WebEx 2002 Annual Report Download - page 40

WEBEX COMMUNICATIONS, INC.
December 31, 2002, 2001 and 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands except share and per share amounts)
term, the company provides training services, web-page design and set-up services. In addition to subscription
services revenue, WebEx derives revenue from pay-per-use services and telephony charges that are recognized as
the related services are provided.
The Company also enters into reselling arrangements with distribution partners, which purchase and resell
the Company’s services on a revenue sharing, discounted or pay-per-use basis. Revenue under these
arrangements is derived from hosted services provided to end-users and is recognized over the service period
provided that evidence of the arrangement exists, the fee is fixed or determinable and collectibility is reasonably
assured. Initial set up fees received in connection with these arrangements are recognized ratably over the initial
term of the contract. During the initial term, the Company provides training services, web-page design and set-up
services. Service fees are recognized as the services are provided for pay-per-use service arrangements and
ratably over the service period for services provided on a subscription basis through the reseller. The Company’s
reseller arrangements may require guaranteed minimum revenue commitments that are billed in advance to the
reseller. Advance payments received from distribution partners are deferred until the related services are
provided or until otherwise earned by WebEx. WebEx contracts directly with the distribution partner and revenue
is recognized based on amounts charged to the distribution partner.
During 2000, the Company entered into a distribution agreement with a partner whereby it received $1,000
in equity securities of the distribution partner in consideration for services to be provided over the term of the
agreement. The Company accounted for this agreement in accordance with the provisions of EITF Issue
No. 00-8, “Accounting by a Grantee for an Equity Instrument to be Received in Conjunction with Providing
Goods or Services.” During 2002 and 2001, the Company recognized $520 and $480 of revenues related to the
equity consideration, respectively.
Persuasive evidence for each arrangement is represented by a signed contract. The fee is considered fixed or
determinable if it is not subject to refund or adjustment. Collectibility of guaranteed minimum revenue
commitments by resellers is not reasonably assured; thus, revenue from guaranteed minimum commitments is
deferred until services are sold by the reseller to an end-user customer or until the end of the commitment period
and paid by the reseller.
Deferred revenue includes amounts billed to customers for which revenue has not been recognized that
generally results from the following: (1) unearned portion of monthly billed subscription service fees;
(2) deferred subscription and distribution partner set-up fees; and (3) advances received from distribution
partners under revenue sharing arrangements.
(e) Allowance for Doubtful Accounts and Sales Reserves
WebEx records an estimate of sales reserve for losses on receivables resulting from customer cancellations
or terminations as a reduction in revenue at the time of sale. The sales reserve is estimated based on an analysis
of the historical rate of cancellations or terminations. The accuracy of the estimate is dependent on the rate of
future cancellations or terminations being consistent with the historical rate. WebEx records an allowance for
doubtful accounts to provide for losses on receivables due to customer credit risk. Increases to the allowance for
doubtful accounts are charged to general and administrative expense as bad debt expense. Losses on accounts
receivable resulting from customers’ financial distress or failure are charged to the allowance for doubtful
accounts. The allowance is estimated based on an analysis of the historical rate of credit losses. The accuracy of
the estimate is dependent on the future rate of credit losses being consistent with the historical rate.
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