ARUN » Topics » Revenue Recognition

These excerpts taken from the ARUN 10-K filed Oct 7, 2008.
Revenue Recognition
 
The Company’s networking and communications products are integrated with software that is essential to the functionality of the equipment. Further, the Company provides unspecified software upgrades and enhancements related to the equipment through support agreements. Accordingly, the Company accounts for revenue in accordance with Statement of Position No. 97-2, Software Revenue Recognition, and all related amendments and interpretations (“SOP 97-2”).
 
The Company’s revenue is derived primarily from two sources: (i) product revenue, including hardware and software products, and (ii) related professional services and support revenue. Product support typically includes software updates, on a when and if available basis, telephone and internet access to technical support personnel and hardware support. Software updates provide customers with rights to unspecified software product upgrades and to maintenance releases and patches released during the term of the support period. Revenue for support services is recognized on a straight-line basis over the support period, which typically ranges from one year to five years.
 
Typically, the Company’s sales involve multiple elements, such as sales of products that include support. When a sale involves multiple elements, the Company allocates the entire fee from the arrangement to each respective element based on its Vendor Specific Objective Evidence (“VSOE”) of fair value and recognizes revenue when each element’s revenue recognition criteria are met. VSOE of fair value for each element is established based on the price charged when the same element is sold separately. If VSOE of fair value cannot be established for the undelivered element of an agreement and the only undelivered element is support, the entire amount of revenue from the arrangement is deferred and recognized ratably over the period that the support is delivered. Prior to the


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ARUBA NETWORKS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
second quarter of fiscal 2006, the Company had not established VSOE of fair value in accordance with SOP 97-2 at the outset of its arrangements. Accordingly, the Company recognized revenue on its transactions’ entire arrangement fees during this period ratably over the support period, as the only undelivered element was support.
 
Beginning in the second quarter of fiscal 2006, the Company established VSOE of fair value at the outset of its arrangements as it established a new support and services pricing policy, with different service and support offerings than were previously sold and began selling support services separately from its arrangements in the form of support renewals. Accordingly, beginning in the second quarter of fiscal 2006, the Company recognizes product revenue upon delivery using the residual method, assuming that all other revenue recognition criteria were met. As the Company has not been able to establish VSOE on its previous services and support offerings, all transactions prior to the second quarter of fiscal 2006 continue to be recognized ratably over the support period.
 
The Company recognizes revenue only when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable. The Company evaluates each of these criteria as follows:
 
  •  Evidence of an arrangement:  Contracts and/or customer purchase orders are used to determine the existence of an arrangement.
 
  •  Delivery:  Delivery is considered to occur when the ordered equipment and the media containing the licensed programs are provided to a common carrier and title has transferred or, in the case of electronic delivery of the licensed programs, the customer is given access to download the programs. The Company recognizes revenue from indirect sales channels upon persuasive evidence provided by the reseller of a sale to the end customer.
 
  •  Fixed or determinable fee:  The Company assesses whether fees are fixed or determinable at the time of sale. The Company only considers the fee to be fixed or determinable if the fee is not subject to refund or adjustment. The Company’s payment terms may vary based on the country in which the agreement is executed and the credit standing of the individual customer, among other factors. If the arrangement fee is not fixed or determinable, revenue is recognized as amounts become due and payable. In instances where final acceptance of the product, system, or solution is specified by the customer, revenue is deferred until all acceptance criteria have been met.
 
  •  Collection is deemed probable:  Collection is deemed probable if the Company expects that the customer will be able to pay amounts under the arrangement as payments become due. If the Company determines that collection is not probable, it defers the revenue and recognizes the revenue upon cash collection.
 
Shipping charges billed to customers are included in product revenues and the related shipping costs are included in cost of product revenues.
 
Revenue
Recognition



 



The Company’s networking and communications products are
integrated with software that is essential to the functionality
of the equipment. Further, the Company provides unspecified
software upgrades and enhancements related to the equipment
through support agreements. Accordingly, the Company accounts
for revenue in accordance with Statement of Position
No. 97-2,
Software Revenue Recognition, and all related amendments
and interpretations
(“SOP 97-2”).


 



The Company’s revenue is derived primarily from two
sources: (i) product revenue, including hardware and
software products, and (ii) related professional services
and support revenue. Product support typically includes software
updates, on a when and if available basis, telephone and
internet access to technical support personnel and hardware
support. Software updates provide customers with rights to
unspecified software product upgrades and to maintenance
releases and patches released during the term of the support
period. Revenue for support services is recognized on a
straight-line basis over the support period, which typically
ranges from one year to five years.


 



Typically, the Company’s sales involve multiple elements,
such as sales of products that include support. When a sale
involves multiple elements, the Company allocates the entire fee
from the arrangement to each respective element based on its
Vendor Specific Objective Evidence (“VSOE”) of fair
value and recognizes revenue when each element’s revenue
recognition criteria are met. VSOE of fair value for each
element is established based on the price charged when the same
element is sold separately. If VSOE of fair value cannot be
established for the undelivered element of an agreement and the
only undelivered element is support, the entire amount of
revenue from the arrangement is deferred and recognized ratably
over the period that the support is delivered. Prior to the





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Table of Contents





 




ARUBA
NETWORKS, INC.




 




NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)


 



second quarter of fiscal 2006, the Company had not established
VSOE of fair value in accordance with
SOP 97-2
at the outset of its arrangements. Accordingly, the Company
recognized revenue on its transactions’ entire arrangement
fees during this period ratably over the support period, as the
only undelivered element was support.


