TMRK » Topics » Revenue recognition and allowance for bad debts

These excerpts taken from the TMRK 10-K filed Jun 9, 2009.
Revenue Recognition and Allowance for Bad Debts
 
Revenues principally consist of monthly recurring fees for colocation, exchange point, managed and professional services fees. Colocation revenues also include monthly rental income for unconditioned space in the NAP of the Americas. Revenues from colocation, exchange point services, and hosting, as well as rental income for unconditioned space, are recognized ratably over the term of the contract. Installation fees and related direct costs are deferred and recognized ratably over the expected life of the customer installation which is estimated to be 36 to 48 months. Managed and professional services are recognized in the period in which the services are provided. Revenues also include equipment resales which are generally recognized in the period in which the equipment is delivered, title transfers and is accepted by the customer. Revenue from contract settlements is generally recognized when collectability is reasonably assured and no remaining performance obligation exists. Taxes collected from customers and remitted to the government are excluded from revenues.
 
In accordance with Emerging Issues Task Force (“EITF”) No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”), when more than one element such as equipment, installation and colocation services


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are contained in a single arrangement, we allocate revenue between the elements based on acceptable fair value allocation methodologies, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a standalone basis and there is objective and reliable evidence of the fair value of the undelivered items. The fair value of the undelivered elements is determined by the price charged when the element is sold separately, or in cases when the item is not sold separately, by using other acceptable objective evidence. Management applies judgment to ensure appropriate application of EITF 00-21, including the determination of whether delivered items have standalone value and the determination of fair value for the multiple deliverables, among others. For those arrangements where the deliverables do not qualify as a separate unit of accounting, revenue from all deliverables are treated as one accounting unit and recognized ratably over the term of the arrangement.
 
Revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the receivable is reasonably assured. We assess collectability based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. We do not request collateral from the customers. If we determine that collectability is not reasonably assured, the fee is deferred and revenue is recognized at the time collection becomes reasonably assured, which is generally upon receipt of cash.
 
We sell certain third-party service contracts and software assurance or subscription products and evaluate whether the subsequent sales of such services should be recorded as gross revenues or net revenues in accordance with the revenue recognition criteria outlined in Staff Accounting Bulletin No. 104, EITF No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” and Financial Accounting Standards Board (“FASB”) Technical Bulletin No. 90-1, “Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts.” We determine whether our role is that of a principal in the transaction and therefore assumes the risks and rewards of ownership or if our role is acting as an agent or broker. Under gross revenue recognition, the entire selling price is recorded as revenue and the cost to the third-party service provider or vendor is recorded as cost of revenues, product and services. Under net revenue recognition, the cost to the third-party service provider or vendor is recorded as a reduction of revenue resulting in net revenue equal to the gross profit on the transaction and there is no cost of revenue.
 
We analyze current economic news and trends, historical bad debts, customer concentrations, customer credit-worthiness and changes in customer payment terms when evaluating revenue recognition and the adequacy of the allowance for bad debts.
 
Our customer contracts generally require us to meet certain service level commitments. If we do not meet required service levels, we may be obligated to provide credits, usually a month of free service.
 
Revenue
Recognition and Allowance for Bad Debts



 



Revenues principally consist of monthly recurring fees for
colocation, exchange point, managed and professional services
fees. Colocation revenues also include monthly rental income for
unconditioned space in the NAP of the Americas. Revenues from
colocation, exchange point services, and hosting, as well as
rental income for unconditioned space, are recognized ratably
over the term of the contract. Installation fees and related
direct costs are deferred and recognized ratably over the
expected life of the customer installation which is estimated to
be 36 to 48 months. Managed and professional services are
recognized in the period in which the services are provided.
Revenues also include equipment resales which are generally
recognized in the period in which the equipment is delivered,
title transfers and is accepted by the customer. Revenue from
contract settlements is generally recognized when collectability
is reasonably assured and no remaining performance obligation
exists. Taxes collected from customers and remitted to the
government are excluded from revenues.


 



In accordance with Emerging Issues Task Force (“EITF”)
No. 00-21,
“Revenue Arrangements with Multiple Deliverables”
(“EITF 00-21”),
when more than one element such as equipment, installation and
colocation services





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are contained in a single arrangement, we allocate revenue
between the elements based on acceptable fair value allocation
methodologies, provided that each element meets the criteria for
treatment as a separate unit of accounting. An item is
considered a separate unit of accounting if it has value to the
customer on a standalone basis and there is objective and
reliable evidence of the fair value of the undelivered items.
The fair value of the undelivered elements is determined by the
price charged when the element is sold separately, or in cases
when the item is not sold separately, by using other acceptable
objective evidence. Management applies judgment to ensure
appropriate application of
EITF 00-21,
including the determination of whether delivered items have
standalone value and the determination of fair value for the
multiple deliverables, among others. For those arrangements
where the deliverables do not qualify as a separate unit of
accounting, revenue from all deliverables are treated as one
accounting unit and recognized ratably over the term of the
arrangement.


