Annual Rep ort 2009
The Power of Virtual Computing.
Financial Highlights
Year ended December 31,
(In thousands, except per share data)
2009
2008
2007
2006
Net revenues
$ 1,614,088
$ 1,583,354
$ 1,391,942
$1,134,319
Cost of revenues:
Cost of product license revenues
Cost of services revenues
Amortization of product related intangible assets
Total cost of revenues
52,160
87,233
47,917
187,310
47,801
79,303
48,028
175,132
42,984
65,027
29,596
137,607
32,911
46,585
19,202
98,698
Gross margin
1,426,778
1,408,222
1,254,335
1,035,621
Operating expenses
Research and development
Sales, marketing and services
General and administrative
Restructuring
Amortization of other intangible assets
In-process research and development
Total operating expenses
281,980
679,053
239,623
26,473
20,972
-
1,248,101
288,109
669,569
256,679
-
22,724
1,140
1,238,221
205,103
590,409
229,229
-
17,387
9,800
1,051,928
155,331
480,343
178,669
-
16,934
1,000
832,277
Income from operations
178,677
170,001
202,407
203,344
Other income, net
15,215
26,922
48,501
39,737
Income before income taxes
193,892
196,923
250,908
243,081
Income taxes
Net income
2,875
18,647
36,425
60,084
$ 191,017
$ 178,276
$ 214,483
$ 182,997
Earnings per share - diluted
$ 1.03
$ 0.96
$ 1.14
$ 0.97
Weighted average shares outstanding - diluted
184,985
186,682
187,380
187,725
Revenue
(millions)
$1,614
$1,583
$1,392
Earnings Per Share
Operating Cash Flow
(millions)
$1.14
$1.03
$0.96
$484
$462
$422
2007 2008 2009
2007 2008 2009
2007 2008 2009
Fellow shareholders,
Mark Templeton
President and CEO
Over the past 25 years, software technologies have radically improved our productivity and
communications. Meanwhile, the web and globalization have made the world smaller than ever.
Now, people and businesses need to work in entirely new ways. Citrix was born from the idea of
unlocking applications from datacenters, and employees from the office—changing the way IT
and people can work. Today, this is the promise of virtual computing, and Citrix is at the epicenter.
In the world ahead, the better way to work is virtual—completely untethered from the office, devices,
networks and datacenters. It’s better because a virtual workstyle creates new possibilities for personal
efficiency and business speed. The world’s smartest organizations are discovering that going virtual is
how to stay ahead in a business world that’s changing faster than ever.
In this new world, work is not a place. Meetings and workplaces are virtual. Desktops, once
considered devices, are a service—with easy access from any PC, browser, smartphone or tablet.
Datacenters are no longer data processing factories. Instead, they’re virtual—private or public clouds—
designed as flexible, efficient delivery centers. IT organizations get inverted—flipping from a focus
on computing technology to becoming architects of business change, designers of customer experiences
and fiduciaries for corporate intellectual property. In the virtual computing world, user experience
goes vertical with the convenience of self-service and the consumer-like power of choice.
To make this possible, software needs to work in new ways.
Already, Citrix virtual computing solutions touch over 100 million corporate employees, and an
estimated 75 percent of Internet users. As we look into the future, we believe we can go much
further. Citrix is leading with software that delivers desktops, collaboration tools, customer
support, and infrastructure as-a-service—from anywhere, on demand, to everywhere.
Annual Report 2009 • Citrix Systems, Inc. 1
Two thousand nine: A strong finish to our 20th year
A year ago, the global economy was in deep turmoil and the global financial system was in shock.
As I wrote to you then, Citrix was turning 20, and it was impossible to predict just about anything
—especially how our industry and our business would be impacted. Our plan was to increase our
operational efficiency, intensify execution on strategic initiatives and deliver strong financial results.
I am pleased to say we delivered, growing our standing in core markets for desktop virtualization,
web collaboration, application networking and cloud services.
In a year where global IT spending declined by nearly five percent, Citrix revenue grew to over $1.6
billion, an increase of 2 percent over 2008. We expanded our operating margin more than 100 basis
points to 24 percent, increased EPS by 11 percent and reported record net income of $334 million,
all on a non-GAAP basis. Very good financial results in a not-so-good business climate.
Citrix has consistently generated strong cash flow, which is an excellent indicator of business performance.
Last year, our cash flow from operations was over $480 million. We closed the year with $1.2 billion
in cash and marketable securities. This is after allocating over $200 million for the repurchase of 6.5
million shares of Citrix common stock. And, we have no debt. Our balance sheet is rock solid.
The company’s common stock performed quite well in 2009, increasing 77 percent, outpacing the
NASDAQ Composite Index which increased 44 percent. Since December 8, 1995, when we became
a public company, the NASDAQ index has increased about 125 percent while our stock price has
grown by more than 1,700 percent. We consider our mission to deliver shareholder and customer
value to be a marathon—not a sprint.
Looking forward: The only constant is change
At the beginning of the last decade, we challenged ourselves to define—what’s next—for Citrix. It
started by imagining better ways for people and IT to work. We expressed our imagination in a
seven minute video called “Virtual Workplace” in which we depicted a world where people could
work from anywhere.
We showed secure collaboration across the boundaries of time and corporate firewalls. We invented
an idea called follow me, demonstrating how personal workspaces could seamlessly move between a
wide range of corporate and consumer devices—maintaining continuous access to applications,
documents, personal data, and preferences at every transition. To support this new virtual workstyle,
we envisioned a new datacenter infrastructure so resilient, it could smoothly handle unforeseen outages
and spikes in user demand. Even now, these ideas become more relevant and valuable every day.
More importantly, Virtual Workplace documented our prediction of technical, business and economic
change. We concluded there was a radical transformation of IT and computing ahead—mandated
by a world where the velocity and amplitude of change would increase substantially. This thinking
turned out to be prescient. It shaped the Citrix innovations we’ve designed and acquired over the
past decade.
2 Annual Report 2009 • Citrix Systems, Inc.
We’re scanning the future again. What do we see? Accelerating globalization; geo-political and geo-
physical disruptions; increasing regulation; growing security risks; an aging workforce; millennials who
were born digital; and a groundswell of consumerization in computing. We see accelerating change.
This kind of environment will require a new level of business agility, based on a whole new skill we
call work-shifting.
Work-shifting is the power to optimize business—by shifting work to more optimal locations,
people or devices—effortlessly and quickly. For example, moving the work of one department or
person to another to reduce costs or handle peak demand. Or moving a meeting from the office
to the web to save time and money. In a personal or business emergency, moving someone’s work
from the office to their home. For convenience and mobility, moving a person’s workspace, apps
and documents from one device to another. To accelerate business velocity, by moving a process
from one location to another. In datacenters, moving the work of one server to another for greater
efficiency. Or, moving the work of one network to another for better performance and higher
availability. And so on.
As we look into the next decade, the work-shifting of business and computing—from anywhere
to everywhere—is not optional—it’s imperative. Our plan is to power all this with Citrix virtual
computing solutions.
Two thousand ten: The virtual computing revolution begins
As you can see, we believe virtualization goes far beyond just consolidating servers. It’s also about
powering the cloud, enabling online collaboration from anywhere, and taking desktop computing
to an entirely new level. It’s about elevating IT from managing equipment and systems, to enabling
them to deliver computing as an on-demand service. For our customers, it’s about unleashing the
productivity and creativity of people, allowing them to seize business opportunity ahead of competitors.
As an industry, we’re clearly at the threshold of a significant tipping point—away from distributed
computing—into the virtual computing era. The power of virtualization to simplify, consumerize,
and commoditize will radically change the economics of computing, creating new industry leaders
along the way.
Some say it’s a revolution; others think of it as evolution. Either way, Citrix is in an enviable position,
driving the change in three key areas… virtual desktops, virtual meetings and virtual datacenters.
Taking virtual desktops mainstream
When it comes to desktop computing, CIOs are facing a perfect storm. Over the next 18 months,
we believe virtually all of them will be migrating to Windows 7, creating an ideal inflection point
to rethink their desktop strategies companywide. They’re also faced with greater regulatory pressure
Annual Report 2009 • Citrix Systems, Inc. 3
to centrally manage and control confidential information. And, they’re grappling with an explosion
of Macs, netbooks, smartphones and other new devices, driven by a younger workforce accustomed
to working on the go.
This unprecedented combination of market forces creates the perfect opportunity for desktop
virtualization—one of the few breakthrough technologies that holds as much promise for end users
as it does for IT. CIOs love desktop virtualization because it allows them to manage and control
everything centrally, giving them security, and dramatically simplifying desktop management. And
employees love virtual desktops because they get the ultimate freedom to work from any device they
choose, from any location they want.
We’re already serving more than 100 million of these desktops today with XenApp, our market-
leading solution for delivering on-demand apps to both physical and virtual desktops. The release
of XenDesktop 4 late last year, technologically catapulted us further ahead, establishing Citrix as a
leader in the broader desktop virtualization market. This new release is nothing short of revolutionary.
This year, we’ll raise the bar again when we deliver XenClient—a new client-side virtualization
technology for laptops that gives mobile workers all the benefits of desktop virtualization, even
when they’re disconnected.
A leading industry analyst recently predicted that this unique combination of benefits would result
in 60 percent of all enterprise desktops using some form of virtualization by the end of 2012. With
600 million Windows desktops in corporate use today, the opportunity in front of us couldn’t be clearer.
Virtual apps, virtual desktops and virtual clients. This is our formula for radically changing the
economics of desktop computing, enabling IT to turn every enterprise desktop and app into an
on-demand service.
Expanding the reach of virtual meetings
While the worldwide recession may have slowed the growth of our on-premise software products
in 2009, it actually helped accelerate our software-as-a-service business. Tight travel budgets fueled
the need for virtual meetings and work-from-home solutions. The web is the perfect platform for
this, demonstrated by solid growth across our GoToMeeting, GoToWebinar, GoToMyPC, and
GoToAssist product lines. Our Online Services business reflected this dynamic, delivering $308
million in revenue and 19 percent growth for the year.
This strong growth in our online virtualization business allowed us to serve a record number
of customers last year. More than 100 million people experienced a SaaS-based virtual meeting
or support session powered by Citrix in 2009. And we hosted over 80 million remote access
connections with our market-leading GoToMyPC solution for PCs and Macs. As a result, Citrix
now holds a solid position as one of the top five SaaS vendors in the world.
4 Annual Report 2009 • Citrix Systems, Inc.
We’re bullish on the $3 billion web collaboration market and pleased with our trajectory. Our
growth is being driven by broad market forces, and we’re feeding that demand with a compelling
line of SaaS-based solutions that are both technically innovative and brilliantly simple to use.
Powering datacenters and clouds
Right now, no industry topic is getting more discussion than the cloud. While there’s always a
measure of hype in new ideas, there’s real substance here. It’s not just a trend, it’s the basis for the
virtual computing era and at the core of delivering IT-as-an-on-demand-service. The market potential
represents a multi-year, double-digit growth opportunity for NetScaler and XenServer. Our products
provide the cost efficiency, performance improvement, enhanced security and overall flexibility needed
to morph traditional datacenters and co-location facilities into private and public “clouds.” In 2009,
our Datacenter and Cloud Solutions products posted $241 million, up 16 percent, supported by the
introduction of innovative technologies, new business models and go-to-market partnerships.
Datacenters and clouds rely on high performance network connections that make hosted services
very fast, extremely secure, and always available. NetScaler continues to distinguish itself with these
capabilities, garnering significant share gains in the market. NetScaler MPX and VPX are not only
gaining share, they’re setting the agenda in the market. For the third year in a row, industry analysts
rate NetScaler a leader of the Application Delivery Controller market. This continues to be a two-
horse race. I really like our advantages.
Industry research shows more than 60 percent of virtualization customers now use multiple hypervisors
in production. Last year, XenServer captured an estimated 11 percent of newly virtualized servers
based on a bold strategy launched in 2009, making XenServer free. At the same time, XenServer
growth and our partnership with Microsoft is creating thousands of potential sockets for XenApp,
XenDesktop and our entire VPX line of app networking products.
We’re taking a more open approach to powering datacenters and clouds. Enterprise customers and
cloud service providers get interoperability between private and public clouds—without locking
them into any particular vendor. There’s tremendous white space for affordable, powerful, open
virtualization solutions in both private and public clouds.
Delivering and seizing the future
Last year, faced with unprecedented uncertainty, many companies hunkered down to ride out the
storm. Citrix took a different approach. We acted quickly to retool our cost structure, get more
competitive, make strategic investments, and double down on markets we believed were ripe for
rapid expansion as spending returns.
Annual Report 2009 • Citrix Systems, Inc. 5
I’m proud of the entire Citrix team who worked tirelessly to accomplish all of this—and tremendously
grateful for the thousands of Citrix customers and partners who continue to give us their business,
their trust, and their enthusiasm for our vision.
To deliver in 2010, here’s what to expect:
• A significant investment in brand awareness. When you’re in growth markets, with leading
products and the right timing, you turn up the volume.
• Increased sales capacity to drive larger, strategic customer engagements and more focus on
deeper systems integrator partnerships to meet the rapidly growing demand for enterprise-wide
Citrix deployments.
• New channel programs that allow our partners to upgrade their capabilities in desktop
virtualization, our single biggest growth opportunity.
• Increased product, customer and sales alignment with strategic partners like Microsoft,
HP and Dell.
• And, as always, a strong innovation agenda with a few great surprises along the way.
By applying our virtual computing vision to everything from meetings to desktops, networks and
clouds, computing can be far simpler. In a world where most enterprise software vendors propagate
complexity in computing, we believe simplicity is more powerful.
Just as companies like Apple have revolutionized consumer computing through the power of simplicity,
we believe Citrix has an opportunity to do the same for the world of business computing. Simpler is
not only better, it’s more secure, more reliable, more economical, faster to adopt, and easier to change.
These are not the characteristics of today’s enterprise computing, which is why we are so optimistic
about our long-term opportunity.
As the global economy begins to recover, our growing market strength is clearly validating our strategy.
Citrix mindshare with CIOs and strategic decision makers is higher today than at any point in our
21 year history. We’re clearly aligned with powerful market and technical transitions that will enable
profitable growth for years ahead. Our virtual computing solutions are just in time to help people
and businesses do extraordinary things—with a simpler is better approach.
On behalf of the board and our employees, we thank you for your support and confidence.
Mark Templeton
President and Chief Executive Officer
6 Annual Report 2009 • Citrix Systems, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
or
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 0-27084
CITRIX SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
75-2275152
(I.R.S. Employer
Identification No.)
851 West Cypress Creek Road
Fort Lauderdale, Florida 33309
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (954) 267-3000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.001 Par Value
(Title of each class)
The NASDAQ Stock Market LLC
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes È No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer or a smaller
reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in 12b-2 of the Exchange
Act.
È Large accelerated filer
‘ Non-accelerated filer
‘ Accelerated filer
‘ Smaller reporting company
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È
The aggregate market value of Common Stock held by non-affiliates of the registrant computed by reference to the price of the
registrant’s Common Stock as of the last business day of the registrant’s most recently completed second fiscal quarter (based on the last
reported sale price on The Nasdaq Global Select Market as of such date) was $5,836,991,699. As of February 18, 2010 there were
183,826,978 shares of the registrant’s Common Stock outstanding.
The registrant intends to file a proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended
December 31, 2009. Portions of such proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
CITRIX SYSTEMS, INC.
TABLE OF CONTENTS
Part I:
Item 1
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
Item 1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
Item 1B.
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
Item 2
Item 3
Item 4
Part II:
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . .
32
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33
Item 6
Item 7
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . .
59
Item 8
Item 9
Financial Statements and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61
Item 9B.
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63
Part III:
Part IV:
Item 10
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . .
64
Item 11
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64
Item 13
Certain Relationships and Related Transactions, and Director Independence . . . . . .
65
Item 14
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65
Item 15
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66
2
PART I
This Annual Report on Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Actual results could differ materially from those set forth in the forward-looking
statements. Certain factors that might cause such actual results to differ materially from those set forth in
these forward-looking statements are included in Part I, Item 1A “Risk Factors” beginning on page 14.
ITEM 1. BUSINESS
General
Citrix Systems, Inc. is a Delaware corporation founded on April 17, 1989. We design, develop and market
technology solutions that enable information technology, or IT, services to be securely delivered through our
virtual computing infrastructure on demand – independent of location, device or network. Our customers achieve
lower IT operating costs, increased information security, and greater business agility using Citrix technologies
that virtualize business meetings, user support, client hardware, desktop operating systems, applications,
networks, server hardware and cloud services. We market and license our products directly to enterprise
customers, over the web, and through systems integrators, or SIs, in addition to indirectly through value-added
resellers, or VARs, value-added distributors, or VADs, and original equipment manufacturers, or OEMs.
Business Overview
Our long-term vision is to enable people to work or play – anywhere. For over two decades, we have
passionately pursued this vision through successive waves of invention. The first wave, beginning in the early-
1990’s, enabled secure remote access to mission critical applications for thousands of road warriors. This
required the invention of a new way to “transmit” application screens allowing applications to be virtualized
instead of installed on the user’s personal computer, or PC, even over very thin network connections. IT
administrators found that virtualized applications on a central server made them more secure, faster running,
easier to update and much more accessible. The shifting of computing to servers also allowed the invention of
thin-clients and network computers powered by Citrix client and server technologies. Since the early 1990’s we
have become a leading provider of server-based computing solutions and our products have been accepted by
thousands of organizations as strategic infrastructure for user mobility.
In the early 2000’s, we turned our focus toward new market opportunities created by the massive
connectivity of the internet, rapid expansion of network bandwidth, and an explosion of device form factors such
as smartphones, tablet PCs, and netbooks. In parallel, customers began to realize the increasing value of mobility
technologies like remote access, web collaboration and remote support tools. We also believe that there are
similar opportunities emerging in the datacenter to address high operating costs, inflexible infrastructure, and
new application architectures.
These opportunities have been the driving forces behind our second wave of invention, building on our core
ideas and technologies for virtualizing applications – extending them to adjacent product and technology
markets. Since 2004, we have focused our investments on a broader array of technologies, strategic acquisitions
and new business models. This has expanded our core capabilities beyond application virtualization to include
desktop, client, and server virtualization. It has also made Citrix a leading manufacturer of network appliances,
and one of the largest providers of software-as-a-service, or SaaS, in the world.
Today, Citrix serves over 230,000 customers and over 100 million users every day in over 100 countries.
Citrix products and services allow people to collaborate, communicate and work virtually anywhere – using any
device they choose. Our virtual computing infrastructure IT services are securely delivered on demand, and we
believe our datacenter computing resources are simpler, lower cost, and more efficient.
3
Invention and re-invention has driven our growth. Our diversified product lines, routes to-the-customer, and
business models have been enabled by our virtual computing products that enable collaboration as-a-service,
desktop as-a-service and infrastructure as-a-service.
Products
Our products and services target customers of all sizes – from individuals that subscribe to our GoToMyPC
remote access service, to network engineers that purchase our NetScaler web application devices, or the IT
professional that licenses our XenDesktop infrastructure products. This section provides an overview of our
major product and services offerings.
Desktop Solutions
Our Desktop Solutions – XenDesktop and XenApp – reduce the complexity and cost of administering
Windows-based applications and desktops in the enterprise.
• Citrix® XenDesktop™ is a fully integrated desktop virtualization system that gives customers the
flexibility to deliver the desktop as a service – dramatically simplifying desktop management for the
broadest range of users. XenDesktop is available in a range of packages designed for viral adoption and
several market segments. The Express Edition of XenDesktop is offered as a free download from our
website to allow IT professionals to conduct no-cost trials. The XenDesktop VDI Edition is designed
for virtual desktop projects that only require the hosted virtual machine method of desktop delivery.
The Enterprise and Platinum Editions of XenDesktop include all our major virtual desktop delivery
models in one integrated package, and also include Citrix XenApp for delivering on-demand
applications into virtual or physical desktops. All versions of XenDesktop include Citrix HDX
technologies to give users a high-definition experience – even when using multimedia, real-time
collaboration, USB devices, and 3D graphics content, while consuming 90 percent less bandwidth than
competing solutions. HDX fully leverages the Citrix ICA® protocol and adds Adaptive Orchestration
which dynamically optimizes performance and bandwidth to fit each unique user scenario. Each edition
comes with user profile management and provisioning services to stream a single desktop image,
on-demand, to multiple servers in the datacenter. All editions feature licensing for both Citrix
XenServer and Microsoft Hyper-V virtualization infrastructure. The most advanced editions include
our FlexCast™ delivery technologies which allow virtual desktops to be hosted in the datacenter or run
locally at the endpoint, wherever costs, security or mobility is optimal. We believe that our FlexCast
technology dramatically improves our customer’s return on their investment and makes desktop
virtualization a practical reality for broad, enterprise-wide deployments.
• Citrix® XenApp™ is a widely-deployed application virtualization solution that allows enterprise
applications to be centralized and delivered as an on-demand service. XenApp delivers applications in
two ways: (1) hosted – by running application business logic on a central server using our HDX
technologies to securely transmit the application’s user experience to the endpoint device, or (2) streamed
– by running the application locally. Keeping applications under the centralized control of IT
administrators enhances data security and reduces the costs of managing separate clients and applications
on every user’s desktop. The XenApp server runs on Microsoft® Windows Server® 2008, Windows
Server 2003 x64 Edition to Windows Server 2003, Windows® 2000 Server and several versions of
UNIX®. In 2009, we announced XenApp 5, offering improvements in capacity planning, server
provisioning and application management. We offer XenApp as a standalone product in different editions.
The Platinum Edition includes the most features and adds powerful capabilities for application
performance monitoring, secure sockets layers/virtual private network, or SSL/VPN, advanced
SmartAccess™ control and single sign-on application security. The capabilities of XenApp are now
available in XenDesktop Enterprise and Platinum Editions to provide a complete desktop virtualization
system. XenApp continues to be available as a standalone solution for self-service applications on
demand for customers wishing to use it on physical PCs and with competing virtual desktop products.
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Online Services
Online Services is another area where we provide virtualization at the desktop in the form of virtual
meetings, web-based desktop support, and remote access. These products are delivered using the SaaS method
where customers simply subscribe to our cloud-based online services without making any capital investment.
These SaaS-delivered products help customers reduce travel, increase tele-working, and enable cost-effective
remote access and support.
• GoToMeeting® is an online, easy-to-use, secure and cost-effective solution for online meetings sales
demonstrations and collaborative gatherings. GoToMeeting allows a user with a PC or Mac and an
Internet browser to easily host, attend or participate in an online meeting or session without significant
training. GoToMeeting is capable of providing a standard PSTN conference dial-in number and voice
over Internet protocol, or VoIP. It features advanced secure communication architecture that uses
industry-standard secure sockets layers, or SSL. The service offers flat-fee pricing for any number of
meetings of any length, for up to 15 attendees per meeting. We also offer GoToMeeting® Corporate
which supports multiple organizer accounts, unlimited meetings with up to 25 attendees, robust
reporting, additional customization options and advanced administrative capabilities. GoToMeeting
Corporate also provides optional integrated toll-free audio.
• GoToWebinar® is an easy-to-use, do-it-yourself webinar solution, allowing organizations to increase
market reach and effectively present online to geographically dispersed audiences. GoToWebinar
allows users with a PC or Mac and an Internet browser to easily host, attend or participate in a webinar
session without significant training or IT support. GoToWebinar includes such features as full-service
registration with real-time reports, customized branding, automated email templates, polling and survey
capabilities, webinar dashboard to monitor attendance and participation, easy presenter controls for
changing presenters and VoIP and toll-based phone options. The service offers flat-fee pricing for
unlimited webinars of any length, for up to 1,000 attendees per webinar.
• GoToTraining® is the easy online training tool that allows trainers to deliver content to multiple
trainees quickly and effortlessly, allowing organizations to expand their training program while saving
time and reducing travel costs. GoToTraining allows users to host and participate in interactive online
training sessions from either their PC or Mac. GoToTraining includes such features as full-service
registration with real-time reporting and management, online course catalog, automated reminder and
follow-up emails, content library to organize and store reusable content, materials, tests, polls, and
VoIP and toll-based phone options. The service offers flat-fee pricing for unlimited training sessions of
any length, for up to 200 attendees per session.
• GoToAssist® is a leading, online, remote technical-support solution that enables individual
professionals and organizations of all sizes to provide secure, on-demand support over the Internet.
GoToAssist enables support staff to instantly view and control the desktop of a user without the need to
pre-install client software. There are two versions: GoToAssist® Express and GoToAssist® Corporate.
They both work automatically and securely through virtually every firewall, even over dial-up
connections, and they easily integrate into existing infrastructure.
• GoToMyPC® is an online solution that provides secure, remote access to PC and Mac from virtually
any Internet-connected computer. GoToMyPC, which sets up easily with a secure encrypted
connection, enables individuals to remotely use any resources hosted on their desktop just as though
they were sitting in front of it. GoToMyPC® Pro, tailored for the needs of professionals and small
offices, supports up to 50 PCs, rolls out secure, remote access for multiple users in minutes, and
features an administration Website in which managers can add, suspend and delete users and run usage
reports. GoToMyPC® Corporate is built for businesses that require detailed reporting, in-depth
administration features, assign and manage remote-access privileges for employees with advanced
security features.
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Datacenter and Cloud Solutions
Our Datacenter and Cloud Solutions bring lower operating costs, greater flexibility and cloud-enablement to
the enterprise datacenter. These products are also designed to power public “clouds” when used by hosting and
cloud service providers. Our datacenter and cloud solutions include virtual infrastructure and application
networking products.
Virtual Infrastructure Products
Citrix XenServer and Citrix Essentials offer powerful virtual infrastructure for improving operational
efficiencies in the enterprise datacenter and for public cloud service providers:
• Citrix®XenServer™ is an enterprise-class platform for managing server virtualization in the datacenter
as a flexible aggregated pool of computing and storage resources. Based on the high-performance Xen
virtualization engine, XenServer combines comprehensive server virtualization capabilities with
scalability, performance and ease-of-use. XenServer is offered free of charge to any user for unlimited
production deployment.
• Citrix Essentials ™ for XenServer™ and Hyper-V™, announced in February 2009, adds a set of
advanced management and automation capabilities to the Citrix and Microsoft server virtualization
platforms. This solution adds the following capabilities to existing virtualization management systems:
lab automation, high availability, provisioning, workflow orchestration and seamless integration with
leading storage systems.
Application Networking Products
Citrix NetScaler, Citrix Access Gateway and Citrix Repeater Solutions improve the performance, security
and costs of delivering applications, desktops and web content over both public and private networks:
• Citrix® NetScaler® is an all-in-one Web application delivery controller that makes applications run
five times better by application accelerator methods such as HTTP compression and caching, ensuring
application availability through advanced L4-7 load balancer and content switching methods,
increasing application security with an integrated application firewall and substantially lowering costs
by offloading servers for server consolidation. It reduces Web application TCO, optimizes the
user experience and makes sure that applications are always available. NetScaler comes in both
built-for-purpose MPX-series hardware appliances powered by our nCore technology and an
economical form factor with our VPX virtual appliance that operates with any standard industry server
using our XenServer technology.
• Citrix Access Gateway™ is an SSL/VPN that securely delivers applications with policy-based
SmartAccess control. Users have easy-to-use secure access to the applications and data they need to be
productive. Organizations can cost effectively extend access to datacenter resources from outside the
office, while maintaining unprecedented control through comprehensive SmartAccess policies.
• Citrix Repeater™ solutions provide high-performance application delivery to branch office users that
increase productivity and reduce IT costs in the enterprise branch by delivering local area network-like
application performance over the wide area network, or WAN. Appliance products in the Citrix
Repeater family of solutions, including Citrix Branch Repeater™ (formerly WANScaler®) and Citrix
Branch Repeater™ with Windows Server®, developed in partnership with Microsoft, can accelerate
applications to datacenters and mobile workers. The AutoOptimizer™ Engine, which serves as the
cornerstone of the Citrix Repeater architecture, offers flexible deployment options. The Citrix Repeater
client software accelerates application delivery to other remote users including those in smaller branch
offices, home offices and business travelers, while users in larger branch offices are supported with
Citrix Repeater appliances.
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Technical Services
We provide a portfolio of technical services to our business partners and customers to manage the quality of
implementation, operation and support of our solutions. These services are available for additional fees paid on
an annual or transactional basis.
• Consulting Services help ensure the successful implementation of our solutions. Tested methodologies,
certified professionals and best practices developed from real-world experience allow our consulting
services organization to provide guidance and support to partners and customers to maximize the
effectiveness of their access infrastructure implementations. For pre- and post-sale consulting, Citrix
Consulting, a consulting services organization, provides both exploratory and fee-based consulting
services. These services include on-site systems design and implementation services targeted primarily
at enterprise-level clients with complex IT environments. Citrix Consulting is also responsible for the
development of best practice knowledge that is disseminated to businesses with which we have a
business relationship and end-users through training and written documentation. Leveraging these best
practices enables our integration resellers to provide more complex systems, reach new buyers within
existing customer organizations, and provide more sophisticated system proposals to prospective
customers.
•
Technical Support Services accommodate the unique ongoing support needs of customers. Our
technical support services are specifically designed to address the variety of challenges facing access
infrastructure environments. We offer several support-level options, global coverage and personalized
relationship management. Post-sale technical support is offered through Citrix-operated support centers
located in the United States, Ireland, Japan, Hong Kong, Australia, Singapore and India. In most cases,
we provide technical advice to channel distributors and entities with which we have a technology
relationship, who act as the first line of technical assistance for end-users. In some cases, end-users can
also choose from a Citrix-delivered fee-based support program ranging from one-time incident charges
to an enterprise-level support agreement covering multiple sites and servers. In addition, we also
provide free technical advice through online support systems, including our Web-based “Knowledge
Center.”
• Product Training & Certification teaches customers and partners how to optimally utilize our products
and keep their organizations running smoothly. Authorized Citrix training is available when and how
it is needed. Traditional or virtual instructor-led training offerings feature Citrix Certified Instructors
conducting scheduled classes in a classroom or remote setting at one of approximately 260 Citrix
Authorized Learning Centers™, or CALCs, worldwide. CALCs are staffed with instructors that have
been certified by us and teach their students using Citrix-developed courseware. Self-Paced Online
offerings, available to students 24 hours a day, seven days a week, provide technically robust course
content without an instructor and often include hands-on practice via virtual labs. Certifications are
available for administrators, engineers, and architects.
Our SaaS products generally do not require post-sale services except in the case of some corporate contracts
which include integration services at the time of implementation.
Technology
Our products are based on a full range of industry-standard technologies. In addition, certain of our products
are also based on our proprietary technologies.
•
Independent Computing Architecture Protocol, or ICA®, consists of server- and client-side technology
that allows graphical user interfaces to be transmitted securely over any network, and displayed on
almost any client device. We offer client-side support for Windows-, Macintosh-, Linux-, Windows
Phone-, iPhone-, and Android-based devices such as PCs, laptops, tablets, thin clients, netbooks and
smartphones. ICA allows applications and desktops to run on a central server enabling centralized
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management of applications, desktops, end-users, servers, licenses and other system components for
greater efficiency and lower cost. ICA enhances information security by minimizing or eliminating
data from traveling across the network by sending and receiving encrypted representation of screen
pixels, keystrokes and mouse clicks. ICA is uniquely designed to consume minimal network bandwidth
and resist network latency which allows virtual desktops and applications to be used over LANs,
WANs, WiFi, and 3G connections.
• Citrix HDX Technologies is a family of innovations that optimize the end-to-end user experience in
virtual desktop and virtual application environments. These technologies incorporate our ICA protocol
and include HDX Broadcast, MediaStream, Realtime, 3D, Plug-n-Play, and IntelliCache features which
work together to provide a hi-definition user experience across a wide array of applications, devices
and networks. HDX also provides Adaptive Orchestration which dynamically adjusts HDX capabilities
to adapt to specific device, network and application scenarios and deliver a better user experience.
• NetScaler® Software Packet Engine, or the Packet Engine, forms the foundation of our NetScaler line
of products. The Packet Engine allows high-performance networking and packet processing without the
need for special purpose hardware.
• Xen® Open Source Technology is the basis for our hypervisor products. The Xen® hypervisor is a key
component of the XenServer™ product line. See Part I—Item 1A entitled “Risk Factors,” for more
information regarding the open source technology.
• Citrix Internet Overlay Platform is foundational technology for GoToMeeting, GoToWebinar,
GoToTraining, GoToAssist and GoToAssist Express. The platform implements one of the largest
multicast overlay data networks in the world using the Internet. It provides proprietary screen-sharing
technology that separately optimizes screen transmission for each endpoint device (such as a remote
PC during an online meeting or remote access session).
• Citrix PSTN/VoIP Bridge is core technology that allows the seamless integration of PSTN/VoIP audio
conferencing. This technology is used extensively in our web-based collaboration and communication
products including GoToMeeting, GoToWebinar, GoToTraining, and Hi-Def Conferencing.
Innovation is a core Citrix competency. We have many additional unique inventions that are important
enablers of our continued leadership in desktop and application virtualization, web collaboration, application
networking, and cloud infrastructure.
