by including in net income (loss) of the
period of the change the cumulative effect of changing to the new accounting principle. This Statement defines
retrospective application as the application of a different accounting principle to prior accounting periods as if that
principle had always been used or as the adjustment of previously issued financial statements to reflect a change in
the reporting entity. SFAS No. 154 also redefines restatement as the revising of previously issued financial
statements to reflect the correction of an error. The requirements are effective for accounting changes made in fiscal
years beginning after December 15, 2005 and will only impact the consolidated financial statements in periods in
which a change in accounting principle is made. The Company does not expect that the adoption of SFAS No. 154
in the first quarter of fiscal 2007 will have a material impact on its results of operations and financial condition.
COMPREHENSIVE LOSS
Comprehensive loss, as defined, includes all changes in equity (net assets) during a period from non-owner sources.
The difference between net loss and comprehensive loss is due to unrealized losses on investments classified as
available-for-sale. Comprehensive loss is reflected in the consolidated statements of stockholders' equity. During
fiscal 2006, the Company recorded a reclassification adjustment of $6,000 due to realized gains, which had been
included in comprehensive income for fiscal 2005.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the current year presentation.