Citrix 2009 Annual Report Download - page 95

CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
technical support services which are recognized ratably over the contract term as well as revenues from product
training and certification, and consulting services revenue related to implementation of the Company’s products,
which is recognized as the services are provided.
The Company licenses most of its software products bundled with a one year contract for license updates
that provide the end-user with unspecified enhancements and upgrades to the licensed product on a when and if
available basis. Customers may also elect to purchase subscriptions for license updates, when not bundled with
the initial product purchase. Technical support, product training or consulting services may be purchased
separately by the customer. Online services are sold separately. The Company allocates revenue to license
updates and any other undelivered elements of the arrangement based on VSOE of fair value of each element and
such amounts are deferred until the applicable delivery criteria and other revenue recognition criteria described
above have been met. The balance of the revenue, net of any discounts inherent in the arrangement, is recognized
at the outset of the arrangement using the residual method as the product licenses are delivered. If management
cannot objectively determine the fair value of each undelivered element based on the VSOE of fair value,
revenue recognition is deferred until all elements are delivered, all services have been performed, or until fair
value can be objectively determined.
In the normal course of business, the Company is not obligated to accept product returns from its
distributors under any conditions, unless the product item is defective in manufacture, but the Company does
provide most of its distributors with stock balancing and price protection rights. Stock balancing rights permit
distributors to return products to the Company up to the forty-fifth day of the fiscal quarter, subject to ordering an
equal dollar amount of its other products prior to the last day of the same fiscal quarter. Price protection rights
require that the Company grants retroactive price adjustments for inventories of its products held by distributors
or resellers if it lowers its prices for such products. Product items returned to the Company under the stock
balancing program must be in new, unused and unopened condition. The Company establishes provisions for
estimated returns, as well as other sales allowances, concurrently with the recognition of revenue. The provisions
are established based upon consideration of a variety of factors, including, among other things, recent and
historical return rates for both specific products and distributors, estimated distributor inventory levels by
product, the impact of any new product releases and projected economic conditions. Actual product returns are
dependent upon future events. The Company continually monitors the factors that influence the pricing of its
products and distributor inventory levels and makes adjustments to the provisions for returns when it believes
actual returns and other allowances could differ from established reserves. The Company’s ability to recognize
revenue upon shipment to distributors is predicated on its ability to reliably estimate future returns. If actual
experience or changes in market conditions impair the Company’s ability to estimate returns, it would be
required to defer the recognition of revenue until the delivery of the product to the end-user. Product returns are
provided for in the consolidated financial statements and have historically been within management’s
expectations. Allowances for estimated product returns amounted to approximately $1.6 million at December 31,
2009 and December 31, 2008. The Company has not reduced and has no current plans to reduce its prices for
inventory currently held by distributors. Accordingly, there were no reserves required for price protection at
December 31, 2009 and December 31, 2008. The Company also records estimated reductions to revenue for
customer programs and incentive offerings including volume-based incentives. The Company could take actions
to increase its customer incentive offerings, which could result in an incremental reduction to revenue at the time
the incentive is offered.
Product Concentration
The Company derives a substantial portion of its revenues from its Desktop Solutions and anticipates that
these products and future derivative products and product lines based upon this technology will continue to
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