Citrix 2013 Annual Report Download - page 77

CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-13
estimate of selling price is established considering multiple factors including, but not limited to, pricing practices in different
geographies and through different sales channels and competitor pricing strategies.
For the Company’s non-software transactions, it allocates the arrangement consideration based on the relative selling
price of the deliverables. For the Company’s hardware appliances, it uses ESP as its selling price. For the Company’s support
and services, it generally uses VSOE as its selling price. When the Company is unable to establish selling price using VSOE for
its support and services, the Company uses ESP in its allocation of arrangement consideration.
The Company’s SaaS products are considered service arrangements per the authoritative guidance; accordingly, the
Company follows the provisions of Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104, Revenue
Recognition, when accounting for these service arrangements. Generally, the Company’s SaaS products are sold separately and
not bundled with the Enterprise and Service Provider division’s products and services.
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. 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 and the impact of any new product releases and projected economic conditions. 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 $2.1 million and $2.6 million at December 31, 2013 and December 31,
2012, respectively. 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 Mobile and Desktop products, which include its
XenDesktop and XenApp products and related services, and anticipates that these products and future derivative products and
product lines based upon this technology will continue to constitute a majority of its revenue. The Company could experience
declines in demand for its Mobile and Desktop products and other products, whether as a result of general economic conditions,
the delay or reduction in technology purchases, new competitive product releases, price competition, lack of success of its
strategic partners, technological change or other factors.
Cost of Net Revenues
Cost of product and license revenues consists primarily of hardware, product media and duplication, manuals, packaging
materials, shipping expense, server capacity costs. In addition, the Company is a party to licensing agreements with various
entities, which give the Company the right to use certain software code in its products or in the development of future products
in exchange for the payment of fixed fees or amounts based upon the sales of the related product. The licensing agreements
generally have terms ranging from one to five years, and generally include renewal options. However, some agreements are
perpetual unless expressly terminated. Royalties and other costs related to these agreements are included in cost of net
revenues. Cost of services and maintenance revenue consists primarily of compensation and other personnel-related costs of
providing technical support and consulting, as well as the Company’s SaaS. Also included in cost of net revenues is
amortization of product related intangible assets which includes acquired core and product technology and associated patents.
Foreign Currency
The functional currency for all of the Company’s wholly-owned foreign subsidiaries in its Enterprise and Service
Provider division is the U.S. dollar. Monetary assets and liabilities of such subsidiaries are remeasured into U.S. dollars at
exchange rates in effect at the balance sheet date, and revenues and expenses are remeasured at average rates prevailing during
the year. The functional currency of the Company’s wholly-owned foreign subsidiaries of its SaaS division is the currency of
the country in which each subsidiary is located. The Company translates assets and liabilities of these foreign subsidiaries at
exchange rates in effect at the balance sheet date. The Company includes accumulated net translation adjustments in equity as a
component of Accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are the result of
exchange rate changes on transactions denominated in currencies other than the functional currency, including U.S. dollars. The
remeasurement of those foreign currency transactions is included in determining net income or loss for the period of exchange.
Remeasurement and foreign currency transaction (losses) gains of approximately $(4.9) million, $(3.3) million and $4.7 million
for the years ended December 31, 2013, 2012, and 2011, respectively, are included in Other (expense) income, net, in the
accompanying consolidated statements of income.