Customers
We take a unique approach to solving the challenges of globalization, datacenter consolidation, regulatory
compliance, disaster preparedness, and competitiveness faced by our customers. In addition, we help their IT
organizations change the cost, complexity, security and inflexibility of enterprise computing. Our products
provide new capabilities for collaboration, communication, user support, desktop management, networking and
datacenter management, and we believe they consistently deliver lower business and computing costs. At the
same time, our solutions significantly increase business agility, helping our customers to quickly adapt to
business, economic and environmental changes. The strategic value that we offer requires us to engage with
multiple buyers, each with a different perspective on the problems we solve. We believe that the primary IT
buyers involved in decision-making related to virtual computing solutions are the following:
•
Strategic IT Executives including chief information officers, chief technology officers and vice
presidents of infrastructure, who have responsibility for ensuring that IT services are enablers to
business initiatives, and are delivered with the best performance, availability, security, and cost.
• Network Architects who are responsible for delivering Web-based applications who have primary
responsibility for the WAN infrastructure for all applications.
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•
IT Infrastructure Managers who are responsible for managing and delivering Windows-based
applications.
• Desktop Operations Managers who are responsible for managing Windows Desktop environments
including corporate help desks.
•
•
•
Server Operations Managers who are responsible for specifying datacenter systems, and managing
daily operations.
Individuals and professional consumers, or prosumers, who are responsible for choosing personal
solutions and helping small business select simple-to-use computing solutions.
Small Business Owners who are responsible for choosing the systems needed to support their business
goals, such as SaaS.
We offer perpetual and term-based software licenses for our products, along with annual subscriptions for
software updates, technical support and online services. Perpetual licenses allow our customers to use the version
of software initially purchased into perpetuity, while term-based licenses are limited to a specified period of time.
Software update subscriptions give customers the right to upgrade to new software versions if and when any
updates are delivered during the subscription term. Perpetual license software products come primarily in
electronic-based forms, and, in selected markets, we offer pre-packaged shrink-wrap products to meet local
customer needs. Our Online Services SaaS products are accessed over the Internet for usage during the
subscription period. Our hardware appliances come pre-loaded with software for which customers can purchase
perpetual licenses and annual maintenance.
Technology Relationships
We have entered into a number of technology relationships to accelerate the development of existing and
future products. These relationships include cross-licensing, OEM, and other arrangements that result in better
solutions for our customers.
Microsoft
Since our inception, we have had a number of license agreements with Microsoft Corporation, or Microsoft,
including patent cross-license and source code licensing agreements that have provided us access to source code
for versions of Microsoft Windows Server. These agreements are not required for our software development
processes on Windows Server and do not provide for payments to or from Microsoft. The agreements are
designed to allow Citrix to provide technical support for our products that run on the Microsoft Windows Server
platform including XenApp and XenDesktop. Additionally, we have collaborated with Microsoft on various
technologies, including terminal services, application networking and virtualization.
Additional Relationships
Currently, numerous partners incorporate Citrix products and technologies such as Citrix Receiver, ICA,
Citrix XenServer, Citrix XenDesktop and Citrix XenApp into their customer offerings. Our ICA and Citrix
Receiver technologies are often included with thin clients, industry-standard servers, and mobile devices such as
Apple iPhone, Windows Mobile, Blackberry and Google Android devices. Licensees include Dell, Fujitsu, HP,
and Wyse Technologies, among others.
In addition, we have initiated the Citrix Ready Program. The Citrix Ready program identifies verified
solutions that are trusted to enhance virtualization, networking and cloud computing solutions from Citrix,
including Citrix® XenDesktop ™, XenApp™, XenServer™, NetScaler® and GoToMeeting®. The Citrix Ready
program leverages industry-leading alliances across the Citrix partner eco-system to meet a wide variety
customer needs, and currently incorporates over 2,700 partners who have demonstrated more than 12,000 product
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verifications. The Citrix Ready designation is awarded to third party products that have successfully met
verification criteria set by Citrix, and gives customers an added confidence in the compatibility of the joint
solution offering. The Citrix Ready program received the Alliance Excellence Award from the Association of
Strategic Alliance Professionals (ASAP) for creating a strong community of alliances through implementation
of new, innovative best practices.
Research and Development
We focus our research and development efforts on developing new products and core technologies in the
virtual computing infrastructure market and further enhancing the functionality, reliability, performance and
flexibility of existing products. We solicit extensive feedback concerning product development from customers,
both directly from and indirectly through our channel distributors.
We believe that our software development teams and core technologies represent a significant competitive
advantage for us. Included in the software development teams is a group focused on research activities that
include prototyping ways to integrate emerging technologies and standards into our product offerings, such as
emerging Web services technologies, management standards and Microsoft’s newest technologies. Many groups
within the software development teams have expertise in XML-based software development, integration of
acquired technology, multi-tier Web-based application development and deployment, SSL secure access,
hypervisor technologies, VoIP-based audio technology, Web-based video technology and building software as a
service. We maintain teams located close to Microsoft in Redmond, Washington which are focused on enhancing
and adding value to the next generation of Microsoft Windows Server, virtualization and management products.
We incurred research and development expenses of approximately $282.0 million in 2009, $288.1 million in
2008 and $205.1 million in 2007.
Sales, Marketing and Services
We market and license our products and services through multiple channels worldwide, including VARs,
VADs, SIs, ISVs, direct over-the-web, and OEMs. These distribution channels are managed by our worldwide
sales and services organization. We provide training and certification to integrators, VARs and consultants for
a full-range of Citrix-based infrastructure products, solutions and services through our Citrix Partner Network
program to members known as Citrix Solution Advisors™. In addition, our Online Services division provides
software as a service through direct corporate sales and direct over-the-web through our Websites.
In 2009, we continued to focus on increasing the productivity of our existing partners and building capacity
through recruitment of new partners to sell and implement our expanding product portfolio. Our channel
incentive program, Citrix Advisor Rewards™, is an innovative influencer program that rewards our partners for
registering projects and providing value-added selling even if they do not fulfill the product. This program has
helped limit channel conflict and increase partner loyalty to us. We regularly take actions to improve the
effectiveness of our partner programs, and to strengthen our channel relationships, including managing
non-performing partners, adding new partners with expertise in selling into new markets, and forming additional
relationships with global and regional SIs and ISVs. SIs and ISVs are becoming a more substantial part of our
strategy in the large enterprise and government markets. The SI program includes members such as Accenture
Ltd., Atos Origin, Computer Sciences Corporation, Electronic Data Systems Corporation, Fujitsu-Siemens
Computers GmbH, Hewlett-Packard Company, IBM Global Services, Infosys Technologies Limited and TATA
Consultancy Services Limited, among others. The ISV program has a strong representation from targeted
industry verticals such as healthcare, financial services and telecommunications. Members in the ISV program
include Cerner Corporation, Epic Systems Corporation, ESRI, McKesson Corporation, Microsoft, Oracle
Corporation, Sage Group plc, SAP AG and Siemens Medical Health Solutions, among many others.
Our corporate marketing organization provides sales event support, sales collateral, advertising, direct mail
and public relations coverage to our indirect channels to aid in market development and in attracting new
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customers. Our partner development organization actively supports our VADs and VARs to improve their
commitment and capabilities with Citrix solutions. Our customer sales organization consists of field-based
systems sales engineers and corporate sales professionals who work directly with our largest customers and
coordinate integration services provided by our VARs and SIs. Additional sales personnel, working in central
locations and in the field, provide additional support including recruitment of prospective partners and technical
training with respect to our products.
Although we work with multiple VADs and VARs, one distributor, Ingram Micro, accounted for 14% of our
total net revenues in 2009, 12% of our total net revenues in 2008 and 10% of our total net revenues in 2007. Our
channel distributor arrangements with Ingram Micro consist of several non-exclusive, independently negotiated
agreements with its subsidiaries, each of which covers different countries or regions. Each of these agreements is
separately negotiated and is independent of any other contract (such as a master distribution agreement). None of
these contracts was individually responsible for over 10% of our total net revenues in each of the last three fiscal
years. In addition, there was no individual VAR that accounted for over 10% of our total net revenues in 2009,
2008 and 2007.
The Citrix Partner Network™ includes three categories of partners: Citrix Solution Advisors™, Citrix
Ready Technology Partners™, and Citrix Global SIs™. This network represents the knowledge, skills and
experience of the entire spectrum of our partners around the world, and makes it easier for end-users to engage
their services and benefit from their solutions. Equally important, the Citrix Partner Network is designed to help
partners build their business by sharing in opportunities for virtualization and networking optimization solutions
that arise from mutual customers and complement the sale of their own products.
We provide most of our channel distributors with stock-balancing and price protection rights, although the
amount of inventory on hand with channel distributors is very small. These amounts are estimated and provided
for at the time of sale as a reduction of revenue. Stock balancing rights permit channel distributors to return
products to us up to the 45th day of the fiscal quarter, subject to ordering an equal dollar amount of our other
products prior to the last day of the same fiscal quarter. We are not obligated to accept product returns from our
channel distributors under any other conditions, unless the product item is defective in manufacture. Product
items returned to us under the stock-balancing program must be in new, unused and unopened condition. Price
protection rights require that we grant retroactive price adjustments for inventories of our products held by
channel distributors or VARs if we lower our prices for such products. In the event that we decide to reduce our
prices, we will establish a reserve to cover exposure to channel distributor inventory. We have not reduced and
have no current plans to reduce the prices of our products for inventory currently held by channel distributors or
VARs. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical
Accounting Policies and Estimates” and Note 2 to our consolidated financial statements included in this Annual
Report on Form 10-K for the year ended December 31, 2009 for information regarding our revenue recognition
policy.
International revenues (sales outside the United States) accounted for approximately 43.6% of our net
revenues for the year ended December 31, 2009, 45.8% of our net revenues for the year ended December 31,
2008 and 44.5% of our net revenues for the year ended December 31, 2007. For detailed information on our
international revenues, please refer to Note 12 to our consolidated financial statements included in this Annual
Report on Form 10-K for the year ended December 31, 2009.
Operations
For our application networking products, including NetScaler, Access Gateway and Repeater, we employ
manufacturing capabilities that are both internal and through independent contractors to provide a redundant
source of manufacture and assembly. Internal manufacturing capabilities and independent contractors provide us
with the flexibility needed to meet our customer product and delivery requirements. We have manufacturing
relationships primarily with Flextronics and Super Micro Computer, Inc., under which we have subcontracted the
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majority of our manufacturing activity. These third-party contract manufacturers also provide final test,
warehousing and shipping services. This subcontracting activity extends from prototypes to full production and
includes activities such as material procurement, final assembly, test, control, shipment to our customers and
repairs. Together with our contract manufacturers, we design, specify and monitor the tests that are required to
meet internal and external quality standards. Our contract manufacturers manufacture our products based on
forecasted demand for our products. Each of the contract manufacturers procures components necessary to
assemble the products in our forecast and test the products according to our specifications. Products are then
shipped to our channel distributors, VARs or end-users. If the products go unsold for specified periods of time,
we may incur carrying charges or obsolete material charges for products ordered to meet our forecast or customer
orders. In 2009, we did not experience any material difficulties or significant delays in the manufacture and
assembly of our products.
We control all purchasing, inventory, scheduling, order processing and accounting functions related to our
operations. For our software products, production, warehousing and shipping are performed internally in the
United States and by independent contractors on a purchase order basis in Ireland, depending upon the
customer’s geographic market. Master software CD-ROMs, development of user manuals, packaging designs,
initial product quality control and testing are primarily performed at our facilities. In some cases, independent
contractors also duplicate CD-ROMs, print documentation and package and assemble products to our
specifications.
We do not believe that backlog, as of any particular date, is a reliable indicator of future performance.
While it is generally our practice to promptly ship product upon receipt of properly finalized purchase orders,
we sometimes have orders that have not shipped upon receipt of a purchase order. Although the amount of such
product license orders may vary, the amount, if any, of such orders at the end of a particular period is not
material to our business.
We believe that our fourth quarter revenues and expenses are affected by a number of seasonal factors,
including the lapse of many corporations’ fiscal year budgets and an increase in amounts paid pursuant to our
sales compensation plans due to compensation plan accelerators that are often triggered in the fourth quarter.
We believe that these seasonal factors are common within our industry. Such factors historically have resulted
in first quarter revenues in any year being lower than the immediately preceding fourth quarter. We expect this
trend to continue through the first quarter of 2010. In addition, our European operations generally generate lower
revenues in the summer months because of the generally reduced economic activity in Europe during the
summer. This seasonal factor also typically results in higher fourth quarter revenues.
Competition
We sell our products in intensely competitive markets. Some of our competitors and potential competitors
have significantly greater financial, technical, sales and marketing and other resources than we do. As the
markets for our products and services continue to develop, additional companies, including those with significant
market presence in the computer appliances and software and networking industries, could enter the markets in
which we compete and further intensify competition. In addition, we believe price competition could become a
more significant competitive factor in the future. As a result, we may not be able to maintain our historic prices
and margins, which could adversely affect our business, results of operations and financial condition. See
“—Technology Relationships” and Part I—Item 1A entitled “Risk Factors.”
Desktop Solutions
We have established a very large installed customer base in the application virtualization market due to our
early success applying this solution to remote access challenges. Today, this technology is part of an evolution
to a new way of managing desktops which is establishing a larger, encompassing market defined as desktop
virtualization. Our primary competition in this market is the existing IT desktop management practice of
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manually configuring physical desktops which is time-consuming, expensive and inconsistent. We also face
numerous competitors that provide automation of these processes and alternative approaches including
VMWare’s View product. We believe XenDesktop gives Citrix a competitive advantage by providing customers
multiple ways to manage desktops within one, integrated desktop virtualization system.
Online Services
Our SaaS products for web collaboration, remote support, and remote access continue to maintain solid
leadership positions, particularly among small and medium-sized businesses, or SMBs, in extremely competitive
markets. We differentiate our SaaS products by designing simple, secure, reliable and cost-efficient services that
deliver superior customer experience. Our competitors range from large, established technology firms to small,
internet-based startups.
We have been a market leader in SaaS-based secure remote access with our GoToMyPC product for many
years. Our direct competition includes LogMeIn, free solutions such as Microsoft’s Live Mesh, and those from
many internet startups. In addition, new remote access features in desktop operating systems like Microsoft
Windows and Macintosh OSX provide alternatives to our solution. We differentiate by continuing our focus on
security, ease-of-use and support for multiple desktop operating systems.
In web collaboration we compete primarily with Cisco’s WebEx product which is the market leader. Our
products, GoToMeeting and GoToWebinar, have proven competitive based on ease-of-use and the All You Can
Meet® pricing model. In 2008, we acquired an audio services company, with advanced VoIP-based audio
technology, giving us an opportunity to market audio conference calling services directly to SMBs and
enterprises. We further differentiate our collaboration products by integrating PSTN, VoIP and toll-free audio
services. We believe these features give us competitive advantage among individual, prosumer, and SMB
customers. We expect to expand our collaboration offering with GoToTraining™, an online training service
purpose-built for the corporate training market.
Our on-demand support products, marketed under the GoToAssist brand, have achieved the largest market
share worldwide for Web-based clientless remote support. This product line includes versions purpose-built for
individual users, consultants and small businesses, positioning Citrix as the only provider of remote support
solutions for all segments of the market. In remote support, we compete with Cisco’s WebEx and LogMeIn.
Datacenter and Cloud Solutions
In the server virtualization market, we compete directly with VMware which was first to market with this
technology and is widely regarded as the market leader. We believe XenServer, our server virtualization product,
has features that are competitive with VMware’s ESX Server in terms of performance, scalability and other
enterprise-class capabilities. XenServer is offered as a free download which significantly increases the reach of
server virtualization to customers of all sizes and geographies. In 2008, Microsoft entered this market with a
hypervisor-based server virtualization product called Hyper-V which is also available free of charge. We
monetize the XenServer and Hyper-V products by selling advanced management, storage integration, and
automation capabilities offered through Citrix®Essentials™ .
Our NetScaler web application delivery products compete against other established competitors including,
Cisco Systems, Inc., or Cisco, and F5 Networks, Inc., or F5. Both compete with us for traditional enterprise sales
opportunities, while F5 is our principal competitor in the Internet-centric market segment. We continue to
enhance NetScaler’s feature capability and aggressively market NetScaler to our existing customer base. Our
Access Gateway or SSL/VPN product faces competition from Cisco and Juniper Networks, Inc., or Juniper. Both
competitors are well known and established in the SSL/VPN market. In contrast, we have not had a presence in
that market for as long as our competitors and we do not command the same level of brand recognition. We do,
however, have the largest market share measured in units. Our competitive success in this market has come from
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bundling our SSL/VPN product with our other products, primarily XenApp, to offer a comprehensive end-to-end
virtual computing solution, a key differentiator for us. Our Citrix Repeater family of products competes with
Cisco, Riverbed Technology, Inc., or Riverbed, and Blue Coat Systems, or Blue Coat. Cisco enjoys the largest
market share, benefiting from their leadership in the networking market. Riverbed and Bluecoat are less
established companies than Citrix, but have the advantage of being focused solely on WAN optimization. We
continue to develop enhanced features and functionality for our Citrix Repeater products, in addition to
optimizing their performance with existing Citrix products, to differentiate them from our competition. We are
also able to bundle them with existing products and aggressively market them to our installed-base, which we
believe gives us a competitive advantage.
Proprietary Technology
Our success is dependent upon certain proprietary technologies and core intellectual property. We have been
awarded numerous domestic and foreign patents and have numerous pending patent applications in the United
States and foreign countries. Our technology is also protected under copyright laws. Additionally, we rely on
trade secret protection and confidentiality and proprietary information agreements to protect our proprietary
technology. We have trademarks or registered trademarks in the United States and other countries, including
Citrix®, Citrix Access Gateway™, Citrix Cloud Center™, Citrix Essentials™, Citrix Receiver™, Citrix
Repeater™, Citrix Subscription Advantage™, Citrix Synergy™, Dazzle™, EdgeSight®, FlexCast™,
GoToAssist®, GoToMeeting®, GoToMyPC®, GoToWebinar®, GoToTraining®, GoView®, HiDef
Conferencing™, ICA®, nCore™, NetScaler®, Simplicity is Power™, VPX™, Xen®, XenApp™, XenCenter®,
XenClient™, XenDesktop®, XenServer®. While our competitive position could be affected by our ability to
protect our proprietary information, we believe that because of the rapid pace of technological change in the
industry, factors such as the technical expertise, knowledge and innovative skill of our management and technical
personnel, our technology relationships, name recognition, the timeliness and quality of support services
provided by us and our ability to rapidly develop, enhance and market software products could be more
significant in maintaining our competitive position. See Part I—Item 1A entitled “Risk Factors.”
Available Information
Our Internet address is http://www.citrix.com. We make available, free of charge, on or through our Website
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements
and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act as soon as reasonably practicable after such material is electronically filed with or furnished to the
Securities and Exchange Commission. The information on our Website is not part of this Annual Report on Form
10-K for the year ended December 31, 2009.
Employees
As of December 31, 2009, we had 4,816 employees. On January 28, 2009, we announced a strategic
restructuring program which included steps to reduce our headcount by approximately 450 full-time positions, or
approximately 10% of our global workforce. We believe our relations with employees are good. In certain
countries outside the United States, our relations with employees are governed by labor regulations that provide
for specific terms of employment between our company and our employees.
ITEM 1A. RISK FACTORS
Our operating results and financial condition have varied in the past and could in the future vary
significantly depending on a number of factors. From time to time, information provided by us or statements
made by our employees contain “forward-looking” information that involves risks and uncertainties. In
particular, statements contained in this Annual Report on Form 10-K for the year ended December 31, 2009, and
in the documents incorporated by reference into this Annual Report on Form 10-K for the year ended
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December 31, 2009, that are not historical facts, including, but not limited to statements concerning new
products, development and offerings of products and services, including our Desktop Solutions, Online Services
and Datacenter and Cloud Solutions, market positioning, Citrix Ready, our Partner Network, Product Licenses,
License Updates, Technical Services, cash and non-cash charges, product and price competition, competition and
strategy, employees, suppliers, contract manufacturers, product price and inventory, contingent consideration
payments, deferred revenues, government regulation (including the FCC), seasonal factors, natural disasters,
stock-based compensation, licensing and subscription renewal programs, computer system enhancements,
international operations and expansion, revenue recognition, profits, growth of revenues, composition of
revenues, cost of net revenues, operating expenses, sales and sales cycle, marketing and support expenses,
general and administrative expenses, research and development expenses, obsolete materials charges, valuations
of investments and derivative instruments, technology relationships, open source software, reinvestment or
repatriation of foreign earnings, gross margins, amortization expense, goodwill and intangible assets, fluctuations
in foreign exchange rates, interest income, interest expense, impairment charges, anticipated operating and
capital expenditure requirements, contractual obligations, our Credit Facility, in-process research and
development, tax rates and deductions, tax liabilities and benefits, transfer pricing, our pending tax appeal,
acquisitions, including XenSource and Vapps, cash inflows, the Financial Accounting Standards Board’s
authoritative guidance, leasing activities and obligations, acquisitions, stock repurchases, investment transactions
(including our investment in bonds issued by AIG Matched Funding Corporation (the “AIG Capped Floater”),
our settlement with UBS and investments in auction rate and available-for-sale securities), changes in domestic
and foreign economic conditions and credit markets, restructuring activities (including our Strategic
Restructuring Program), delays or reductions in technology purchases, acquired in-process technology, liquidity,
litigation matters, intellectual property matters, distribution channels, stock price, payment of dividends, Advisor
Rewards program, price protection rights, proprietary technology, security measures, third party licenses, and
potential debt or equity financings constitute forward-looking statements and are made under the safe harbor
provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These statements are neither promises nor guarantees. Our actual results of operations
and financial condition have varied and could in the future vary materially from those stated in any forward-
looking statements. The following factors, among others, could cause actual results to differ materially from
those contained in forward-looking statements made in this Annual Report on Form 10-K for the year ended
December 31, 2009, in the documents incorporated by reference into this Annual Report on Form 10-K or
presented elsewhere by our management from time to time. Such factors, among others, could have a material
adverse effect upon our business, results of operations and financial condition. We caution readers not to place
undue reliance on any forward-looking statements, which only speak as of the date made. We undertake no
obligation to update any forward-looking statement to reflect events or circumstances after the date on which
such statement is made.
Adverse changes in general economic conditions in the United States or any of the major countries in which
we do business could adversely affect our operating results.
As a global company, we are subject to the risks arising from adverse changes in global economic and
market conditions. The worldwide economy underwent unprecedented turmoil in 2008 and 2009 amid stock
market volatility, difficulties in the financial services sector, tightening of the credit markets, softness in the
housing markets, concerns of inflation and deflation, reduced corporate profits and capital spending, and
economic uncertainties. The continuing uncertainty about future economic conditions could negatively impact
our current and prospective customers and result in delays or reductions in technology purchases. As a result, we
have experienced and could continue to experience fewer orders, longer sales cycles, slower adoption of new
technologies and increased price competition, any of which could materially and adversely affect our business,
results of operations and financial condition. Adverse economic conditions also may negatively impact our
ability to obtain payment for outstanding debts owed to us by our customers or other parties with whom we do
business.
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Our business could be adversely impacted by conditions affecting the information technology market.
The demand for our products and services depends substantially upon the general demand for business-
related computer appliances and software, which fluctuates based on numerous factors, including capital
spending levels, the spending levels and growth of our current and prospective customers, and general economic
conditions. Fluctuations in the demand for our products and services could have a material adverse effect on our
business, results of operations and financial condition. Moreover, the purchase of our products is often
discretionary and may involve a significant commitment of capital and other resources. As a result of uncertain
general economic and market conditions, future economic projections for the information technology sector are
uncertain as companies continue to reassess their spending for technology projects. In the past, adverse economic
conditions decreased demand for our products and negatively impacted our financial results. If an uncertain
environment for information technology spending continues, it could negatively impact our business, results of
operations and financial condition.
Our long sales cycle for enterprise-wide sales could cause significant variability in our revenue and operating
results for any particular period.
In recent quarters, a growing number of our large and medium-sized customers have decided to implement
our enterprise customer license arrangements on a departmental or enterprise-wide basis. Our long sales cycle for
these large-scale deployments makes it difficult to predict when these sales will occur, and we may not be able to
sustain these sales on a predictable basis.
We have a long sales cycle for these enterprise-wide sales because:
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our sales force generally needs to explain and demonstrate the benefits of a large-scale deployment of
our product to potential and existing customers prior to sale;
our service personnel typically spend a significant amount of time assisting potential customers in their
testing and evaluation of our products and services;
our customers are typically large and medium size organizations that carefully research their
technology needs and the many potential projects prior to making capital expenditures for software
infrastructure; and
before making a purchase, our potential customers usually must get approvals from various levels of
decision makers within their organizations, and this process can be lengthy.
The continued long sales cycle for these large-scale deployment sales could make it difficult to predict the
quarter in which sales will occur. Delays in sales could cause significant variability in our revenue and operating
results for any particular period.
We face intense competition, which could result in fewer customer orders and reduced revenues and margins.
We sell our products in intensely competitive markets. Some of our competitors and potential competitors
have significantly greater financial, technical, sales and marketing and other resources than we do. For example,
our ability to market our Desktop Solutions, including XenDesktop, XenApp, and other future product offerings
and upgrades, could be affected by Microsoft’s licensing and pricing scheme for client devices, servers and
applications. Further, the announcement of the release, and the actual release, of new Windows-based server
operating systems or products incorporating similar features to our products could cause our existing and
potential customers to postpone or cancel plans to license certain of our existing and future product and service
offerings. In addition, alternative products for application delivery directly and indirectly compete with our
current product lines and our online services.
Existing or new products and services that provide alternatives to our products and services, including those
relating to Desktop Solutions, Online Services, and Datacenter and Cloud Solutions, including application
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performance monitoring, branch office application delivery and WAN optimization, virtual desktop delivery,
secure sockets layers/virtual private network, gateways, on-demand assistance, online collaboration and IP
telephony, can materially impact our ability to compete in these markets.
Our current principal competitors in these markets include Cisco, including Cisco’s WebEx division, F5,
Juniper, Riverbed, VMware, Microsoft, Blue Coat and LogMeIn. For further discussion of the competitive
environment for our products, see the section entitled “Competition” in Part 1—Item 1.
As the markets for our products and services continue to develop, additional companies, including
companies with significant market presence in the computer appliances, software and networking industries,
could enter the markets in which we compete and further intensify competition. In addition, we believe price
competition could become a more significant competitive factor in the future. As a result, we may not be able to
maintain our historic prices and margins, which could adversely affect our business, results of operations and
financial condition.
Sales of our Desktop Solutions constitute a majority of our revenue and decreases in demand for our Desktop
Solutions could adversely affect our results of operations and financial condition.
We anticipate that sales of our Desktop Solutions and related enhancements and upgrades will constitute a
majority of our revenue for the foreseeable future. Our ability to continue to generate revenue from our Desktop
Solutions will depend on market acceptance of Windows Server Operating Systems and/or UNIX Operating
Systems. Declines and variability in demand for our Desktop Solutions could occur as a result of:
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new competitive product releases and updates to existing products;
termination of our product offerings and enhancements;
potential market saturation;
technological change;
general economic conditions; or
lack of success of entities with which we have a technology relationship.
If our customers do not continue to purchase our Desktop Solutions as a result of these or other factors, our
revenue would decrease and our results of operations and financial condition would be adversely affected. In
addition, modification or termination of certain of our Desktop Solutions may cause variability in our revenue
and make it difficult to predict our revenue growth and trends in our Desktop Solutions as our customers adjust
their purchasing decisions in response to such events.
Our XenDesktop products are based on an emerging technology platform, and the market for this line of
products remains uncertain.
Our XenDesktop products and services are based on an emerging technology platform, the success of which
will depend on organizations and customers perceiving technological and operational benefits and cost savings
associated with adopting desktop virtualization solutions. The limited extent to which XenDesktop has been
adopted in the market may make it difficult to evaluate this product’s potential impact on our business because
the market for our XenDesktop products remains uncertain. For example, our primary competition in desktop
virtualization is the existing IT practice of managing physical desktops as a device. To some extent, the success
of our XenDesktop product will depend on IT executives rethinking how desktops can be delivered as a service
rather than viewing desktops as a device. To the extent that the adoption of desktop virtualization solutions occur
more slowly or less comprehensively than we expect, the revenue growth associated with our XenDesktop
products may be slower than currently expected, which could adversely affect our business, results of operations
and financial condition.
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We have received a Revenue Agent’s Report from the Internal Revenue Service asserting tax deficiencies in
certain of our tax returns. An adverse outcome of this tax examination, or any future tax examinations
involving similar assertions, could have a material adverse effect on our results of operations and financial
condition.
In connection with a current IRS examination of our tax returns, the IRS has asserted income tax
deficiencies related to transfer pricing and consequential adjustments of approximately $81.3 million for tax
years 2004 and 2005 (excluding interest) relating to valuation matters associated with the intercompany transfer
of certain intellectual property in earlier tax years. We disagree with the adjustments and have filed a protest with
the IRS, which caused the matter to be referred to the Appeals Division of the IRS. We are contesting the
adjustments through the IRS appeals process and the courts, if necessary. There can be no assurance, however,
that this matter will be resolved in our favor, and an adverse outcome of this matter, or any future tax
examinations involving similar assertions, could have a material effect on our results of operations and financial
condition. Regardless of whether this matter is resolved in our favor, this matter could be expensive and time-
consuming to defend.
If we do not develop new products and services or enhancements to our existing products and services, our
business, results of operations and financial condition could be adversely affected.
The markets for our products and services are characterized by:
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rapid technological change;
evolving industry standards;
fluctuations in customer demand;
changes in customer requirements; and
frequent new product and service introductions and enhancements.
Our future success depends on our ability to continually enhance our current products and services and
develop and introduce new products and services that our customers choose to buy. If we are unable to keep pace
with technological developments and customer demands by introducing new products and services and
enhancements, our business, results of operations and financial condition could be adversely affected. Our future
success could be hindered by:
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delays in our introduction of new products and services;
delays in market acceptance of new products and services or new releases of our current products and
services; and
our, or a competitor’s, announcement of new product or service enhancements or technologies that
could replace or shorten the life cycle of our existing product and service offerings.
In order for a number of our products to succeed in the future, we believe the demand for technology will need
to shift from the types of products and services we and our competitors have sold in the past to a new generation of
products we now offer. For example, we cannot guarantee that our Desktop Solutions, Online Services and
Datacenter and Cloud Solutions will achieve the broad market acceptance by our channel partners and entities with
which we have a technology relationship, customers and prospective customers necessary to generate significant
revenue. In addition, we cannot guarantee that we will be able to respond effectively to technological changes or
new product announcements by others. If we experience material delays or sales shortfalls with respect to our new
products and services or new releases of our current products and services, those delays or shortfalls could have a
material adverse effect on our business, results of operations and financial condition.
We believe that we could incur additional development costs, acquisition costs and royalties and as we
develop, buy or license new technologies or enhancements to our existing products and services. These added
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costs and royalties could increase our cost of revenues and operating expenses. However, we cannot currently
quantify the costs for transactions that have not yet occurred. In addition, we may need to use a significant
portion of our cash and investments to fund acquisition costs.
Our investment portfolio has been subject to impairment charges due to the recent financial crisis in the
capital markets and may be adversely impacted by further deterioration of the capital markets.
Our investment portfolio as of December 31, 2009 primarily consisted of agency securities, corporate
securities, money market funds, municipal (including auction rate) securities, government securities and
commercial paper. As a result of recent adverse financial market conditions, investments in some financial
instruments may pose risks arising from liquidity and credit concerns. Although we follow an established
investment policy and seek to minimize the credit risk associated with investments by investing primarily in
investment grade, highly liquid securities and by limiting exposure to any one issuer depending on credit quality,
we cannot give assurances that the assets in our investment portfolio will not lose value, become impaired, or
suffer from illiquidity.
During 2008, we recorded an unrealized loss related to our $50.0 million face value investment issued by
AIG Matched Funding Corporation, or the AIG Capped Floater, which matures in September 2011. This
unrealized loss was caused by the liquidity challenges of American International Group, Inc., or AIG, which
triggered a downgrade in the credit ratings for AIG’s long-term issues by rating agencies in 2008. If AIG’s
financial situation further deteriorates, we may be required to further adjust the carrying value of the AIG Capped
Floater and record an impairment charge for an other-than-temporary decline in the fair market value of this
investment.
We may be required to record additional impairment charges for other-than-temporary declines in fair
market value in our available-for-sale investments, including our investment in the AIG Capped Floater. Future
market conditions could lead to additional impairment charges, which could adversely affect our results of
operations. Moreover, fluctuations in economic and market conditions could adversely affect the market value of
our investments, and we could lose some of the principal value of our investment portfolio. A total loss of an
investment, dependent on an individual security’s par value, or a significant decline in the value of our
investment portfolio could adversely affect our financial condition.
If we lose key personnel or cannot hire enough qualified employees in certain areas of our business, our
ability to manage our business could be adversely affected.
Our success depends, in large part, upon the services of a number of key employees in certain areas of our
business. Except for certain key employees of acquired businesses, we do not have long-term employment
agreements with any of our key personnel. Any officer or employee can terminate his or her relationship with us
at any time. The effective management of our growth, if any, could depend upon our ability to retain our highly-
skilled technical, sales and services managerial, finance and marketing personnel in certain areas of our business.
