Citrix 2014 Annual Report Download - page 81

CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-13
The Company’s Mobility Apps products are considered hosted 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 Mobility Apps
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 $2.2 million and $2.1 million at December 31, 2014 and December 31,
2013, 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 Workspace Services solutions, 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 Workspace Services solutions 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 and 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 Mobility Apps products. 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 Mobility Apps 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 (loss) income. 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 of approximately $7.7 million, $4.9 million
and $3.3 million for the years ended December 31, 2014, 2013, and 2012, respectively, are included in Other (expense) income,
net, in the accompanying consolidated statements of income. Effective in January 2015, the functional currency of the
Company’s wholly-owned foreign subsidiaries of its Mobility Apps division became the U.S. dollar as a result of a
reorganization in the foreign subsidiaries' operations.
Derivatives and Hedging Activities
In accordance with the authoritative guidance, the Company records derivatives at fair value as either assets or liabilities
on the balance sheet. For derivatives that are designated as and qualify as effective cash flow hedges, the portion of gain or loss
on the derivative instrument effective at offsetting changes in the hedged item is reported as a component of Accumulated other