 



Revenue is recognized when there is persuasive evidence of an
arrangement, the fee is fixed or determinable and collection of
the receivable is reasonably assured. We assess collectability
based on a number of factors, including past transaction history
with the customer and the credit-worthiness of the customer. We
do not request collateral from the customers. If we determine
that collectability is not reasonably assured, the fee is
deferred and revenue is recognized at the time collection
becomes reasonably assured, which is generally upon receipt of
cash.


 



We sell certain third-party service contracts and software
assurance or subscription products and evaluate whether the
subsequent sales of such services should be recorded as gross
revenues or net revenues in accordance with the revenue
recognition criteria outlined in Staff Accounting
Bulletin No. 104, EITF
No. 99-19,
“Reporting Revenue Gross as a Principal versus Net as an
Agent,”
and Financial Accounting Standards Board
(“FASB”) Technical
Bulletin No. 90-1,
“Accounting for Separately Priced Extended Warranty and
Product Maintenance Contracts.”
We determine whether
our role is that of a principal in the transaction and therefore
assumes the risks and rewards of ownership or if our role is
acting as an agent or broker. Under gross revenue recognition,
the entire selling price is recorded as revenue and the cost to
the third-party service provider or vendor is recorded as cost
of revenues, product and services. Under net revenue
recognition, the cost to the third-party service provider or
vendor is recorded as a reduction of revenue resulting in net
revenue equal to the gross profit on the transaction and there
is no cost of revenue.


 



We analyze current economic news and trends, historical bad
debts, customer concentrations, customer credit-worthiness and
changes in customer payment terms when evaluating revenue
recognition and the adequacy of the allowance for bad debts.


 



Our customer contracts generally require us to meet certain
service level commitments. If we do not meet required service
levels, we may be obligated to provide credits, usually a month
of free service.


 




Revenue recognition and allowance for bad debts
 
Revenues principally consist of monthly recurring fees for colocation, exchange point, managed and professional services fees. Colocation revenues also include monthly rental income for unconditioned space in the NAP of the Americas. Revenues from colocation, exchange point services, and hosting, as well as rental income for unconditioned space, are recognized ratably over the term of the applicable contract. Installation fees and related direct costs are deferred and recognized ratably over the expected life of the customer installation which is estimated to be 36 to 48 months. Managed and professional services are recognized in the period in which the services are provided. Revenues also include equipment resales which are generally recognized in the period in which the equipment is delivered, title transfers and is accepted by the customer. Revenue from contract settlements is generally recognized when collectability is reasonably assured and no remaining performance obligation exists. Taxes collected from customers and remitted to the government are excluded from revenues.
 
In accordance with Emerging Issues Task Force (“EITF”) No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”), when more than one element such as equipment, installation and colocation services are contained in a single arrangement, the Company allocates revenue between the elements based on


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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
acceptable fair value allocation methodologies, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a standalone basis and there is objective and reliable evidence of the fair value of the undelivered items. The fair value of the undelivered elements is determined by the price charged when the element is sold separately, or in cases when the item is not sold separately, by using other acceptable objective evidence. Management applies judgment to ensure appropriate application of EITF 00-21, including the determination of whether delivered items have standalone value, and the determination of fair value for the multiple deliverables, among others. For those arrangements where the deliverables do not qualify as a separate unit of accounting, revenue from all deliverables are treated as one accounting unit and recognized ratably over the term of the arrangement.
 
Revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the receivable is reasonably assured. The Company assesses collectability based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. The Company does not request collateral from the customers. If the Company determines that collectability is not reasonably assured, the fee is deferred and revenue is recognized at the time collection becomes reasonably assured, which is generally upon receipt of cash.
 
The Company sells certain third-party service contracts and software assurance or subscription products and evaluates whether the subsequent sales of such services should be recorded as gross revenues or net revenues in accordance with the revenue recognition criteria outlined in Staff Accounting Bulletin (“SAB”) No. 104, EITF No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” and Financial Accounting Standards Board (“FASB”) Technical Bulletin No. 90-1, “Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts.” The Company determines whether its role is that of a principal in the transaction and therefore assumes the risks and rewards of ownership or if its role is acting as an agent or broker. Under gross revenue recognition, the entire selling price is recorded as revenue and the cost to the third-party service provider or vendor is recorded as cost of revenues, product and services. Under net revenue recognition, the cost to the third-party service provider or vendor is recorded as a reduction of revenue resulting in net revenue equal to the gross profit on the transaction and there is no cost of revenue.
 
The Company analyzes current economic news and trends, historical bad debts, customer concentrations, customer credit-worthiness and changes in customer payment terms when evaluating revenue recognition and the adequacy of the allowance for bad debts.
 
The Company’s customer contracts generally require the Company to meet certain service level commitments. If the Company does not meet required service levels, it may be obligated to provide credits, usually a month of free service.
 
Revenue
recognition and allowance for bad debts



 



Revenues principally consist of monthly recurring fees for
colocation, exchange point, managed and professional services
fees. Colocation revenues also include monthly rental income for
unconditioned space in the NAP of the Americas. Revenues from
colocation, exchange point services, and hosting, as well as
rental income for unconditioned space, are recognized ratably
over the term of the applicable contract. Installation fees and
related direct costs are deferred and recognized ratably over
the expected life of the customer installation which is
estimated to be 36 to 48 months. Managed and professional
services are recognized in the period in which the services are
provided. Revenues also include equipment resales which are
generally recognized in the period in which the equipment is
delivered, title transfers and is accepted by the customer.
Revenue from contract settlements is generally recognized when
collectability is reasonably assured and no remaining
performance obligation exists. Taxes collected from customers
and remitted to the government are excluded from revenues.


 



In accordance with Emerging Issues Task Force (“EITF”)
No. 00-21,
“Revenue Arrangements with Multiple Deliverables”
(“EITF 00-21”),
when more than one element such as equipment, installation and
colocation services are contained in a single arrangement, the
Company allocates revenue between the elements based on





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TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES




 




NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)


 



acceptable fair value allocation methodologies, provided that
each element meets the criteria for treatment as a separate unit
of accounting. An item is considered a separate unit of
accounting if it has value to the customer on a standalone basis
and there is objective and reliable evidence of the fair value
of the undelivered items. The fair value of the undelivered
elements is determined by the price charged when the element is
sold separately, or in cases when the item is not sold
separately, by using other acceptable objective evidence.
Management applies judgment to ensure appropriate application of
EITF 00-21,
including the determination of whether delivered items have
standalone value, and the determination of fair value for the
multiple deliverables, among others. For those arrangements
where the deliverables do not qualify as a separate unit of
accounting, revenue from all deliverables are treated as one
accounting unit and recognized ratably over the term of the
arrangement.


 



Revenue is recognized when there is persuasive evidence of an
arrangement, the fee is fixed or determinable and collection of
the receivable is reasonably assured. The Company assesses
collectability based on a number of factors, including past
transaction history with the customer and the credit-worthiness
of the customer. The Company does not request collateral from
the customers. If the Company determines that collectability is
not reasonably assured, the fee is deferred and revenue is
recognized at the time collection becomes reasonably assured,
which is generally upon receipt of cash.


 



The Company sells certain third-party service contracts and
software assurance or subscription products and evaluates
whether the subsequent sales of such services should be recorded
as gross revenues or net revenues in accordance with the revenue
recognition criteria outlined in Staff Accounting Bulletin
(“SAB”) No. 104, EITF
No. 99-19,
“Reporting Revenue Gross as a Principal versus Net as an
Agent,”
and Financial Accounting Standards Board
(“FASB”) Technical
Bulletin No. 90-1,
“Accounting for Separately Priced Extended Warranty and
Product Maintenance Contracts.”
The Company determines
whether its role is that of a principal in the transaction and
therefore assumes the risks and rewards of ownership or if its
role is acting as an agent or broker. Under gross revenue
recognition, the entire selling price is recorded as revenue and
the cost to the third-party service provider or vendor is
recorded as cost of revenues, product and services. Under net
revenue recognition, the cost to the third-party service
provider or vendor is recorded as a reduction of revenue
resulting in net revenue equal to the gross profit on the
transaction and there is no cost of revenue.


 



The Company analyzes current economic news and trends,
historical bad debts, customer concentrations, customer
credit-worthiness and changes in customer payment terms when
evaluating revenue recognition and the adequacy of the allowance
for bad debts.


 



The Company’s customer contracts generally require the
Company to meet certain service level commitments. If the
Company does not meet required service levels, it may be
obligated to provide credits, usually a month of free service.


 




This excerpt taken from the TMRK 10-Q filed Feb 9, 2009.
Revenue recognition and allowance for bad debts
 
Revenues principally consist of monthly recurring fees for colocation, exchange point, managed and professional services. Colocation revenues also include monthly rental income for unconditioned space in the NAP of the Americas. Revenues from colocation, exchange point services, and hosting, as well as rental income for unconditioned space, are recognized ratably over the term of the contract. Installation fees and related direct costs are deferred and recognized ratably over the expected life of the customer installation which is generally estimated to be 36 to 48 months. Managed and professional services are recognized in the period in which the services are provided. Revenues also include equipment resales which are recognized in the period in which the equipment is delivered, title transfers and is accepted by the customer. Revenue from


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Table of Contents

 
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
contract settlements is generally recognized when collectability is reasonably assured and no remaining performance obligation exists. Taxes collected from customers and remitted to the government are excluded from revenues.
 
In accordance with Emerging Issues Task Force (“EITF”) No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”), when more than one element such as equipment, installation and colocation services are contained in a single arrangement, the Company allocates revenue between the elements based on acceptable fair value allocation methodologies, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a stand alone basis and there is objective and reliable evidence of the fair value of the undelivered items. The fair value of the undelivered elements is determined by the price charged when the element is sold separately, or in cases when the item is not sold separately, by using other acceptable objective evidence. Management applies judgment to ensure appropriate application of EITF 00-21, including the determination of fair value for multiple deliverables, determination of whether undelivered elements are essential to the functionality of delivered elements, and timing of revenue recognition, among others. For those arrangements where the deliverables do not qualify as a separate unit of accounting, revenue from all deliverables are treated as one accounting unit and recognized ratably over the term of the arrangement.
 
Revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the receivable is reasonably assured. The Company assesses collectability based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. The Company does not request collateral from the customers. If the Company determines that collectability is not reasonably assured, the fee is deferred and revenue is recognized at the time collection becomes reasonably assured, which is generally upon receipt of cash.
 
The Company sells certain third-party service contracts and software assurance or subscription products and evaluates whether the subsequent sales of such services should be recorded as gross revenues or net revenues in accordance with the revenue recognition criteria outlined in Staff Accounting Bulletin No. 104, EITF No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” and Financial Accounting Standards Board (“FASB”) Technical Bulletin No. 90-1, “Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts.” The Company determines whether its role is that of a principal in the transaction and therefore assumes the risks and rewards of ownership or if its role is acting as an agent or broker. Under gross revenue recognition, the entire selling price is recorded as revenue and the cost to the third-party service provider or vendor is recorded as cost of revenues, product and services. Under net revenue recognition, the cost to the third-party service provider or vendor is recorded as a reduction of revenue resulting in net revenue equal to the gross profit on the transaction and there is no cost of revenue.
 
The Company analyzes current economic news and trends, historical bad debts, customer concentrations, customer credit-worthiness and changes in customer payment terms when evaluating revenue recognition and the adequacy of the allowance for bad debts.
 
The Company’s customer contracts generally require the Company to meet certain service level commitments. If the Company does not meet required service levels, it may be obligated to provide credits, usually a month of free service.
 
This excerpt taken from the TMRK 10-Q filed Nov 10, 2008.
Revenue recognition and allowance for bad debts
 
Revenues principally consist of monthly recurring fees for colocation, exchange point, managed and professional services. Colocation revenues also include monthly rental income for unconditioned space in the NAP of the Americas. Revenues from colocation, exchange point services, and hosting, as well as rental income for unconditioned space, are recognized ratably over the term of the contract. Installation fees and related direct costs are deferred and recognized ratably over the expected life of the customer installation which is estimated to be 36 to 48 months. Managed and professional services are recognized in the period in which the services are provided. Revenues also include equipment resales which are recognized in the period in which the equipment is delivered, title transfers and is accepted by the customer. Revenue from contract


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Table of Contents

 
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
settlements is generally recognized when collectability is reasonably assured and no remaining performance obligation exists. Taxes collected from customers and remitted to the government are excluded from revenues.
 
In accordance with Emerging Issues Task Force (“EITF”) No. 00-21,Revenue Arrangements with Multiple Deliverables(“EITF 00-21”), when more than one element such as equipment, installation and colocation services are contained in a single arrangement, the Company allocates revenue between the elements based on acceptable fair value allocation methodologies, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a stand alone basis and there is objective and reliable evidence of the fair value of the undelivered items. The fair value of the undelivered elements is determined by the price charged when the element is sold separately, or in cases when the item is not sold separately, by using other acceptable objective evidence. Management applies judgment to ensure appropriate application of EITF 00-21, including the determination of fair value for multiple deliverables, determination of whether undelivered elements are essential to the functionality of delivered elements, and timing of revenue recognition, among others. For those arrangements where the deliverables do not qualify as a separate unit of accounting, revenue from all deliverables are treated as one accounting unit and recognized ratably over the term of the arrangement.
 
Revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the receivable is reasonably assured. The Company assesses collectability based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. The Company does not request collateral from the customers. If the Company determines that collectability is not reasonably assured, the fee is deferred and revenue is recognized at the time collection becomes reasonably assured, which is generally upon receipt of cash.
 
The Company sells certain third-party service contracts and software assurance or subscription products and evaluates whether the subsequent sales of such services should be recorded as gross revenues or net revenues in accordance with the revenue recognition criteria outlined in Staff Accounting Bulletin No. 104, EITF No. 99-19,Reporting Revenue Gross as a Principal versus Net as an Agent,” and FASB Technical Bulletin No. 90-1,Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts.” The Company determines whether its role is that of a principal in the transaction and therefore assumes the risks and rewards of ownership or if its role is acting as an agent or broker. Under gross revenue recognition, the entire selling price is recorded as revenue and the cost to the third-party service provider or vendor is recorded as cost of revenues, product and services. Under net revenue recognition, the cost to the third-party service provider or vendor is recorded as a reduction of revenue resulting in net revenue equal to the gross profit on the transaction and there is no cost of revenue.
 
The Company analyzes current economic news and trends, historical bad debts, customer concentrations, customer credit-worthiness and changes in customer payment terms when evaluating revenue recognition and the adequacy of the allowance for bad debts.
 
The Company’s customer contracts generally require the Company to meet certain service level commitments. If the Company does not meet required service levels, it may be obligated to provide credits, usually a month of free service.
 
This excerpt taken from the TMRK 10-Q filed Aug 11, 2008.
Revenue recognition and allowance for bad debts
 
Revenues principally consist of monthly recurring fees for colocation, exchange point, managed and professional services fees. Colocation revenues also include monthly rental income for unconditioned space in the NAP of the Americas. Revenues from colocation, exchange point services, and hosting, as well as rental income for unconditioned space, are recognized ratably over the term of the contract. Installation fees and related direct costs are deferred and recognized ratably over the expected life of the customer installation which is estimated to be 36 to 48 months. Managed and professional services are recognized in the period in which the services are provided. Revenues also include equipment resales which are recognized in the period in which the equipment is delivered, title transfers and is accepted by the customer. Revenue from contract


6


Table of Contents

 
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
settlements is generally recognized when collectability is reasonably assured and no remaining performance obligation exists. Taxes collected from customers and remitted to the government are excluded from revenues.
 
In accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”), when more than one element such as equipment, installation and colocation services are contained in a single arrangement, the Company allocates revenue between the elements based on acceptable fair value allocation methodologies, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a stand alone basis and there is objective and reliable evidence of the fair value of the undelivered items. The fair value of the undelivered elements is determined by the price charged when the element is sold separately, or in cases when the item is not sold separately, by using other acceptable objective evidence. Management applies judgment to ensure appropriate application of EITF 00-21, including the determination of fair value for multiple deliverables, determination of whether undelivered elements are essential to the functionality of delivered elements, and timing of revenue recognition, among others. For those arrangements where the deliverables do not qualify as a separate unit of accounting, revenue from all deliverables are treated as one accounting unit and recognized ratably over the term of the arrangement.
 
Revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the receivable is reasonably assured. The Company assesses collectability based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. The Company does not request collateral from the customers. If the Company determines that collectability is not reasonably assured, the fee is deferred and revenue is recognized at the time collection becomes reasonably assured, which is generally upon receipt of cash.
 
The Company sells certain third-party service contracts and software assurance or subscription products and evaluates whether the subsequent sales of such services should be recorded as gross revenues or net revenues in accordance with the revenue recognition criteria outlined in SAB No. 104, EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” and FASB Technical Bulletin 90-1, “Accounting for Separately Priced Extended Warranty and Product Contracts.” The Company determines whether its role is that of a principal in the transaction and therefore assumes the risks and rewards of ownership or if its role is acting as an agent or broker. Under gross revenues recognition, the entire selling price is recorded as revenues and costs to the third-party service provider or vendor is recorded as cost of revenues, product and services. Under net revenues recognition, the cost to the third-party service provider or vendor is recorded as a reduction to revenues resulting in net revenues equal to the gross profit on the transaction and there are no cost of revenues.
 
The Company analyzes current economic news and trends, historical bad debts, customer concentrations, customer credit-worthiness and changes in customer payment terms when evaluating revenue recognition and the adequacy of the allowance for bad debts.
 
The Company’s customer contracts generally require the Company to meet certain service level commitments. If the Company does not meet required service levels, it may be obligated to provide credits, usually a month of free service. Such credits, to date, have not been significant.
 
