Citrix 2012 Annual Report Download - page 79

F-13
or resale agreement. The Company typically recognizes revenue upon shipment for its appliance sales. For
maintenance, technical support, product training and consulting services, the Company requires a purchase order and
an executed agreement. For SaaS, the Company generally requires the customer or the reseller to electronically
accept the terms of an online services agreement or execute a contract.
• Delivery has occurred and the Company has no remaining obligations. 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 hardware appliance sales, the Company’s standard delivery method is free-on-board shipping point.
Consequently, it considers delivery of appliances to have occurred when they are shipped pursuant to an agreement
and purchase order. For SaaS, delivery occurs upon providing the users with their login id and password. For product
training and consulting services, the Company fulfills its obligation when the services are performed. For license
updates and maintenance, the Company assumes that its obligation is satisfied ratably over the respective terms of the
agreements, which are typically 12 to 24 months. For SaaS, the Company assumes that its obligation is satisfied
ratably over the respective terms of the agreements, which are typically 12 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 fees are considered fixed or
determinable upon establishment of an arrangement that contains the final terms of the sale including description,
quantity and price of each product or service purchased. For SaaS, the fee is considered fixed or determinable if it is
not subject to refund or adjustment.
• Collectability is probable. The Company determines collectability 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 typically 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 collectability 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 an evaluation of customer specific information, historical experience and
economic market conditions.
The majority of the Company’s product and license revenue consists of revenue from the sale of stand-alone software
products. Stand-alone software sales generally include a perpetual license to the Company’s software and is subject to the
industry specific software revenue recognition guidance. In accordance with this guidance, the Company allocates revenue to
license updates related to its stand-alone software and any other undelivered elements of the arrangement based on vendor
specific objective evidence (“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 revenues, 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 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.
The Company’s hardware appliances contain software components that are essential to the overall functionality of the
products. For hardware appliance transactions entered into prior to January 1, 2011, revenue for arrangements with multiple
elements, such as sales of products that included services, was allocated to each element using the residual method based on the
VSOE of the fair value of the undelivered items pursuant to the authoritative guidance. Under the residual method, the amount
of revenue allocated to delivered elements equals the total arrangement consideration less the aggregate fair value of any
undelivered elements. If VSOE of one or more undelivered items does not exist, revenue from the entire arrangement is
deferred and recognized at the earlier of: (i) delivery of those elements or (ii) when fair value can be established unless
maintenance is the only undelivered element, in which case, the entire arrangement fee is recognized ratably over the
contractual support period.
For hardware appliance transactions entered into subsequent to January 1, 2011, the arrangement consideration is
allocated to stand-alone software deliverables as a group and the non-software deliverables based on the relative selling prices
using the selling price hierarchy in the amended revenue recognition guidance. The selling price hierarchy for a deliverable is
based on its VSOE if available, third-party evidence of selling price ("TPE") if VSOE is not available, or estimated selling
price ("ESP") if neither VSOE nor TPE is available. The Company then recognizes revenue on each deliverable in accordance
with its policies for product and service revenue recognition. VSOE of selling price is based on the price charged when the
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS