Citrix 2005 Annual Report Download - page 49

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feature฀configuration฀ordered฀by฀the฀end-user฀are฀delivered.฀Products฀may฀be฀delivered฀indirectly฀by฀a฀channel฀distributor฀or฀original฀
equipment฀manufacturers฀via฀download฀from฀the฀Company’s฀website฀or฀directly฀to฀the฀end-user฀by฀the฀Company.฀The฀Company’s฀
appliance฀ products฀ are฀ integrated฀ with฀ software฀ that฀ is฀ essential฀ to฀ the฀ functionality฀ of฀ the฀ equipment.฀ The฀ Company฀ provides฀
unspecified฀software฀upgrades฀and฀enhancements฀related฀to฀the฀appliances฀through฀its฀maintenance฀contracts.฀Accordingly,฀for฀
these฀appliances,฀the฀Company฀accounts฀for฀revenue฀in฀accordance฀with฀SOP฀No.฀97-2,฀Software฀Revenue฀Recognition,฀and฀all฀
related฀interpretations,฀as฀described฀in฀detail฀below.
Revenue฀is฀recognized฀when฀it฀is฀earned.฀The฀Company’s฀revenue฀recognition฀policies฀are฀in฀compliance฀with฀SOP฀97-2,฀Software฀
Revenue฀Recognition฀(as฀amended฀by฀SOP฀98-4฀and฀SOP฀98-9)฀and฀related฀interpretations.฀The฀Company’s฀appliance฀products฀
are฀integrated฀with฀software฀that฀is฀essential฀to฀the฀functionality฀of฀the฀equipment฀and฀the฀Company฀provides฀unspecified฀software฀
upgrades฀and฀enhancements฀related฀to฀the฀appliances฀through฀its฀maintenance฀contracts.฀Accordingly,฀for฀these฀appliances,฀the฀
Company฀accounts฀for฀revenue฀in฀accordance฀with฀SOP฀97-2.฀In฀addition,฀the฀Company’s฀online฀services฀revenue฀is฀recognized฀in฀
accordance฀with฀Emerging฀Issues฀Task฀Force฀(“EITF”)฀No.฀00-3,฀Application฀of฀AICPA฀Statement฀of฀Position฀97-2฀to฀Arrangements฀
That฀Include฀the฀Right฀to฀Use฀Software฀Stored฀on฀Another฀Entity’s฀Hardware.฀The฀Company฀recognizes฀revenue฀when฀all฀of฀the฀
following฀criteria฀are฀met:฀persuasive฀evidence฀of฀the฀arrangement฀exists;฀delivery฀has฀occurred฀and฀the฀Company฀has฀no฀remaining฀
obligations;฀the฀fee฀is฀fixed฀or฀determinable;฀and฀collectibility฀is฀probable.฀The฀Company฀defines฀these฀four฀criteria฀as฀follows:
•฀ ฀Persuasive฀ evidence฀of฀the฀ arrangement฀exists.฀The฀Company฀recognizes฀ revenue฀ on฀packaged฀products฀ and฀ appliances฀
upon฀shipment฀to฀distributors฀and฀resellers.฀For฀packaged฀product฀and฀appliance฀sales,฀it฀is฀the฀Company’s฀customary฀prac-
tice฀to฀require฀a฀purchase฀order฀from฀distributors฀and฀resellers฀who฀have฀previously฀negotiated฀a฀master฀packaged฀product฀
distribution฀or฀resale฀agreement.฀For฀electronic฀and฀paper฀license฀arrangements,฀the฀Company฀typically฀requires฀a฀purchase฀
order฀from฀the฀distributor,฀reseller฀or฀end-user฀(depending฀on฀the฀arrangement)฀and฀an฀executed฀product฀license฀agreement฀
from฀the฀end-user.฀For฀technical฀support,฀product฀training฀and฀consulting฀services,฀the฀Company฀requires฀a฀purchase฀order฀
and฀an฀executed฀agreement.฀For฀online฀services,฀the฀Company฀requires฀the฀customer฀or฀the฀reseller฀to฀electronically฀accept฀
the฀terms฀of฀an฀online฀services฀agreement฀or฀execute฀a฀contract฀and฀generally฀submit฀a฀purchase฀order.
•฀ ฀Delivery฀has฀occurred฀and฀the฀Company฀has฀no฀remaining฀obligations.฀For฀product฀license฀and฀appliance฀sales,฀the฀Company’s฀
standard฀delivery฀method฀is฀free-on-board฀shipping฀point.฀Consequently,฀it฀considers฀delivery฀of฀packaged฀products฀to฀have฀
occurred฀when฀the฀products฀are฀shipped฀pursuant฀to฀an฀agreement฀and฀purchase฀order.฀The฀Company฀considers฀delivery฀of฀
licenses฀under฀electronic฀licensing฀agreements฀to฀have฀occurred฀when฀the฀related฀products฀are฀shipped฀and฀the฀end-user฀has฀
been฀electronically฀provided฀the฀software฀activation฀keys฀that฀allow฀the฀end-user฀to฀take฀immediate฀possession฀of฀the฀product.฀
For฀product฀training฀and฀consulting฀services,฀the฀Company฀fulfills฀its฀obligation฀when฀the฀services฀are฀performed.฀For฀license฀
updates,฀technical฀support฀and฀online฀services,฀the฀Company฀assumes฀that฀its฀obligation฀is฀satisfied฀ratably฀over฀the฀respective฀
terms฀of฀the฀agreements,฀which฀are฀typically฀12฀to฀24฀months.
•฀ ฀The฀fee฀is฀fixed฀or฀determinable.฀In฀the฀normal฀course฀of฀business,฀the฀Company฀does฀not฀provide฀customers฀the฀right฀to฀a฀
refund฀of฀any฀portion฀of฀their฀license฀fees฀or฀extended฀payment฀terms.฀The฀Company฀sells฀license฀updates฀and฀services,฀which฀
includes฀technical฀support,฀product฀training฀and฀consulting฀services,฀and฀online฀services฀separately฀and฀it฀determines฀vendor฀
specific฀objective฀evidence฀(“VSOE”)฀of฀fair฀value฀by฀the฀price฀charged฀for฀each฀product฀when฀sold฀separately฀or฀applicable฀
renewal฀rates.
•฀ ฀Collectibility฀is฀probable.฀The฀Company฀determines฀collectibility฀on฀a฀customer-by-customer฀basis฀and฀generally฀does฀not฀require฀
collateral.฀The฀Company฀typically฀sells฀product฀licenses฀and฀license฀updates฀to฀distributors฀or฀resellers฀for฀whom฀there฀are฀
histories฀of฀successful฀collection.฀New฀customers฀are฀subject฀to฀a฀credit฀review฀process฀that฀evaluates฀their฀financial฀position฀
and฀ultimately฀their฀ability฀to฀pay.฀Customers฀are฀also฀subject฀to฀an฀ongoing฀credit฀review฀process.฀If฀the฀Company฀determines฀
from฀the฀outset฀of฀an฀arrangement฀that฀collectibility฀is฀not฀probable,฀revenue฀recognition฀is฀deferred฀until฀customer฀payment฀is฀
received฀and฀the฀other฀parameters฀of฀revenue฀recognition฀described฀above฀have฀been฀achieved.฀Management’s฀judgment฀
is฀required฀in฀assessing฀the฀probability฀of฀collection,฀which฀is฀generally฀based฀on฀evaluation฀of฀customer-specific฀information,฀
historical฀experience฀and฀economic฀market฀conditions.
Net฀revenues฀include฀the฀following฀categories:฀Product฀Licenses,฀License฀Updates,฀Online฀Services฀and฀Technical฀Services.฀Product฀
Licenses฀primarily฀represent฀fees฀related฀to฀the฀licensing฀of฀the฀Company’s฀products.฀These฀revenues฀are฀reflected฀net฀of฀sales฀
allowances฀and฀provisions฀for฀stock฀balancing฀return฀rights.฀License฀Updates฀consist฀of฀fees฀related฀to฀the฀Subscription฀Advantage฀
program฀that฀are฀recognized฀ratably฀over฀the฀term฀of฀the฀contract,฀which฀is฀typically฀12–24฀months.฀Subscription฀Advantage฀is฀a฀