Citrix 2009 Annual Report Download - page 93

CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Software Development Costs
The FASB’s authoritative guidance requires certain internal software development costs related to software
to be sold to be capitalized upon the establishment of technological feasibility. Software development costs
incurred subsequent to achieving technological feasibility have not been significant and substantially all software
development costs have been expensed as incurred.
Internal Use Software
In accordance with the FASB’s authoritative guidance, the Company capitalizes external direct costs of
materials and services 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 2009 and 2008 relating to internal use software was $41.5 million and $41.0
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 VARs, VADs,
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 small and medium-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 hardware appliances, the Company accounts for revenue in accordance with authoritative
guidance governing software revenue recognition, 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. The Company’s online services are considered service arrangements per the FASB’s
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.
The Company recognizes revenue when it is earned and when all of the following criteria are met:
persuasive evidence of the arrangement exists; delivery has occurred or the service has been provided 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 and paper license arrangements, the Company typically requires a purchase
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