Citrix 2006 Annual Report Download - page 81

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Citrix Systems, Inc.  Annual Report
• 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 Company sells license updates and services,
which includes technical support, product training
and consulting services, and online services
separately and it determines vendor specific
objective evidence (“VSOE”) of fair value by the
price charged for each of these items when sold
separately or based on applicable renewal rates.
• Collectibility is probable. The Company determines
collectibility on a customer-by-customer basis and
generally does not require collateral. The Company
typically sells product licenses and license updates
to distributors or resellers for whom there are
histories of successful collection. New customers
are subject to a credit review process that evaluates
their financial position and ultimately their ability
to pay. Customers are also subject to an ongoing
credit review process. If the Company determines
from the outset of an arrangement that collectibility
is not probable, revenue recognition is deferred
until customer payment is received and the other
parameters of revenue recognition described above
have been achieved. Management’s judgment is
required in assessing the probability of collection,
which is generally based on evaluation of customer
specific information, historical experience and
economic market conditions.
Net revenues include the following categories: Product
Licenses, License Updates, Online Services and Technical
Services. Product Licenses primarily represent fees
related to the licensing of the Company’s software and
appliance products. These revenues are reflected net of
sales allowances, cooperative advertising agreements
and provisions for stock balancing return rights. License
Updates consist of fees related to the Subscription
Advantage program that are recognized ratably over the
term of the contract, which is typically 12-24 months.
Subscription Advantage is a renewable program that
provides subscribers with immediate access to software
upgrades, enhancements and maintenance releases
when and if they become available during the term of the
contract. Online Services revenues consist primarily of fees
related to online service agreements and are recognized
ratably over the contract term. Technical Services revenues
are comprised of fees from technical support services
which are recognized ratably over the contract term as
well as revenues from product training and certification,
and consulting services revenue related to implementation
of the Company’s products, which is recognized as the
services are provided.
The Company licenses most of its products bundled
with a one year contract for license updates that provide
the end-user with free enhancements and upgrades to
the licensed product on a when and if available basis.
Customers may also elect to purchase subscriptions for
license updates, when not bundled with the initial product
release or purchase, technical support, product training
or consulting services. The Company allocates revenue to
license updates and any other undelivered elements of the
arrangement based on 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 revenue, 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 the 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.
In the normal course of business, the Company does
not permit product returns, but it does provide most of
its distributors with stock balancing and price protection
rights. Stock balancing rights permit distributors to return
products to the Company by the forty-fifth day of the fiscal
quarter, subject to ordering an equal dollar amount of
the Company’s other products prior to the last day of the
same fiscal quarter. Price protection rights require that the
Company grant retroactive price adjustments for inventories
of products held by distributors if it lowers prices for
such products. The Company establishes provisions for
estimated returns for stock balancing and price protection
rights, 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,