If any of those employees leave, we will need to attract and retain replacements for them. We also may need to
add key personnel in the future, including in certain key areas of our business. The market for these qualified
employees is competitive. We could find it difficult to successfully attract, assimilate or retain sufficiently
qualified personnel in sufficient numbers. Furthermore, we may hire key personnel in connection with our future
acquisitions; however, any of these employees will be able to terminate his or her relationship with us at any
time. If we cannot retain and add the necessary staff and resources for these acquired businesses, our ability to
develop acquired products, markets and customers could be adversely affected. Also, we may need to hire
additional personnel to develop new products, product enhancements and technologies. If we cannot add the
necessary staff and resources, our ability to develop future enhancements and features to our existing or future
products could be delayed. Any delays could have a material adverse effect on our business, results of operations
and financial condition.
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If we fail to manage our operations and grow revenue, our future operating results could be adversely
affected.
Historically, the scope of our operations, the number of our employees and the geographic area of our
operations and our revenue have grown rapidly. In addition, we have acquired both domestic and international
companies. This growth and the assimilation of acquired operations and their employees could continue to place
a significant strain on our managerial, operational and financial resources. We need to continue to implement and
improve additional management and financial systems and controls. We may not be able to manage the current
scope of our operations or future growth effectively and still exploit market opportunities for our products and
services in a timely and cost-effective way. Our future operating results could also depend on our ability to
manage:
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our expanding product lines;
our marketing and sales organizations; and
our client support organization to the extent required for any increase in installations of our products.
During the past two years, a large portion of our growth has been attributable to the growth of our Desktop
Solutions, as well as growth in our Online Services and the application networking products in our Datacenter
and Cloud product portfolio. We cannot provide any assurance that these markets and the revenues we derive
from these markets will continue to grow, especially given the current adverse economic and market conditions
that we face. In addition, over the last four years we have grown our force of sales professionals that work
closely with partners to sell to primary information technology, or IT, buyers, including Strategic IT Executives,
Network Architects, IT Infrastructure Managers, Desktop Operations Managers and Server Operations Managers,
to address the multiple selling and buying opportunities presented by our expanded product lines. These and
other account penetration efforts are part of our strategy to increase the usage of our products within our
customer’s IT organizations. We cannot provide any assurance that this strategy will be successful or that the
release of our application delivery infrastructure products or other new products or services will sustain or
increase our revenue growth rate.
We may be unable to effectively control our operating expenses, which could negatively impact our
profitability.
Although we endeavor to effectively control our operating expenses, these expenses, which are based on
estimated revenue levels, are relatively fixed in the short term. We cannot assure you that our operating expenses
will be lower than our estimated or actual revenues in any given quarter or that we will not incur unanticipated
expenses. If we experience a shortfall in revenue in any given quarter or if we incur material unanticipated
expenses, we likely will not be able to further reduce operating expenses quickly in response. Any significant
shortfall in revenue or the incurrence of material unanticipated expenses could immediately and adversely affect
our results of operations for that quarter. Also, due to the fixed nature of many of our expenses and the
challenges for revenue growth in the current environment, our income from operations and cash flows from
operating and investing activities could be lower than in recent years.
In addition, to the extent our revenue grows, if at all, we believe that our cost of revenues and certain
operating expenses could also increase. We believe that we could incur additional costs, including royalties, as
we develop, license or buy new technologies or enhancements to our existing products and services. These added
costs and royalties could increase our cost of revenues and operating expenses and lower our gross margins.
However, we cannot currently quantify the costs for such transactions that have not yet occurred or of these
developing trends in our business. In addition, we may need to use a substantial portion of our cash and
investments or issue additional shares of our common stock to fund these additional costs.
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Acquisitions present many risks, and we may not realize the financial and strategic goals we anticipate at the
time of an acquisition.
Our growth is dependent upon market growth, our ability to enhance existing products and services, and our
ability to introduce new products and services on a timely basis. We intend to continue to address the need to
develop new products and services and enhance existing products and services through acquisitions of other
companies, product lines and/or technologies. However, acquisitions, including those of high-technology
companies, are inherently risky. We cannot provide any assurance that any of our previous acquisitions,
including our acquisitions over the past three years, or future acquisitions will be successful in helping us reach
our financial and strategic goals either for that acquisition or for us generally or that the combined company
resulting from any acquisition will continue to support the growth achieved by the companies separately.
The risks we commonly encounter in managing and integrating acquisitions are:
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difficulties and delays integrating the operations, technologies, and products of the acquired
companies;
undetected errors or unauthorized use of a third-party’s code in products of the acquired companies;
the diversion of management’s attention from normal daily operations of the business;
potential difficulties in completing projects associated with purchased in-process research and
development;
entry into markets in which we have no or limited direct prior experience and where competitors have
stronger market positions and which are highly competitive;
the potential loss of key employees of the acquired company; and
an uncertain revenue and earnings stream from the acquired company, which could unexpectedly dilute
our earnings.
Our failure to manage growth effectively and successfully integrate acquired companies due to these or
other factors could have a material adverse effect on our business, results of operations and financial condition.
Attractive acquisition opportunities may not be available to us, which could negatively affect the growth of our
business.
Our business strategy includes the selective acquisition of businesses and technologies. In the three years
ended December 31, 2009, we completed one significant acquisition with the acquisition of XenSource in 2007.
We plan to continue to seek opportunities to expand our product portfolio, customer base, technology, and
technical talent through acquisitions. However, we may not have the opportunity to make suitable acquisitions on
favorable terms in the future, which could negatively impact the growth of our business. We expect that other
companies in our industry will compete with us to acquire compatible businesses. This competition could
increase prices for businesses and technologies that we would likely pursue, and our competitors may have
greater resources than we do to complete these acquisitions.
If we determine that any of our goodwill or intangible assets, including technology purchased in acquisitions,
are impaired, we would be required to take a charge to earnings, which could have a material adverse effect
on our results of operations.
We have a significant amount of goodwill and other intangible assets, such as product related intangible
assets, related to our acquisitions. We recorded significant additional goodwill and other intangible asset amounts
in connection with the acquisition of XenSource in 2007. We do not amortize goodwill and intangible assets that
are deemed to have indefinite lives. However, we do amortize certain product related technologies, trademarks,
patents and other intangibles and we periodically evaluate them for impairment. We review goodwill for
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impairment annually, or sooner if events or changes in circumstances indicate that the carrying amount could
exceed fair value, at the reporting unit level (operating segment). As of December 31, 2009, we had $899.8
million of goodwill. Fair values are based on discounted cash flows using a discount rate determined by our
management to be consistent with industry discount rates and the risks inherent in our current business model.
Due to uncertain market conditions and potential changes in our strategy and product portfolio, it is possible that
the forecasts we use to support our goodwill and other intangible assets could change in the future, which could
result in non-cash charges that would adversely affect our results of operations and financial condition.
Furthermore, impairment testing requires significant judgment, including the identification of reporting
units based on our internal reporting structure that reflects the way we manage our business and operations and to
which our goodwill and intangible assets would be assigned. Significant judgments are required to estimate the
fair value of our goodwill and intangible assets, including estimating future cash flows, determining appropriate
discount rates, estimating the applicable tax rates, foreign exchange rates and interest rates, projecting the future
industry trends and market conditions, and making other assumptions. Changes in these estimates and
assumptions, including changes in our reporting structure, could materially affect our determinations of fair
value.
We recorded approximately $266.1 million of goodwill and intangible assets in connection with our 2007
Acquisitions and our 2008 Acquisitions. If the actual revenues and operating profit attributable to acquired
intangible assets are less than the projections we used to initially value these intangible assets when we acquired
them, then these intangible assets may be deemed to be impaired. If we determine that any of the goodwill or
other intangible assets associated with our recent acquisitions is impaired, then we would be required to reduce
the value of those assets or to write them off completely by taking a related charge to earnings. If we are required
to write down or write off all or a portion of those assets, or if financial analysts or investors believe we may
need to take such action in the future, our stock price and operating results could be materially and adversely
affected.
At December 31, 2009, we had $213.2 million, net, of unamortized intangibles, which include product
related technology we purchased in acquisitions or under third-party licenses. These intangibles are primarily
associated with our Datacenter and Cloud Solutions. However, our VADs and entities with which we have
technology relationships, customers or prospective customers may not purchase or widely accept our new
products. If we fail to complete the development of our anticipated future product and service offerings,
including product offerings acquired through our acquisitions, if we fail to complete them in a timely manner, or
if we are unsuccessful in selling any new lines of products, appliances and services, we could determine that the
value of the purchased technology is impaired in whole or in part and take a charge to earnings. We could also
incur additional charges in later periods to reflect costs associated with completing those projects that could not
be completed in a timely manner. An impairment charge could have a material adverse effect on our results of
operations. If the actual revenues and operating profit attributable to acquired product and core technologies are
less than the projections we used to initially value product and core technologies when we acquired it, such
intangible assets may be deemed to be impaired. If we determine that any of our intangible assets are impaired,
we would be required to take a related charge to earnings that could have a material adverse effect on our results
of operations.
Our business could be adversely affected if we are unable to expand and diversify our distribution channels.
We currently intend to continue to expand our distribution channels by leveraging our relationships with
independent hardware and software vendors and system integrators to encourage them to recommend or
distribute our products. In addition, an integral part of our strategy is to diversify our base of channel
relationships by adding and training more channel members with abilities to reach larger enterprise customers
and to sell our newer products. This strategy will require additional resources, as we will need to expand our
internal sales and service coverage of these customers. If we fail in these efforts and cannot expand, train or
diversify our distribution channels, our business could be adversely affected. In addition to this diversification of
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our base, we will need to maintain a healthy mix of channel members who cater to smaller customers. We may
need to add and remove distribution members to maintain customer satisfaction and a steady adoption rate of our
products, which could increase our operating expenses. Through our Citrix Partner Network and other programs,
we are currently investing, and intend to continue to invest, significant resources to develop these channels,
which could reduce our profits.
We could change our licensing programs or subscription renewal programs, which could negatively impact
the timing of our recognition of revenue.
We continually re-evaluate our licensing programs and subscription renewal programs, including specific
license models, delivery methods, and terms and conditions, to market our current and future products and
services. We could implement new licensing programs and subscription renewal programs, including
promotional trade-up programs or offering specified enhancements to our current and future product and service
lines. Such changes could result in deferring revenue recognition until the specified enhancement is delivered or
at the end of the contract term as opposed to upon the initial shipment or licensing of our software product. We
could implement different licensing models in certain circumstances, for which we would recognize licensing
fees over a longer period, including offering additional products in a software-as-a-service model. Changes to our
licensing programs and subscription renewal programs, including the timing of the release of enhancements,
upgrades, maintenance releases, the term of the contract, discounts, promotions and other factors, could impact
the timing of the recognition of revenue for our products, related enhancements and services and could adversely
affect our operating results and financial condition.
Sales of our Subscription Advantage product constitute substantially all of our License Updates revenue and a
large portion of our deferred revenue.
We anticipate that sales of our Subscription Advantage product will continue to constitute a substantial
portion of our License Updates revenue. Our ability to continue to generate both recognized and deferred revenue
from our Subscription Advantage product will depend on our customers continuing to perceive value in
automatic delivery of our software upgrades and enhancements. A decrease in demand for our Subscription
Advantage product could occur as a result of a decrease in demand for our Desktop Solutions and our Datacenter
and Cloud Solutions. If our customers do not continue to purchase our Subscription Advantage product, our
License Updates revenue and deferred revenue would decrease significantly and our results of operations and
financial condition would be adversely affected.
As our international sales and operations grow, we could become increasingly subject to additional risks that
could harm our business.
We conduct significant sales and customer support, development and engineering operations in countries
outside of the United States. During the year ended December 31, 2009, we derived approximately 43.6% of our
revenues from sales outside the United States. Our continued growth and profitability could require us to further
expand our international operations. To successfully expand international sales, we must establish additional
foreign operations, hire additional personnel and recruit additional international resellers. Our international
operations are subject to a variety of risks, which could cause fluctuations in the results of our international
operations. These risks include:
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compliance with foreign regulatory and market requirements;
variability of foreign economic, political and labor conditions;
changing restrictions imposed by regulatory requirements, tariffs or other trade barriers or by U.S.
export laws;
longer accounts receivable payment cycles;
potentially adverse tax consequences;
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difficulties in protecting intellectual property;
burdens of complying with a wide variety of foreign laws; and
as we generate cash flow in non-U.S. jurisdictions, if required, we may experience difficulty
transferring such funds to the U.S. in a tax efficient manner.
Our results of operations are also subject to fluctuations in foreign currency exchange rates. In order to
minimize the impact on our operating results, we generally initiate our hedging of currency exchange risks one
year in advance of anticipated foreign currency expenses. When the dollar is weak, foreign currency denominated
expenses will be higher, and these higher expenses will be partially offset by the gains realized from our hedging
contracts. If the dollar is strong, foreign currency denominated expenses will be lower. These lower expenses will
in turn be partially offset by the losses incurred from our hedging contracts. There is a risk that there will be
fluctuations in foreign currency exchange rates beyond the one year timeframe for which we hedge our risk. Due
to the generally weaker dollar in 2009 when compared to 2008, our operating expenses were higher when
converted to U.S. dollars, but these higher expenses were partially offset by gains in our hedging programs.
Our success depends, in part, on our ability to anticipate and address these risks. We cannot guarantee that
these or other factors will not adversely affect our business or operating results.
Unanticipated changes in our tax rates or our exposure to additional income tax liabilities could affect our
operating results and financial condition.
Our future effective tax rates could be favorably or unfavorably affected by unanticipated changes in the
valuation of our deferred tax assets and liabilities, the geographic mix of our revenue, or by changes in tax laws
or their interpretation. Significant judgment is required in determining our worldwide provision for income taxes.
In addition, we are subject to the continuous examination of our income tax returns by tax authorities, including a
current examination by the Internal Revenue Service, or IRS, for our income tax returns for 2004 and 2008. We
regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy
of our provision for income taxes. There can be no assurance, however, that the outcomes from these continuous
examinations will not have an adverse effect on our operating results and financial condition. Additionally, due
to the evolving nature of tax rules combined with the large number of jurisdictions in which we operate, it is
possible that our estimates of our tax liability and the realizability of our deferred tax assets could change in the
future, which may result in additional tax liabilities and adversely affect our results of operations, financial
condition and cash flows.
We have credit exposure to our hedging counterparties.
In order to minimize volatility in earnings associated with fluctuations in the value of foreign currency
relative to the U.S. dollar, we use financial instruments to hedge our exposure to foreign currencies as we deem
appropriate for a portion of our expenses which are denominated in the local currency of our foreign subsidiaries.
As a result of entering into these contracts with counterparties who are unrelated to us, the risk of a counterparty
default exists in fulfilling the hedge contract. Should there be a counterparty default, we could be unable to
recover anticipated net gains from the transactions.
Our proprietary rights could offer only limited protection. Our products, including products obtained through
acquisitions, could infringe third-party intellectual property rights, which could result in material costs.
Our efforts to protect our proprietary rights may not be successful. We rely primarily on a combination of
copyright, trademark, patent and trade secret laws, confidentiality procedures and contractual provisions to
protect our proprietary rights. The loss of any material trade secret, trademark, trade name, patent or copyright
could have a material adverse effect on our business. Despite our precautions, it could be possible for
unauthorized third parties to copy or reverse engineer certain portions of our products or to otherwise obtain and
use our proprietary information. If we cannot protect our proprietary technology against unauthorized copying or
24
use, we may not remain competitive. Any patents owned by us could be invalidated, circumvented or challenged.
Any of our pending or future patent applications, whether or not being currently challenged, may not be issued
with the scope we seek, if at all, and if issued, may not provide any meaningful protection or competitive
advantage.
In addition, our ability to protect our proprietary rights could be affected by:
• Differences in International Law; Enforceability of Licenses: The laws of some foreign countries do
not protect our intellectual property to the same extent as do the laws of the United States and Canada.
For example, we derive a significant portion of our sales from licensing our packaged products under
“shrink wrap” or “click-to-accept” license agreements that are not signed by licensees and electronic
enterprise customer licensing arrangements that are delivered electronically, all of which could be
unenforceable under the laws of many foreign jurisdictions in which we license our products.
•
Third-Party Infringement Claims: We may become increasingly subject to infringement claims and
claims alleging the unauthorized use of a third-party’s code in our products. This may occur for a
variety of reasons, including the expansion of our product lines, such as our Datacenter and Cloud
Solutions and our Online Services division products, through product development and acquisitions
and an increase in patent infringement litigation commenced by non-practicing entities, the increase in
the number of competitors in our industry segments and the resulting increase in the number of related
products and the overlap in the functionality of those products, and the unauthorized use of third-
party’s code in our product development process. Companies and inventors are more frequently
seeking to patent software despite recent developments in the law that may discourage or invalidate
such patents. As a result, we could receive more patent infringement claims. Responding to any
infringement claim, regardless of its validity, could result in costly litigation or injunctive relief or
require us to obtain a license to intellectual property rights of those third parties. Licenses may not be
available on reasonable terms, on terms compatible with the protection of our proprietary rights, or at
all. In addition, attention to these claims could divert our management’s time and attention from
developing our business. If a successful claim is made against us and we fail to develop or license a
substitute technology or negotiate a suitable settlement arrangement, our business, results of
operations, financial condition and cash flows could be materially and adversely affected. See Part I,
Item 3 entitled “Legal Proceedings” for information concerning pending patent infringement cases in
which we are involved.
Our use of “open source” software could negatively impact our ability to sell our products and subject us to
possible litigation.
The products or technologies acquired, licensed or developed by us may incorporate so-called “open source”
software, and we may incorporate open source software into other products in the future. Such open source
software is generally licensed by its authors or other third parties under open source licenses, including, for
example, the GNU General Public License, the GNU Lesser General Public License, “Apache-style” licenses,
“Berkeley Software Distribution,” “BSD-style” licenses, and other open source licenses. We monitor our use of
open source software in an effort to avoid subjecting our products to conditions we do not intend. Although we
believe that we have complied with our obligations under the various applicable licenses for open source
software that we use such that we have not triggered any of these conditions, there is little or no legal precedent
governing the interpretation of many of the terms of these types of licenses. As a result, the potential impact of
these terms on our business may result in unanticipated obligations regarding our products and technologies, such
as requirements that we offer our products that use the open source software for no cost, that we make available
source code for modifications or derivative works we create based upon, incorporating or using the open source
software, and/or that we license such modifications or derivative works under the terms of the particular open
source license.
If an author or other third party that distributes open source software were to allege that we had not
complied with the conditions of one or more of these licenses, we could be required to incur significant legal
25
expenses defending against such allegations. If our defenses were not successful, we could be subject to
significant damages, enjoined from the distribution of our products that contained the open source software, and
required to comply with the foregoing conditions, which could disrupt the distribution and sale of some of our
products. In addition, if we combine our proprietary software with open source software in a certain manner,
under some open source licenses we could be required to release the source code of our proprietary software,
which could substantially help our competitors develop products that are similar to or better than ours.
In addition to risks related to license requirements, usage of open source software can lead to greater risks
than use of third-party commercial software, as open source licensors generally do not provide warranties or
assurance of title or controls on the origin of the software.
If open source software programmers, many of whom we do not employ, do not continue to develop and
enhance the open source Xen hypervisor, we may be unable to develop new XenServer products, adequately
enhance our existing XenServer products or meet customer requirements for innovation, quality and price of
these Xen products.
We rely to a significant degree on an informal community of independent open source software
programmers to develop and enhance the Xen hypervisor. A relatively small group of software engineers, many
of whom are not employed by us, are primarily responsible for the development and evolution of the Xen
hypervisor, which is the heart of the XenServer virtualization product. If these programmers fail to adequately
further develop and enhance open source technologies, we would have to rely on other parties to develop and
enhance the Xen hypervisor or we would need to develop and enhance the Xen hypervisor with our own
resources. We cannot predict whether further developments and enhancements to these technologies would be
available from reliable alternative sources. In either event, our development expenses could be increased and our
product release and upgrade schedules could be delayed. Moreover, if third-party software programmers fail to
adequately further develop and enhance the Xen hypervisor, the development and adoption of this virtual server
technology could be stifled and our products, including XenServer, could become less competitive. Delays in
developing, completing or shipping new or enhanced products could result in delayed or reduced revenue for
those products and could also adversely affect customer acceptance of those offerings.
We are subject to risks associated with our strategic and technology relationships.
Our business depends on strategic and technology relationships. We cannot assure you that those
relationships will continue in the future.
We rely on strategic or technology relationships with companies such as Microsoft, Wyse Technologies,
Dell, Hewlett-Packard Company, Fujitsu Limited and others. We depend on the entities with which we have
strategic or technology relationships to successfully test our products, to incorporate our technology into their
products and to market and sell those products. We cannot assure you that we will be able to maintain our current
strategic and technology relationships or to develop additional strategic and technology relationships. If any
entities in which we have a strategic or technology relationship are unable to incorporate our technology into
their products or to market or sell those products, our business, results of operations and financial condition could
be materially adversely affected.
If we lose access to third-party licenses, releases of our products could be delayed.
We believe that we will continue to rely, in part, on third-party licenses to enhance and differentiate our
products. Third-party licensing arrangements are subject to a number of risks and uncertainties, including:
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undetected errors or unauthorized use of another person’s code in the third party’s software;
disagreement over the scope of the license and other key terms, such as royalties payable;
infringement actions brought by third-party licensees; and
termination or expiration of the license.
26
If we lose or are unable to maintain any of these third-party licenses or are required to modify software
obtained under third-party licenses, it could delay the release of our products. Any delays could have a material
adverse effect on our business, results of operations and financial condition.
Our success depends on our ability to attract and retain and further penetrate large enterprise customers.
We must retain and continue to expand our ability to reach and penetrate large enterprise customers by
adding effective VADs and expanding our consulting services. Our inability to attract and retain large enterprise
customers could have a material adverse effect on our business, results of operations and financial condition.
Large enterprise customers usually request special pricing and purchase of multiple years of subscription and
maintenance up-front and generally have longer sales cycles, which could negatively impact our revenues. By
allowing these customers to purchase multiple years of subscription or maintenance up-front and by granting
special pricing, such as bundled pricing or discounts, to these large customers, we may have to defer recognition
of some or all of the revenue from such sales. This deferral could reduce our revenues and operating profits for a
given reporting period. Additionally, as we attempt to attract and penetrate large enterprise customers, we may
need to increase corporate branding and marketing activities, which could increase our operating expenses. These
efforts may not proportionally increase our operating revenues and could reduce our profits.
Issues arising during the upgrade of our enterprise resource planning system could affect our operating
results and ability to manage our business effectively.
We are in the process of upgrading our SAP enterprise resource planning, or ERP, computer system to
enhance operating efficiencies and provide more effective management of our business operations. The upgrade
could cause substantial business interruption that could adversely impact our operating results. We are investing
significant financial and personnel resources into this project. However, there is no assurance that the design will
meet our current and future business needs or that it will operate as designed. We are heavily dependent on such
computer systems, and any significant failure or delay in the system upgrade, if encountered, would cause a
substantial interruption to our business and additional expense which could result in an adverse impact on our
operating results, cash flows and financial condition.
We rely on indirect distribution channels and major distributors that we do not control.
We rely significantly on independent distributors and resellers to market and distribute our products and
appliances. For instance, one distributor, Ingram Micro, accounted for 14% of our net revenues in 2009. Our
distributor arrangements with Ingram Micro consist of several non-exclusive, independently negotiated
agreements with our subsidiaries, each of which cover different countries or regions. Moreover, no reseller
accounted for over 10% of our total net revenues in 2009. We do not control our distributors and resellers.
Additionally, our distributors and resellers are not obligated to buy our products and could also represent other
lines of products. We maintain and periodically revise our sales incentive programs for our independent
distributors and resellers, and such program revisions may adversely impact our results of operations. Some of
our distributors and resellers maintain inventories of our packaged products for resale to smaller end-users. If
distributors and resellers reduce their inventory of our packaged products, our business could be adversely
affected. Further, we could maintain individually significant accounts receivable balances with certain
distributors. The financial condition of our distributors could deteriorate and distributors could significantly delay
or default on their payment obligations. Any significant delays, defaults or terminations could have a material
adverse effect on our business, results of operations and financial condition.
For certain of our products we rely on third-party suppliers and contract manufacturers, making us
vulnerable to supply problems and price fluctuations.
We rely on a number of third-party suppliers, who provide hardware or hardware components for our
products, and contract manufacturers. For example, the production, final test, warehousing and shipping for our
Desktop Solutions and Datacenter and Cloud Solutions, including our NetScaler products, Access Gateway
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products and Citrix Repeater appliance products are primarily performed by a third-party contract manufacturer.
We do not typically have long-term supply agreements with our suppliers; and, in most cases, we purchase the
products and components on an as-needed purchase order basis. In some instances, such as with respect to our
application networking products in our Datacenter and Cloud Solutions portfolio, we maintain internal
manufacturing capabilities to supplement third-party contract manufacturers and provide us with the flexibility
needed to meet our product delivery requirements on sales orders on a limited basis. While we have not, to date,
experienced any material difficulties or delays in the manufacture and assembly of our products, our suppliers
may encounter problems during manufacturing due to a variety of reasons, including failure to follow specific
protocols and procedures, failure to comply with applicable regulations, equipment malfunction and
environmental factors, any of which could delay or impede their ability to meet our demand. Our reliance on
these third-party suppliers and contract manufacturers subjects us to risks that could harm our business,
including:
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our suppliers, especially new suppliers, may make errors in manufacturing components that could
negatively affect the efficacy of our products or cause delays in shipment;
our suppliers manufacture products for a range of customers, and fluctuations in demand for the
products these suppliers manufacture for others may affect their ability to deliver components and
products to us in a timely manner; and
our suppliers may encounter financial hardships unrelated to our demand for components, which could
inhibit their ability to fulfill our orders and meet our requirements.
There may be delays associated with establishing additional or replacement suppliers, particularly for
components that are available only from limited sources. Any interruption or delay in the supply of products or
components, or our inability to obtain products or components from alternate sources at acceptable prices in a
timely manner, could impair our ability to meet the demand of our customers and adversely affect our business,
financial condition or results of operations.
Our products could contain errors that could delay the release of new products and may not be detected until
after our products are shipped.
Despite significant testing by us and by current and potential customers, our products, especially new
products or releases or acquired products, could contain errors. In some cases, these errors may not be discovered
until after commercial shipments have been made. Errors in our products could delay the development or release
of new products and could adversely affect market acceptance of our products. Additionally, our products depend
on third-party products, which could contain defects and could reduce the performance of our products or render
them useless. Because our products are often used in mission-critical applications, errors in our products or the
products of third parties upon which our products rely could give rise to warranty or other claims by our
customers, which may have a material adverse effect on our business, financial condition and results of
operations.
We have entered into a credit facility agreement that restricts our ability to conduct our business and failure to
comply with such agreement may have an adverse effect on our business, liquidity and financial position.
We, along with our subsidiary, Citrix Systems International GmbH, maintain a credit facility agreement that
contains financial covenants tied to a maximum consolidated leverage ratio and minimum interest coverage,
among other things. The credit facility agreement also contains affirmative and negative covenants, including
limitations related to our ability to incur future indebtedness, contingent obligations or liens, conduct certain
mergers or acquisitions, make certain investments and loans, alter our capital structure, sell stock or assets and
pay dividends. If we fail to comply with these covenants or any other provision of the credit facility agreement,
we may be in default under the credit facility agreement, and we cannot assure you that we will be able to obtain
the necessary waivers or amendments of such default. Upon an event of default under our credit facility
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agreement not otherwise amended or waived, the affected lenders could accelerate the repayment of any
outstanding principal and accrued interest on their outstanding loans and terminate their commitments to lend
additional funds, which may have a material adverse effect on our liquidity and financial position.
If our security measures are breached and unauthorized access is obtained to our Online Services division
customers’ data, our services may be perceived as not being secure and customers may curtail or stop using
our service.
Use of our GoToMyPC, GoToMeeting, GoToAssist or GoToWebinar services involves the storage and
transmission of customers’ business and personally identifiable information, and security breaches could expose
us to a risk of loss of this information, litigation and possible liability. If our security measures are breached as a
result of third-party action, employee error, malfeasance or otherwise, and, as a result, someone obtains
unauthorized access to one of our online customers’ personally identifiable data, our reputation will be damaged,
our business may suffer and we could incur significant liability. Because techniques used to obtain unauthorized
access to or sabotage systems change frequently and generally are not recognized until launched against a target,
we may be unable to anticipate these techniques or to implement adequate preventative measures. If any
compromises of security were to occur, it could have the effect of substantially reducing the use of the Web for
commerce and communications. Anyone who circumvents our security measures could misappropriate credit
card and other payment information, personally identifiable customer information or cause interruptions in our
services or operations. Fines and liabilities can be significant for breaches of payment card data. In the case of an
actual breach of payment card data, we could incur potential fines at the discretion of the credit card companies.
These fines could include penalties for all compromised account numbers, the costs of any additional fraud
detection activities required by the card associations, costs incurred by credit card issuers associated with the
compromise and additional monitoring of systems for further fraudulent activity. A large breach of payment card
data could also put our ability to process credit card payments at risk. Computer viruses, software programs that
disable or impair computers, have been and continue to be distributed and have rapidly spread over the Internet.
Computer viruses could be introduced into our systems or those of our vendors, which could disrupt our network
or make it inaccessible to our Online Services division customers. If an actual or perceived breach of our security
occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose
sales and customers for our Online Services division, and in the case of an actual breach we could incur fines and
other penalties under privacy and data protection laws, which would significantly adversely affect our financial
condition and the operating results for our Online Services division.
Evolving regulation of the Web may adversely affect our Online Services division.
As Web commerce continues to evolve, increasing regulation by federal, state or foreign agencies becomes
more likely. For example, we believe increased regulation is likely in the area of laws and regulations applying to
the solicitation, collection, processing or use of personal or consumer information. Additional regulation could
impact our business through increased costs and restrictions on our ability to process and secure customer data.
In addition, taxation of services provided over the Web or other charges imposed by government agencies or by
private organizations for accessing the Web may also be imposed. Any regulation imposing greater fees for Web
use or restricting information exchange over the Web could result in a decline in the use of the Web and the
viability of Web-based services, which would significantly adversely affect our financial condition and the
operating results for our Online Services division.
Regulation of our Citrix Online Audio business may adversely affect our Online Services division.
In October 2008, our Online Services division acquired Vapps, Inc., or Vapps, a VoIP-based audio services
company, to form our Citrix Online Audio products and services. Certain of these products and services are
subject to various regulatory requirements established by the Federal Communications Commission, or FCC.
FCC regulation may delay or hinder our ability to provide our planned services and products. The
telecommunications industry is highly regulated in the U.S. at the federal, state and local levels. Various state
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and international authorities may also seek to regulate the products and services we provide or will provide. The
FCC and state regulatory authorities may address regulatory non-compliance with a variety of enforcement
mechanisms, including fines, refund orders, injunctive relief, license conditions, and/or license revocation. The
regulation of the telecommunications industry is changing rapidly, and the regulatory environment varies
substantially from jurisdiction to jurisdiction. There can be no assurance that future regulatory, judicial or
legislative activities will not have a material adverse effect on the business, and results of operations of our
Online Services division.
Natural disasters or other unanticipated catastrophes that result in a disruption of our operations could
negatively impact our results of operations.
Our worldwide operations are dependent on our network infrastructure, internal technology systems and
Website. Significant portions of our computer equipment, intellectual property resources and personnel,
including critical resources dedicated to research and development and administrative support functions are
presently located at our corporate headquarters in Fort Lauderdale, Florida, an area of the country that is
particularly prone to hurricanes, and at our various locations in California, an area of the country that is
particularly prone to earthquakes. We also have operations in various domestic and international locations that
expose us to additional diverse risks. The occurrence of natural disasters, such as hurricanes or earthquakes, or
other unanticipated catastrophes, such as telecommunications failures, cyber-attacks, fires or terrorist attacks, at
any of the locations in which we do business, could cause interruptions in our operations. For example,
hurricanes have passed through southern Florida causing extensive damage to the region. In addition, even in the
absence of direct damage to our operations, large disasters, terrorist attacks or other casualty events could have a
significant impact on our partners’ and customers’ businesses, which in turn could result in a negative impact on
our results of operations. Extensive or multiple disruptions in our operations, or our partners’ or customers’
businesses, due to natural disasters or other unanticipated catastrophes could have a material adverse effect on
our results of operations.
If we do not generate sufficient cash flow from operations in the future, we may not be able to fund our
product development and acquisitions and fulfill our future obligations.
Our ability to generate sufficient cash flow from operations to fund our operations and product
development, including the payment of cash consideration in acquisitions and the payment of our other
obligations, depends on a range of economic, competitive and business factors, many of which are outside our
control. We cannot assure you that our business will generate sufficient cash flow from operations, or that we
will be able to liquidate our investments, repatriate cash and investments held in our overseas subsidiaries, sell
assets or raise equity or debt financings when needed or desirable. An inability to fund our operations or fulfill
outstanding obligations could have a material adverse effect on our business, financial condition and results of
operations. For further information, please refer to “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Liquidity and Capital Resources.”
If returns or price adjustments exceed our reserves, our operating results could be adversely affected.
