Citrix 2012 Annual Report Download - page 78

F-12
Estimated future annual amortization expense is as follows (in thousands):
Year ending December 31,
2013 $ 126,205
2014 118,000
2015 96,368
2016 75,108
2017 47,510
Software Development Costs
The authoritative guidance requires certain internal software development costs related to software to be sold to be
capitalized upon the establishment of technological feasibility. Software development costs incurred subsequent to achieving
technological feasibility have not been significant and substantially all software development costs have been expensed as
incurred.
Internal Use Software
In accordance with the authoritative guidance, the Company capitalizes external direct costs of materials and services and
internal costs such as payroll and benefits of those employees directly associated with the development of new functionality in
internal use software and software developed related to its software as a service (“SaaS”) offerings. The amount of costs
capitalized in 2012 and 2011 relating to internal use software was $51.5 million and $43.3 million, respectively. These costs are
being amortized over the estimated useful life of the software, which is generally three to seven years, and are included in
property and equipment in the accompanying consolidated balance sheets. The total amounts charged to expense relating to
internal use software was approximately $44.5 million, $37.2 million and $24.7 million, during the years ended December 31,
2012, 2011 and 2010, respectively.
Revenue Recognition
Net revenues include the following categories: Product and licenses, Software as a service, License updates and
maintenance and Professional services. Product and license revenues primarily represent fees related to the licensing of the
Company’s software and hardware appliance products. These revenues are reflected net of sales allowances, cooperative
advertising agreements, partner incentive programs and provisions for returns. Shipping charges billed to customers are
included in Product and license revenue and the related shipping costs are included in Cost of product and license revenue.
SaaS revenues consist primarily of fees related to online service agreements, which are recognized ratably over the contract
term, which is typically 12 months. In addition, SaaS revenues may also include set-up fees, which are recognized ratably over
the contract term or the expected customer life, whichever is longer. License updates and maintenance revenues consist of fees
related to the Subscription Advantage program and maintenance fees, which include technical support and hardware and
software maintenance. The Company licenses many of its virtualization products bundled with a one-year contract for its
Subscription Advantage program. Subscription Advantage is a renewable program that provides subscribers with immediate
access to software upgrades, enhancements and maintenance releases when and if they become available during the term of the
contract. Subscription Advantage and maintenance fees are recognized ratably over the term of the contract, which is typically
12 to 24 months. The Company capitalizes certain third-party commissions related to Subscription Advantage renewals. The
capitalized commissions are amortized to Sales, marketing and services expense at the time the related deferred revenue is
recognized as revenue. Hardware and software maintenance and support contracts are typically sold separately. Hardware
maintenance includes technical support, the latest software upgrades and replacement of malfunctioning appliances. Dedicated
account management is available as an add-on to the program for a higher level of service. Software maintenance includes
unlimited support with product version upgrades. Professional services revenues are comprised of fees from consulting services
related to the implementation of the Company’s products and fees from product training and certification, which are recognized
as the services are provided.
The Company recognizes revenue when it is earned and when all of the following criteria are met: persuasive evidence of
the arrangement exists; delivery has occurred or the service has been provided and the Company has no remaining obligations;
the fee is fixed or determinable; and collectability is probable. The Company defines these four criteria as follows:
• Persuasive evidence of the arrangement exists. The Company primarily sells its software products via electronic
licenses and typically requires a purchase order from the distributor, reseller or end-user (depending on the
arrangement) who have previously negotiated a master distribution or resale agreement and an executed product
license agreement from the end-user. For appliance sales, it is the Company’s customary practice to require a
purchase order from distributors and resellers who have previously negotiated a master packaged product distribution
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS