· We identified the population of transactions to serve as the basis for
establishing ESP, including subscription services and professional services
pricing history in transactions with multiple element arrangements and those
sold on a standalone basis.
· We analyzed the population of items sold by stratifying the population by
product type and level and considered several data points, such as (1) average
price charged, (2) weighted average price to incorporate the frequency of each
item sold at any given price, and (3) the median price charged. These three
price points were then compared with the existing price list that is used as a
point of reference to negotiate contracts and does not represent fair value.
Additionally, we gathered and analyzed sales' team feedback gained from
interaction with customers and similar activities. This feedback included
consideration of current market trends for pricing charged by companies
offering similar services, competitive advantage of the products we offer and
recent economic pressures that have resulted in lower spending on marketing
activities. ESP for each item in the population was established based on the
factors noted above and was reviewed by management.
For transactions entered into or materially modified after
July 1, 2010, we allocate consideration in multiple-element arrangements based on the relative selling prices. Revenue is then recognized as appropriate for each separate element based on its fair value. For fiscal 2013 and 2012, the impact on our revenue under the new accounting guidance as compared to the previous methodology resulted in an immaterial difference in revenue recognized as compared to that which would have previously been deferred and recognized ratably. The immaterial impact is primarily a result of the limited population of transactions subject to newly adopted guidance, as it includes only those arrangements entered into or materially modified after July 1, 2010. The accounting treatment for arrangements entered into prior to July 1, 2010continues to follow legacy accounting rules and the revenue recognition method applied to certain types of arrangements has not changed upon adopting new guidance and does not affect the revenue recognized. The adoption of new guidance did not result in a material impact to the financial statements for the fiscal years ended 2013 and 2012 and is not anticipated to become material
for fiscal 2014.
However, new guidance may result in a material impact in the future, due to the change in other factors affecting the revenue recognition method, as the impact on the timing and pattern of revenue will vary depending on the nature and volume of new or materially modified contracts in any given period. We expect that the new accounting guidance will facilitate our efforts to optimize the sales and marketing of our offerings due to better alignment between the economics of an arrangement and the accounting for that arrangement. Such optimization may lead us to modify our pricing practices, which could result in changes in the relative selling prices of our elements, including both VSOE and ESP, and therefore change the allocation of the sales price between multiple elements within an arrangement. However, this will not change the total revenues recognized with respect to the arrangement. We defer technical support (maintenance) revenue, including revenue that is part of a multiple element arrangement, and recognizes it ratably over the term of the agreement, which is generally one year.