We provide most of our distributors with return rights, which generally permit our distributors to return
products to us by the 45th day of a fiscal quarter, subject to ordering an equal dollar amount of our products prior
to the last day of the same fiscal quarter. We also provide price protection rights to most of our distributors. Price
protection rights require that we grant retroactive price adjustments for inventories of our products held by
distributors if we lower our prices for those products within a specified time period. To cover our exposure to
these product returns and price adjustments, we establish reserves based on our evaluation of historical product
trends and current marketing plans. However, we cannot assure you that our reserves will be sufficient to cover
our future product returns and price adjustments. If we inadequately forecast reserves, our operating results could
be adversely affected.
30
Our stock price could be volatile, particularly during times of economic uncertainty and volatility in domestic
and international stock markets, and you could lose the value of your investment.
Our stock price has been volatile and has fluctuated significantly in the past. The trading price of our stock
is likely to continue to be volatile and subject to fluctuations in the future. Your investment in our stock could
lose some or all of its value. Some of the factors that could significantly affect the market price of our stock
include:
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actual or anticipated variations in operating and financial results;
analyst reports or recommendations;
changes in interest rates; and
other events or factors, many of which are beyond our control.
The stock market in general, The NASDAQ Global Select Market, and the market for software companies
and technology companies in particular, have experienced extreme price and volume fluctuations. These
fluctuations have often been unrelated or disproportionate to operating performance. These forces reached
unprecedented levels in the second half of 2008, resulting in the bankruptcy or acquisition of, or government
assistance to, several major domestic and international financial institutions and a material decline in economic
conditions. In particular, the U.S. equity markets experienced significant price and volume fluctuations that have
affected the market prices of equity securities of many technology companies. During 2009, our stock price has
experienced volatility, with the closing price of our common stock on The NASDAQ Global Select Market
having ranged from $20.00 on March 2, 2009 to $43.78 on October 12, 2009. These broad market and industry
factors could materially and adversely affect the market price of our stock, regardless of our actual operating
performance.
Changes or modifications in financial accounting standards related to business combinations may have a
material adverse impact on our reported results of operations.
In December 2007, authoritative guidance was issued in regards to business combinations. The guidance
requires, among other things, the expensing of direct transaction costs, including deal costs and restructuring
costs as incurred and acquired in-process research and development, or IPR&D, assets to be capitalized, certain
contingent assets and liabilities to be recognized at fair value, and arrangements related to contingent merger
consideration may be required to be measured at fair value until settled, with changes in fair value recognized
each period into earnings. Historically, we have been acquisitive and if we continue to be so, the authoritative
guidance could have a material impact on our consolidated financials, results of operations and cash flows if we
enter into any material business combinations.
Our business is subject to seasonal fluctuations.
Our business is subject to seasonal fluctuations. Historically, our net revenues have fluctuated quarterly and
have generally been the highest in the fourth quarter of our fiscal year due to corporate calendar year-end
spending trends. In addition, our European operations generally provide lower revenues in the summer months
because of the generally reduced level of economic activity in Europe during the summer. This seasonal factor
also typically results in higher fourth quarter revenues. Quarterly results are also affected by the timing of the
release of new products and services. Because of the seasonality of our business, results for any quarter,
especially our fourth quarter, are not necessarily indicative of the results that may be achieved for the full fiscal
year.
Funds from certain of our auction rate securities may not be accessible within 12 months.
As of December 31, 2009, we held municipal auction rate securities, of which substantially all were triple-A
rated, with an aggregate par value of approximately $44.8 million, whose underlying assets are generally student
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loans that are substantially backed by the federal government under the Federal Family Education Loan Program
through investment accounts managed by UBS Financial Services, Inc., or UBS. The market for municipal
auction rate securities in our portfolio began experiencing auction failures in 2008 and there have been no
successful auctions for the securities held in our portfolio since the failures began. In November 2008, we
formally accepted the terms of a settlement from UBS, or the Settlement. Upon accepting the terms of the
Settlement, we received an enforceable, non-transferable right, or the Put Option, that enables us to sell our
auction rate securities back to UBS during the period between June 30, 2010 and July 2, 2012 at par value. We
cannot provide any assurance, however, that UBS will have adequate financial resources to fulfill its obligation
to us upon our exercise of the Put Option. Based on our available cash and other investments, however, we do not
currently anticipate that the lack of liquidity caused by failed auctions related to these securities will have a
material adverse effect on our operating cash flows or will affect our ability to operate our business as usual.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We have received no written comments regarding our periodic or current reports from the staff of the
Securities and Exchange Commission that were issued 180 days or more preceding the end of our 2009 fiscal
year that remain unresolved.
ITEM 2. PROPERTIES
We lease and sublease a total of 967,123 square feet of office space in the United States, Canada and Latin
America, which is comprised of 754,390 square feet related to our Americas segment and 212,733 square feet
related to our Online Services division. Included in this total square footage is 234,913 square feet relating to
properties surrounding our corporate headquarters located in Fort Lauderdale, Florida.
We lease and sublease a total of 449,732 square feet of office space in various other facilities outside of
North America and Latin America, 212,949 of which relates to our Europe, the Middle East and Africa, or
EMEA, segment, 3,773 square feet related to our Online Services division and 233,010 of which relates to our
Asia-Pacific segment. In addition, we own land and buildings in the United Kingdom with approximately 42,000
square feet of office space.
We believe that our existing facilities are adequate for our current needs. As additional space is needed in
the future, we believe that suitable space will be available in the required locations on commercially reasonable
terms.
ITEM 3. LEGAL PROCEEDINGS
Due to the nature of our business, we are subject to patent infringement claims, including current suits
against us or one or more of our wholly-owned subsidiaries alleging infringement by various Citrix products and
services. We believe that we have meritorious defenses to the allegations made in these pending suits and intend
to vigorously defend these lawsuits; however, we are unable currently to determine the ultimate outcome of these
or similar matters or the potential exposure to loss, if any.
Information with respect to this Item may be found in Notes 10 and 11 to our consolidated financial
statements, which information is incorporated into this Part II, Item 3 by reference.
In addition, we are a defendant in various litigation matters generally arising out of the normal course of
business. Although it is difficult to predict the ultimate outcomes of these cases, we believe that the ultimate
outcomes will not materially affect our business, financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
32
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Price Range of Common Stock and Dividend Policy
Our common stock is currently traded on The NASDAQ Global Select Market under the symbol “CTXS.”
The following table sets forth the high and low sales prices for our common stock as reported on The NASDAQ
Global Select Market for the periods indicated, as adjusted to the nearest cent.
Year Ended December 31, 2009:
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31, 2008:
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High
Low
$43.78
$39.35
$34.41
$24.51
$27.39
$32.17
$36.20
$38.95
$36.75
$29.82
$22.15
$20.00
$19.00
$21.30
$29.15
$29.30
On February 18, 2010, the last reported sale price of our common stock on The NASDAQ Global Select
Market was $45.16 per share. As of February 18, 2010, there were approximately 1,055 holders of record of our
common stock.
We currently intend to retain any earnings for use in our business, for investment in acquisitions and to
repurchase shares of our common stock. We have not paid any cash dividends on our capital stock in the last two
years and do not currently anticipate paying any cash dividends on our capital stock in the foreseeable future.
Issuer Purchases of Equity Securities
Our Board of Directors has authorized an ongoing stock repurchase program with a total repurchase
authority granted to us of $2.1 billion. The objective of the stock repurchase program is to improve stockholders’
returns. At December 31, 2009, approximately $160.3 million was available to repurchase common stock
pursuant to the stock repurchase program. All shares repurchased are recorded as treasury stock. The following
table shows the monthly activity related to our stock repurchase program for the quarter ended December 31,
2009.
October 1, 2009 through October 31, 2009 . . . . .
November 1, 2009 through November 30,
Total Number
of Shares
Purchased(1,2)
Average
Price Paid
per Share
Total Number
of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs
Approximate dollar
value of Shares that
may yet be
Purchased under the
Plans or Programs
(in thousands)
429,386
$38.39
429,386
$220,447
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,234,508
$38.53
1,234,508
$172,885
December 1, 2009 through December 31,
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
324,662
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,988,556
$38.76
$38.54
324,662
1,988,556
$160,300
$160,300
(1) Represents shares received under our prepaid stock repurchase programs and shares acquired in open market
purchases. We expended approximately $75.0 million during the quarter ended December 31, 2009 for
33
repurchases of our common stock. For more information see Note 8 to our consolidated financial statements
included in this Annual Report on Form 10-K for the year ended December 31, 2009.
(2)
Includes 44,056 shares repurchased in the fourth quarter of 2009 to satisfy tax withholding obligations that
arose on the vesting of shares of unvested stock units.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data is derived from our consolidated financial statements.
This data should be read in conjunction with the consolidated financial statements and notes thereto, and with
Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Consolidated Statements of Income Data:
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of net revenues(a) . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Research and development
. . . . . . . . . .
Sales, marketing and services . . . . . . . .
General and administrative . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . .
Amortization of other intangible
Year Ended December 31,
2009
2008
2007
2006
2005
(In thousands, except per share data)
$1,614,088
187,310
$1,583,354
175,132
$1,391,942
137,607
$1,134,319
98,698
$ 908,722
58,099
1,426,778
1,408,222
1,254,335
1,035,621
850,623
281,980
679,053
239,623
26,473
288,109
669,569
256,679
—
205,103
590,409
229,229
—
155,331
480,343
178,669
—
108,751
394,153
125,425
—
assets . . . . . . . . . . . . . . . . . . . . . . . . .
20,972
22,724
17,387
16,934
11,622
In-process research and
development
. . . . . . . . . . . . . . . . . . .
—
1,140
9,800
1,000
7,000
Total operating expenses . . . . . . . .
1,248,101
1,238,221
1,051,928
832,277
646,951
Income from operations . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
178,677
14,683
(426)
958
193,892
2,875
170,001
31,506
(444)
(4,140)
196,923
18,647
202,407
49,704
(737)
(466)
250,908
36,425
203,344
41,210
(927)
(546)
243,081
60,084
203,672
23,614
(2,426)
(506)
224,354
58,745
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 191,017
$ 178,276
$ 214,483
$ 182,997
$ 165,609
Diluted earnings per share(b)
. . . . . . . . . . . . .
$
1.03
$
0.96
$
1.14
$
0.97
$
0.93
December 31,
2009
2008
2007
2006
2005
(In thousands)
Consolidated Balance Sheet Data:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
$3,091,147
2,188,507
—
$2,694,306
1,917,865
$2,534,693
1,838,325
$2,024,473
1,464,289
—
—
—
$1,698,982
1,214,528
31,000
(a) Cost of net revenues includes amortization of product related intangible assets of $47.9 million, $48.0
million, $29.6 million, $19.2 million, and $16.8 million in 2009, 2008, 2007, 2006 and 2005, respectively.
(b) Our diluted weighted–average shares outstanding primarily fluctuates based on the level of shares issued
under our stock-based compensation programs, stock repurchases made under our stock repurchase program
and shares issued in connection with our acquisitions. See Notes 3, 7 and 8 to our consolidated financial
statements included in this Annual Report on Form 10-K for the year ended December 31, 2009.
34
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We design, develop and market technology solutions that enable IT services to be securely delivered on
demand – independent of location, device or network – powered by Citrix virtual computing infrastructure. Our
customers achieve lower IT operating costs, increased information security, and greater business agility using Citrix
technologies that virtualize business meetings, user support, client hardware, desktop operating systems,
applications, networks, server hardware and cloud services. We market and license our products directly to
enterprise customers, over the web, and through systems integrators, or SIs, in addition to indirectly through value-
added resellers, or VARs, value-added distributors, or VADs, and original equipment manufacturers, or OEMs.
Executive Summary
Our solutions can fundamentally change an information technology organization’s approach and strategic
value, transforming information technology, or IT, into an on-demand service by centralizing the delivery of
applications and desktops. Further, this approach to IT transforms data centers, making them far more flexible to
adapt to the changing needs of an enterprise.
We believe our approach is unique in the market because we have combined innovative technologies in the
area of desktop management, including but not limited to desktop virtualization and application virtualization,
marketed as our Desktop Solutions, and server virtualization, application networking and optimization, marketed
as our Datacenter and Cloud Solutions, to deliver the most comprehensive end-to-end application delivery
solution, and one that, when considered as a whole, is competitively differentiated by its feature set and
interoperability.
The global recession that started in 2008 impacted IT spending, and we see the uncertainties that remain in
today’s economic environment continuing to impact IT spending, but to a lesser extent than in early 2009. We
expect that we will continue to see many IT projects delayed, scaled back or re-evaluated. The overall uncertainty
in the global economy has adversely affected, and may continue to negatively impact, sales of our products and
may result in longer sales cycles, slower adoption of technologies and increased price competition.
At the same time, however, this environment puts a much sharper focus on IT products and services that can
reduce cost and deliver quick, tangible return on investment, or ROI. With our customers focused on economic
value in technology solutions, we intend to continue highlighting our solutions’ abilities to reduce IT costs,
increase business flexibility and deliver ROI.
Further, we are seeing increased interest in desktop virtualization. XenApp and XenDesktop, for example,
can reduce the cost of traditional desktop management by virtualizing the desktop and applications in a
customer’s datacenter, where they are more easily and efficiently maintained. XenServer and NetScaler can alter
the traditional economies of the datacenter by providing much greater levels of flexibility of computing
resources, especially with respect to servers, by improving application performance and thereby reducing the
amount of processing power involved, and allowing easy reconfiguration of servers for multiple purposes. Our
Online Services product group is focused on developing and marketing Web-based access, support and
collaboration software and services. These products are primarily marketed via the Web to individuals,
prosumers and small businesses. Our real-time collaboration products from our Online Services division offer
secure and cost-effective solutions that allow users to host and actively participate in online meetings, webinars
and training sessions remotely and reduce costs associated with business travel. Our Web-based access solution
offers a secure, simple and cost efficient way for users to access their desktops remotely.
Further, we will endeavor to sustain the long-term growth of our businesses and enhance our current
solutions through technological innovation, engineering excellence, selective and strategic acquisition of
35
technology, talent and/or companies, and through a commitment to delivering high-quality products and services
to customers and partners. We expect to continue to make strategic investments in research and development of
existing and new products, and we will invest in research and development of advanced technologies for future
application. We believe that delivering innovative and high-value solutions through our Desktop Solutions and
Datacenter and Cloud Solutions is the key to meeting customer and partner needs and achieving our future
growth.
From an operations standpoint, in order to operate more efficiently and to drive long-term changes in our
cost model, on January 28, 2009, we announced the implementation of a strategic restructuring program, or the
Strategic Restructuring Program. The Strategic Restructuring Program included reducing our headcount by
approximately 450 full-time positions. In 2009, we incurred a pre-tax charge of $26.5 million related to
employee severance and related costs and non-cancelable lease costs related to the consolidation of certain of our
facilities. In addition to the Strategic Restructuring Program, we took steps in 2009 to reduce operating costs that
included reprioritizing internal projects, reducing contract workers and limiting travel spending.
Summary of Results
For the year ended December 31, 2009 compared to the year ended December 31, 2008, we delivered the
following financial performance:
•
Product License revenue decreased 13.1% to $539.0 million;
• License Updates revenue increased 8.2% to $605.0 million;
• Online Services revenue increased 18.5% to $308.2 million;
• Technical Services revenue increased 12.7% to $162.0 million;
• Operating income increased 5.1% to $178.7 million; and
• Diluted earnings per share increased 8.1% to $1.03.
The decrease in our Product License revenue was primarily driven by decreased sales of our application
virtualization products, mainly in our EMEA segment. As expected, we saw many customers delay or reduce
planned IT projects in response to macro economic conditions. However, we are seeing signs of potential
improvement, including improving dynamics in certain markets and a high level of interest in desktop
virtualization. We currently expect our Product License revenue to increase when comparing the first quarter of
2010 to the first quarter of 2009. The increase in License Updates revenue was driven by renewals of our
Subscription Advantage product over a larger subscriber base. Our Online Services revenue increased due to
increased sales of our web collaboration services. We currently expect that total revenue will increase when
comparing the first quarter of 2010 to the first quarter of 2009, as well as when comparing the 2010 fiscal year to
the 2009 fiscal year. The increase in operating income is primarily due to a reduction in compensation and
employee related costs of $21.6 million primarily due to the Strategic Restructuring Program, net of costs related
to the Strategic Restructuring Program. Also contributing to the increase in operating income is an increase in
gross margin of $18.6 million primarily due to an increase in total revenues due to factors discussed above.
In addition, the recent crisis in the credit markets caused some of our investments to experience declines in
fair value, which resulted in impairment charges and unrealized losses in our investment portfolio. We do not
currently anticipate that the lack of liquidity caused by holding these investments will have a material adverse
effect on our operating cashflows or financial position. We continue to monitor our overall investment portfolio
and if the credit ratings of the issuers of our investments deteriorate or if the issuers experience financial
difficulty, including bankruptcy, we may be required to make additional adjustments to the carrying value of the
securities in our investment portfolio and recognize additional impairment charges for declines in fair value
which are determined to be other-than-temporary. See “– Liquidity and Capital Resources” below.
36
2008 Acquisition
In October 2008, we acquired all of the issued and outstanding securities of Vapps, Inc., or Vapps, a
privately held Delaware corporation headquartered in Hoboken, New Jersey. Vapps offers high quality audio
conferencing solutions to small and medium sized businesses and enterprise and service provider markets that
complement our online services products. The total consideration for this transaction was approximately $27.8
million in cash, including $1.0 million in transaction costs. In addition, if certain financial and operational
milestones are achieved by the Vapps business, contingent consideration of up to approximately $3.2 million
may be earned. The sources of funds for this transaction consisted of available cash and investments. In addition,
we assumed approximately 0.1 million unvested stock options upon the closing of the transaction. In connection
with the Vapps Acquisition, we allocated $19.9 million to goodwill, $8.2 million to product related technologies
and $2.6 million to other intangible assets. The goodwill related to the Vapps acquisition was allocated to our
Online Services segment and is not deductible for tax purposes.
Revenues from Vapps are included in our Online Services revenue. The Vapps results of operations have
been included in our consolidated results of operations beginning after the date of its acquisition and are not
significant in relation to our consolidated financial statements.
2007 Acquisitions
During 2007, we acquired all of the issued and outstanding capital stock of two privately held companies,
Ardence Delaware Inc., a leading provider of solutions that allow information technology administrators to set up
and configure PCs, servers, and Web servers in real time from a centrally managed source, and XenSource, Inc.,
a privately held leader in enterprise-grade virtual infrastructure solutions, collectively the 2007 Acquisitions. The
2007 Acquisitions positioned us in adjacent server and desktop virtualization markets that will allow us to
continue to extend our leadership in the broader application delivery infrastructure market. The total
consideration for the 2007 Acquisitions was approximately $379.4 million, comprised of approximately
7.1 million shares of our common stock valued at $232.3 million, $142.8 million in cash and approximately $4.3
million in direct transaction costs. In addition, in connection with the 2007 Acquisitions, we issued
approximately 1.3 million unvested shares of our common stock, 0.1 million non-vested stock units and assumed
approximately 3.4 million stock options each of which will be exercisable for the right to receive one share of our
common stock upon vesting. Revenues from the products acquired in the 2007 Acquisitions are primarily
included in our Product License revenue. The 2007 Acquisitions’ results of operations have been included in our
consolidated results of operations beginning after the date of each of the acquisitions. The source of funds for the
cash consideration paid in these transactions consisted of available cash and investments. In connection with the
2007 Acquisitions, we allocated $246.2 million to goodwill, $112.3 million to product related intangible assets
and $56.3 million to other intangible assets.
In-process Research and Development for Acquisitions
The fair values used in determining the purchase price allocation for certain intangible assets for our
acquisitions were based on estimated discounted future cash flows, royalty rates and historical data, among other
information. Purchased in-process research and development, or IPR&D, of $1.1 million and $9.8 million was
expensed immediately upon the closing of the acquisition of Vapps and 2007 Acquisitions, respectively, because it
pertained to technology that was not currently technologically feasible, meaning it had not reached the working
model stage, did not contain all of the major functions planned for the product, was not ready for initial customer
testing and had no alternative future use. The fair value assigned to IPR&D was determined using the income
approach, which includes estimating the revenue and expenses associated with a project’s sales cycle and by
estimating the amount of after-tax cash flows attributable to the projects. The future cash flows were discounted to
present value utilizing an appropriate risk-adjusted rate of return, which ranged from 20%–36%. The rate of return
determination included a factor that takes into account the uncertainty surrounding the successful development of
the IPR&D.
37
In 2009, we adopted new accounting rules for acquisitions and future IPR&D will be capitalized.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent
liabilities. We base these estimates on our historical experience and on various other assumptions that we believe
to be reasonable under the circumstances, and these estimates form the basis for our judgments concerning the
carrying values of assets and liabilities that are not readily apparent from other sources. We periodically evaluate
these estimates and judgments based on available information and experience. Actual results could differ from
our estimates under different assumptions and conditions. If actual results significantly differ from our estimates,
our financial condition and results of operations could be materially impacted.
We believe that the accounting policies described below are critical to understanding our business, results of
operations and financial condition because they involve more significant judgments and estimates used in the
preparation of our consolidated financial statements. An accounting policy is deemed to be critical if it requires
an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the
estimate is made, and if different estimates that could have been used, or changes in the accounting estimates that
are reasonably likely to occur periodically, could materially impact our consolidated financial statements. We
have discussed the development, selection and application of our critical accounting policies with the Audit
Committee of our Board of Directors and our independent auditors, and our Audit Committee has reviewed our
disclosure relating to our critical accounting policies and estimates in this “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K for the year
ended December 31, 2009 describes the significant accounting policies and methods used in the preparation of
our Consolidated Financial Statements.
Revenue Recognition
The accounting related to revenue recognition in the software industry is complex and affected by
interpretations of the rules and an understanding of industry practices, both of which are subject to change. As a
result, revenue recognition accounting rules require us to make significant judgments. In addition, our judgment
is required in assessing the probability of collection, which is generally based on evaluation of customer-specific
information, historical collection experience and economic market conditions. If market conditions continue to
decline, or if the financial condition of our distributors or customers deteriorate, we may be unable to determine
that collectability is probable, and we could be required to defer the recognition of revenue until we receive
customer payments.
We license most of our products bundled with a one year contract for license updates that provide the
end-user with enhancements and unspecified upgrades to the licensed product on a when and if available basis.
Customers may also elect to purchase subscriptions for license updates, when not bundled with the initial product
license. Customers may also elect to purchase maintenance, technical support, product training or consulting
services. We allocate revenue to license updates, maintenance and any other undelivered elements of the
arrangement based on vendor specific objective evidence, or VSOE, of fair value of each element and such
amounts are deferred until the applicable delivery criteria and other revenue recognition criteria have been met.
The balance of the revenue, net of any discounts inherent in the arrangement, is recognized at the outset of the
arrangement using the residual method as the product licenses are delivered. If we cannot objectively determine
the fair value of each undelivered element based on the VSOE of fair value, we defer revenue recognition until
all elements are delivered, all services have been performed, or until fair value can be objectively determined.
38
We must apply judgment in determining all elements of the arrangement and in determining the VSOE of fair
value for each element, considering the price charged for each product on a stand-alone basis or applicable
renewal rates for subscriptions related to new products.
In the normal course of business, we are not obligated to accept product returns from our distributors under
any conditions, unless the product item is defective in manufacture, but we do provide most of our distributors
with stock balancing and price protection rights. Stock balancing rights permit distributors to return products to
us up to the 45th day of the fiscal quarter, subject to ordering an equal dollar amount of our other products prior to
the last day of the same fiscal quarter. Price protection rights require that we grant retroactive price adjustments
for inventories of our products held by distributors or resellers if we lower our prices for such products. Product
items returned to us under the stock balancing program must be in new, unused and unopened condition. We
establish provisions for estimated returns for stock balancing and price protection rights, as well as other sales
allowances, concurrently with the recognition of revenue. The provisions are established based upon
consideration of a variety of factors, including, among other things, recent and historical return rates for both,
specific products and distributors, estimated distributor inventory levels by product, the impact of any new
product releases and projected economic conditions. Actual product returns for stock balancing and price
protection provisions incurred are, however, dependent upon future events, including the amount of stock
balancing activity by our distributors and the level of distributor inventories at the time of any price adjustments.
We continually monitor the factors that influence the pricing of our products and distributor inventory levels and
make adjustments to these provisions when we believe actual returns and other allowances could differ from
established reserves. Our ability to recognize revenue upon shipment to our distributors is predicated on our
ability to reliably estimate future stock balancing returns. If actual experience or changes in market condition
impairs our ability to estimate returns, we would be required to defer the recognition of revenue until the delivery
of the product to the end-user. Allowances for estimated product returns amounted to approximately $1.6 million
at December 31, 2009 and 2008. We have not reduced and have no current plans to reduce our prices for
inventory currently held by distributors or resellers. Accordingly, there were no reserves required for price
protection at December 31, 2009 and December 31, 2008. We also record reductions to revenue for customer
programs and incentive offerings including volume-based incentives, at the time the sale is recorded. We could
take actions to increase our customer incentive offerings, which could result in an incremental reduction to our
revenue at the time the incentive is offered.
Stock-Based Compensation
Under the fair value recognition provisions of the authoritative guidance, stock-based compensation cost is
measured at the grant date based on the fair value of the award and is recognized as expense over the requisite
service or performance period, which is the vesting period. We currently use the Black-Scholes option pricing
model to determine the fair value of stock options. The determination of the fair value of stock-based payment
awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions
regarding a number of complex and subjective variables. These variables include our expected stock price
volatility over the term of the awards, the expected term of the award, the risk-free interest rate and any expected
dividends.
For purposes of determining the expected volatility factor, we used the implied volatility in two-year
market-traded options on our common stock based on third party volatility quotes in accordance with the
provisions of Staff Accounting Bulletin, or SAB, No. 107. Our decision to use implied volatility was based upon
the availability of actively traded options on our common stock and our assessment that implied volatility is more
representative of future stock price trends than historical volatility. The expected term of our options is based on
historical employee exercise patterns. We also analyzed our historical pattern of option exercises based on certain
demographic characteristics and we determined that there were no meaningful differences in option exercise
activity based on demographic characteristics. The approximate risk free interest rate is based on the implied
yield available on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term on our
options. We do not intend to pay dividends on our common stock in the foreseeable future and, accordingly, we
39
used a dividend yield of zero in the option pricing model. We are required to estimate forfeitures at the time of
grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use
historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for
those awards that are expected to vest. All stock-based payment awards that vest based on service, including
those with graded vesting schedules, are amortized on a straight-line basis over the requisite service periods of
the awards, which are generally the vesting periods. We issue non-vested stock units and non-vested stock with
performance goals to certain senior members of management. The number of non-vested stock units or
non-vested stock underlying each award may be determined based on a range of attainment within defined
performance goals. We are required to estimate the attainment that will be achieved related to the defined
performance goals and number of non-vested stock units or non-vested stock that will ultimately be awarded in
order to recognize compensation expense over the vesting period. If our initial estimates of performance goal
attainment change, the related expense may fluctuate from quarter to quarter based on those estimates and if the
performance goals are not met, no compensation cost will be recognized and any previously recognized
compensation cost will be reversed. As of December 31, 2009, there was $105.9 million of total unrecognized
compensation cost related to options, non-vested stock and non-vested stock units. That cost is expected to be
recognized over a weighted-average period of 1.43 years.
If factors change and we employ different assumptions for estimating stock-based compensation expense in
future periods or if we decide to use a different valuation model, the stock-based compensation expense we
recognize in future periods may differ significantly from what we have recorded in the current period and could
materially affect our operating income, net income and earnings per share. This may result in a lack of
consistency in future periods and materially affect the fair value estimate of stock-based payments. It may also
result in a lack of comparability with other companies that use different models, methods and assumptions. The
Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that
have no vesting restrictions and are fully transferable. These characteristics are not present in our option grants.
Existing valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable
measures of the fair values of our stock-based compensation. Consequently, there is a risk that our estimates of
the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to the
actual values realized upon the exercise, expiration, early termination or forfeiture of those stock-based payments
in the future. Certain stock-based payments, such as employee stock options, may expire with little or no intrinsic
value compared to the fair values originally estimated on the grant date and reported in our financial statements.
Alternatively, the value realized from these instruments may be significantly higher than the fair values originally
estimated on the grant date and reported in our financial statements. There is currently no market-based
mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from
these valuation models, nor is there a means to compare and adjust the estimates to actual values. See Notes 2
and 7 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended
December 31, 2009 for further information regarding our adoption of the authoritative guidance for stock-based
compensation.
Valuation and Classification of Investments
Effective January 1, 2008, we adopted the authoritative guidance for fair value measurements for financial
assets and financial liabilities. The authoritative guidance, which, among other things, defines fair value as the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (an exit price). Our investments are carried at fair value and in determining
their fair value we are sometimes required to use various alternative valuation techniques. The authoritative
guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable
inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when
available.
The authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value as follows: the fair value hierarchy gives the highest priority to unadjusted quoted prices in
40
active markets for identical assets or liabilities, described as Level 1, and the lowest priority to valuation
techniques using unobservable inputs, described as Level 3. Observable inputs are those that market participants
would use in pricing the asset or liability that are based on market data obtained from independent sources, such
as market quoted prices. When Level 1 observable inputs for our investments are not available to determine their
fair value, we must then use other inputs which may include indicative pricing for securities from the same issuer
with similar terms or unobservable inputs that reflect our estimates of the assumptions market participants would
use in pricing the investments based on the best information available in the circumstances. When valuation
techniques, other than those described as Level 1 are utilized, management must make estimations and judgments
in determining the fair value for its investments. The degree to which management’s estimation and judgment is
required is generally dependent upon the market pricing available for the investments, the availability of
observable inputs, the frequency of trading in the investments and the investment’s complexity. If we make
different judgments regarding unobservable inputs we could potentially reach different conclusions regarding the
fair value of our investments.
After we have determined the fair value of our investments, for those that are in an unrealized loss position,
we must then determine if the investment is other-than-temporarily impaired. We review our investments
quarterly for indicators of other-than-temporary impairment. This determination requires significant judgment
and if different judgments are used the classification of the losses related to our investments could differ. In
making this judgment, we employ a systematic methodology that considers available quantitative and qualitative
evidence in evaluating potential impairment of our investments. If the amortized cost of an investment exceeds
its fair value, we evaluate, among other factors, general market conditions, the duration and extent to which the
fair value is less than amortized cost, and our intent to sell the investment and whether it is more likely than not
that we will not be required to sell the investment before the recovery of its amortized cost basis, which may not
be until maturity. We also consider specific adverse conditions related to the financial health of and business
outlook for the issuer, including industry and sector performance, rating agency actions and changes in credit
default swap levels. Once a decline in fair value is determined to be other-than-temporary, an impairment charge
is recorded and a new cost basis in the investment is established. See Notes 4 and 5 to our consolidated financial
statements and “Liquidity and Capital Resources” for more information on our investments and fair value
measurements.
Product Related Technology Assets
We have acquired our product related technology assets from our business combinations and other third
party agreements. In applying purchase accounting, we allocate a portion of purchase price of acquired
companies to the product related technology assets acquired based on their estimated fair values. We typically
engage third party appraisal firms to assist us in determining the fair values and useful lives of product related
technology assets acquired. Such valuations and useful life determinations require us to make significant
estimates and assumptions. These estimates are based on historical experience and information obtained from the
management of the acquired companies and are inherently uncertain. Critical estimates in determining the fair
value and useful lives of the product related technology assets include but are not limited to future expected cash
flows earned from the product related technology and discount rates applied in determining the present value of
those cash flows. Unanticipated events and circumstances may occur which may affect the accuracy or validity of
such assumptions, estimates or actual results.
We review acquired product related technology assets for impairment on a periodic basis by comparing the
estimated net realizable value to the unamortized cost of the technology. The recoverability of these technologies
is primarily dependent upon our ability to commercialize products utilizing these technologies. The estimated net
realizable value of the purchased technology is based on the estimated undiscounted future cash flows derived
from such technology. Our assumptions about future revenues and expenses require significant judgment
associated with the forecast of the performance of our products. Actual revenues and costs could vary
significantly from these forecasted amounts. As of December 31, 2009, the estimated undiscounted future cash
flows expected from product related technology assets from these acquisitions is sufficient to recover their
41
carrying value. If these products are not ultimately accepted by our customers and distributors, and there is no
alternative future use for the technology, we could determine that some or all of their remaining $144.3 million
carrying value is impaired. In the event of impairment, we would record an impairment charge to earnings that
could have a material adverse effect on our results of operations.
Goodwill
At December 31, 2009, we had $899.8 million in goodwill related to our acquisitions. The goodwill
recorded in relation to these acquisitions is not deductible for tax purposes. We operate in a single industry
segment consisting of the design, development and marketing of technology solutions that deliver applications
on-demand. Our revenues are derived from sales of our Desktop Solutions and related technical services in the
Americas, EMEA, and Asia-Pacific regions and from online services sold by our Online Services division. These
three geographic regions and the Online Services division constitute our reportable segments. See Note 12 to our
consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31,
2009 for additional information regarding our reportable segments. We evaluate goodwill among these segments,
which represent our reporting units.
We account for goodwill in accordance with FASB’s authoritative guidance which requires that goodwill
and certain intangible assets are not amortized, but are subject to an annual impairment test. There was no
impairment of goodwill as a result of the annual impairment tests completed during the fourth quarters of 2009
and 2008. Historically, we completed the annual goodwill impairment test as of December 31 of each fiscal year.
