8x8 2003 Annual Report Download - page 40

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are also subject to geopolitical risks, such as political, social, and economic instability, potential hostilities, and
changes in diplomatic and trade relationships, in connection with our international operations. Taiwan in particular
is subject to a high rate of natural disasters, such as earthquakes or typhoons, which could have significant impact on
our suppliers and customers due to a delay in operations within that country. In addition, Taiwan’s tenuous
relationship with mainland China is a source of continuing concern due to potential hostilities. A significant decline
in demand from foreign markets could have a material adverse effect on our business, operating results, and
financial condition.
The location of our headquarters facility subjects us to the risk of earthquakes
Our corporate headquarters is located in the San Francisco Bay area of Northern California, a region known for
seismic activity. A significant natural disaster, such as an earthquake, could have a material adverse impact on our
business, operating results, and financial condition.
We may face interruption of production and services due to increased security measures in response to recent
and potential future terrorist activities
Our business depends on the free flow of products and services through the channels of commerce. Recently, in
response to terrorists’ activities and threats aimed at the United States, transportation, mail, financial and other
services have been slowed or stopped altogether. Further delays or stoppages in transportation, mail, financial or
other services, particularly any such delays or stoppages which harm our ability to obtain an adequate supply of
products from our independent suppliers, could harm our business, results of operations and financial condition.
Furthermore, we may experience an increase in operating costs, such as costs for transportation, insurance and
security as a result of the terrorist activities and potential activities. We may also experience delays in receiving
payments from customers that have been affected by the terrorist activities and potential activities. The United
States economy in general is being adversely affected by terrorist activities and potential terrorist activities. Any
economic downturn could adversely impact our results of operations, impair our ability to raise capital or otherwise
adversely affect our ability to grow our business. Moreover, we cannot determine whether other attacks may occur
in the future and the effects of such attacks on our business.
These risk factors could cause actual results to differ materially from the results anticipated in forward-
looking statements
The reports that we file with the SEC and our other communications may contain forward-looking statements that
involve risks and uncertainties. We consider forward-looking statements to be those statements that describe
intentions, beliefs, and current expectations with respect to future operating performance. Our actual results could
differ materially from those anticipated in our forward-looking statements as a result of certain factors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our financial market risk consists primarily of risks associated with international operations and related foreign
currencies. We derive a significant 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 semiconductor and system vendors are denominated in U.S.
dollars. We have foreign subsidiaries 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.
We invest the majority of our surplus cash and cash equivalents in money market funds that bear variable interest
rates, and, accordingly, fluctuations in interest rates do not have an impact on the fair values of such investments.
However, given the currently low yields on such money market funds and other low-risk governmental and
corporate debt securities, in March 2002 the Company's Board of Directors authorized us to open securities trading
accounts and make investments in other classes of securities that may generate higher returns. The amount allocated
for such investments was $1.0 million to be invested on behalf of 8x8, Inc. at the direction of the Company's
Chairman, Joe Parkinson, Chief Executive Officer, or Chief Financial Officer. Mr. Parkinson has agreed to
personally reimburse 8x8 on a quarterly basis for any losses resulting from his trading activities in order to maintain
a minimum investment account balance of $1.0 million. The Board has been assured of Mr. Parkinson's ability to
cover any such losses; however, should he be unable to do so, it could have a material impact on our cash flows,