 



Beginning in the second quarter of fiscal 2006, the Company
established VSOE of fair value at the outset of its arrangements
as it established a new support and services pricing policy,
with different service and support offerings than were
previously sold and began selling support services separately
from its arrangements in the form of support renewals.
Accordingly, beginning in the second quarter of fiscal 2006, the
Company recognizes product revenue upon delivery using the
residual method, assuming that all other revenue recognition
criteria were met. As the Company has not been able to establish
VSOE on its previous services and support offerings, all
transactions prior to the second quarter of fiscal 2006 continue
to be recognized ratably over the support period.


 



The Company recognizes revenue only when persuasive evidence of
an arrangement exists, delivery has occurred, the fee is fixed
or determinable and collectibility is probable. The Company
evaluates each of these criteria as follows:


 














































  • 

Evidence of an arrangement:  Contracts
and/or
customer purchase orders are used to determine the existence of
an arrangement.
 
  • 

Delivery:  Delivery is considered to occur when
the ordered equipment and the media containing the licensed
programs are provided to a common carrier and title has
transferred or, in the case of electronic delivery of the
licensed programs, the customer is given access to download the
programs. The Company recognizes revenue from indirect sales
channels upon persuasive evidence provided by the reseller of a
sale to the end customer.
 
  • 

Fixed or determinable fee:  The Company
assesses whether fees are fixed or determinable at the time of
sale. The Company only considers the fee to be fixed or
determinable if the fee is not subject to refund or adjustment.
The Company’s payment terms may vary based on the country
in which the agreement is executed and the credit standing of
the individual customer, among other factors. If the arrangement
fee is not fixed or determinable, revenue is recognized as
amounts become due and payable. In instances where final
acceptance of the product, system, or solution is specified by
the customer, revenue is deferred until all acceptance criteria
have been met.
 
  • 

Collection is deemed probable:  Collection is
deemed probable if the Company expects that the customer will be
able to pay amounts under the arrangement as payments become
due. If the Company determines that collection is not probable,
it defers the revenue and recognizes the revenue upon cash
collection.


 



Shipping charges billed to customers are included in product
revenues and the related shipping costs are included in cost of
product revenues.


 




This excerpt taken from the ARUN 10-K filed Oct 12, 2007.
Revenue Recognition
 
The Company’s networking and communications products are integrated with software that is essential to the functionality of the equipment. Further, the Company provides unspecified software upgrades and enhancements related to the equipment through support agreements. Accordingly, the Company accounts for revenue in accordance with Statement of Position No. 97-2, Software Revenue Recognition, and all related amendments and interpretations (“SOP 97-2”).
 
The Company’s revenue is derived primarily from two sources: (i) product revenue, including hardware and software products, and (ii) related professional services and support revenue. Product support typically includes software updates, on a when and if available basis, telephone and internet access to technical support personnel and hardware support. Software updates provide customers with rights to unspecified software product upgrades and to maintenance releases and patches released during the term of the support period. Revenue for support services is recognized on a straight-line basis over the support period, which typically ranges from one year to five years.
 
Typically, the Company’s sales involve multiple elements, such as sales of products that include support. When a sale involves multiple elements, the Company allocates the entire fee from the arrangement to each respective element based on its Vendor Specific Objective Evidence (“VSOE”) of fair value and recognizes revenue when each element’s revenue recognition criteria are met. VSOE of fair value for each element is established based on the price charged when the same element is sold separately. If VSOE of fair value cannot be established for the undelivered element of an agreement and the only undelivered element is support, the entire amount of revenue from the arrangement is deferred and recognized ratably over the period that the support is delivered. Prior to the second quarter of fiscal 2006, the Company had not established VSOE of fair value in accordance with SOP 97-2 at the outset of its arrangements. Accordingly, the Company recognized revenue on its transactions’ entire arrangement fees during this period ratably over the support period, as the only undelivered element was support.
 
Beginning in the second quarter of fiscal 2006, the Company established VSOE of fair value at the outset of its arrangements as it established a new support and services pricing policy, with different service and support offerings than were previously sold and began selling support services separately from its arrangements in the form of support renewals. Accordingly, beginning in the second quarter of fiscal 2006, the Company recognizes product revenue upon delivery using the residual method, assuming that all other revenue recognition criteria were met. As the Company had not been able to establish VSOE on its previous services and support offerings, all transactions prior to the second quarter of fiscal 2006 continue to be recognized ratably over the support period.


56


Table of Contents

 
ARUBA NETWORKS, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company recognizes revenue only when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable. The Company evaluates each of these criteria as follows:
 
  •  Evidence of an arrangement:  Contracts and/or customer purchase orders are used to determine the existence of an arrangement.
 
  •  Delivery:  Delivery is considered to occur when the ordered equipment and the media containing the licensed programs are provided to a common carrier and title has transferred or, in the case of electronic delivery of the licensed programs, the customer is given access to download the programs. The Company recognizes revenue from indirect sales channels upon persuasive evidence provided by the reseller of a sale to the end customer.
 
  •  Fixed or determinable fee:  The Company assesses whether fees are fixed or determinable at the time of sale. The Company only considers the fee to be fixed or determinable if the fee is not subject to refund or adjustment. The Company’s payment terms may vary based on the country in which the agreement is executed and the credit standing of the individual customer, among other factors. If the arrangement fee is not fixed or determinable, revenue is recognized as amounts become due and payable. In instances where final acceptance of the product, system, or solution is specified by the customer, revenue is deferred until all acceptance criteria have been met.
 
  •  Collection is deemed probable:  Collection is deemed probable if the Company expects that the customer will be able to pay amounts under the arrangement as payments become due. If the Company determines that collection is not probable, it defers the revenue and recognizes the revenue upon cash collection.
 
Shipping charges billed to customers are included in product revenues and the related shipping costs are included in cost of product revenues.
 
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