These excerpts taken from the TMRK 10-K filed Jun 16, 2008.
Revenue recognition and allowance for bad debts
 
Revenues principally consist of monthly recurring fees for colocation, exchange point, managed and professional services fees. Colocation revenues also include monthly rental income for unconditioned space in the NAP of the Americas. Revenues from colocation, exchange point services, and managed web hosting as well as rental income for unconditioned space, are recognized ratably over the term of the contract. Installation fees and related direct costs are deferred and recognized ratably over the expected life of the customer installation which is estimated to be 36 to 48 months. Managed and professional services fees are recognized in the period in which the services are provided. Revenues may also include equipment resales which are generally recognized in the period in which the equipment is delivered and installed. Revenue from contract settlements is generally recognized when collectibility is reasonably assured and no remaining performance obligation exists. Taxes collected from customers and remitted to the government are excluded from revenues.
 
In accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”, when more than one element such as equipment, installation and colocation or managed web hosting services are contained in a single arrangement, the Company allocates revenue between the elements based on acceptable fair value allocation methodologies, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a stand alone basis and there is objective and reliable evidence of the fair value of the undelivered items. The fair


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Table of Contents

 
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
value of the undelivered elements is determined by the price charged when the element is sold separately, or in cases when the item is not sold separately, by using other acceptable objective evidence. Management applies judgment to ensure appropriate application of EITF 00-21, including the determination of fair value for multiple deliverables, determination of whether undelivered elements are essential to the functionality of delivered elements, and timing of revenue recognition, among others. For those colocation or managed web hosting arrangements where the deliverables do not qualify as a separate unit of accounting, revenue from all deliverables are treated as one accounting unit and recognized ratably over the term of the arrangement.
 
Revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the receivable is reasonably assured. The Company assesses collectibility based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. The Company does not request collateral from the customers. If the Company determines that collectibility is not reasonably assured, the fee is deferred and revenue is recognized at the time collection becomes reasonably assured, which is generally upon receipt of cash.
 
The Company sells certain third-party service contracts and software assurance or subscription products and evaluates whether the subsequent sales of such services should be recorded as gross revenues or net revenues in accordance with the revenue recognition criteria outlined in SAB No. 104, EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” and FASB Technical Bulletin 90-1, “Accounting for Separately Priced Extended Warranty and Product Contracts.” The Company determines whether its role is that of a principal in the transaction and therefore assumes the risks and rewards of ownership or if its role is acting as an agent or broker. Under gross revenues recognition, the entire selling price is recorded as revenues and costs to the third-party service provider or vendor is recorded as cost of revenues, product and services. Under net revenues recognition, the cost to the third-party service provider or vendor is recorded as a reduction to revenues resulting in net revenues equal to the gross profit on the transaction and there are no cost of revenues.
 
The Company analyzes current economic news and trends, historical bad debts, customer concentrations, customer credit-worthiness and changes in customer payment terms when evaluating revenue recognition and the adequacy of the allowance for bad debts.
 
The Company’s customer contracts generally require the Company to meet certain service level commitments. If the Company does not meet required service levels, it may be obligated to provide credits, usually a month of free service. Such credits, to date, have been insignificant.
 
Revenue
recognition and allowance for bad debts



 



Revenues principally consist of monthly recurring fees for
colocation, exchange point, managed and professional services
fees. Colocation revenues also include monthly rental income for
unconditioned space in the NAP of the Americas. Revenues from
colocation, exchange point services, and managed web hosting as
well as rental income for unconditioned space, are recognized
ratably over the term of the contract. Installation fees and
related direct costs are deferred and recognized ratably over
the expected life of the customer installation which is
estimated to be 36 to 48 months. Managed and professional
services fees are recognized in the period in which the services
are provided. Revenues may also include equipment resales which
are generally recognized in the period in which the equipment is
delivered and installed. Revenue from contract settlements is
generally recognized when collectibility is reasonably assured
and no remaining performance obligation exists. Taxes collected
from customers and remitted to the government are excluded from
revenues.


 



In accordance with Emerging Issues Task Force (EITF) Issue
No. 00-21,
“Revenue Arrangements with Multiple Deliverables”,
when more than one element such as equipment, installation and
colocation or managed web hosting services are contained in a
single arrangement, the Company allocates revenue between the
elements based on acceptable fair value allocation
methodologies, provided that each element meets the criteria for
treatment as a separate unit of accounting. An item is
considered a separate unit of accounting if it has value to the
customer on a stand alone basis and there is objective and
reliable evidence of the fair value of the undelivered items.
The fair





F-9





Table of Contents





 




TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES




 




NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)


 



value of the undelivered elements is determined by the price
charged when the element is sold separately, or in cases when
the item is not sold separately, by using other acceptable
objective evidence. Management applies judgment to ensure
appropriate application of
EITF 00-21,
including the determination of fair value for multiple
deliverables, determination of whether undelivered elements are
essential to the functionality of delivered elements, and timing
of revenue recognition, among others. For those colocation or
managed web hosting arrangements where the deliverables do not
qualify as a separate unit of accounting, revenue from all
deliverables are treated as one accounting unit and recognized
ratably over the term of the arrangement.