During fiscal 2009, we changed the annual impairment test date from December 31 to October 1. This change
was made to allow for more time and better support in the completion of the assessment prior to the filing of our
Annual Report on Form 10-K as a large accelerated filer. In addition, the earlier date would allow us the
additional time necessary to complete any Step 2 impairment analysis should one be required in the future prior
to the filing of our Annual Report on Form 10-K. We believe the resulting change in accounting principle related
to changing the annual impairment testing date will not delay, accelerate, or avoid an impairment charge. We
have determined that this change in accounting principle is preferable under the circumstances. A letter of
preferability from our independent registered public accounting firm regarding this change in accounting
principle is included as an exhibit to this Annual Report on Form 10-K for the year ended December 31, 2009.
Excluding goodwill, we have no intangible assets deemed to have indefinite lives.
Income Taxes
We are required to estimate our income taxes in each of the jurisdictions in which we operate as part of the
process of preparing our consolidated financial statements. At December 31, 2009, we had approximately $92.5
million in deferred tax assets. The authoritative guidance requires a valuation allowance to reduce the deferred
tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. We review deferred tax assets periodically for recoverability and
make estimates and judgments regarding the expected geographic sources of taxable income and gains from
investments, as well as tax planning strategies in assessing the need for a valuation allowance. At December 31,
2009, we determined that a $8.7 million valuation allowance relating to deferred tax assets for net operating
losses from acquired companies and unrealized losses from temporary impairments on available-for-sale
investments was necessary. If the estimates and assumptions used in our determination change in the future, we
could be required to revise our estimates of the valuation allowances against our deferred tax assets and adjust
our provisions for additional income taxes.
In the ordinary course of global business, there are transactions for which the ultimate tax outcome is
uncertain, thus judgment is required in determining the worldwide provision for income taxes. We provide for
income taxes on transactions based on our estimate of the probable liability. We adjust our provision as
appropriate for changes that impact our underlying judgments. Changes that impact provision estimates include
such items as jurisdictional interpretations on tax filing positions based on the results of tax audits and general
42
tax authority rulings. Due to the evolving nature of tax rules combined with the large number of jurisdictions in
which we operate, it is possible that our estimates of our tax liability and the realizability of our deferred tax
assets could change in the future, which may result in additional tax liabilities and adversely affect our results of
operations, financial condition and cash flows.
The following discussion relating to the individual financial statement captions, our overall financial
performance, operations and financial position should be read in conjunction with the factors and events
described in “— Overview” and Part 1 – Item 1A entitled “Risk Factors,” which could impact our future
performance and financial position.
Results of Operations
The following table sets forth our consolidated statements of income data and presentation of that data as a
percentage of change from year-to-year.
Year Ended December 31,
2009
2008
2007
2009
Compared to
2008
2008
Compared to
2007
(In thousands)
Revenues:
Product licenses . . . . . . . . . . . . . . . . . . .
License updates . . . . . . . . . . . . . . . . . . .
Online services . . . . . . . . . . . . . . . . . . .
Technical services . . . . . . . . . . . . . . . . .
$ 538,975
604,968
308,177
161,968
$ 620,215
559,340
260,065
143,734
$ 577,144
484,669
213,744
116,385
Total net revenues . . . . . . . . . . . . . . . . . . . . .
Cost of net revenues:
Cost of product license revenues . . . . . .
Cost of services revenues . . . . . . . . . . .
Amortization of product related
1,614,088
1,583,354
1,391,942
52,160
87,233
47,801
79,303
42,984
65,027
(13.1)%
8.2
18.5
12.7
1.9
9.1
10.0
intangible assets . . . . . . . . . . . . . . . .
47,917
48,028
29,596
(0.2)
Total cost of net revenues . . . . . . .
187,310
175,132
137,607
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Research and development . . . . . . . . . .
Sales, marketing and services . . . . . . . .
General and administrative . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . .
Amortization of other intangible
1,426,778
1,408,222
1,254,335
281,980
679,053
239,623
26,473
288,109
669,569
256,679
—
205,103
590,409
229,229
—
assets . . . . . . . . . . . . . . . . . . . . . . . . .
20,972
22,724
17,387
In-process research and
development
. . . . . . . . . . . . . . . . . . .
—
1,140
9,800
Total operating expenses . . . . . . . .
1,248,101
1,238,221
1,051,928
Income from operations . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
178,677
14,683
(426)
958
193,892
2,875
170,001
31,506
(444)
(4,140)
196,923
18,647
202,407
49,704
(737)
(466)
250,908
36,425
Net income . . . . . . . . . . . . . . . . . .
$ 191,017
$ 178,276
$ 214,483
7.0
1.3
(2.1)
1.4
(6.6)
*
(7.7)
*
0.8
5.1
(53.4)
(4.1)
*
(1.5)
(84.6)
7.1
7.5%
15.4
21.7
23.5
13.8
11.2
22.0
62.3
27.3
12.3
40.5
13.4
12.0
*
30.7
(88.4)
17.7
(16.0)
(36.6)
(39.8)
*
(21.5)
(48.8)
(16.9)
* not meaningful.
43
Revenues
Net revenues include the following categories: Product Licenses, License Updates, Online Services and
Technical Services. Product Licenses primarily represent fees related to the licensing of the following major
products:
• Our Desktop Solutions, comprised primarily of our desktop virtualization product XenDesktop and our
application virtualization product XenApp;
• Our Datacenter and Cloud Solutions, comprised primarily of our server virtualization products,
XenServer and Essentials for XenServer and Hyper-V and our application networking products
NetScaler, Access Gateway and Branch Repeater.
In addition, we offer incentive programs to our VADs and VARs to stimulate demand for our products.
Revenues associated with these programs are partially offset by these incentives to our VADs and VARs.
License Updates consist of fees related to our Subscription Advantage program that are recognized ratably
over the term of the contract, which is typically 12 to 24 months. Subscription Advantage is an annual renewable
program that provides subscribers with automatic delivery of unspecified software upgrades, enhancements and
maintenance releases when and if they become available during the term of the subscription. Online Services
revenues consist primarily of fees related to online service agreements from our web collaboration, connectivity
and remote support products, GoToMeeting, GoToWebinar, GoToTraining, GoToAssist and GoToMyPC which
are recognized ratably over the contract term. Technical Services revenues are comprised of fees from technical
support services which are recognized ratably over the contract term, as well as revenues from product training
and certification, and consulting services revenue related to implementation of our products, which is recognized
as the services are provided.
Year Ended December 31,
2009
2008
2007
2009
Compared to
2008
2008
Compared to
2007
(In thousands)
Revenues:
Product licenses . . . . . . . . . . . . . . . . . . .
License updates . . . . . . . . . . . . . . . . . . .
Online services . . . . . . . . . . . . . . . . . . .
Technical services . . . . . . . . . . . . . . . . .
$ 538,975
604,968
308,177
161,968
$ 620,215
559,340
260,065
143,734
$ 577,144
484,669
213,744
116,385
$(81,240)
45,628
48,112
18,234
$ 43,071
74,671
46,321
27,349
Total net revenues . . . . . . . . . . . . .
$1,614,088
$1,583,354
$1,391,942
$ 30,734
$191,412
Product Licenses
Product License revenue decreased during 2009 when compared to 2008 primarily due to decreased sales of
our application virtualization products of $118.7 million partially offset by increased sales of our desktop
virtualization product of $37.1 million. The decrease in our application virtualization product sales was driven
primarily by weakness in the global economy as discussed in the Executive Summary above. Product License
revenue increased during 2008 when compared to 2007 primarily due to increased sales of our application
networking products of $17.0 million, sales of our server virtualization product of $12.8 million, sales of our
desktop virtualization product of $5.1 million and sales of our application virtualization products of $5.0 million.
We currently expect Product License sales to increase when comparing the first quarter of 2010 to the first
quarter of 2009 primarily due to anticipated improvement in the global economy and its anticipated impact on the
IT spending of our customers.
License Updates
License Updates revenue increased during 2009 when compared to 2008 primarily due to renewals related
to our Subscription Advantage program over a larger base of subscribers. License Updates revenue increased
44
during 2008 when compared to 2007 primarily due to increasing renewals related to our Subscription Advantage
program over a larger base of subscribers of $51.2 million and an increase in new Subscription Advantage
licenses of $23.5 million. We currently anticipate that License Updates revenue will increase when comparing
the first quarter of 2010 to the fourth quarter of 2009 due primarily to renewals over our installed customer base.
Online Services
Online Services revenue increased during 2009 when compared to 2008 primarily due to increased sales of
our web collaboration products. Online Services revenue increased during 2008 when compared to 2007
primarily due to increased sales of our web collaboration products of $33.8 million and our connectivity products
of $12.2 million. We currently expect our Online Services revenue to increase when comparing the first quarter
of 2010 to the fourth quarter of 2009.
Technical Services
Technical Services revenue increased during 2009 when compared to 2008 primarily due to increased sales
of support services related to our application networking products. Technical Services revenue increased during
2008 when compared to 2007 primarily due to increased sales of support services related to our application
networking products of $18.9 million and an increase in sales of support and consulting related to the
implementation of our application virtualization products of $9.4 million. We currently expect Technical
Services sales to increase when comparing the first quarter of 2010 to the first quarter of 2009 consistent with the
increase in Product License revenue described above.
Deferred Revenue
Deferred revenues are primarily comprised of License Updates revenue from our Subscription Advantage
product, Online Services revenues from annual service agreements for our online services products and Technical
Services revenues related to our support services and consulting contracts. Deferred revenues increased
approximately $85.4 million as of December 31, 2009 compared to December 31, 2008 primarily due to new
sales of our Subscription Advantage product of $35.3 million, increased sales of our support services of $27.0
million and increased renewals of our Subscription Advantage product of $14.9 million. We currently expect
deferred revenue to continue to increase in 2010.
We do not believe that backlog, as of any particular date, is a reliable indicator of future performance. While
it is generally our practice to promptly ship our products upon receipt of properly finalized purchase orders, we
sometimes have product license orders that have not shipped. Although the amount of such product license orders
may vary, the amount, if any, of such product license orders at the end of a particular period has not been
material to total revenue at the end of the same period.
International Revenues
International revenues (sales outside the United States) accounted for approximately 43.6% of our net
revenues for the year ended December 31, 2009, 45.8% of our net revenues for the year ended December 31,
2008 and 44.5% for the year ended December 31, 2007. For detailed information on international revenues,
please refer to Note 12 to our consolidated financial statements included in this Annual Report on Form 10-K for
the year ended December 31, 2009.
45
Segment Revenues
An analysis of our reportable segment net revenue is presented below:
Year Ended December 31,
2009
2008
2007
Revenue
Growth
2008 to 2009
Revenue
Growth
2007 to 2008
Americas (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . .
Online Services division . . . . . . . . . . . . . . . . .
$ 696,205
480,720
128,986
308,177
$ 670,523
524,465
128,301
260,065
(In thousands)
$ 614,181
447,201
116,816
213,744
3.8%
(8.3)
0.5
18.5
Consolidated net revenues . . . . . . . . . . . .
$1,614,088
$1,583,354
$1,391,942
1.9
9.2%
17.3
9.8
21.7
13.8
(1) Our Americas segment is comprised of the United States, Canada and Latin America.
(2) Defined as Europe, Middle East and Africa.
In the Americas segment, the increase in net revenue was primarily due to renewals related to our
Subscription Advantage program and increased sales of our support and consulting services. When comparing
2009 to 2008 License Updates revenue increased $25.3 million and Technical Services revenue increased $13.1
million. These increases were partially offset by a decrease in Product License revenue of $12.8 million when
comparing 2009 to 2008.
In EMEA the decrease in revenue was primarily driven by the continued economic downturn impacting the
region. The decrease in revenue was primarily due to a decrease in Product License revenue. When comparing
2009 to 2008, Product License revenue in EMEA decreased $65.4 million. The decrease was partially offset by
increases in renewals related to our Subscription Advantage program. When comparing 2009 to 2008 License
Updates revenue in EMEA increased $18.2 million.
In Asia-Pacific the increase in revenues was not significant.
The increases in the Online Services division’s revenues for 2009 compared to 2008 were due primarily to
increased sales of our web collaboration products.
With respect to the increase in our segment revenues when comparing 2008 to 2007, the increase in net
revenues was due primarily to the factors previously discussed across our reportable segments. See Note 12 of
our consolidated financial statements for additional information on our segment revenues.
Cost of Net Revenues
Cost of product license revenues . . . . . . . . . . . . . .
Cost of services revenues . . . . . . . . . . . . . . . . . . . .
Amortization of product related intangible
Year Ended December 31,
2009
2008
2007
2009
Compared to
2008
2008
Compared to
2007
$ 52,160
87,233
$ 47,801
79,303
(In thousands)
$ 42,984
65,027
$ 4,359
7,930
$ 4,817
14,276
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,917
48,028
29,596
(111)
18,432
Total cost of net revenues . . . . . . . . . . . . . . .
$187,310
$175,132
$137,607
$12,178
$37,525
Cost of product license revenues consists primarily of hardware, product media and duplication, manuals,
packaging materials, shipping expense, server capacity costs and royalties. Cost of services revenue consists
primarily of compensation and other personnel-related costs of providing technical support and consulting, as
46
well as the costs related to our Online Services products. Also included in cost of net revenues is amortization of
product related intangible assets.
Cost of product license revenues increased during 2009 when compared to 2008 primarily due to increased
sales of our application networking products which contain hardware components that have a higher cost than
our other software products. Cost of services revenues increased $9.5 million during 2009 compared to 2008
primarily due to an increase in sales of our Online Services products. This increase was partially offset by a
decrease of $2.2 million during 2009 compared to 2008 due to decreases our application virtualization consulting
and educational services. We currently anticipate cost of product license revenues will increase when comparing
the first quarter of 2010 to the first quarter of 2009 consistent with Product License sales.
Cost of product license revenues increased during 2008 when compared to 2007 primarily due to increased
sales of our application networking products which contain hardware components that have a higher cost than
our other software products. Cost of services revenues increased during 2008 compared to 2007 primarily due to
an increase in support and consulting related to our application virtualization and application networking
products of $11.0 million and increases in costs related to increased sales of our Online Services products of
$2.9 million. Amortization of product related intangible assets increased during 2008 as compared to 2007
primarily due to amortization of product related intangible assets acquired in acquisitions.
Gross Margin
Gross margin as a percent of revenue was 88.4% for 2009, 88.9% for 2008 and 90.1% for 2007. The
decrease in gross margin as a percentage of net revenue for all periods presented was primarily due to the
increase in cost of net revenues as discussed above.
Operating Expenses
Foreign Currency Impact on Operating Expenses
A substantial majority of our overseas operating expenses and capital purchasing activities are transacted in
local currencies and are therefore subject to fluctuations in foreign currency exchange rates. In order to minimize
the impact on our operating results, we generally initiate our hedging of currency exchange risks up to one year
in advance of anticipated foreign currency expenses. When the dollar is weak, the resulting increase to foreign
currency denominated expenses will be partially offset by the aggregate gain in our hedging contracts. When the
dollar is strong, the resulting decrease to foreign currency denominated expenses will be partially offset by the
aggregate loss in our hedging contracts. There is a risk that there will be fluctuations in foreign currency
exchange rates beyond the one-year timeframe for which we hedge our risk. Due to the generally weaker dollar
during the year ended December 31, 2009 compared to 2008, our operating expenses were higher when
converted to U.S. dollars, but these higher expenses were partially offset by gains in our hedging programs.
Other Items Impacting Operating Expenses
The Strategic Restructuring Program that we announced in January 2009 included reducing our headcount
by approximately 450 full-time positions and the consolidation of excess facilities. Due to the Strategic
Restructuring Program, compensation and employee related costs across all functional areas including research
and development, sales, marketing and services and general and administrative expenses decreased by
approximately $21.6 million, net of costs related to the Strategic Restructuring Program. These savings were
partially offset by strategic investments in the business during 2009. For more information regarding the
Strategic Restructuring Program, see the Executive Summary above.
In addition, during the first quarter of 2009, we revised our methodology for allocating depreciation and
certain facilities-related costs to more closely align these allocated costs to the employees directly utilizing the
assets and facilities. In the fourth quarter of 2008, we recorded a reduction to operating expenses of
47
approximately $6.4 million related to an adjustment of payroll taxes initially recorded in conjunction with our
voluntary, independent investigation of our historical stock option granting practices which were reduced upon
agreement with the Internal Revenue Service.
We currently expect that when comparing operating expenses for the year ended December 31, 2010
compared to the year ended December 31, 2009 operating expenses will increase.
Research and Development Expenses
Year Ended December 31,
2009
2008
2007
2009
Compared to
2008
2008
Compared to
2007
Research and development . . . . . . . . . . . . . . . . . . .
$281,980
$288,109
(In thousands)
$205,103
$(6,129)
$83,006
Research and development expenses consisted primarily of personnel-related costs. We expensed
substantially all development costs included in the research and development of our products and new
functionality added to our existing products as incurred, except for certain core technologies which were
technologically feasible. Research and development expenses decreased during 2009 as compared to 2008
primarily due to a $17.3 million decrease in compensation and other employee related costs due to the
implementation of the Strategic Restructuring Program. Also contributing to the decrease in research and
development expenses was a $8.7 million decrease in stock-based compensation expense primarily related to
vesting of awards assumed in conjunction with our acquisition of XenSource, Inc., or the XenSource Acquisition.
These decreases were partially offset by a $16.3 million increase in depreciation and facility- related costs due
primarily to the revised allocation methodology described above and by a $5.2 million increase in compensation
expense due to the adjustment of goodwill related to our XenSource Acquisition. For more information regarding
our acquisitions see, “— Overview” and Note 3 to our consolidated financial statements included in this Annual
Report on Form 10-K for the year ended December 31, 2009.
Research and development expenses increased during 2008 as compared to 2007 primarily due to a
$42.0 million increase in stock-based compensation expense primarily related to options and awards assumed
in conjunction with the XenSource Acquisition. Also contributing to the increases in research and development
expenses were an increase of $33.5 million in staffing and related personnel costs due to continued investment in
our business and the full year impact of our XenSource Acquisition, as well as a $4.4 million increase in office
and facility related costs associated with increased headcount.
Sales, Marketing and Services Expenses
Year Ended December 31,
2009
2008
2007
2009
Compared to
2008
2008
Compared to
2007
Sales, marketing and services . . . . . . . . . . . . . . . .
$679,053
$669,569
(In thousands)
$590,409
$ 9,484
$79,160
Sales, marketing and services expenses consisted primarily of personnel-related costs, including sales
commissions, and the costs of marketing programs aimed at increasing revenue, such as advertising, trade shows,
public relations and other market development programs. Sales, marketing and services expenses increased
during 2009 compared to 2008 primarily due to a $26.2 million increase in depreciation and other facility-related
costs due primarily to the revised allocation methodology described above. Also contributing to the increase in
sales, marketing and services expenses was a $7.4 million increase in marketing program costs related to our
worldwide advertising campaigns, a $3.5 million increase due to an increase in commissions paid to our resellers
and a $3.0 million increase due to the settlement of foreign currency contracts during the period which was offset
by lower foreign currency denominated expenses due to a stronger U.S. dollar. These increases were partially
48
offset by a $34.5 million decrease in compensation and other employee related costs resulting from the
implementation of the Strategic Restructuring Program. For more information see, “— Overview” included in
this Annual Report on Form 10-K for the year ended December 31, 2009.
Sales, marketing and services expenses increased during 2008 compared to 2007 primarily due to a $54.6
million increase in headcount and the associated increase in salaries and employee related expenses due to our
continued investment partially offset by decreases in commissions of $8.4 million. Also contributing to the
increase in sales, marketing and services expenses were increases in marketing program costs related to our
worldwide advertising campaigns of $16.7 million, an increase of $8.3 million in stock-based compensation
expense primarily related to options and awards assumed in conjunction with our XenSource Acquisition and an
increase in commissions paid to our resellers of $6.4 million. During 2008, we also increased our utilization of
personnel for revenue generating activities, which is reflected as cost of service revenues rather than sales,
marketing and services expense.
General and Administrative Expenses
Year Ended December 31,
2009
2008
2007
2009
Compared to
2008
2008
Compared to
2007
General and administrative . . . . . . . . . . . . . . . . . .
$239,623
$256,679
(In thousands)
$229,229
$(17,056)
$27,450
General and administrative expenses consisted primarily of personnel-related related costs and expenses
related to outside consultants assisting with regulatory compliance and information systems, as well as
accounting and legal fees. General and administrative expenses decreased during 2009 compared to 2008
primarily due to a $26.7 million decrease resulting from the revised methodology of allocating depreciation and
other facility related costs as described above (net of current period additions). These decreases were partially
offset by an increase in legal fees of $8.7 million. For more information regarding our acquisitions see, “—
Overview” and Note 3 to our consolidated financial statements included in this Annual Report on Form 10-K for
the year ended December 31, 2009.
General and administrative expenses increased during 2008 compared to 2007 primarily due to a
$12.1 million increase in headcount and the associated salaries and employee related expenses, a $8.7 million
increase in depreciation primarily related to information systems and a $8.6 million increase in IT support and
data services all of which were to support our growth in 2008. Also contributing to the increase in general and
administrative expenses is an increase of $8.3 million in stock-based compensation expense primarily related to
options and awards assumed in conjunction with our XenSource Acquisition. These increases were partially
offset by a decrease of $9.7 million in consulting and legal fees primarily related to the investigation of our
historical stock option granting practices and the associated restatements of our prior consolidated financial
statements, which concluded in 2007.
Restructuring
Year Ended December 31,
2009
2008
2007
2009
Compared to
2008
2008
Compared to
2007
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 26,473
$
(In thousands)
— $ — $
26,473
$
—
On January 28, 2009, we announced the implementation of the Strategic Restructuring Program, which
primarily included the reduction of our headcount by approximately 450 full-time positions. During 2009 we
incurred a pre-tax charge of $26.5 million of which $21.7 million related to severance and other costs directly
related to the reduction of our workforce and $4.8 million related to the consolidation of certain of our facilities.
49
The restructuring program was substantially completed by the end of 2009. For more information see, “—
Overview” and Note 13 to our consolidated financial statements included in this Annual Report on Form 10-K
for the year ended December 31, 2009.
Amortization of Other Intangible Assets
Year Ended December 31,
2009
2008
2007
2009
Compared to
2008
2008
Compared to
2007
Amortization of the other intangible assets . . . . . .
$ 20,972
$ 22,724
(In thousands)
$ 17,387
$ (1,752)
$ 5,337
The decrease in amortization of other intangible assets during 2009 as compared to 2008 was not
significant. The increase in amortization of other intangible assets during 2008 as compared to 2007 was
primarily due to the full year impact of amortization related to other intangible assets acquired in our
XenSource Acquisition. As of December 31, 2009, we had unamortized other identified intangible assets with
estimable useful lives in the net amount of $68.9 million. For more information regarding our acquisitions see,
“— Overview” and Note 3 to our consolidated financial statements included in this Annual Report on
Form 10-K for the year ended December 31, 2009.
In-Process Research and Development
In-process research and development
. . . . . . . . . .
$ — $
1,140
(In thousands)
$
9,800
$
(1,140)
$ (8,660)
Year Ended December 31,
2009
2008
2007
2009
Compared to
2008
2008
Compared to
2007
In 2008, $1.1 million of the purchase price paid for our acquisition of Vapps was allocated to IPR&D, and
in 2007, $9.8 million of the purchase price paid for our 2007 Acquisitions was allocated to IPR&D. The amounts
allocated to IPR&D in our acquisitions had not yet reached technological feasibility, had no alternative future use
and were written-off at the date of the acquisitions in accordance with the authoritative guidance. For more
information regarding the acquisitions, see “— Overview” and Note 3 to our consolidated financial statements in
this Annual Report on Form 10-K for the year ended December 31, 2009.
Our efforts with respect to the acquired technologies currently consist of design and development that may
be required to support the release of the technologies into updated versions of existing service offerings and
potentially new product and service offerings related to the products acquired in our XenSource and Ardence
Acquisitions. We currently expect that we will successfully develop new products or services utilizing the
acquired in-process technology, but there can be no assurance that commercial viability of future product or
service offerings will be achieved. Furthermore, future developments in the software industry, changes in
technology, changes in other products and offerings or other developments may cause us to alter or abandon
product plans. Failure to complete the development of projects in their entirety, or in a timely manner, could have
a material adverse impact on our financial condition and results of operations.
The fair value assigned to IPR&D was based on valuations prepared using methodologies and valuation
techniques consistent with those used by independent appraisers. All fair values were determined using the
income approach, which includes estimating the revenue and expenses associated with a project’s sales cycle and
by estimating the amount of after-tax cash flows attributable to the projects. The future cash flows were
discounted to present value utilizing an appropriate risk-adjusted rate of return, which ranged from 20% to 36%.
The rate of return included a factor that takes into account the uncertainty surrounding the successful
development of the IPR&D.
50
In 2009, the Company adopted new accounting rules for acquisitions and future IPR&D will be capitalized.
Interest Income
Year Ended December 31,
2009
2008
2007
2009
Compared to
2008
2008
Compared to
2007
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,683
$31,506
(In thousands)
$49,704
$(16,823)
$(18,198)
Interest income decreased during 2009 as compared to 2008 primarily due to lower interest rates earned on
cash equivalents and investment balances. Interest income decreased during 2008 as compared to 2007
primarily due to lower interest rates earned on cash equivalents and investment balances. For more information
see “— Overview” and “— Liquidity and Capital Resources” and Note 3 to our consolidated financial
statements included in this Annual Report on Form 10-K for the year ended December 31, 2009.
Interest Expense
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2009
2008
2007
2009
Compared to
2008
2008
Compared to
2007
$ (426) $ (444) $ (737)
(In thousands)
$
18
$
293
The decrease in interest expense when comparing 2009 to 2008 and comparing 2008 to 2007 is not
significant. For more information see “— Liquidity and Capital Resources” and Note 9 to our consolidated
financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2009.
Other Income (Expense), Net
Year Ended December 31,
2009
2008
2007
2009
Compared to
2008
2008
Compared to
2007
(In thousands)
Other income (expense), net
. . . . . . . . . . . . . . . . . . . .
$
958
$ (4,140) $ (466)
$ 5,098
$ (3,674)
Other expense, net is primarily comprised of remeasurement and foreign currency transaction gains (losses),
other-than-temporary declines in the value of our equity investments and debt instruments and realized gains
(losses) on the sale of available-for-sale and trading investments. Other income (expense), net increased when
comparing 2009 to 2008 primarily due to foreign exchange gains related to financial statement remeasurement of
$10.1 million and a decrease in losses on investments that were determined to have an other-than-temporary
decline in value of $1.5 million. These increases were partially offset by losses related to our foreign currency
transactions of $5.7 million. Other income (expense), net decreased when comparing 2008 to 2007 due primarily
to an increase in losses related to our foreign currency transactions and to a lesser extent, impairments of
investments that we determined to have an other-than-temporary decline in fair value partially offset by gains
recorded on an enforceable, non-transferable right to sell our auction rate securities, or the Put Option, recorded
in conjunction with a legal settlement related to our investments in those auction rate securities. Upon recording
the Put Option, we contemporaneously made the fair value election as allowed by the authoritative guidance.
Therefore, the initial recording of the Put Option and subsequent changes in its fair value are recorded in other
income (expense), net. For more information see “— Liquidity and Capital Resources” and Note 4 to our
consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31,
2009.
51
Income Taxes
As of December 31, 2009, our net unrecognized tax benefits totaled approximately $46.2 million. At
December 31, 2009, there was $0.8 million for tax positions which would not affect the annual effective tax rate
and approximately $0.3 million of accrued interest on tax positions.
We and certain of our subsidiaries are subject to United States, or U.S. federal income taxes in the U.S., as
well as income taxes of multiple state and foreign jurisdictions. With few exceptions, we are no longer subject to
U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2004.
During the third quarter of 2009, the IRS concluded its examination of our income tax returns for 2004 and
2005 and issued a final Revenue Agent’s Report, which we refer to as the RAR. We agreed with all of the
adjustments contained in the RAR, with the exception of the transfer pricing and consequential adjustments
relating to the intercompany transfer of certain intellectual property in earlier tax years. The RAR asserts income
tax deficiencies related to the transfer pricing and consequential adjustments of approximately $81.3 million for
tax years 2004 and 2005, excluding interest. In addition, the transfer pricing and consequential adjustments to our
2004 and 2005 tax years would impact our income tax liabilities in tax years subsequent to 2005. We disagree
with the adjustments and have filed a protest, which caused the matter to be referred to the Appeals Division of
the IRS. We are contesting the adjustments through the IRS appeals process and the courts, if necessary. There
can be no assurance, however, that this matter, or any future tax examinations involving similar assertions, will
be resolved in our favor, and an adverse outcome of this matter could have a material adverse effect on our
results of operations and financial condition. Regardless of whether this matter is resolved in our favor, this
matter could be expensive and time-consuming to defend.
During the fourth quarter of 2009, the IRS commenced its examination of our U.S. federal income tax
returns for the 2006 through 2008 tax years.
In the ordinary course of global business, there are transactions for which the ultimate tax outcome is
uncertain and judgment is required in determining the worldwide provision for income taxes. We provide for
income taxes on transactions based on our estimate of the probable liability. We adjust our provision as
appropriate for changes that impact our underlying judgments. Changes that impact provision estimates include
such items as jurisdictional interpretations on tax filing positions based on the results of tax audits and general
tax authority rulings. Due to the evolving nature of tax rules combined with the large number of jurisdictions in
which we operate, it is possible that our estimates of our tax liability and the realizability of our deferred tax
assets could change in the future, which may result in additional tax liabilities and adversely affect our results of
operations, financial condition and cash flows.
We are required to estimate our income taxes in each of the jurisdictions in which we operate as part of the
process of preparing our consolidated financial statements. At December 31, 2009, we had approximately
$101.2 million in deferred tax assets. The authoritative guidance requires a valuation allowance to reduce the
deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. We review deferred tax assets periodically for recoverability
and make estimates and judgments regarding the expected geographic sources of taxable income and gains from
investments, as well as tax planning strategies in assessing the need for a valuation allowance. At December 31,
2009, we determined that $8.7 million valuation allowance relating to deferred tax assets for net operating losses
from acquired companies and unrealized losses from temporary impairments on available-for- sale investments
was necessary. If the estimates and assumptions used in our determination change in the future, we could be
required to revise our estimates of the valuation allowances against our deferred tax assets and adjust our
provisions for additional income taxes.
We maintain certain operational and administrative processes in overseas subsidiaries and its foreign
earnings are taxed at lower foreign tax rates. We do not expect to remit earnings from our foreign subsidiaries.
52
We establish tax reserves when, despite our belief that our tax return positions are fully supportable, certain
of these positions may be challenged. While it is often difficult to predict whether we will prevail, we believe
that our tax reserves reflect the probable outcome of known contingencies. As such, included in our effective tax
rate for the year ended December 31, 2009 is an additional tax reserve of approximately $18.9 million related to
uncertainties arising from current and prior tax years partially offset by a reduction of approximately $1.0 million
in tax reserves related to the expiration of a statute of limitations for the 2005 tax year.
In 2009, our effective tax rate decreased to approximately (8.6%) from 16.6% when comparing the three
months ended December 31, 2009 to the three months ended December 31, 2008 primarily due to a benefit from
tax credits recognized in the fourth quarter of 2009. When comparing the twelve months ended December 31,
2009 to the twelve months ended December 31, 2008, our effective tax rate decreased to 1.5% from 9.5%
primarily due to the tax credits recognized in the fourth quarter of 2009.
We are subject to the continuous examination of our income tax returns by tax authorities. We regularly
assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our
provision for income taxes. There can be no assurance, however, that the outcomes from these continuous
examinations will not have an adverse effect on our effective tax rate.
Liquidity and Capital Resources
During 2009, we generated positive operating cash flows of $484.0 million. These cash flows related
primarily to net income of $191.0 million, adjusted for, among other things, non-cash charges including
depreciation and amortization of $138.6 million, stock-based compensation expense of $111.4 million and a
goodwill adjustment of $5.4 million. Also contributing to these cash inflows is an aggregate increase in cash flow
from our operating assets and liabilities of $87.6 million, net of the effects of acquisitions. These operating cash
inflows are partially offset by $50.8 million related to a deferred income tax benefit, the tax effect of stock-based
compensation of $7.9 million and the excess benefit from the exercise of stock options of $5.2 million. Our
investing activities used $502.9 million of cash consisting primarily of cash paid for net purchases of investments
of $412.7 million. Also contributing to these cash outflows is the purchase of property and equipment of
$76.2 million. Our financing activities used cash of $45.5 million, primarily from expenditures on our stock
repurchase program of $214.9 million partially offset by proceeds received from the issuance of common stock
under our employee stock-based compensation plans of $166.0 million.
During 2008, we generated positive operating cash flows of $462.1 million. These cash flows related
primarily to net income of $178.3 million, adjusted for, among other things, non-cash charges including stock-
based compensation expense of $124.6 million and depreciation and amortization of $123.7 million. Also
contributing to these cash inflows is an aggregate increase in cash flow from our operating assets and liabilities
of $43.4 million, net of the effects of acquisitions. These operating cash inflows are partially offset by a
$6.4 million benefit related to an adjustment of payroll taxes and $6.8 million related to a deferred income tax
benefit. Our investing activities used $158.6 million of cash consisting primarily of the expenditure of
$181.0 million for the purchase of property and equipment, including the purchase of our headquarters building
and $68.4 million in cash paid for licensing agreements and acquisitions. These investing cash outflows are
partially offset by the net sales and maturities of our available-for-sale investments of $90.9 million. Our
financing activities used cash of $206.9 million, primarily related to $256.5 million paid for stock repurchases.
