8x8 2005 Annual Report Download - page 61

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58
Product Warranties
The Company accrues for the estimated costs that may be incurred under its product warranties upon revenue
recognition. Changes in the Company’s product warranty liability during the year ended March 31, 2005 were as
follows (in thousands):
Standby letters of credit
At March 31, 2005, the Company had standby letters of credit totaling $500,000, which were issued to guarantee
certain contractual obligations, and are secured by cash deposits at the Company’s bank. These amounts are
recorded in the restricted cash and other assets line items on the consolidated balance sheets.
Leases
The Company leases its primary facility in Santa Clara, California under a non-cancelable operating lease agreement
that expires in August 2009. The Company also has leased facilities in Arizona, France and Canada. The facility
leases include rent escalation clauses, and require the Company to pay taxes, insurance, and normal maintenance
costs. At March 31, 2005, future minimum annual lease payments under non-cancelable operating leases, net of
sublease income, were as follows (in thousands):
Rent expense for the years ended March 31, 2005, 2004 and 2003, was $394,000, $489,000 and $1,546,000,
respectively.
The Company subleases office space under operating lease agreements expiring at various dates through 2007. The
total future minimum rentals to be received under these noncancelable sublease agreements approximate $27,000 in
fiscal 2006, $18,000 in fiscal 2007 and $12,000 in fiscal 2008.
Legal Proceedings
The Company is also involved in various other legal claims and litigation that have arisen in the normal course of
the Company’s operations. While the results of such claims and litigation cannot be predicted with certainty, the
Company believes that the final outcome of such matters will not have a significant adverse effect on the
Company’s financial position, results of operations or cash flows. However, should the Company not prevail in any
such litigation, its operating results, financial position or cash flows could be adversely impacted.
Regulatory
To date VoIP communication services have been largely unregulated in the United States. Many regulatory actions
are underway or are being contemplated by federal and state authorities, including the Federal Communications
Commission, or FCC, and state regulatory agencies. To date, the FCC has treated Internet service providers as
information service providers. Information service providers are currently exempt from federal and state regulations
governing common carriers, including the obligation to pay access charges and contribute to the universal service
fund. The FCC is currently examining the status of Internet service providers and the services they provide. The
FCC initiated a notice of public rule-making in early 2004 to gather public comment on the appropriate regulatory
environment for IP telephony. In November 2004, the FCC ruled that the VoIP service of a competitor and
Balance at April 1, 2004...................................................
.
$ 194
Accruals for warranties...................................................
.
217
Settlements........................................................................
.
(121)
Changes in estimates.......................................................
.
(103)
Balance at March 31, 2005............................................... $ 187
YEAR ENDING MARCH 31,
2006..................................................................................................................
.
408
2007..................................................................................................................
.
482
2008..................................................................................................................
.
490
2009..................................................................................................................
.
493
2010..................................................................................................................
.
206
Total minimum payments.................................................................... $ 2,079