Citrix 2000 Annual Report Download - page 46

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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS −− (CONTINUED)
The Company has not and has no plan to reduce its prices for inventory currently
held by distributors or resellers; accordingly, there are no reserves for price
protection at December 31, 2000 and 1999.
Revenue from consulting, software maintenance, service, and support
arrangements and training programs and materials, which totaled $30,392,000,
$15,750,000 and $10,531,799 for the years ended December 31, 2000, 1999 and
1998, respectively, is recognized when the services are provided. Such items are
included in net revenues. The costs for providing consulting services are
included in cost of sales. The costs of providing training and services are
included in sales, marketing and support expenses.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). The Company adopted the provisions of SAB 101 in October 2000. SAB 101
does not supersede the software industry specific revenue recognition guidance,
but provides current interpretations of software revenue recognition
requirements. The adoption of SAB 101 did not have a significant effect on the
Company's financial position or results of operations.
Foreign Currency
The functional currency of each of the Company's wholly−owned foreign
subsidiaries is the U.S. dollar. Assets and liabilities of the subsidiaries are
remeasured into U.S. dollars at year−end exchange rates, and revenues and
expenses are remeasured at average rates prevailing during the year. Translation
adjustments and foreign currency transaction gains (losses) of approximately
$(121,000), $(745,000), and $19,000 for the years ended December 31, 2000, 1999
and 1998, respectively are included in interest and other income in the
statements of income.
The Company uses forward foreign exchange contracts that are designated to
reduce a portion of its exposure to foreign currency risk from operational
exposures resulting from changes in foreign currency exchange rates. The
Company's accounting policies for these instruments are based on whether the
instruments meet the Company's criteria for designation as hedging transactions.
The criteria the Company uses for designating an instrument as a hedge include
the instrument's effectiveness in risk reduction and one−to−one matching of
derivative instruments to underlying transactions. Gains and losses on currency
forward contracts for which a firm commitment has been attained are deferred and
recognized in income in the same period that the underlying transactions are
settled. Notional amounts outstanding for forward contracts at December 31, 2000
were $53.0 million. The Company's forward contracts are scheduled to expire in
2001. The Company does not use derivative financial instruments for speculative
or trading purposes.
Cost of Revenues
Cost of revenues includes the cost of media, product packaging and
documentation. The costs of providing consulting services are included in cost
of revenues. The Company is a party to licensing agreements with various
entities, which give the Company the right to use certain software object code
in its products or in the development of future products in exchange for the
payment of a fixed fee or certain amounts based upon the sales of the related
product. The licensing agreements have terms ranging from one to five years, and
generally include renewal options. Royalty expense related to these agreements
is included in cost of revenues. All development costs incurred in connection
with the Development Agreement are expensed as incurred as cost of other
revenues. The Company's cost of revenues exclude amortization of core
technology.
Advertising Expense
The Company expenses advertising costs as incurred. The Company has
cooperative advertising agreements with certain distributors and resellers
whereby the Company will reimburse distributors and resellers for qualified
advertising of Citrix products. Reimbursement is made once the distributor or
reseller provides substantiation of qualified expenditures. The Company
estimates the impact of this program and
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