Citrix 2007 Annual Report Download - page 87

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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
costs incurred subsequent to achieving technological feasibility have not been significant and substantially all
software development costs have been expensed as incurred.
The Company accounts for software developed for internal use pursuant to the American Institute of
Certified Public Accountants Statement of Position (“SOP”) No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. Pursuant to SOP No. 98-1, the Company capitalizes external
direct costs of materials and services used in the project and internal costs such as payroll and benefits of those
employees directly associated with the development of internal use software and software developed related to its
online service offerings. The amount of costs capitalized in 2007 and 2006 relating to internal use software was
$26.3 million and $18.7 million, respectively. These costs are being amortized over the estimated useful life of
the software, which is generally 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 software revenue recognition policies are in
compliance with SOP 97-2 and related amendments and interpretations. In addition, the Company’s online
services are considered service arrangements in accordance with EITF Issue No. 00-3, Application of AICPA
Statement of Position 97-2, Software Revenue Recognition, to Arrangements That Include the Right to Use
Software Stored on Another Entity’s Hardware. In addition,because we provide our applications as a service, we
follow the provisions of Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104,
Revenue Recognition.
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 collectability 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
F-13