8x8 2009 Annual Report Download - page 58

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prevailing during the year. If the functional currency is the local currency, resulting translation adjustments are reflected as a
separate component of stockholders' equity. If the functional currency is the U.S. dollar, resulting conversion adjustments are
included in the results of operations. Foreign currency transaction gains and losses, which have been immaterial, are also
included in results of operations. Total assets of the Company's foreign subsidiaries were $150,000, $44,000 and $45,000 as of
March 31, 2009, 2008 and 2007, respectively. At March 31, 2009, the U.S. dollar was the functional currency for all foreign
subsidiaries. The Company does not undertake any foreign currency hedging activities.
INCOME TAXES
Income taxes are accounted for using the asset and liability approach. Under the asset and liability approach, a current tax
liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current year. A deferred tax
liability or asset is recognized for the estimated future tax effects attributed to temporary differences and carryforwards. If
necessary, the deferred tax assets are reduced by the amount of benefits that, based on available evidence, it is more likely than
not expected to be realized.
CONCENTRATIONS
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of
cash and cash equivalents, investments and trade accounts receivable. The Company has cash equivalents and investment
policies that limit the amount of credit exposure to any one financial institution and restricts placement of these funds to
financial institutions evaluated as highly credit-worthy. The Company has not experienced any material losses relating to its
investment instruments. However, in February 2008, two auction rate securities held by the Company failed to auction due to
sell orders exceeding buy orders. In March 2008, the Company sold its remaining two auction rate securities for less than par
value which resulted in a loss of $180,000.
The Company sells its products to consumers and distributors and OEMs. The Company performs ongoing credit evaluations
of its customers' financial condition and generally does not require collateral from its customers. For the year ended March 31,
2009, the Company recorded a $0.3 million provision for doubtful accounts related to one customer. For each of the two years
ended March 31, 2008, the Company experienced minimal write-offs for bad debts and doubtful accounts. At March 31, 2009,
one customer accounted for 32% of accounts receivable. At March 31, 2008, four customers accounted for 31%, 17%, 14%
and 12% of accounts receivable.
The Company outsources the manufacturing of its hardware products to independent contract manufacturers. The inability of
any contract manufacturer to fulfill supply requirements of the Company could materially impact future operating results,
financial position or cash flows. If any of these contract manufacturers fail to perform on their obligations to the Company,
such failure to fulfill supply requirements of the Company could materially impact future operating results, financial position
and cash flows.
The Company also relies primarily on two third party network service providers to provide telephone numbers and public
switched telephone network (PSTN) call termination and origination services for its customers. If these service providers
failed to perform their obligations to the Company, such failure could materially impact future operating results, financial
position and cash flows.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments is determined by the Company using available market information and
valuation methodologies considered to be appropriate. The carrying amounts of the Company's cash and cash equivalents,
accounts receivable and accounts payable approximate their fair values due to their short maturities. The Company’ s
investments are carried at fair values.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Effective April 1, 2006, the Company accounts for its employee stock options and stock purchase rights granted under the 1996
Stock Plan, 1996 Director Option Plan, 1999 Nonstatutory Stock Option Plan and the 2006 Stock Plan and stock purchase
rights under the 1996 Employee Stock Purchase Plan (“Purchase Plan”) under the provisions of Statement of Financial
Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 123(R)”), Financial Accounting Standards Board
(“FASB”) Technical Bulletin 97-1, “Accounting under Statement 123 for Certain Employee Stock Purchase Plans with a Look-
Back Option” and Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”), No. 107. Under the