 



Revenue is recognized when there is persuasive evidence of an
arrangement, the fee is fixed or determinable and collection of
the receivable is reasonably assured. The Company assesses
collectibility based on a number of factors, including past
transaction history with the customer and the credit-worthiness
of the customer. The Company does not request collateral from
the customers. If the Company determines that collectibility is
not reasonably assured, the fee is deferred and revenue is
recognized at the time collection becomes reasonably assured,
which is generally upon receipt of cash.


 



The Company sells certain third-party service contracts and
software assurance or subscription products and evaluates
whether the subsequent sales of such services should be recorded
as gross revenues or net revenues in accordance with the revenue
recognition criteria outlined in SAB No. 104,
EITF 99-19,
“Reporting Revenue Gross as a Principal versus Net as an
Agent,”
and FASB Technical
Bulletin 90-1,
“Accounting for Separately Priced Extended Warranty and
Product Contracts.”
The Company determines whether its
role is that of a principal in the transaction and therefore
assumes the risks and rewards of ownership or if its role is
acting as an agent or broker. Under gross revenues recognition,
the entire selling price is recorded as revenues and costs to
the third-party service provider or vendor is recorded as cost
of revenues, product and services. Under net revenues
recognition, the cost to the third-party service provider or
vendor is recorded as a reduction to revenues resulting in net
revenues equal to the gross profit on the transaction and there
are no cost of revenues.


 



The Company analyzes current economic news and trends,
historical bad debts, customer concentrations, customer
credit-worthiness and changes in customer payment terms when
evaluating revenue recognition and the adequacy of the allowance
for bad debts.


 



The Company’s customer contracts generally require the
Company to meet certain service level commitments. If the
Company does not meet required service levels, it may be
obligated to provide credits, usually a month of free service.
Such credits, to date, have been insignificant.


 




This excerpt taken from the TMRK 10-Q filed Feb 11, 2008.
Revenue recognition and allowance for bad debts
 
Revenues principally consist of monthly recurring fees for colocation, exchange point, managed and professional services fees. Colocation revenues also include monthly rental income for unconditioned space in the NAP of the Americas. Revenues from colocation, exchange point services, and hosting, as well as rental income for unconditioned space, are recognized ratably over the term of the contract. Installation fees and related direct costs are deferred and recognized ratably over the expected life of the customer installation which is estimated to be 36 to 48 months. Managed and professional services are recognized in the period in which the services are provided. Revenues also include equipment resales which are recognized in the period in which the equipment is delivered, title transfers and is accepted by the customer. Revenue from contract


6


Table of Contents

 
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
settlements is generally recognized when collectibility is reasonably assured and no remaining performance obligation exists. Taxes collected from customers and remitted to the government are excluded from revenues.
 
In accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”, when more than one element such as equipment, installation and colocation services are contained in a single arrangement, the Company allocates revenue between the elements based on acceptable fair value allocation methodologies, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a stand alone basis and there is objective and reliable evidence of the fair value of the undelivered items. The fair value of the undelivered elements is determined by the price charged when the element is sold separately, or in cases when the item is not sold separately, by using other acceptable objective evidence. Management applies judgment to ensure appropriate application of EITF 00-21, including the determination of fair value for multiple deliverables, determination of whether undelivered elements are essential to the functionality of delivered elements, and timing of revenue recognition, among others. For those arrangements where the deliverables do not qualify as a separate unit of accounting, revenue from all deliverables are treated as one accounting unit and recognized ratably over the term of the arrangement.
 
Revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the receivable is reasonably assured. The Company assesses collectibility based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. The Company does not request collateral from the customers. If the Company determines that collectibility is not reasonably assured, the fee is deferred and revenue is recognized at the time collection becomes reasonably assured, which is generally upon receipt of cash.
 
The Company analyzes current economic news and trends, historical bad debts, customer concentrations, customer credit-worthiness and changes in customer payment terms when evaluating revenue recognition and the adequacy of the allowance for bad debts.
 
The Company’s customer contracts generally require the Company to meet certain service level commitments. If the Company does not meet required service levels, it may be obligated to provide credits, usually a month of free service. Such credits, to date, have been insignificant.
 