This cash outflow was partially offset by $44.4 million in proceeds received from employee stock compensation
plans and $5.6 million related to excess tax benefits from the exercise of stock-based awards.
Historically, significant portions of our cash inflows were generated by our operations. We currently expect
this trend to continue throughout 2010. We believe that our existing cash and investments together with cash flows
expected from operations will be sufficient to meet expected operating and capital expenditure requirements for the
next 12 months. We continue to search for suitable acquisition candidates and could acquire or make investments in
53
companies we believe are related to our strategic objectives. We could from time to time seek to raise additional
funds through the issuance of debt or equity securities for larger acquisitions.
Cash and Investments
December 31,
2009
2008
2009
Compared to
2008
Cash and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,207,257
(In thousands)
$850,881
$356,376
The increase in cash and investments at December 31, 2009 as compared to December 31, 2008, is primarily
due to cash provided by our operating activities of $484.0 million and cash received from the issuance of
common stock under our employee stock-based compensation plans of $166.0 million partially offset by
expenditures made on our stock repurchases of $214.9 million and purchases of property and equipment of
$76.2 million. We generally invest our cash and cash equivalents in investment grade, highly liquid securities to
allow for flexibility in the event of immediate cash needs. Our short-term and long-term investments primarily
consist of interest-bearing securities. See “— Liquidity and Capital Resources” and Note 4 to our consolidated
financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2009 for
further information.
Available-for-sale investments
As of December 31, 2009, we recorded an unrealized loss of approximately $4.9 million, which is included
in accumulated other comprehensive loss, related to our $50.0 million face value investment issued by AIG
Matched Funding Corporation, or the AIG Capped Floater, which matures in September 2011. American
International Group, Inc., or AIG, as the issuer’s parent, provided a guarantee of the security at the time of
purchase in September 2006. The unrealized loss was primarily caused by AIG experiencing liquidity challenges
which were reportedly precipitated by problems in the capital markets. AIG’s lack of liquidity triggered a
downgrade in the credit ratings for its long-term issues by two rating agencies in 2008. As a result of AIG’s
liquidity challenges, in November 2008 the Federal Reserve Bank of New York, or the FRBNY, intervened with
a five-year credit facility to help stabilize AIG and the overall market. In addition, on March 2, 2009, AIG
announced further actions were taken in cooperation with the U.S. Department of Treasury and the FRBNY to
provide AIG with additional financial stability. As of the date of this report, AIG has not been reported to have
defaulted on capital repayments to holders of its recently matured debt and it continues to pay us interest on the
AIG Capped Floater. Because we do not intend to sell the AIG Capped Floater and it is more likely than not that
we will not be required to sell the security before the recovery of its amortized cost basis, which may not occur
until maturity, we do not consider the security to be other-than-temporarily impaired.
If AIG’s financial position deteriorates, we may be required to further adjust the carrying value of the AIG
Capped Floater and potentially recognize an impairment charge for an other-than-temporary decline in the fair
value of the investment. Based on our available cash and other investments, we do not currently anticipate that
the lack of liquidity caused by holding the AIG Capped Floater to recovery will have a material adverse effect on
our financial position.
Gross realized gains on sales of available-for-sale investments during 2009 were $0.6 million and gross
realized losses on available-for-sale investments during 2009 were $0.1 million. Gross realized gains on sales of
available-for-sale investments during 2008 were $0.4 million and gross realized losses on available-for-sale
investments during 2008 were $0.1 million. There was also an other-than-temporary loss on available-for-sale
investments of approximately $1.1 million related to an other-than-temporary impairment of an investment in our
portfolio due to the bankruptcy of Lehman Brothers Holdings.
We continue to monitor our overall investment portfolio and if the credit ratings of the issuers of our
investments deteriorate or if the issuers experience financial difficulty, including bankruptcy, we may be required
54
to make additional adjustments to the carrying value of the securities in our investment portfolio and recognize
additional impairment charges for declines in fair value that are determined to be other-than-temporary.
Trading Investments
As of December 31, 2009, we held municipal auction rate securities, of which substantially all were triple-A
rated, with an aggregate par value of approximately $44.8 million, whose underlying assets are generally student
loans that are substantially backed by the federal government under the Federal Family Education Loan Program
through investment accounts managed by UBS Financial Services, Inc., or UBS. The market for municipal auction
rate securities in our portfolio began experiencing auction failures in 2008 and there have been no successful
auctions for the securities held in our portfolio since the failures began. In November 2008, we formally accepted
the terms of a settlement from UBS, or the Settlement. Upon accepting the terms of the Settlement, we received an
enforceable, non-transferable right, or the Put Option, that enables us to sell our auction rate securities back to UBS
during the period between June 30, 2010 and July 2, 2012 at par value. Accordingly, we recorded the fair value of
the Put Option in other assets in our financial statements and contemporaneously made the fair value election as
permitted by the authoritative guidance which states that companies may elect the fair value option for eligible
financial assets. Therefore, we record changes in the fair value of the Put Option in earnings. During the year ended
December 31, 2009, we recorded a gain of $1.5 million related to our investments in auction rate securities and a
corresponding loss of $1.3 million related to the Put Option, both of which are included in other income (expense),
net, in our consolidated statements of income.
Fair Value Measurements
On January 1, 2008, we adopted the authoritative guidance for fair value measurements for financial assets
and financial liabilities. The authoritative guidance, which, among other things, defines fair value, establishes a
consistent framework for measuring fair value and expands disclosure for each major asset and liability category
measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price,
representing the amount that would either be received to sell an asset or be paid to transfer a liability in an
orderly transaction between market participants. As such, fair value is a market-based measurement that should
be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis
for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the
inputs used in measuring fair value as follows:
•
•
•
Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or
indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting
entity to develop its own assumptions.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
We measure our cash flow hedges at fair value based on indicative prices in active markets and we generally
measure our investments in available-for-sale securities at fair value based on quoted prices in active markets for
identical securities.
Due to the illiquidity in the municipal auction rate securities market caused by failed auctions, our valuation
technique for certain of our municipal auction rate securities is to measure such securities at fair value using a
discounted cash flow model. In our discounted cash flow model, we used several assumptions to derive a fair
value for our investments in municipal auction rate securities, including a discount rate based on the credit
quality of the underlying investments and a factor to further discount the investments for the illiquidity currently
present in the market for these securities. Accordingly, these trading investments are included in Level 3. Also
55
included in Level 3 is the Put Option. In order to determine the fair value of the Put Option, we measured the
differential between the aggregate par value of our auction rate securities and their fair value as of the reporting
date and applied a discount rate that considers both the time period between the reporting date and the first date
we will be able to exercise our right to put the auction rate securities to UBS per the terms of the Settlement and
the credit worthiness of UBS.
During 2008, we measured our AIG Capped Floater using indicative pricing for another AIG security with
similar terms, or the Referenced Security, which had regular trading activity, a Level 2 observation. During 2009,
trading activity in the Referenced Security significantly decreased and other floating rate AIG debt securities
with regular trading activity were too close to their maturities to be used to establish a fair value for the AIG
Capped Floater. Therefore, in order to measure the AIG Capped Floater at fair value we used a discounted cash
flow model. We then discounted those cash flows at a rate reflecting the market risk inherent in holding an AIG
security with a similar maturity as evidenced by pricing in the markets. Since utilizing a discounted cash flow
model required us to make assumptions that were not directly or indirectly observable regarding the AIG Capped
Floater’s fair value during 2009, it was transferred to Level 3 and is included in the table below as a transfer to
Level 3.
Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers to Level 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds received on Level 3 securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total realized gains (losses) included in earnings . . . . . . . . . . . . . . . . . . . . . . .
$ 7,378
—
—
(1,330)
Put Option
Long-term
Investments
(In thousands)
$37,919
45,096
(700)
1,470
Total
$45,297
45,096
(700)
140
Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,048
$83,785
$89,833
Realized gains (losses) included in earnings for the period are reported in other (expense) income, net.
Accounts Receivable, Net
December 31,
2009
2008
2009
Compared to
2008
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$309,748
(1,617)
(3,219)
(In thousands)
$239,998
(1,641)
(7,061)
$69,750
24
3,842
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$304,912
$231,296
$73,616
The increase in accounts receivable at December 31, 2009 compared to December 31, 2008 was primarily
due to an increase in sales, particularly in the last month of 2009 compared to the last month of 2008. Our
allowance for returns remained relatively constant during 2009 as compared to 2008. The activity in our
allowance for returns was comprised of $3.3 million in credits issued for stock balancing rights during 2009
offset by $3.3 million of provisions for returns recorded during 2009. Our allowance for doubtful accounts
decreased by $3.8 million when comparing 2009 to 2008. The activity in our allowance for doubtful accounts
was primarily comprised of $5.5 million of uncollectible accounts written off, net of recoveries, partially offset
by additional provisions for doubtful accounts of $1.7 million recorded during the year. From time to time, we
could maintain individually significant accounts receivable balances from our distributors or customers, which
are comprised of large business enterprises, governments and small and medium-sized businesses. If the financial
56
condition of our distributors or customers deteriorates, our operating results could be adversely affected.
At December 31, 2009, one distributor, Ingram Micro, accounted for 14% of our accounts receivable. At
December 31, 2008, no distributor or customer accounted for more than 10% of our accounts receivable. For
more information regarding significant customers see Note 12 to our consolidated financial statements included
in this Annual Report on Form 10-K for the year ended December 31, 2009.
Credit Facility
Effective on August 9, 2005, we entered into the Credit Facility with a group of financial institutions, or the
Lenders. Effective September 27, 2006, we entered into an amendment and restatement of the Credit Facility, or the
Amendment. The Amendment decreased the overall range of interest we will pay on amounts outstanding on the
Credit Facility and lowered the facility fee. In addition, the Amendment extended the term of the Credit Facility.
The Credit Facility, as amended, allows us to increase the revolving credit commitment up to a maximum aggregate
revolving credit commitment of $175.0 million. The Credit Facility, as amended, currently provides for a revolving
line of credit that will expire on September 27, 2011 in the aggregate amount of $100.0 million, subject to continued
covenant compliance. A portion of the revolving line of credit (1) in the aggregate amount of $25.0 million may be
available for issuances of letters of credit and (2) in the aggregate amount of $15.0 million may be available for
swing line loans. The Credit Facility, as amended, currently bears interest at the London Interbank Offered Rate, or
LIBOR, plus 0.32% and adjusts in the future in the range of 0.32% to 0.80% above LIBOR based on the level of our
total debt and our adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA. In addition,
we are required to pay an annual facility fee ranging from 0.08% to 0.20% based on the aggregate amount available
under the Credit Facility, as amended, and the level of our total debt and adjusted EBITDA. During the year ended
December 31, 2009, no funds were borrowed under the Credit Facility, as amended, and as of December 31, 2009
there were no amounts outstanding under the Credit Facility, as amended.
The Credit Facility, as amended, contains customary default provisions, and we must comply with various
financial and non-financial covenants. The financial covenants consist of a minimum interest coverage ratio and
a maximum consolidated leverage ratio. The primary non-financial covenants contain certain limits on our ability
to pay dividends, conduct certain mergers or acquisitions, make certain investments and loans, incur future
indebtedness or liens, alter our capital structure or sell stock or assets. As of December 31, 2009, we were in
compliance with all covenants of the Credit Facility.
Stock Repurchase Program
Our Board of Directors authorized an ongoing stock repurchase program with a total repurchase authority
granted to us of $2.1 billion. We may use the approved dollar authority to repurchase stock at any time until the
approved amounts are exhausted. The objective of our stock repurchase program is to improve stockholders’
returns. At December 31, 2009, approximately $160.3 million was available to repurchase common stock
pursuant to the stock repurchase program. All shares repurchased are recorded as treasury stock. A portion of the
funds used to repurchase stock over the course of the program was provided by proceeds from employee stock
option exercises and the related tax benefit.
We are authorized to make open market purchases of our common stock using general corporate funds.
Additionally, we entered into structured stock repurchase arrangements with large financial institutions using
general corporate funds in order to lower the average cost to acquire shares. These programs include terms that
require us to make up-front payments to the counterparty financial institution and result in the receipt of stock
during or at the end of the term of the agreement or the receipt of either stock or cash at the maturity of the
agreement, depending on market conditions.
During the year ended December 31, 2009, we expended approximately $214.9 million on open market
purchases, repurchasing 6,475,830 shares of outstanding common stock at an average price of $33.19. In
57
addition, as of December 31, 2009, we did not have any prepaid notional amounts remaining under our structured
stock repurchase programs and during the period we did not make any up-front payments to financial institutions
related to structured stock repurchase agreements.
During the year ended December 31, 2008, we took delivery of 4,406,757 shares at an average price of
$33.30 per share from our structured repurchase agreements and we expended approximately $197.6 million on
open market purchases repurchasing 6,451,591 shares of outstanding common stock at an average price of
$30.63. In addition, during the period we made up-front payments of $58.9 million to certain financial
institutions related to structured stock repurchase agreements.
During the year ended December 31, 2007, we took delivery of 1,655,089 shares at an average price of
$35.34 per share from our structured repurchase agreements and we expended approximately $150.0 million on
open market purchases repurchasing 3,720,800 shares of outstanding common stock at an average price of
$40.31. In addition, during the period we made up-front payments of $110.0 million to certain financial
institutions related to structured stock repurchase agreements.
During the year ended December 31, 2009, we repurchased 46,732 shares totaling $1.8 million to satisfy tax
withholding obligations that arose on the vesting of shares of unvested stock units. These shares are reflected as
treasury stock in our consolidated balance sheet.
Contractual Obligations and Off-Balance Sheet Arrangement
Contractual Obligations
We have certain contractual obligations that are recorded as liabilities in our consolidated financial
statements. Other items, such as operating lease obligations, are not recognized as liabilities in our consolidated
financial statements, but are required to be disclosed in the notes to our consolidated financial statements.
The following table summarizes our significant contractual obligations at December 31, 2009 and the future
periods in which such obligations are expected to be settled in cash. Additional details regarding these
obligations are provided in the notes to our consolidated financial statements (in thousands):
Total
Less than 1 Year
1-3 Years
4-5 Years More than 5 Years
Payments due by period
Operating lease obligations(1)
. . . . . . . . . . . .
Purchase obligations(2) . . . . . . . . . . . . . . . . . .
$251,292
5,812
Total contractual obligations(3)
. . . . . . . . . . .
$257,104
$48,123
5,812
$53,935
$86,896
$61,427
$54,846
—
—
—
$86,896
$61,427
$54,846
(1)
(2)
(3)
In 2008, we entered into a lease to acquire additional office space in Santa Clara, CA. The rental
commencement date will not begin until 2011 and the pricing for the lease will not be finalized until a future
date. Accordingly, the future payment obligations related to this lease are not included in the table above.
Purchase obligations represent non-cancelable commitments to purchase inventory ordered before year-end.
Total contractual obligations do not include agreements where our commitment is variable in nature or
where cancellations without payment provisions exist and excludes $46.2 million of liabilities related to
uncertain tax positions recorded in accordance with authoritative guidance, because we could not make
reasonably reliable estimates of the period or amount of cash settlement with the respective taxing
authorities. See Note 11 to our consolidated financial statements included in this Annual Report on Form
10-K for the year ended December 31, 2009 for further information.
As of December 31, 2009, we did not have any individually material capital lease obligations or other
material long-term commitments reflected on our consolidated balance sheets.
58
Off-Balance Sheet Arrangements
The Company does not have any special purpose entities or off-balance sheet financing arrangements.
Commitments
Capital expenditures were $76.2 million during 2009, $181.0 million during 2008 and $85.9 million during
2007. During 2009, capital expenditures were primarily related to application and infrastructure delivery to
enable growth and enhance management reporting capabilities and leasehold improvements. During 2008, capital
expenditures were primarily related to application and infrastructure delivery to enable growth and enhance
management reporting capabilities, the purchase of our corporate headquarters buildings and leasehold
improvements.
We have an operating lease obligation related to a property that is not fully utilized that continues to 2018
with a total remaining obligation at December 31, 2009 of approximately $4.9 million, of which $1.0 million was
accrued as of December 31, 2009, and is reflected in accrued expenses and other liabilities in our consolidated
financial statements. In calculating this accrual, we made estimates, based on market information, including the
estimated vacancy periods and sublease rates and opportunities. We periodically re-evaluate our estimates and if
actual circumstances prove to be materially worse than we estimated, the total charges for these vacant facilities
could be significantly higher.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our market risk includes “forward-looking statements” that involve risks
and uncertainties. Actual results could differ materially from those projected in the forward-looking statements.
The analysis methods we used to assess and mitigate risk discussed below should not be considered projections
of future events, gains or losses.
We are exposed to financial market risks, including changes in foreign currency exchange rates and interest
rates that could adversely affect our results of operations or financial condition. To mitigate foreign currency
risk, we utilize derivative financial instruments. The counterparties to our derivative instruments are major
financial institutions. All of the potential changes noted below are based on sensitivity analyses performed on our
financial position as of December 31, 2009. Actual results could differ materially.
Discussions of our accounting policies for derivatives and hedging activities are included in Notes 2 and 14
to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended
December 31, 2009.
Exposure to Exchange Rates
A substantial majority of our overseas expense and capital purchasing activities are transacted in local
currencies, including Euros, British pounds sterling, Japanese yen, Australian dollars, Indian rupees, Swiss
francs, Hong Kong dollars, Singapore dollars, Canadian dollars and Danish krone. To reduce our exposure to a
reduction in U.S. dollar value and the volatility of future cash flows caused by changes in currency exchange
rates, we have established a hedging program. We use foreign currency forward contracts to hedge certain
forecasted foreign currency expenditures. Our hedging program significantly reduces, but does not entirely
eliminate, the impact of currency exchange rate movements.
At December 31, 2009 and 2008, we had in place foreign currency forward sale contracts with a notional
amount of $33.6 million and $124.2 million, respectively, and foreign currency forward purchase contracts with a
notional amount of $224.7 million and $339.6 million, respectively. At December 31, 2009, these contracts had
an aggregate fair asset value of $4.8 million and at December 31, 2008, these contracts had an aggregate fair
59
liability value of $4.3 million. Based on a hypothetical 10% appreciation of the U.S. dollar from December 31,
2009 market rates, the fair value of our foreign currency forward contracts would decrease by $19.7 million.
Conversely, a hypothetical 10% depreciation of the U.S. dollar from December 31, 2009 market rates would
increase the fair value of our foreign currency forward contracts by $19.7 million, resulting in a net asset
position. In these hypothetical movements, foreign operating costs would move in the opposite direction. This
calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. In
addition to the direct effects of changes in exchange rates quantified above, changes in exchange rates could also
change the dollar value of sales and affect the volume of sales as the prices of our competitors’ products become
more or less attractive. We do not anticipate any material adverse impact to our consolidated financial position,
results of operations, or cash flows as a result of these foreign exchange forward contracts.
Exposure to Interest Rates
We have interest rate exposures resulting from our interest-based available-for-sale and trading securities.
We maintain available-for-sale and trading investments in debt securities and we limit the amount of credit
exposure to any one issuer or type of instrument. The securities in our investment portfolio are not leveraged.
The securities classified as available-for-sale and trading are subject to interest rate risk. The modeling technique
used measures the change in fair values arising from an immediate hypothetical shift in market interest rates and
assumes that ending fair values include principal plus accrued interest and reinvestment income. If market
interest rates were to increase by 100 basis points from December 31, 2009 and 2008 levels, the fair value of the
available-for-sale portfolio would decline by approximately $8.6 million and $3.2 million, respectively. If market
interest rates were to decrease by 100 basis points from December 31, 2009 and 2008 levels, the fair value of the
available-for-sale portfolio would increase by approximately $3.8 million and $3.2 million, respectively. These
amounts are determined by considering the impact of the hypothetical interest rate movements on our
available-for-sale and trading investment portfolios. This analysis does not consider the effect of credit risk as a
result of the changes in overall economic activity that could exist in such an environment.
During 2005, we entered into the Credit Facility, as amended in 2006, or the Amended Credit Facility.
Accordingly, we could be exposed to market risk from changes in interest rates on our long-term debt. This
exposure relates to our $100.0 million Amended Credit Facility. Borrowings under the Amended Credit Facility
currently bear interest at variable rates based on LIBOR plus 0.32% and adjusts in the future in the range of
0.32% to 0.80% above LIBOR based on our level of total debt and our adjusted earnings before interest, taxes,
depreciation and amortization, or EBITDA. A hypothetical 1% interest rate change would not have any current
impact on our results of operations as we had no amounts outstanding under the Amended Credit Facility as of
December 31, 2009.
ITEM 8. FINANCIAL STATEMENTS AND SCHEDULES
Our consolidated financial statements and related financial statement schedule, together with the report of
independent registered public accounting firm, appear at pages F-1 through F-45 of this Annual Report on Form
10-K for the year ended December 31, 2009.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with our independent registered public accountants on
accounting or financial disclosure matters during our two most recent fiscal years.
60
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2009, our management, with the participation of our President and Chief Executive
Officer and our Senior Vice President and Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as
amended, or the Exchange Act. Based upon that evaluation, our President and Chief Executive Officer and our
Senior Vice President and Chief Financial Officer concluded that, as of December 31, 2009, our disclosure
controls and procedures were effective in ensuring that material information required to be disclosed in the
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that
such material information is accumulated and communicated to our management, including our President and
Chief Executive Officer and our Senior Vice President and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the quarter ended December 31, 2009, there were no changes in our internal control over financial
reporting that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting as such term is defined in Exchange Act Rule 13a – 15(f). Our internal control system was designed to
provide reasonable assurance to our management and the Board of Directors regarding the preparation and fair
presentation of published financial statements. All internal control systems, no matter how well designed have
inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation. Our management assessed the
effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment,
our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission, or COSO, in Internal Control—Integrated Framework (the COSO criteria). Based on our
assessment we believe that, as of December 31, 2009, our internal control over financial reporting is effective
based on those criteria. The effectiveness of our internal control over financial reporting as of December 31,
2009 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in
their report which appears below.
61
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Citrix Systems, Inc.
We have audited Citrix Systems, Inc.’s internal control over financial reporting as of December 31, 2009, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Citrix Systems, Inc.’s management is
responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Annual
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Citrix Systems, Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2009, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Citrix Systems, Inc. as of December 31, 2009 and 2008, and
the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows
for each of the three years in the period ended December 31, 2009 of Citrix Systems, Inc. and our report dated
February 23, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young, LLP
Certified Public Accountants
Fort Lauderdale, Florida
February 23, 2010
62
ITEM 9B. OTHER INFORMATION
None
63
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required under this item is incorporated herein by reference to the Company’s definitive
proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and
Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31,
2009.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by reference to the Company’s definitive
proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and
Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31,
2009.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table (in thousands, except option price) provides information as of December 31, 2009 about
the securities authorized for issuance to the Company’s employees and non-employee directors under its fixed
stock-based compensation plans:
Plan category
(A)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(B)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(C)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (A))
Equity compensation plans approved by
security holders(1)
. . . . . . . . . . . . . . . . . . . .
20,953
Equity compensation plans not approved by
security holders(2) . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,970
22,923
$
$
$
32.27
3.83
29.83
12,615
—
12,615
(1)
Includes securities issuable upon exercise of outstanding options, warrants and rights that were issued
pursuant to the Company’s 1995 Stock Plan, the Third Amended and Restated 1995 Employee Stock
Purchase Plan, the 2000 Director and Officer Stock Option and Incentive Plan, and the Amended and
Restated 1995 Non-Employee Director Stock Option Plan. No additional awards will be granted under these
plans. Also includes securities issuable upon exercise of outstanding options, warrants and rights that have
been issued pursuant to the Company’s 2005 Equity Incentive Plan, which is currently available for future
grants.
(2) Consists of the following plans assumed by the Company in acquisitions: Vapps, Inc.’s 2007 Stock Plan,
Deterministic Networks, Inc.’s 2008 Restricted Stock Unit Plan, Ardence Delaware, Inc.’s 2005 Omnibus
Plan, Ardence Delaware Inc.’s 2006 Restricted Stock Unit Plan, QuickTree, Inc.’s 2007 Restricted Stock
Unit Plan, XenSource Inc.’s 2005 Stock Plan, the NetScaler Plan, the Reflectent Stock Plan, the Reflectent
RSU Plan and the Orbital Incentive Plan.
Additional information required under this item is incorporated herein by reference to the Company’s
definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities
64
and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended
December 31, 2009.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information required under this item is incorporated herein by reference to the Company’s definitive
proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and
Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31,
2009.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required under this item is incorporated herein by reference to the Company’s definitive
proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and
Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31,
2009.
65
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) 1. Consolidated Financial Statements.
For a list of the consolidated financial information included herein, see page F-1.
2. Financial Statement Schedules.
The following consolidated financial statement schedule is included in Item 8:
Valuation and Qualifying Accounts
3. List of Exhibits.
Exhibit No.
Description
2.1
2.2
2.3
3.1
3.2
3.3
4.1
(14) Agreement and Plan of Merger, dated as of August 4, 2006, by and among Citrix Systems, Inc.,
Banyan Acquisition Corporation, Orbital Data Corporation and John Jaggers as the stockholder
(17) Agreement and Plan of Merger and Reorganization, dated as of August 14, 2007, by and among
Citrix Systems, Inc., PVA Acquisition Corporation, PVA Acquisition LLC, XenSource, Inc. and
John G. Connors as stockholder representative
(18) Amendment No. 1 to Agreement and Plan of Merger and Reorganization dated as of August 14,
2007 by and among Citrix Systems, Inc. PVA Acquisition Corporation, PVA Acquisition LLC,
XenSource, Inc. and John G. Connors as stockholder representative, dated September 20, 2007
(1) Amended and Restated Certificate of Incorporation of the Company
(22) Certificate of Amendment of Amended and Restated Certificate of Incorporation
(21) Amended and Restated By-laws of the Company
(2)
Specimen certificate representing the Common Stock
10.1* (37)
Fourth Amended and Restated 1995 Stock Plan
10.2* (23)
Second Amended and Restated 1995 Non-Employee Director Stock Option Plan
10.3* (38)
Second Amended and Restated 2000 Director and Officer Stock Option and Incentive Plan
10.4*
10.5*
10.6*
10.7*
2000 Director and Officer Stock Option and Incentive Plan, Non-Qualified Stock Option
Agreement
2000 Director and Officer Stock Option and Incentive Plan, Incentive Stock Option Agreement
Amended and Restated 2000 Stock Incentive Plan of Net6 Inc. (a subsidiary of Citrix Systems,
Inc.)
Amended and Restated 2003 Stock Incentive Plan of Net6 Inc. (a subsidiary of Citrix Systems,
Inc.)
10.8
(24)
Participation Agreement dated as of April 23, 2002, by and among Citrix Systems, Inc., Citrix
Capital Corp., Selco Service Corporation and Key Corporate Capital, Inc. (the “Participation
Agreement”) (with certain information omitted pursuant to a grant of confidential treatment and
filed separately with the Securities and Exchange Commission)
10.9
(25) Amendment No. 1 to Participation Agreement dated as of June 17, 2002 (with certain information
omitted pursuant to a grant of confidential treatment and filed separately with the Securities and
Exchange Commission)
10.10 (26) Master Lease dated as of April 23, 2002 by and between Citrix Systems, Inc. and Selco Service
Corporation (with certain information omitted pursuant to a grant for confidential treatment and
filed separately with the Securities and Exchange Commission)
66
Exhibit No.
Description
10.11* (3)
2005 Equity Incentive Plan
10.12* (11) Amendment to Citrix Systems, Inc. 2005 Equity Incentive Plan
10.13* (4)
2005 Employee Stock Purchase Plan
10.14* (43)
2005 Equity Incentive Plan Incentive Stock Option Master Agreement (Domestic)
10.15* (44)
2005 Equity Incentive Plan Non-Qualified Stock Option Master Agreement (Domestic)
10.16* (45) Citrix Systems, Inc. 2005 Equity Incentive Plan Non-Qualified Stock Option Master Agreement
(Domestic)
10.17* (9)
Form of Restricted Stock Unit Agreement under the Citrix Systems, Inc. 2005 Equity Incentive
Plan
10.18* (27)
Form of Executive Restricted Stock Unit Agreement under the Citrix Systems, Inc. 2005 Equity
Incentive Plan (Time Based Vesting)
10.19* (10)
Form of Restricted Stock Unit Agreement for Non-Employee Directors under the Citrix Systems,
Inc. 2005 Equity Incentive Plan
10.20* (5)
Change in Control Agreement dated as of August 4, 2005 by and between Citrix Systems, Inc. and
Mark B. Templeton
10.21* (6)
Change in Control Agreement dated as of August 4, 2005 by and between Citrix Systems, Inc. and
each of David J. Henshall, David R. Freidman and John C. Burris
10.22* (12) Change in Control Agreement, dated as of August 4, 2006, by and between Citrix Systems, Inc.
and Brett M. Caine
10.23 (13) Amended and Restated Credit Agreement dated as of September 27, 2006 among Citrix Systems,
Inc., Citrix Systems International GmbH, JPMorgan Chase Bank N.A., and certain other financial
institutions
10.24 (7)
Term Loan Agreement dated as of August 9, 2005 by and among Citrix Systems, Inc., Citrix
Systems International GMBH, JPMorgan Chase Bank, N.A., J.P. Morgan Securities Inc. and
certain other financial institutions
10.25* (8) NetScaler, Inc. 1997 Stock Plan
10.26 (15) Type # 3 License Form by and between the Company and Microsoft Corporation dated
September 5, 2007 (with certain information omitted pursuant to a request for confidential
treatment and filed with the Securities and Exchange Commission)
10.27* (16)
Second Amendment to Citrix Systems, Inc. 2005 Equity Incentive Plan
10.28* (19) Employment Agreement dated as of August 14, 2007 by and between Citrix Systems, Inc. and
Peter Levine
10.29* (20) XenSource, Inc. 2005 Stock Plan
10.30* (28) Citrix Systems, Inc. Executive Bonus Plan
10.31* (29) Third Amendment to Citrix Systems, Inc. 2005 Equity Incentive Plan
10.32* (30)
Fourth Amendment to Citrix Systems, Inc. 2005 Equity Incentive Plan
10.33* (31)
Form of First Amendment to Change of Control Agreement (Chief Executive Officer) between
Citrix Systems, Inc. and Mark Templeton
10.34* (32)
Form of First Amendment to Change of Control Agreement between Citrix Systems, Inc. and each
of David J. Henshall and David R. Friedman
67
Exhibit No.
Description
10.35* (33)
Form of First Amendment to Employment Agreement between Citrix Systems, Inc. and Peter
Levine
10.36* (34)
Form of Non-Qualified Stock Option Master Agreement (Domestic)
10.37* (39) Omnibus Assumption and Amendment Agreement dated as of May 30, 2007 by and among Citrix
Systems, Inc., Citrix Capital Corp., Peninsula Investment Corp., Selco Service Corporation, Key
Bank National Association, Allied Irish Banks P.L.C. and Key Bank National Association
10.38* (35)
Form of Restricted Stock Unit Agreement
10.39 (36) Amendment No. 1 to Credit Agreement, dated as of September 19, 2008, among Citrix Systems,
Inc., Citrix International GmbH, JPMorgan Chase Bank, N.A., JP Morgan Securities, Inc. and
certain other financial institutions
10.40* (40)
Form of Long Term Incentive Agreement
10.41* (41)
Fifth Amendment to Citrix Systems, Inc. 2005 Equity Incentive Plan
10.42* (42)
Form of Amendment to Restricted Stock Unit Agreement
18.1
21.1
23.1
24.1
31.1
31.2
32.1
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Preferability Letter of Independent Registered Public Accounting Firm
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm
Power of Attorney (included in signature page)
Rule 13a-14(a) / 15d-14(a) Certifications
Rule 13a-14(a) / 15d-14(a) Certifications
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Indicates a management contract or any compensatory plan, contract or arrangement.
Incorporated herein by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File
No. 33-98542), as amended.
Incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File
No. 33-98542), as amended.
Incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006.
Incorporated by reference herein to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2005.
Incorporated by reference herein to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2005.
Incorporated by reference herein to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2005.
Incorporated by reference herein to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2005.
Incorporated by reference herein to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2005.
Incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2009.
(10) Incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006.
68
(11) Incorporated by reference herein to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006.
(12) Incorporated by reference herein to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006.
(13) Incorporated by reference herein to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated as of
September 27, 2006.
(14) Incorporated by reference herein to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2006.
(15) Incorporated by reference herein to Exhibit 10.31 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2006.
(16) Incorporated by reference herein to Exhibit 10.1 to the Company’s Current Report on Form 8- K dated as of
October 19, 2007.
(17) Incorporated by reference herein to Exhibit 2.5 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2007.
(18) Incorporated by reference herein to Exhibit 2.6 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2007.
(19) Incorporated by reference herein to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2007.
(20) Incorporated by reference herein to Exhibit 10.4 to the Company’s Quarterly Report on Form 10- Q for the
quarter ended September 30, 2007.
