8x8 2014 Annual Report Download - page 57

VSOE generally exists only when the Company sells the deliverable separately, on more than a limited basis, at prices within a relatively narrow
range. When VSOE cannot be established, the Company attempts to establish the selling price of deliverables based on relevant TPE. TPE is
determined based on manufacturer's prices for similar deliverables when sold separately, when possible. When the Company is unable to
establish selling price using VSOE or TPE, it uses a BESP for the allocation of arrangement consideration. The objective of BESP is to
determine the price at which the Company would transact a sale if the product or service was sold on a stand-
alone basis. BESP is generally used
for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings. The Company determines BESP for a
product or service by considering multiple factors including, but not limited to:
4 the price list established by its management which is typically based on general pricing practices and targeted gross margin of products
and services sold; and
4 analysis of pricing history of new arrangements, including multiple element and stand-alone transactions.
In accordance with the guidance of ASC 605-25, when the Company enters into revenue arrangements with multiple deliverables the Company
allocates arrangement consideration, including activation fees, among the 8x8 IP telephones and subscriber services based on their relative
selling prices. Arrangement consideration allocated to the IP telephones that is fixed or determinable and that is not contingent on future
performance or future deliverables is recognized as product revenues during the period of the sale less the allowance for estimated returns during
the 30-day trial period. Arrangement consideration allocated to subscriber services that is fixed or determinable and that is not contingent on
future performance or future deliverables is recognized ratably as service revenues as the related services are provided, which is generally over
the initial contract term.
DEFERRED COST OF GOODS SOLD
Deferred cost of goods sold represents the cost of products sold for which the end customer or distributor has a right of return. The cost of the
products sold is recognized contemporaneously with the recognition of revenue, when the subscriber has accepted the service.
CASH, CASH EQUIVALENTS AND INVESTMENTS
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Management
determines the appropriate categorization of its investments at the time of purchase and reevaluates the classification at each reporting date. The
cost of the Company's investments is determined based upon specific identification.
The Company's investments are comprised of mutual funds, commercial paper, corporate debt, municipal securities, asset backed securities,
international government securities and money market funds. At March 31, 2014 and 2013, all investments were classified as available-for-sale
and reported at fair value, based either upon quoted prices in active markets, quoted prices in less active markets, or quoted market prices for
similar investments, with unrealized gains and losses, net of related tax, if any, included in other comprehensive loss and disclosed as a separate
component of consolidated stockholders' equity. Realized gains and losses on sales of all such investments are reported within the caption of
other income, net in the consolidated statements of income and computed using the specific identification method. The Company's investments
in marketable securities are monitored on a periodic basis for impairment. In the event that the carrying value of an investment exceeds its fair
value and the decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the
investment is established. These available-for-sale investments are primarily held in the custody of a major financial institution.
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