Citrix 2006 Annual Report Download - page 80



three to seven years, and are included in property and
equipment in the accompanying consolidated
balance sheets.
Revenue Recognition
The Company markets and licenses products primarily
through multiple channels such as value-added resellers,
channel distributors, system integrators, independent
software vendors, its Websites and original equipment
manufacturers. The Company’s product licenses are
generally perpetual. The Company also separately sells
license updates and services, which may include product
training, technical support and consulting services, as well
as online services.
The Company’s software products are purchased by
medium and small-sized businesses, with a minimal
number of locations, and larger business enterprises
with more complex multiserver environments that deploy
the Company’s software products on a departmental
or enterprise-wide basis. Products may be delivered
indirectly by channel distributors or original equipment
manufacturers or directly to the end-user by the Company
via packaged product or download from the Company’s
Website. The Company’s appliance products are integrated
with software that is essential to the functionality of the
equipment. The Company provides license updates for
appliances, which include unspecified software upgrades
and enhancements through its maintenance contracts.
Accordingly, for these appliances, the Company accounts
for revenue in accordance with SOP No. 97-2, “ Software
Revenue Recognition, (as amended by SOP 98-4 and SOP
98-9)” and all related interpretations, as described in detail
below. The Company’s online services are purchased by
small and medium sized businesses, as well as, individuals
and are centrally hosted on the Company’s Websites.
Revenue is recognized when it is earned. The Company’s
revenue recognition policies are in compliance with
SOP 97-2 and related amendments and interpretations.
In addition, the Company’s online services revenue is
recognized in accordance with Emerging Issues Task
Force (“EITF”) No. 00-3, Application of AICPA Statement
of Position 97-2 to Arrangements That Include the Right to
Use Software Stored on Another Entity’s Hardware. The
Company recognizes revenue when all of the following
criteria are met: persuasive evidence of the arrangement
exists; delivery has occurred and the Company has no
remaining obligations; the fee is fixed or determinable; and
collectibility is probable. The Company defines these four
criteria as follows:
• Persuasive evidence of the arrangement exists.
The Company recognizes revenue on packaged
products and appliances upon shipment to
distributors and resellers. For packaged product
and appliance sales, it is the Company’s customary
practice to require a purchase order from
distributors and resellers who have previously
negotiated a master packaged product distribution
or resale agreement. For electronic and paper
license arrangements, the Company typically
requires a purchase order from the distributor,
reseller or end-user (depending on the arrangement)
and an executed product license agreement from
the end-user. For technical support, product training
and consulting services, the Company requires a
purchase order and an executed agreement. For
online services, the Company 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. For product license
and appliance sales, the Company’s standard
delivery method is free-on-board shipping point.
Consequently, it considers delivery of packaged
products and appliances to have occurred when the
products are shipped pursuant to an agreement and
purchase order. 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 product training and consulting
services, the Company fulfills its obligation when
the services are performed. For license updates,
technical support and online services, the Company
assumes that its obligation is satisfied ratably over
the respective terms of the agreements, which are
typically 12 to 24 months.