(21) Incorporated by reference herein to Exhibit 3.1 to the Company’s Current Report on Form 8- K dated as of
February 13, 2009.
(22) Incorporated by reference herein to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2007.
(23) Incorporated by reference herein to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2007.
(24) Incorporated by reference herein to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2007.
(25) Incorporated by reference herein to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2007.
(26) Incorporated by reference herein to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2007.
(27) Incorporated by reference herein to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2007.
(28) Incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2008.
(29) Incorporated by reference herein to Exhibit A to the Company’s Definitive Proxy Statement filed with the
Commission on April 29, 2008.
(30) Incorporated by reference herein to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2008.
(31) Incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008.
(32) Incorporated by reference herein to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008.
(33) Incorporated by reference herein to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008.
(34) Incorporated by reference herein to Exhibit 10.4 to the Company’s Quarterly Report on Form 10- Q for the
quarter ended September 30, 2008.
(35) Incorporated by reference herein to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008.
(36) Incorporated by reference herein to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008.
69
(37) Incorporated by reference herein to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2008.
(38) Incorporated by reference herein to Exhibit to Exhibit 10.4 to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2008.
(39) Incorporated by reference herein to Exhibit to Exhibit 10.42 to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2008.
(40) Incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2009.
(41) Incorporated by reference herein to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated as of
May 29, 2009.
(42) Incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2009.
(43) Incorporated by reference herein to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2005.
(44) Incorporated by reference herein to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2005.
(45) Incorporated by reference herein to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006.
(b) Exhibits.
The Company hereby files as part of this Annual Report on Form 10-K for the year ended December 31,
2009, the exhibits listed in Item 15(a)(3) above. Exhibits which are incorporated herein by reference can be
inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission,
100 F Street, N.E., Washington, D.C., 20549 and at the Commission’s regional offices at 175 W. Jackson
Boulevard, Suite 900, Chicago, IL 60604 and 3 World Financial Center, Suite 400, New York, NY 10281-1022.
(c) Financial Statement Schedule.
The Company hereby files as part of this Annual Report on Form 10-K for the year ended December 31,
2009 the consolidated financial statement schedule listed in Item 15(a)(2) above, which is attached hereto.
70
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Fort
Lauderdale, Florida on the 23rd day of February, 2010.
SIGNATURES
CITRIX SYSTEMS, INC
By:
/S/ MARK B. TEMPLETON
Mark B. Templeton
President and Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Citrix Systems, Inc., hereby severally constitute and appoint
Mark B. Templeton and David J. Henshall, and each of them singly, our true and lawful attorneys, with full
power to them and each of them singly, to sign for us in our names in the capacities indicated below, all
amendments to this report, and generally to do all things in our names and on our behalf in such capacities to
enable Citrix Systems, Inc. to comply with the provisions of the Securities Exchange Act of 1934, as amended,
and all requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities indicated below on the 23rd day of
February, 2010.
Signature
Title(s)
/S/ MARK B. TEMPLETON
Mark B. Templeton
/S/ DAVID J. HENSHALL
David J. Henshall
/S/ THOMAS F. BOGAN
Thomas F. Bogan
/S/ NANCI CALDWELL
Nanci Caldwell
/S/ MURRAY J. DEMO
Murray J. Demo
/S/ STEPHEN M. DOW
Stephen M. Dow
/S/ ASIFF S. HIRJI
Asiff S. Hirji
/S/ GARY E. MORIN
Gary E. Morin
/S/ GODFREY R. SULLIVAN
Godfrey R. Sullivan
President, Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer and Senior Vice President,
Finance (Principal Financial and Accounting Officer)
Chairman of the Board of Directors
Director
Director
Director
Director
Director
Director
71
[THIS PAGE INTENTIONALLY LEFT BLANK]
CITRIX SYSTEMS, INC.
List of Financial Statements and Financial Statement Schedule
The following consolidated financial statements of Citrix Systems, Inc. are included in Item 8:
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets—December 31, 2009 and 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income—Years ended December 31, 2009, 2008 and 2007 . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity and Comprehensive Income—Years ended
December 31, 2009, 2008 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows—Years ended December 31, 2009, 2008 and 2007 . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-3
F-4
F-5
F-6
F-8
F-9
The following consolidated financial statement schedule of Citrix Systems, Inc. is included in Item 15(a):
Schedule II Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-45
All other schedules for which provision is made in the applicable accounting regulation of the Securities and
Exchange Commission are not required under the related instructions or are inapplicable and therefore have been
omitted.
F-1
[THIS PAGE INTENTIONALLY LEFT BLANK]
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Citrix Systems, Inc.
We have audited the accompanying consolidated balance sheets of Citrix Systems, Inc. as of December 31, 2009
and 2008, and the related consolidated statements of income, stockholders’ equity and comprehensive income,
and cash flows for each of the three years in the period ended December 31, 2009. Our audits also included the
financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Citrix Systems, Inc. at December 31, 2009 and 2008, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, Citrix Systems, Inc. changed its method of
accounting for uncertain tax positions as of January 1, 2007.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Citrix Systems, Inc.’s internal control over financial reporting as of December 31, 2009, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 23, 2010 expressed an unqualified
opinion thereon.
/s/ Ernst & Young, LLP
Certified Public Accountants
Fort Lauderdale, Florida
February 23, 2010
F-3
CITRIX SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
Current assets:
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments - available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowances of $4,836 and $8,702 at December 31,
2009 and 2008, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments - trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments - available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term portion of deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2009
2008
(In thousands, except par value)
$
261,443
338,168
$
326,121
249,175
304,912
8,664
71,519
54,589
1,039,295
38,689
568,957
247,703
899,819
213,195
37,944
45,545
231,296
11,226
84,530
37,792
940,140
37,919
237,666
254,334
904,504
270,222
12,936
36,585
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,091,147
$ 2,694,306
Current liabilities:
Liabilities and Stockholders’ Equity
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term portion of deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Stockholders’ equity:
Preferred stock at $.01 par value: 5,000 shares authorized, none issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock at $.001 par value: 1,000,000 shares authorized; 264,831
and 255,755 shares issued at December 31, 2009 and 2008,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
57,352
221,498
555,514
834,364
63,336
4,940
46,672
195,550
488,695
730,917
44,780
744
—
—
265
2,587,727
1,578,084
(2,060)
256
2,305,187
1,387,067
(15,852)
4,164,016
3,676,658
Less - common stock in treasury, at cost (82,222 and 75,699 shares at
December 31, 2009 and 2008, respectively)
. . . . . . . . . . . . . . . . . . . . . .
(1,975,509)
(1,758,793)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,188,507
1,917,865
$ 3,091,147
$ 2,694,306
See accompanying notes.
F-4
CITRIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
2009
2008
(In thousands, except per share information)
2007
Revenues:
Product licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
License updates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Online services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technical services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 538,975
604,968
308,177
161,968
$ 620,215
559,340
260,065
143,734
$ 577,144
484,669
213,744
116,385
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,614,088
1,583,354
1,391,942
Cost of net revenues:
Cost of product license revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of product related intangible assets . . . . . . . . . . . . . . .
52,160
87,233
47,917
47,801
79,303
48,028
42,984
65,027
29,596
Total cost of net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
187,310
175,132
137,607
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
1,426,778
1,408,222
1,254,335
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
Sales, marketing and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of other intangible assets . . . . . . . . . . . . . . . . . . . . . . .
In-process research and development . . . . . . . . . . . . . . . . . . . . . . . .
281,980
679,053
239,623
26,473
20,972
—
288,109
669,569
256,679
—
22,724
1,140
205,103
590,409
229,229
—
17,387
9,800
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,248,101
1,238,221
1,051,928
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
178,677
14,683
(426)
958
193,892
2,875
170,001
31,506
(444)
(4,140)
196,923
18,647
202,407
49,704
(737)
(466)
250,908
36,425
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 191,017
$ 178,276
$ 214,483
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.05
1.03
$
$
0.97
0.96
$
$
1.18
1.14
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
181,805
183,023
181,501
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
184,985
186,682
187,380
See accompanying notes.
F-5
CITRIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
(In thousands)
Balance at December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238,156
Impact of adoption of FIN No. 48 on accumulated retained earnings on January 1,
$238
$1,655,530
Common Stock
Shares
Amount
Additional
Paid In
Capital
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares issued under stock-based compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issued under employee stock purchase plan . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit from employer stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issued related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tender offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid in advance for stock repurchase contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on forward contracts net of reclassification adjustments, net of taxes . . . .
Unrealized gain on available-for-sale securities, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
6,788
—
198
—
7,059
—
—
—
—
—
—
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252,201
3,132
Shares issued under stock-based compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
422
Common stock issued under employee stock purchase plan . . . . . . . . . . . . . . . . . . . . . . . . .
—
Tax benefit from employer stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Unrealized loss on forward contracts net of reclassification adjustments and net of
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss on available-for-sale securities, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255,755
8,491
Shares issued under stock-based compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
585
Common stock issued under employee stock purchase plan . . . . . . . . . . . . . . . . . . . . . . . . .
—
Tax benefit from employer stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted shares turned in for tax withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Unrealized gain on forward contracts net of reclassification adjustments and net of
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on available-for-sale securities, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss on pension liability, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
7
—
—
—
—
—
—
—
—
—
—
252
3
—
1
—
—
—
—
—
256
8
—
1
—
—
—
—
—
—
—
—
113,002
64,666
5,386
15,529
232,268
40,000
(515)
(87,856)
—
—
—
2,038,010
44,369
122,293
12,519
140
87,856
—
—
—
2,305,187
165,990
109,212
15,251
(7,913)
—
—
—
—
—
—
Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264,831
$265
$2,587,727
* Amounts do not sum due to rounding.
See accompanying notes.
F-6
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Common Stock
in Treasury
Shares
Amount
Total
Stockholders’
Equity
Total
Comprehensive
Income
$1,006,706
$ 4,180
(59,465)
$(1,202,365)
$1,464,289
$ —
(12,398)
—
—
—
—
—
—
—
—
—
—
214,483
1,208,791
—
—
—
—
—
—
—
178,276
1,387,067
—
—
—
—
—
—
—
—
—
191,017
—
—
—
—
—
—
—
—
—
1,521
50
—
5,751
—
—
—
—
—
(8,416)
(13,187)
—
(15,852)
—
—
—
—
—
—
7,295
8,955
(2,458)
—
—
—
—
—
—
—
(5,376)
—
—
—
—
—
(64,841)
—
—
—
—
(10,858)
—
—
—
(75,699)
—
—
—
—
(6,476)
(47)
—
—
—
—
—
—
—
—
—
—
(212,114)
—
—
—
—
—
(1,414,479)
—
—
—
—
(344,314)
—
—
—
(1,758,793)
—
—
—
—
(214,944)
(1,773)
—
—
—
—
(12,398)
113,009
64,666
5,386
15,529
232,275
(172,114)
(515)
(87,856)
1,521
50
214,483
1,838,325
44,372
122,293
12,520
140
(256,458)
(8,416)
(13,187)
178,276
1,917,865
165,998
109,212
15,252
(7,913)
(214,944)
(1,773)
7,295
8,955
(2,458)
191,017
$1,578,084
$(2,060)
(82,222)
$(1,975,509)* $2,188,507*
—
—
—
—
—
—
—
—
—
1,521
50
214,483
$
$216,054
—
—
—
—
—
—
$ (8,416)
(13,187)
178,276
$156,673
—
—
—
—
—
—
—
$
7,295
8,955
(2,458)
191,017
$204,809
F-7
CITRIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In-process research and development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit related to adjustment of payroll taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for product returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for inventory reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect of stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill adjustment
Effects of exchange rate changes on monetary assets and liabilities denominated in foreign
currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2009
2008
2007
(In thousands)
$
191,017
$ 178,276
$ 214,483
68,889
69,688
111,419
—
(67)
—
1,734
3,292
1,961
(50,850)
(7,913)
(5,182)
5,393
70,752
52,954
124,615
1,140
1,265
(6,428)
1,613
2,103
674
(6,843)
140
(5,559)
—
2,019
4,988
1,041
2,940
46,983
38,214
65,491
9,800
—
—
2,578
3,517
3,351
(634)
15,529
(17,753)
—
(142)
2,231
Total adjustments to reconcile net income to net cash provided by operating activities . . . .
205,371
240,407
169,165
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total changes in operating assets and liabilities, net of effects of acquisitions . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities
Purchases of available for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturities of available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from repayments of trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment
Purchases of other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for licensing agreements and product related intangible assets . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities
Proceeds from issuance of common stock under stock-based compensation plans . . . . . . . . . . . . . . . .
Excess tax benefit from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchases, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental Cash Flow Information
Non-cash financing activity—Fair value of stock issued in connection with acquisitions . . . . . . . . . .
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(74,604)
601
(3,055)
(487)
10,470
4,613
62,900
—
85,373
1,775
87,586
(10,975)
(2,271)
2,615
(10,335)
1,206
(6,808)
(15,337)
—
90,789
(5,460)
43,424
(19,645)
(6,316)
(24,157)
(6,829)
63,397
5,382
14,340
(12,239)
86,815
(62,121)
38,627
483,974
462,107
422,275
(1,134,580)
436,223
284,916
700
(76,246)
(7,250)
(3,338)
(3,290)
(591,919)
333,945
348,839
—
(181,046)
—
(28,023)
(40,418)
(639,414)
153,759
305,278
—
(85,919)
—
(148,055)
(3,250)
(502,865)
(158,622)
(417,601)
165,998
5,182
(214,944)
(1,773)
—
(45,537)
(250)
(64,678)
326,121
44,372
5,559
(256,458)
—
(407)
(206,934)
5,821
102,372
223,749
118,395
17,753
(259,970)
—
(8,000)
(131,822)
1,843
(125,305)
349,054
261,443
$ 326,121
$ 223,749
— $
— $ 232,275
31,367
$ 28,591
$ 43,064
211
$
196
$
247
$
$
$
$
See accompanying notes.
F-8
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Citrix Systems, Inc. is a Delaware corporation founded on April 17, 1989. The Company designs, develops
and markets technology solutions that enable IT services to be securely delivered on demand – independent of
location, device or network – powered by the Company’s virtual computing infrastructure. The Company’s
customers achieve lower IT operating costs, increased information security, and greater business agility using the
Company’s technologies that virtualize business meetings, user support, client hardware, desktop operating
systems, applications, networks, server hardware and cloud services. The Company markets and licenses its
products directly to enterprise customers, over the web, and through systems integrators, or SIs, in addition to
indirectly through value-added resellers, or VARs, value-added distributors, or VADs, and original equipment
manufacturers, or OEMs.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy
The consolidated financial statements of the Company include the accounts of its wholly-owned subsidiaries
in the Americas, Europe, the Middle East and Africa (“EMEA”), Asia-Pacific and the Online Services division.
All significant transactions and balances between the Company and its subsidiaries have been eliminated in
consolidation.
Cash and Cash Equivalents
Cash and cash equivalents at December 31, 2009 and 2008 include marketable securities, which are
primarily money market funds, commercial paper, agency and government securities, municipal securities and
corporate securities with initial or remaining contractual maturities when purchased of three months or less.
Investments
Short-term and long-term investments at December 31, 2009 and 2008 primarily consist of agency
securities, corporate securities, municipal securities, government securities and commercial paper. Investments
classified as available-for-sale are stated at fair value with unrealized gains and losses, net of taxes, reported in
accumulated other comprehensive loss. Investments classified as trading securities are stated at fair value with
unrealized gains and losses reported in earnings. The Company classifies its available-for-sale investments as
current and non-current based on their actual remaining time to maturity. The Company does not recognize
changes in the fair value of its available-for-sale investments in income unless a decline in value is considered
other-than-temporary in accordance with the authoritative guidance. In April 2009, the Financial Accounting
Standards Board (the “FASB”) amended the existing guidance on determining whether an impairment for
investments in debt securities is other-than-temporary. The Company adopted the new guidance in the second
quarter of 2009 and there was no material impact to the Company’s results of operations upon adoption
The Company’s investment policy is designed to limit exposure to any one issuer depending on credit
quality. The Company uses information provided by third parties to adjust the carrying value of certain of its
investments to fair value at the end of each period. Fair values are based on valuation models that use market
quotes and, for certain investments, assumptions as to the creditworthiness of the entities issuing those
underlying instruments.
F-9
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts Receivable
The Company’s accounts receivable are due primarily from value-added resellers, distributors and end
customers. Collateral is not required. The Company also maintains allowances for doubtful accounts for
estimated losses resulting from the inability of the Company’s customers to make payments. The Company
periodically reviews these estimated allowances, including an analysis of the customers’ payment history and
creditworthiness. The allowance for doubtful accounts was $3.2 million and $7.1 million as of December 31,
2009 and 2008, respectively. If the financial condition of a significant distributor or customer were to deteriorate,
the Company’s operating results could be adversely affected. One distributor, Ingram Micro, accounted for 14%
of gross accounts receivable at December 31, 2009. No end-customer accounted for more than 10% of gross
accounts receivable at December 31, 2008.
Inventory
Inventories are stated at the lower of cost or market on an average cost method and primarily consist of
finished goods as of December 31, 2009 and 2008.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which is generally three years for computer equipment, software, office
equipment and furniture, the lesser of the lease term or five years for leasehold improvements, which is the
estimated useful life, seven years for the Company’s enterprise resource planning system and 40 years for
buildings.
During 2009 and 2008, the Company retired $42.4 million and $12.5 million, respectively, in property and
equipment that were no longer in use. At the time of retirement, the remaining net book value of these assets was
immaterial and no material asset retirement obligations were associated with them.
Property and equipment consist of the following:
December 31,
2009
2008
(In thousands)
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer equipment
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment and furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 72,100
147,074
155,350
30,208
90,625
15,884
$ 72,100
153,180
129,114
30,474
86,593
15,884
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
511,241
(263,538)
487,345
(233,011)
$ 247,703
$ 254,334
Long-Lived Assets
The Company reviews for impairment of long-lived assets and certain identifiable intangible assets to be
held and used whenever events or changes in circumstances indicate that the carrying amount of such assets may
not be fully recoverable. Determination of recoverability is based on an estimate of undiscounted future cash
F-10
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss is based
on the fair value of the asset compared to its carrying value. Long-lived assets and certain identifiable intangible
assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
During 2009 the Company recognized impairment charges associated with its long-lived assets of $4.2
million primarily related to information systems. During 2008 and 2007, the Company did not recognize any
impairment charges associated with its long-lived or intangible assets.
Goodwill
The Company accounts for goodwill in accordance with FASB’s authoritative guidance which requires that
goodwill and certain intangible assets are not amortized, but are subject to an annual impairment test. There was
no impairment of goodwill as a result of the annual impairment tests completed during the fourth quarters of
2009 and 2008. Historically, the Company completed the annual goodwill impairment test as of December 31 of
each fiscal year. During fiscal 2009, the Company changed the annual impairment test date from December 31 to
October 1. This change was made to allow for more time and better support in the completion of the assessment
prior to the Company’s filing of its Annual Report on Form 10-K as a large accelerated filer. In addition, the
earlier date would allow the Company the additional time necessary to complete any Step 2 impairment analysis
should one be required in the future prior to the filing of its Annual Report on Form 10-K. The Company believes
the resulting change in accounting principle related to changing the annual impairment testing date will not
delay, accelerate, or avoid an impairment charge. The Company has determined that this change in accounting
principle is preferable under the circumstances. A letter of preferability from the Company’s independent
registered public accounting firm regarding this change in accounting principle is included as an exhibit to this
Annual Report on Form 10-K for the year ended December 31, 2009. Excluding goodwill, the Company has no
intangible assets deemed to have indefinite lives. See Note 3 for acquisitions and Note 12 for segment
information.
The following table presents the change in goodwill allocated to the Company’s reportable segments during
2009 and 2008 (in thousands):
Balance at
January 1,
2009
Additions Other
Balance at
December 31,
2009
Balance at
January 1,
2008
Additions Other
Balance at
December 31,
2008
Americas(1)
EMEA(2)
. . . . . . . . . . .
Asia-Pacific . . . . . . . .
Online Services
. . . . . . . . . $648,124 $1,900 $(6,234)(4) $643,790
62,000
—
11,000
—
62,000
11,000
—
—
$652,107 $ 1,624 $(5,607)(3) $648,124
62,000
11,000
62,000
11,000
—
—
—
—
division . . . . . . . . . . 183,380
1,438
(1,789)
183,029
163,409
19,971
—
183,380
Consolidated . . . . . . . . $904,504 $3,338 $(8,023)
$899,819
$888,516 $21,595 $(5,607)
$904,504
The Americas segment is comprised of the United States, Canada and Latin America.
(1)
(2) Defined as Europe, Middle East and Africa.
(3) Amount primarily consists of adjustments made to deferred taxes related to the acquisition of XenSource.
(4) Amount primarily consists of adjustment made by the Company after it determined that it had incorrectly
recorded acquisition-related payments to certain employees in connection with the October 2007 acquisition
of XenSource, Inc. as purchase consideration and goodwill when it should have been recorded as
compensation expense. Accordingly, the Company recorded $5.4 million of compensation expense in 2009
related to this item with a corresponding decrease to goodwill.
F-11
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets
The Company has intangible assets which were primarily acquired in conjunction with business
combinations and technology purchases. Intangible assets with finite lives are recorded at cost, less accumulated
amortization. Amortization is recognized on a straight-line basis over the estimated useful lives of the respective
assets, generally three to seven years, except for patents, which are amortized over the lesser of their remaining
life or ten years. In accordance with the FASB’s authoritative guidance, the Company records acquired product
related intangible assets at net realizable value and reviews this technology for impairment on a periodic basis by
comparing the estimated net realizable value to the unamortized cost of the technology. As of December 31, 2009
the Company had $35.3 million in unamortized acquired product related intangibles and recorded $7.9 million in
amortization during the year ended December 31, 2009 related to these assets. There have been no material
impairments of these assets for any of the periods presented.
Intangible assets consist of the following (in thousands):
December 31, 2009
Gross Carrying
Amount
Accumulated
Amortization
Weighted Average
Life
Product related intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$316,563
164,978
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$481,541
$172,290
96,056
$268,346
5.87 years
6.19 years
5.98 years
December 31, 2008
Gross Carrying
Amount
Accumulated
Amortization
Weighted Average
Life
Product related intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$314,383
163,896
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$478,279
$128,682
79,375
$208,057
5.88 years
6.06 years
5.94 years
Other intangible assets consist primarily of customer relationships, trade names, covenants not to compete
and patents. Amortization of product related intangible assets includes amortization of product related
technologies and patents and is reported as a cost of net revenues in the accompanying consolidated statements of
income. Amortization of other intangible assets includes amortization of customer relationships, trade names and
covenants not to compete and is reported as an operating expense in the accompanying consolidated statements
of income.
Estimated future annual amortization expense is as follows (in thousands):
Year ending December 31,
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$60,851
50,262
35,281
28,860
22,846
F-12
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
F-13
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
order from the distributor, reseller or end-user (depending on the arrangement) and an executed product
license agreement from the end-user. For technical support, product training and consulting services,
the Company requires a purchase order and an executed agreement. For online services, the Company
requires the customer or the reseller to electronically accept the terms of an online services agreement
or execute a contract.
• Delivery has occurred and the Company has no remaining obligations. For product license and
hardware appliance sales, the Company’s standard delivery method is free-on-board shipping point.
Consequently, it considers delivery of packaged products and appliances to have occurred when the
products are shipped pursuant to an agreement and purchase order. The Company considers delivery of
licenses under electronic licensing agreements to have occurred when the related products are shipped
and the end-user has been electronically provided the software activation keys that allow the end-user
to take immediate possession of the product. For online services, delivery begins when the login id and
password have been provided to the customer. For product training and consulting services, the
Company fulfills its obligation when the services are performed. For license updates, technical support
and online services, the Company assumes that its obligation is satisfied ratably over the respective
terms of the agreements, which are typically 12 to 24 months.
•
The fee is fixed or determinable. In the normal course of business, the Company does not provide
customers the right to a refund of any portion of their license fees or extended payment terms. The
Company sells license updates and services, which includes technical support, product training and
consulting services separately and it determines vendor specific objective evidence (“VSOE”) of fair
value by the price charged for each of these items when sold separately or based on applicable renewal
rates. For online services, the fee is considered fixed or determinable if it is not subject to refund or
adjustment.
• Collectability is probable. The Company determines collectability on a customer-by-customer basis
and generally does not require collateral. The Company typically sells product licenses and license
updates to distributors or resellers for whom there are histories of successful collection. New customers
are typically subject to a credit review process that evaluates their financial position and ultimately
their ability to pay. Customers are also subject to an ongoing credit review process. If the Company
determines from the outset of an arrangement that collectability is not probable, revenue recognition is
deferred until customer payment is received and the other parameters of revenue recognition described
above have been achieved. Management’s judgment is required in assessing the probability of
collection, which is generally based on evaluation of customer specific information, historical
experience and economic market conditions.
Net revenues include the following categories: Product Licenses, License Updates, Online Services and
Technical Services. Product License revenues primarily represent fees related to the licensing of the Company’s
software and hardware appliance products. These revenues are reflected net of sales allowances, cooperative
advertising agreements, reseller rewards and provisions for returns. License Update revenues consist of fees
related to the Subscription Advantage program that are recognized ratably over the term of the contract, which is
typically 12-24 months. Subscription Advantage is a renewable program that provides subscribers with
immediate access to software upgrades, enhancements and maintenance releases when and if they become
available during the term of the contract. The Company capitalizes certain third party commissions related to
Subscription Advantage renewals. The capitalized commissions are amortized to Sales, Marketing and Services
expense at the time the related deferred revenue is recognized as revenue. Online Services revenues consist
primarily of fees related to online service agreements, which are recognized ratably over the contract term. In
addition, Online Services revenues may also include set-up fees, which are recognized ratably over the contract
term or the expected customer life, whichever is longer. Technical Services revenues are comprised of fees from
F-14
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
technical support services which are recognized ratably over the contract term as well as revenues from product
training and certification, and consulting services revenue related to implementation of the Company’s products,
which is recognized as the services are provided.
The Company licenses most of its software products bundled with a one year contract for license updates
that provide the end-user with unspecified enhancements and upgrades to the licensed product on a when and if
available basis. Customers may also elect to purchase subscriptions for license updates, when not bundled with
the initial product purchase. Technical support, product training or consulting services may be purchased
separately by the customer. Online services are sold separately. The Company allocates revenue to license
updates and any other undelivered elements of the arrangement based on VSOE of fair value of each element and
such amounts are deferred until the applicable delivery criteria and other revenue recognition criteria described
above have been met. The balance of the revenue, net of any discounts inherent in the arrangement, is recognized
at the outset of the arrangement using the residual method as the product licenses are delivered. If management
cannot objectively determine the fair value of each undelivered element based on the VSOE of fair value,
revenue recognition is deferred until all elements are delivered, all services have been performed, or until fair
value can be objectively determined.
In the normal course of business, the Company is not obligated to accept product returns from its
distributors under any conditions, unless the product item is defective in manufacture, but the Company does
provide most of its distributors with stock balancing and price protection rights. Stock balancing rights permit
distributors to return products to the Company up to the forty-fifth day of the fiscal quarter, subject to ordering an
equal dollar amount of its other products prior to the last day of the same fiscal quarter. Price protection rights
require that the Company grants retroactive price adjustments for inventories of its products held by distributors
or resellers if it lowers its prices for such products. Product items returned to the Company under the stock
balancing program must be in new, unused and unopened condition. The Company establishes provisions for
estimated returns, as well as other sales allowances, concurrently with the recognition of revenue. The provisions
are established based upon consideration of a variety of factors, including, among other things, recent and
historical return rates for both specific products and distributors, estimated distributor inventory levels by
product, the impact of any new product releases and projected economic conditions. Actual product returns are
dependent upon future events. The Company continually monitors the factors that influence the pricing of its
products and distributor inventory levels and makes adjustments to the provisions for returns when it believes
actual returns and other allowances could differ from established reserves. The Company’s ability to recognize
revenue upon shipment to distributors is predicated on its ability to reliably estimate future returns. If actual
experience or changes in market conditions impair the Company’s ability to estimate returns, it would be
required to defer the recognition of revenue until the delivery of the product to the end-user. Product returns are
provided for in the consolidated financial statements and have historically been within management’s
expectations. Allowances for estimated product returns amounted to approximately $1.6 million at December 31,
2009 and December 31, 2008. The Company has not reduced and has no current plans to reduce its prices for
inventory currently held by distributors. Accordingly, there were no reserves required for price protection at
December 31, 2009 and December 31, 2008. The Company also records estimated reductions to revenue for
customer programs and incentive offerings including volume-based incentives. The Company could take actions
to increase its customer incentive offerings, which could result in an incremental reduction to revenue at the time
the incentive is offered.
Product Concentration
The Company derives a substantial portion of its revenues from its Desktop Solutions and anticipates that
these products and future derivative products and product lines based upon this technology will continue to
F-15
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
constitute a majority of its revenue. The Company could experience declines in demand for its Desktop Solutions
and other products, whether as a result of general economic conditions, the delay or reduction in technology
purchases, new competitive product releases, price competition, lack of success of its strategic partners,
technological change or other factors.
Cost of Net Revenues
Cost of product license revenues consists primarily of hardware, product media and duplication, manuals,
packaging materials, shipping expense, server capacity costs and royalties. In addition, the Company is a party to
licensing agreements with various entities, which give the Company the right to use certain software code in its
products or in the development of future products in exchange for the payment of fixed fees or amounts based
upon the sales of the related product. The licensing agreements generally have terms ranging from one to five
years, and generally include renewal options. However, some agreements may be perpetual unless expressly
terminated. Royalties and other costs related to these agreements are included in cost of net revenues. Cost of
services revenue consists primarily of compensation and other personnel-related costs of providing technical
support and consulting, as well as the Company’s online services. Also included in cost of net revenues is
amortization of product related intangible assets which includes acquired core and product technology and
associated patents.
Foreign Currency
The functional currency for substantially all of the Company’s wholly-owned foreign subsidiaries is the
U.S. dollar. Monetary assets and liabilities of the subsidiaries are remeasured into U.S. dollars at exchange rates
in effect at the balance sheet date, and revenues and expenses are remeasured at average rates prevailing during
the year. Remeasurement and foreign currency transaction gains (losses) of approximately $4.1 million, $(6.0)
million and $0.6 million for the years ended December 31, 2009, 2008, and 2007, respectively, are included in
other income (expense), net, in the accompanying consolidated statements of income.
Derivatives and Hedging Activities
In accordance with the FASB’s authoritative guidance governing derivatives, the Company records
derivatives at fair value as either assets or liabilities on the balance sheet. For derivatives that are designated as
and qualify as effective cash flow hedges, the portion of gain or loss on the derivative instrument effective at
offsetting changes in the hedged item is reported as a component of accumulated other comprehensive income
(loss) and reclassified into earnings as operating expense, net, when the hedged transaction affects earnings. For
derivative instruments that are designated as and qualify as effective fair value hedges, the gain or loss on the
derivative instrument as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, is
recognized in current earnings as interest income or interest expense during the period of the change in fair
values. Derivatives not designated as hedging instruments are adjusted to fair value through earnings as other
income (expense), net, in the period the changes in fair value occur. The application of the FASB’s authoritative
guidance governing derivatives could impact the volatility of earnings.
The Company formally documents all relationships between hedging instruments and hedged items, as well
as its risk-management objective and strategy for undertaking various hedge transactions. This process includes
attributing all derivatives that are designated as cash flow hedges to floating rate assets or liabilities or forecasted
transactions and attributing all derivatives that are designated as fair value hedges to fixed rate assets or
liabilities. The Company also formally assesses, both at the inception of the hedge and on an ongoing basis,
whether each derivative is highly effective in offsetting changes in cash flows or fair value of the hedged item.
Fluctuations in the value of the derivative instruments are generally offset by changes in the hedged item;
F-16
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
however, if it is determined that a derivative is not highly effective as a hedge or if a derivative ceases to be a
highly effective hedge, the Company will discontinue hedge accounting prospectively for the affected derivative.
The Company is exposed to risk of default by its hedging counterparties. Although this risk is concentrated
among a limited number of counterparties, the Company’s foreign exchange hedging policy attempts to minimize
it by placing limits on the amount of exposure that may exist with any single financial institution at a time.
Pension Liability
The Company provides retirement benefits to certain employees who are not U.S. based. Generally, benefits
under these programs are based on an employee’s length of service and level of compensation. The majority of
these programs are commonly referred to as termination indemnities, which provide retirement benefits in
accordance with programs mandated by the governments of the countries in which such employees work.
As of December 31, 2009, the Company had accrued $3.0 million for these pension liabilities. Expenses for
the program for 2009, 2008 and 2007 amounted to $1.4 million, $0.9 million and $0.7 million, respectively.
Advertising Costs
The Company expenses advertising costs as incurred. The Company has advertising agreements with, and
purchases advertising from, online media providers to advertise its online services products. The Company also
has cooperative advertising agreements with certain distributors and resellers whereby the Company will
reimburse distributors and resellers for qualified advertising of Citrix products. Reimbursement is made once the
distributor, reseller or provider provides substantiation of qualified expenses. The Company estimates the impact
of these expenses and recognizes them at the time of product sales as a reduction of net revenue or as a
component of sales, marketing and services expenses in the accompanying consolidated statements of income.