This excerpt taken from the TMRK 10-Q filed Nov 9, 2007.
Revenue recognition and allowance for bad debts
 
Revenues principally consist of monthly recurring fees for colocation, exchange point, managed and professional services fees. Colocation revenues also include monthly rental income for unconditioned space in the NAP of the Americas. Revenues from colocation, exchange point services, and hosting, as well as rental income for unconditioned space, are recognized ratably over the term of the contract. Installation fees and related direct costs are deferred and recognized ratably over the expected life of the customer installation which is estimated to be 36 to 48 months. Managed and professional services are recognized in the period in which the services are provided. Revenues also include equipment resales which are recognized in the period in which the equipment is delivered, title transfers and is accepted by the customer. Revenue from contract


7


Table of Contents

 
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
settlements is generally recognized when collectibility is reasonably assured and no remaining performance obligation exists. Taxes collected from customers and remitted to the government are excluded from revenues.
 
In accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”, when more than one element such as equipment, installation and colocation services are contained in a single arrangement, the Company allocates revenue between the elements based on acceptable fair value allocation methodologies, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a stand alone basis and there is objective and reliable evidence of the fair value of the undelivered items. The fair value of the undelivered elements is determined by the price charged when the element is sold separately, or in cases when the item is not sold separately, by using other acceptable objective evidence. Management applies judgment to ensure appropriate application of EITF 00-21, including the determination of fair value for multiple deliverables, determination of whether undelivered elements are essential to the functionality of delivered elements, and timing of revenue recognition, among others. For those arrangements where the deliverables do not qualify as a separate unit of accounting, revenue from all deliverables are treated as one accounting unit and recognized ratably over the term of the arrangement.
 
Revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the receivable is reasonably assured. The Company assesses collectibility based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. The Company does not request collateral from the customers. If the Company determines that collectibility is not reasonably assured, the fee is deferred and revenue is recognized at the time collection becomes reasonably assured, which is generally upon receipt of cash.
 
The Company analyzes current economic news and trends, historical bad debts, customer concentrations, customer credit-worthiness and changes in customer payment terms when evaluating revenue recognition and the adequacy of the allowance for bad debts.
 
The Company’s customer contracts generally require the Company to meet certain service level commitments. If the Company does not meet required service levels, it may be obligated to provide credits, usually a month of free service. Such credits, to date, have been insignificant.
 
This excerpt taken from the TMRK 10-Q filed Aug 13, 2007.
Revenue recognition and allowance for bad debts
 
Revenues principally consist of monthly recurring fees for colocation, exchange point, managed and professional services fees. Colocation revenues also include monthly rental income for unconditioned space in the NAP of the Americas. Revenues from colocation, exchange point services, and hosting, as well as rental income for unconditioned space, are recognized ratably over the term of the contract. Installation fees and related direct costs are deferred and recognized ratably over the expected life of the customer installation which is estimated to be 36 to 48 months. Managed and professional services are recognized in the period in which the services are provided. Revenues also include equipment resales which are recognized in the period in which the equipment is delivered, title transfers and is accepted by the customer. Revenue from contract


6


Table of Contents

 
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

settlements is generally recognized when collectibility is reasonably assured and no remaining performance obligation exists. Taxes collected from customers and remitted to the government are excluded from revenues.
 
In accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”, when more than one element such as equipment, installation and colocation services are contained in a single arrangement, the Company allocates revenue between the elements based on acceptable fair value allocation methodologies, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a stand alone basis and there is objective and reliable evidence of the fair value of the undelivered items. The fair value of the undelivered elements is determined by the price charged when the element is sold separately, or in cases when the item is not sold separately, by using other acceptable objective evidence. Management applies judgment to ensure appropriate application of EITF 00-21, including the determination of fair value for multiple deliverables, determination of whether undelivered elements are essential to the functionality of delivered elements, and timing of revenue recognition, among others. For those arrangements where the deliverables do not qualify as a separate unit of accounting, revenue from all deliverables are treated as one accounting unit and recognized ratably over the term of the arrangement.
 
Revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the receivable is reasonably assured. The Company assesses collectibility based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. The Company does not request collateral from the customers. If the Company determines that collectibility is not reasonably assured, the fee is deferred and revenue is recognized at the time collection becomes reasonably assured, which is generally upon receipt of cash.
 
The Company analyzes current economic news and trends, historical bad debts, customer concentrations, customer credit-worthiness and changes in customer payment terms when evaluating revenue recognition and the adequacy of the allowance for bad debts.
 
The Company’s customer contracts generally require the Company to meet certain service level commitments. If the Company does not meet required service levels, it may be obligated to provide credits, usually a month of free service. Such credits, to date, have been insignificant.
 
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