Citrix 2014 Annual Report Download - page 80

CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-12
• Persuasive evidence of the arrangement exists. Evidence of an arrangement generally consists of a purchase order
issued pursuant to the terms and conditions of a distributor, reseller or end user 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 assesses collectability based primarily on the creditworthiness of the
customer. 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. 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.
The majority of the Company’s product and license revenue consists of revenue from the sale of software products.
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.
For hardware appliance and software transactions, 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 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 element is sold separately. In determining
VSOE, the Company requires that a substantial majority of the selling prices fall within a reasonable range based on historical
discounting trends for specific products and services. TPE of selling price is established by evaluating competitor products or
services in stand-alone sales to similarly situated customers. However, as the Company’s products contain a significant element
of proprietary technology and its solutions offer substantially different features and functionality, the comparable pricing of
products with similar functionality typically cannot be obtained. Additionally, as the Company is unable to reliably determine
what competitors products’ selling prices are on a stand-alone basis, the Company is not typically able to determine TPE. The
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.