8x8 2012 Annual Report Download - page 51

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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 restrict 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.
The Company sells its products to consumers and distributors. The Company performs ongoing credit evaluations of its
customers' financial condition and generally does not require collateral from its customers. For the years ended March 31, 2012
and 2010, the Company wrote-off accounts receivables for approximately $0.2 million and $0.3 million, respectively. For the
year ended March 31, 2011, the Company experienced minimal write-offs for bad debts and doubtful accounts. At March 31,
2012 and 2011, no customer accounted for more than 10% 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 third party network service providers to provide telephone numbers and 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
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, the 2006 Stock Plan, the 2003 Contactual Plan and stock purchase
rights under the 1996 Employee Stock Purchase Plan (collectively “Equity Compensation Plans”) under the provisions of ASC
718 – Stock Compensation. Under the provisions of ASC 718, share-based compensation cost is measured at the grant date,
based on the estimated fair value of the award, and is recognized as an expense over the employee’ s requisite service period
(generally the vesting period of the equity grant), net of estimated forfeitures.
To value option grants and stock purchase rights under the Equity Compensation Plans for stock-based compensation the
Company used the Black-Scholes option valuation model. Fair value determined using the Black-Scholes option valuation
model varies based on assumptions used for the expected stock prices volatility, expected life, risk free interest rates and future
dividend payments. For fiscal years 2012, 2011 and 2010, the Company used the historical volatility of the Company’ s stock
over a period equal to the expected life of the options to their fair value. The expected life assumptions represent the weighted-
average period stock-based awards are expecting to remain outstanding. These expected life assumptions are established
through the review of historical exercise behavior of stock-based award grants with similar vesting periods. The risk free
interest is based on the closing market bid yields on actively traded U.S. treasury securities in the over-the-counter market for
the expected term equal to the expected term of the option. The dividend yield assumption is based on the Company’ s history
and expectation of future dividend payout.
Stock-based compensation expense recognized in the Consolidated Statements of Operations for fiscal 2012, 2011 and 2010,
was measured based on ASC 718 criteria. Compensation expense for all share-based payment awards are recognized using the
straight-line single-option method and includes the impact of estimated forfeitures. ASC 718 requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.