The total costs the Company recognized related to advertising was approximately $99.2 million, $84.6 million
and $64.0 million, during the years ended December 31, 2009, 2008 and 2007, respectively.
Income Taxes
The Company and one or more of its subsidiaries is subject to United States federal income taxes, as well as
income taxes of multiple state and foreign jurisdictions. With few exceptions, the Company is no longer subject
to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2004.
During the third quarter of 2009, the IRS concluded its examination of the Company’s income tax returns for
2004 and 2005 and issued the RAR. The Company agreed with all of the adjustments contained in the RAR, with
the exception of the transfer pricing and consequential adjustments relating to the intercompany transfer of
certain intellectual property in earlier tax years. The RAR asserts income tax deficiencies related to the transfer
pricing and consequential adjustments of approximately $81.3 million for tax years 2004 and 2005, excluding
interest. In addition, the transfer pricing and consequential adjustments to the Company’s 2004 and 2005 tax
years would impact its income tax liabilities in tax years subsequent to 2005. The Company disagrees with the
adjustments and has filed a protest, which caused the matter to be referred to the Appeals Division of the IRS.
The Company is contesting the adjustments through the IRS appeals process and the courts, if necessary. There
can be no assurance, however, that this matter, or any future tax examinations involving similar assertions, will
be resolved in the Company’s favor, and an adverse outcome of this matter could have a material adverse effect
on the Company’s results of operations and financial condition. Regardless of whether this matter is resolved in
the Company’s favor, this matter could be expensive and time-consuming to defend. During the fourth quarter of
2009, the IRS commenced its examination of the Company’s U.S. federal income tax returns for the 2006
through 2008 tax years. See Note 11.
F-17
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the ordinary course of global business, there are transactions for which the ultimate tax outcome is
uncertain; thus, judgment is required in determining the worldwide provision for income taxes. The Company
provides for income taxes on transactions based on its estimate of the probable liability. The Company adjusts its
provision as appropriate for changes that impact its underlying judgments. Changes that impact provision
estimates include such items as jurisdictional interpretations on tax filing positions based on the results of tax
audits and general tax authority rulings. Due to the evolving nature of tax rules combined with the large number
of jurisdictions in which the Company operates, it is possible that its estimates of its tax liability and the
realizability of its deferred tax assets could change in the future, which may result in additional tax liabilities and
adversely affect the Company’s results of operations, financial condition and cash flows.
The Company is required to estimate its income taxes in each of the jurisdictions in which it operates as part
of the process of preparing its consolidated financial statements. The FASB’s authoritative guidance governing
accounting for income taxes requires a valuation allowance to reduce the deferred tax assets reported if, based on
the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be
realized. The Company reviews deferred tax assets periodically for recoverability and makes estimates and
judgments regarding the expected geographic sources of taxable income and gains from investments, as well as
tax planning strategies in assessing the need for a valuation allowance.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Significant estimates made by management include
the provision for doubtful accounts receivable, the provision to reduce obsolete or excess inventory to market, the
provision for estimated returns, as well as sales allowances, the assumptions used in the valuation of stock-based
awards, the assumptions used in the discounted cash flows to mark certain of its investments to market, the
valuation of the Company’s goodwill, net realizable value of product related intangible assets, the provision for
vacant facility costs, the provision for income taxes and the amortization and depreciation periods for intangible
and long-lived assets. While the Company believes that such estimates are fair when considered in conjunction
with the consolidated financial position and results of operations taken as a whole, the actual amounts of such
items, when known, will vary from these estimates.
Accounting for Stock-Based Compensation
The Company has various stock-based compensation plans for its employees and outside directors and
accounts for stock-based compensation arrangements in accordance with the authoritative guidance, which
requires the Company to measure and record compensation expense in its consolidated financial statements using
a fair value method. See Note 7 for further information regarding the Company’s stock-based compensation
plans.
Earnings per Share
Basic earnings per share is calculated by dividing income available to stockholders by the weighted-average
number of common shares outstanding during each period. Diluted earnings per share is computed using the
weighted average number of common and dilutive common share equivalents outstanding during the period.
Dilutive common share equivalents consist of shares issuable upon the exercise of stock awards (calculated using
the treasury stock method) during the period they were outstanding. Certain shares under the Company’s stock-
based compensation programs were excluded from the computation of diluted earnings per share due to their
F-18
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
anti-dilutive effect for the respective periods in which they were outstanding. The reconciliation of the numerator
and denominator of the earnings per share calculation is presented in Note 15.
3. ACQUISITIONS
2008 Acquisition
In October 2008, the Company acquired all of the issued and outstanding securities of Vapps, Inc.
(“Vapps”), a privately held Delaware corporation headquartered in Hoboken, New Jersey. Vapps offers high
quality audio conferencing solutions to small and medium sized businesses and enterprise and service provider
markets that complement the Company’s online services products. The total consideration for this transaction
was approximately $27.8 million in cash, including $1.0 million in transaction costs. In addition, if certain
financial and operational milestones are achieved by the Vapps business, contingent consideration of up to
approximately $3.2 million may be earned. The sources of funds for this transaction consisted of available cash
and investments. In addition, the Company assumed approximately 0.1 million unvested stock options upon the
closing of the transaction. Revenues from Vapps are included in the Company’s Online Services revenue. In
connection with the Vapps Acquisition, the Company allocated $19.9 million to goodwill, $8.2 million to product
related technologies and $2.6 million to other intangible assets. The goodwill related to the Vapps acquisition
was allocated to the Company’s Online Services segment and is not deductible for tax purposes.
2007 Acquisitions
During 2007, the Company acquired all of the issued and outstanding capital stock of two privately held
companies, Ardence Delaware Inc., a leading provider of solutions that allow information technology
administrators to set up and configure PCs, servers, and Web servers in real time from a centrally managed
source, and XenSource, Inc., a privately held leader in enterprise-grade virtual infrastructure solutions (the “2007
Acquisitions”). The total consideration for the 2007 Acquisitions was approximately $379.4 million, comprised
of approximately 7.1 million shares of the Company’s common stock valued at $232.3 million, $142.8 million in
cash and approximately $4.3 million in direct transaction costs. In addition, in connection with the 2007
Acquisitions, the Company issued approximately 1.3 million unvested shares of its common stock and
0.1 million non-vested stock units and assumed approximately 3.4 million stock options each of which became
exercisable for the right to receive one share of the Company’s common stock upon vesting. Revenues from the
products acquired in the 2007 Acquisitions are primarily included in the Company’s Product License revenue.
The 2007 Acquisitions’ results of operations have been included in the Company’s consolidated results of
operations beginning after the date of the respective acquisitions. The source of funds for the cash consideration
paid in these transactions consisted of available cash and investments. In connection with the 2007 Acquisitions,
the Company allocated $246.2 million to goodwill, $112.3 million to product related intangible assets and $56.3
million to other intangible assets.
In-process Research and Development
The fair values used in determining the purchase price allocation for certain intangible assets for the
Company’s acquisitions were based on estimated discounted future cash flows, royalty rates and historical data,
among other information. Purchased in-process research and development (“IPR&D”) of $1.1 million and $9.8
million was expensed immediately upon the closing of the acquisition of Vapps and 2007 Acquisitions,
respectively, because it pertained to technology that was not currently technologically feasible, meaning it had
not reached the working model stage, did not contain all of the major functions planned for the product, was not
ready for initial customer testing and had no alternative future use. The fair value assigned to IPR&D was
determined using the income approach, which includes estimating the revenue and expenses associated with a
F-19
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
project’s sales cycle and by estimating the amount of after-tax cash flows attributable to the projects. The future
cash flows were discounted to present value utilizing an appropriate risk-adjusted rate of return, which ranged
from 20% to 36%. The rate of return included a factor that takes into account the uncertainty surrounding the
successful development of the IPR&D.
In 2009, the Company adopted new accounting rules for acquisitions and future IPR&D will be capitalized.
4. INVESTMENTS
Available-for-sale Investments
Investments in available-for-sale securities at fair value were as follows for the years ended December 31,
(in thousands):
Description of the Securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
2009
2008
Agency securities . . . . . . . . . $507,443 $1,412
1,255
Corporate securities . . . . . . .
25
Municipal securities . . . . . . .
146
Government securities . . . . .
—
Commercial paper . . . . . . . .
—
Other . . . . . . . . . . . . . . . . . .
—
Money market funds . . . . . .
315,239
31,177
30,269
26,314
—
—
$ (781) $508,074 $258,574 $2,291
295
(5,295) 311,199
132
31,194
263
30,345
9
26,313
—
—
164,255
39,646
28,450
4,274
2,594
1,976
(8)
(70)
(1)
—
—
—
—
$ (1,074) $259,791
(14,775) 149,775
39,761
28,661
4,283
2,594
1,976
(17)
(52)
—
—
—
Total . . . . . . . . . . . . . . . . . . . $910,442 $2,838
$(6,155) $907,125 $499,769 $2,990
$(15,918) $486,841
The change in net unrealized gains (losses) on available-for-sale securities recorded in other comprehensive
income includes unrealized gains (losses) that arose from changes in market value of specifically identified
securities that were held during the period and gains (losses) that were previously unrealized, but have been
recognized in current period net income due to sales or maturities of available-for-sale securities. This
reclassification has no effect on total comprehensive income or stockholders’ equity and was immaterial for all
periods presented.
The average remaining maturities of the Company’s short-term and long-term available-for-sale investments
at December 31, 2009 were approximately six months and 10 years, respectively.
Realized Losses on Available-for-sale Investments
For the years ended December 31, 2009 and 2008, the Company had realized gains on the sales of
available-for-sale investments of $0.6 million and $0.4 million, respectively. For the years ended December 31,
2009 and 2008, the Company had realized losses on the sales of available-for-sale investments of $0.1 million in
both periods. In 2008, the Company also recognized an other-than-temporary loss on available-for-sale
investments of approximately $1.1 million related to an investment in the Company’s portfolio due to the
bankruptcy of Lehman Brothers Holdings. All realized gains and losses related to the sales of available-for-sale
investments are included in other income (expense), net, in the accompanying consolidated statements of income.
The Company continues to monitor its overall investment portfolio and if the credit ratings of the issuers of
its investments deteriorate or if the issuers experience financial difficulty, including bankruptcy, the Company
F-20
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
may be required to make additional adjustments to the carrying value of the securities in its investment portfolio
and recognize additional impairment charges for declines in fair value that are determined to be other-than-
temporary.
Unrealized Losses on Available-for-sale Investments
The following table shows the gross unrealized losses and fair value of the Company’s available-for-sale
investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by
investment category and length of time that the individual securities have been in a continuous unrealized loss
position as of December 31, 2009 (in thousands):
Less than 12 Months
12 Months or Greater
Total
Description of the Securities
Fair Value
Corporate bonds . . . . . . . . . . . . . . .
Agency securities . . . . . . . . . . . . . .
$ 77,320
159,878
Total . . . . . . . . . . . . . . . . . . . . . . . .
$237,198
Unrealized
Losses
$160
614
$774
(In thousands)
Fair Value
$47,905
9,548
$57,453
Unrealized
Losses
$5,099
97
$5,196
Fair Value
$125,225
169,426
$294,651
Unrealized
Losses
$5,259
711
$5,970
The Company’s unrealized loss in corporate bonds is primarily comprised of an investment issued by AIG
Matched Funding Corporation (the “AIG Capped Floater”) with a face value of $50.0 million, which matures in
September 2011. American International Group, Inc. (“AIG”), as the issuer’s parent, provided a guarantee of the
security at the time of purchase in September 2006. As of December 31, 2009, the unrealized loss of $4.9
million, which is included in accumulated other comprehensive loss, was primarily caused by AIG experiencing
liquidity challenges which were reportedly precipitated by problems in the capital markets. AIG’s lack of
liquidity triggered a downgrade in the credit ratings for its long-term issues by two rating agencies in 2008. As a
result of AIG’s liquidity challenges, in November 2008, the Federal Reserve Bank of New York (“FRBNY”)
intervened with a five-year credit facility to help stabilize AIG and its effect on the overall market. In addition,
on March 2, 2009, AIG announced that further actions were taken in cooperation with the U.S. Department of
Treasury and the FRBNY to provide AIG with additional financial stability. As of the date of this report, AIG has
not been reported to have defaulted on capital repayments to holders of its recently matured debt and it continues
to pay interest on the Company’s AIG Capped Floater. Because the Company does not intend to sell the AIG
Capped Floater and it is more likely than not that it will not be required to sell the security before the recovery of
its amortized cost basis, which may not occur until maturity, it does not consider the security to be other-than-
temporarily impaired.
If AIG’s financial position deteriorates, the Company may be required to further adjust the carrying value of
the AIG Capped Floater and potentially recognize an impairment charge for an other-than-temporary decline in
the fair value of the investment. Based on the Company’s available cash and other investments, it does not
currently anticipate that the lack of liquidity caused by holding the AIG Capped Floater to recovery will have a
material adverse effect on its financial position.
Trading Investments
As of December 31, 2009, the Company held municipal auction rate securities, the majority of which are
triple-A rated, with an aggregate par value of approximately $44.8 million, whose underlying assets are generally
student loans that are substantially backed by the federal government under the Federal Family Education Loan
Program through investment accounts managed by UBS Financial Services, Inc. (“UBS”). The market for
municipal auction rate securities in the Company’s portfolio began experiencing auction failures in 2008 and
F-21
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
there have been no successful auctions for the securities held in its portfolio since the failures began. In
November 2008, the Company formally accepted the terms of a settlement (the “Settlement”) from UBS. Upon
accepting the terms of the Settlement, the Company received an enforceable, non-transferrable right (the “Put
Option”) that enables it to sell its auction rate securities back to UBS during the period between June 30, 2010
and July 2, 2012 at par value. Accordingly, the Company recorded the fair value of the Put Option in other assets
in the accompanying consolidated balance sheet and contemporaneously made the fair value election as
permitted by the authoritative guidance which states that companies may elect the fair value option for eligible
financial assets. Subsequently, the Company records changes in the fair value of the Put Option in earnings.
During the year ended December 31, 2009, the Company recorded a gain of $1.5 million related to its
investments in auction rate securities and a corresponding loss of $1.3 million related to the Put Option, both of
which are included in other income (expense), net, in the accompanying consolidated statements of income. See
Note 5 for additional information regarding the Put Option and auction rate securities.
5. FAIR VALUE MEASUREMENTS
On January 1, 2008, the Company adopted the authoritative guidance for fair value measurements for
financial assets and financial liabilities. The authoritative guidance, which, among other things, defines fair
value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset
and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as
the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a
liability in an orderly transaction between market participants. As such, fair value is a market-based measurement
that should be determined based on assumptions that market participants would use in pricing an asset or
liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy,
which prioritizes the inputs used in measuring fair value as follows:
•
•
•
Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or
indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting
entity to develop its own assumptions.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of December 31,
2009
Quoted
Prices In
Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
(In thousands)
Short-term investments—available-for-sale . . . .
Prepaid expenses and other current assets . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments—trading . . . . . . . . . . . . .
Long-term investments—available-for-sale . . . .
Accrued expenses and other current liabilities . .
$338,168
8,981
6,048
38,689
568,957
4,141
$338,168
—
—
—
523,861
—
$ —
8,981
—
—
—
4,141
$ —
—
6,048
38,689
45,096
—
The Company measures its cash flow hedges, which are classified as prepaid expenses and other current
assets and accrued expenses and other current liabilities, at fair value based on indicative prices in active markets
and generally measures its investments in available-for-sale securities at fair value based on quoted prices in
active markets for identical securities.
F-22
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Due to the illiquidity in the municipal auction rate securities market caused by failed auctions, the
Company’s valuation technique for certain of its municipal auction rate securities was to measure such securities
at fair value using a discounted cash flow model. In its discounted cash flow model, the Company used several
assumptions to derive a fair value for its investments in municipal auction rate securities, including a discount
rate based on the credit quality of the underlying investments and a factor to further discount the investments for
the illiquidity currently present in the market for these securities. Accordingly, these trading investments are
included in Level 3. Also included in Level 3 is the Put Option. In order to determine the fair value of the Put
Option, the Company measured the differential between the aggregate par value of its auction rate securities and
their fair value as of the reporting date and applied a discount rate that considers both the time period between the
reporting date and the first date the Company is able to exercise its right to put the auction rate securities to UBS
per the terms of the Settlement along with considerations of the credit worthiness of UBS.
During 2008, the Company measured its AIG Capped Floater using indicative pricing for another AIG
security with similar terms (the “Referenced Security”) which had regular trading activity, a Level 2 observation.
During 2009, trading activity in the Referenced Security significantly decreased and other floating rate AIG debt
securities with regular trading activity were too close to their maturities to be used to establish fair value for the
AIG Capped Floater. Therefore, in order to measure the AIG Capped Floater at fair value, the Company used a
discounted cash flow model. The Company then discounted those cash flows at a rate reflecting the market risk
inherent in holding an AIG security with a similar maturity as evidenced by pricing in the markets. Since
utilizing a discounted cash flow model required the Company to make assumptions that were not directly or
indirectly observable regarding the AIG Capped Floater’s fair value during 2009, it was transferred to Level 3
and is included in the table below as a transfer to Level 3.
Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers to Level 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds received on Level 3 securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total realized (losses) gains included in earnings . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,378
—
—
(1,330)
(In thousands)
$37,919
45,096
(700)
1,470
$45,297
45,096
(700)
140
Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,048
$83,785
$89,833
Put
Option
Long-term
Investments
Total
Realized (losses) gains included in earnings for the period are reported in other (expense) income, net.
Additional Disclosures Regarding Fair Value Measurements
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses approximate their fair value due to the short maturity of these items. The Company’s investments
classified as available-for-sale securities are carried at fair value on the accompanying consolidated balance
sheets based primarily on quoted market prices for such financial instruments. See Note 4 for more information
regarding the Company’s available-for-sale investments.
F-23
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses consist of the following:
December 31,
2009
2008
(In thousands)
Accrued compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 80,090
70,047
71,361
$ 58,081
51,624
85,845
$221,498
$195,550
7. EMPLOYEE STOCK-BASED COMPENSATION AND BENEFIT PLANS
Plans
The Company’s stock-based compensation program is a broad based, long-term retention program that is
intended to attract and reward talented employees and align stockholder and employee interests. As of
December 31, 2009, the Company had two stock-based compensation plans under which it was granting stock
options and non-vested stock units. The Company is currently granting stock-based awards from its 2005 Equity
Incentive Plan (as amended, the “2005 Plan”) and its 2005 Employee Stock Purchase Plan (the “2005 ESPP”). In
connection with certain of the Company’s acquisitions, the Company has assumed several plans from the
acquired companies. The Company’s Board of Directors has provided that no new awards will be granted under
the Company’s acquired stock plans. The Company’s superseded and expired stock plans include the Amended
and Restated 1995 Stock Plan, Second Amended and Restated 2000 Director and Officer Stock Option and
Incentive Plan, Second Amended and Restated 1995 Non-Employee Director Stock Option Plan and Third
Amended and Restated 1995 Employee Stock Purchase Plan. Awards previously granted under these plans and
still outstanding typically expire ten years from the date of grant and will continue to be subject to all the terms
and conditions of such plans, as applicable.
Under the terms of the 2005 Plan, the Company is authorized to grant incentive stock options (“ISOs”),
non-qualified stock options (“NSOs”), non-vested stock, non-vested stock units, stock appreciation rights
(“SARs”), and performance units and to make stock-based awards to full and part-time employees of the
Company and its subsidiaries or affiliates, where legally eligible to participate, as well as consultants and
non-employee directors of the Company. Currently, the 2005 Plan provides for the issuance of a maximum of
32,100,000 shares of common stock. Under the 2005 Plan, ISOs must be granted at exercise prices no less than
fair market value on the date of grant, except for ISOs granted to employees who own more than 10% of the
Company’s combined voting power, for which the exercise prices must be no less than 110% of the fair market
value at the date of grant. NSOs and SARs must be granted at no less than fair market value on the date of grant,
or in the case of SARs in tandem with options, at the exercise price of the related option. Non-vested stock
awards may be granted for such consideration in cash, other property or services, or a combination thereof, as
determined by the Company’s Compensation Committee of its Board of Directors. All stock-based awards, other
than the long-term incentive awards discussed below, are exercisable or issuable upon vesting. The Company’s
policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule
on a straight-line basis over the requisite service period for the entire award. As of December 31, 2009, there
were 35,537,423 shares of common stock reserved for issuance pursuant to the Company’s stock-based
compensation plans and the Company had authorization under its 2005 Plan to grant 12,614,567 additional stock-
based awards.
F-24
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the 2005 ESPP, all full-time and certain part-time employees of the Company are eligible to purchase
common stock of the Company twice per year at the end of a six-month payment period (a “Payment Period”).
During each Payment Period, eligible employees who so elect may authorize payroll deductions in an amount no
less than 1% nor greater than 10% of his or her base pay for each payroll period in the Payment Period. At the
end of each Payment Period, the accumulated deductions are used to purchase shares of common stock from the
Company up to a maximum of 12,000 shares for any one employee during a Payment Period. Shares are
purchased at a price equal to 85% of the fair market value of the Company’s common stock on the last business
day of a Payment Period. Employees who, after exercising their rights to purchase shares of common stock in the
2005 ESPP, would own shares representing 5% or more of the voting power of the Company’s common stock,
are ineligible to participate under the 2005 ESPP. The 2005 ESPP provides for the issuance of a maximum of
10,000,000 shares of common stock. As of December 31, 2009, 1,544,040 shares had been issued under the 2005
ESPP. The Company recorded stock-based compensation costs related to the 2005 ESPP of $2.2 million, $2.3
million and $0.8 million for the years ended December 31, 2009, 2008 and 2007, respectively.
Expense Information under FASB’s Authoritative Guidance
As required by the authoritative guidance, the Company estimates forfeitures of employee stock options and
recognizes compensation costs only for those awards expected to vest. Forfeiture rates are determined based on
historical experience. The Company also considers whether there have been any significant changes in facts and
circumstances that would affect its forfeiture rate quarterly. Estimated forfeitures are adjusted to actual forfeiture
experience as needed. The Company recorded stock-based compensation costs, related deferred tax assets and tax
benefits of $111.4 million, $32.8 million and $36.2 million, respectively, in 2009, $124.6 million, $34.9 million
and $16.5 million, respectively, in 2008 and $65.5 million, $15.6 million and $26.6 million, respectively, in
2007.
The detail of the total stock-based compensation recognized by income statement classification is as follows
(in thousands):
Income Statement Classifications
2009
2008
2007
Cost of services revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales, marketing and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,868
55,012
32,244
22,295
$
1,852
63,737
32,787
26,239
$ 1,479
21,719
24,365
17,928
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$111,419
$124,615
$65,491
F-25
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
Options granted during the year were granted pursuant to the Company’s 2005 Plan. Options granted
pursuant to the 2005 Plan typically have a five year life and vest over three years at a rate of 33.3% of the shares
underlying the option one year from date of grant and at a rate of 2.78% monthly thereafter. A summary of the
status and activity of the Company’s fixed option awards is as follows:
Options
Number of
Options
Outstanding at December 31, 2008 . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,463,553
3,637,422
(8,151,141)
(3,319,430)
Outstanding at December 31, 2009 . . . . . . . . . . . . . . . . . .
21,630,404
Vested or expected to vest at December 31, 2009 . . . . . . .
21,039,111
Exercisable at December 31, 2009 . . . . . . . . . . . . . . . . . . .
14,139,723
Weighted-
Average
Remaining
Contractual
Life
(in years)
2.79
Aggregate
Intrinsic Value
(in thousands)
2.62
2.58
2.03
$269,767
$260,383
$146,790
Weighted-
Average
Exercise
Price
$30.20
23.80
20.36
38.16
31.61
31.77
35.01
The Company recognized stock-based compensation expense of $78.6 million, $93.8 million and $54.6
million related to options for the years ended December 31, 2009, 2008 and 2007, respectively. As of
December 31, 2009, there was $78.1 million of total unrecognized compensation cost related to stock options.
That cost is expected to be recognized over a weighted-average period of 1.43 years. The total intrinsic value of
stock options exercised during 2009, 2008 and 2007 was $97.7 million, $44.8 million and $92.8 million,
respectively.
Stock Option Valuation Information under FASB’s Authoritative Guidance
The Company currently uses the Black-Scholes option pricing model to determine the fair value of its stock
options. The determination of the fair value of stock-based payment awards on the date of grant using an option-
pricing model is affected by the Company’s stock price, as well as assumptions regarding a number of complex
and subjective variables. These variables include the Company’s expected stock price, volatility over the term of
the awards, actual employee exercise behaviors, risk-free interest rate and expected dividends. For purposes of
valuing stock options, the Company determined the expected volatility factor by considering the implied
volatility in two-year market-traded options of the Company’s common stock based on third party volatility
quotes in accordance with the provisions of Staff Accounting Bulletin (“SAB”) No. 107, Share Based Payment.
The Company’s decision to use implied volatility was based upon the availability of actively traded options on
the Company’s common stock and its assessment that implied volatility is more representative of future stock
price trends than historical volatility. The approximate risk free interest rate was based on the implied yield
available on U.S. Treasury zero-coupon issues with remaining terms equivalent to the Company’s expected term
on its options. The expected term of the Company’s stock options was based on the historical employee exercise
patterns. The Company also periodically analyzes its historical pattern of option exercises based on certain
demographic characteristics and determined that there were no meaningful differences in option exercise activity
based on the demographic characteristics. The Company does not intend to pay dividends on its common stock in
the foreseeable future. Accordingly, the Company used a dividend yield of zero in its option pricing model. The
weighted average fair value of stock options granted during 2009, 2008 and 2007 was $7.22, $10.47 and $11.71,
respectively.
F-26
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The assumptions used to value option grants are as follows:
Stock options granted during
2009
2008
2007
Expected volatility factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Approximate risk free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.33 - 0.37
0.39 - 0.48
0.34 - 0.44
1.2% - 1.6% 1.7% - 2.8% 3.6% - 4.7%
3.37 - 3.38
3.35 - 3.56
3.17 - 3.37
0%
0%
0%
Non-vested Stock
Shares of non-vested stock were assumed in conjunction with the Company’s acquisition of XenSource,
Inc., which upon assumption were reset to vest over three years at a rate of 33.3% of the shares one year from
date of grant and at a rate of 2.78% monthly thereafter based on service. The following table summarizes the
Company’s non-vested stock activity for the year ended December 31, 2009:
Non-vested stock at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
784,780
(418,130)
(18,959)
Non-vested stock at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
347,691
Weighted-
Average
Fair Value
at Grant Date
$39.65
39.65
39.65
39.65
For the years ended December 31, 2009, 2008 and 2007, the Company recognized stock-based
compensation expense of $16.6 million, $17.2 million and $3.9 million, respectively, related to non-vested stock.
The fair value of non-vested stock released in 2009, 2008 and 2007 was $16.6 million, $11.0 million and $1.3
million, respectively. As of December 31, 2009, there was $13.2 million of total unrecognized compensation cost
related to non-vested stock. That cost is expected to be recognized over a weighted-average period of 0.83 years.
Non-vested Stock Units
Annually, the Company awards vice presidents and senior executives non-vested performance stock units
from the 2005 Plan. The number of non-vested stock units underlying each award is determined one year after
the date of the award and is based on achievement of a specific corporate financial performance goal. If the
performance goal is less than 90% attained, then no non-vested stock units will be issued pursuant to the
authorized award. For performance at and above 90%, the number of non-vested stock units issued is based on a
graduated slope, with the maximum number of non-vested stock units issuable pursuant to the award capped at
125% of the base number of non-vested stock units set forth in the executive’s award agreement. The Company
is required to estimate the attainment that will be achieved related to the defined performance goals and the
number of non-vested stock units that will ultimately be awarded in order to recognize compensation expense
over the vesting period. If the performance goal is met, the non-vested stock units vest 33.33% on each
anniversary subsequent to the date of the award. Each non-vested stock unit, upon vesting, represents the right to
receive one share of the Company’s common stock. If the performance goals are not met, no compensation cost
will ultimately be recognized in that period and any previously recognized compensation cost will be reversed.
During 2009 and 2008, the goal was achieved within the range of the graduated slope, and there was no material
adjustment to compensation costs related to non-vested stock units granted to executives. In addition, the
Company also awards non-vested stock units to certain senior members of management that vest based on
F-27
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
service. These units vest annually over a three year vest period in equal installments and, upon vesting, each
stock unit will represent the right to receive one share of the Company’s common stock.
In addition, during 2007, the Company awarded 25,000 non-vested stock units to a certain senior member of
management with performance goals related to building the executive management team. The performance goals
were met during 2007 and the award vests based on service at a rate of 33.33% on each anniversary date. The
Company also awards non-vested stock units to its non-employee directors annually. These units vest monthly in
equal installments based on service and, upon vesting, each stock unit represents the right to receive one share of
the Company’s common stock.
The Company assumed 159,342 non-vested stock units in conjunction with its 2007 Acquisitions, the
majority of which upon assumption were reset to vest over three years based on service at a rate of 33.3% on
each anniversary date. In addition, as part of its 2007 Acquisitions, the Company also granted 26,183 non-vested
stock units from its 2005 Plan, of which the majority vest based on service at a rate of 50% on the first
anniversary of the grant date and 50% on the second anniversary of the grant date.
The following table summarizes the Company’s non-vested stock unit activity for the year ended
December 31, 2009:
Non-vested stock units at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
785,481
423,152
(338,747)
(100,792)
Non-vested stock units at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
769,094
Weighted-
Average
Fair Value
at Grant Date
$34.67
20.72
35.67
32.11
26.84
For the years ended December 31, 2009, 2008 and 2007, the Company recognized stock-based
compensation expense of $13.1 million, $13.6 million and $7.0 million, respectively, related to non-vested stock
units. The fair value of the non-vested stock units released in 2009, 2008, 2007 was $12.1 million, $7.5 million
and $5.3 million, respectively. As of December 31, 2009, there was $11.2 million of total unrecognized
compensation cost related to non-vested stock units. That cost is expected to be recognized over a weighted-
average period of 1.61 years.
Long-term Incentive Awards
In May 2009, the Company granted certain senior level executives restricted stock units that vest based on
market and service conditions as part of a long-term incentive plan. The number of restricted stock units
underlying each award is determined at the end of a three-year performance period. In order to vest, the
Company’s stock price must appreciate by at least ten percent by the end of the performance period. If the
Company’s stock appreciation is at least ten percent, then the percentage of the restricted stock units that will
vest will be determined by comparing the Company’s stock price appreciation to the appreciation of the weighted
average of two stock market indices comprised of the Standard & Poor’s 500 Index (the “S&P 500”), which has
been assigned a two-thirds weighting, and the iShares Standard & Poor’s North America Technology Index (the
“IGM”), which has been assigned a one-third weighting. Based on the level of performance, up to 200% of the
award may vest. After vesting, the shares underlying the award will be issued at the earlier of six months and one
day after the participant’s separation from the Company or the participant’s death. In the event of a change in
F-28
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
control of the Company, the payout of any award is limited to a prorated portion of such award based upon a
performance assessment prior to the change in control date.
The market condition requirements are reflected in the grant date fair value of the award, and the
compensation expense for the award will be recognized assuming that the requisite service is rendered regardless
of whether the market conditions are achieved. The grant date fair value of the restricted stock unit awards was
determined through the use of a Monte Carlo simulation model, which utilizes multiple input variables that
determine the probability of satisfying the market condition requirements applicable to each award as follows:
Expected volatility factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.30 - 0.46
1.23%
2.67
0%
The range of expected volatilities utilized was based on the historical volatilities of the Company’s Stock,
the S&P 500 and the IGM. The Company chose to use historical volatility to value these awards because
historical stock prices were used to develop the correlation coefficients between the Company and each of the
S&P 500 and the IGM in order to model stock price movements. The volatilities used were calculated over the
most recent 2.67 year period, which was the remaining term of the performance period at the date of grant. The
risk free interest rate was based on the implied yield available on U.S. Treasury zero-coupon issues with
remaining terms equivalent to the remaining performance period. The Company does not intend to pay dividends
on its common stock in the foreseeable future. Accordingly, the Company used a dividend yield of zero in its
model.
The following table summarizes the Company’s restricted stock unit awards for the year ended
December 31, 2009:
Weighted-
Average
Fair Value
at Grant Date
Number of
Shares
Restricted stock unit awards at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
175,667
Restricted stock unit awards at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
175,667
$ —
24.16
24.16
As of December 31, 2009, there was $3.4 million of total unrecognized compensation cost related to
restricted stock units. The unrecognized cost is expected to be recognized over 2.08 years.
Benefit Plan
The Company maintains a 401(k) benefit plan allowing eligible U.S.-based employees to contribute up to
60% of their annual compensation, limited to an annual maximum amount as set periodically by the Internal
Revenue Service. The Company, at its discretion, may contribute up to $0.50 for each dollar of employee
contribution. The Company’s total matching contribution to an employee is typically made at 3% of the
employee’s annual compensation. The Company’s matching contributions were $7.2 million, $7.3 million and
$5.9 million in 2009, 2008 and 2007, respectively. The Company’s contributions vest over a four-year period at
25% per year.
F-29
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. CAPITAL STOCK
Stock Repurchase Programs
The Company’s Board of Directors authorized an ongoing stock repurchase program with a total repurchase
authority granted to the Company of $2.1 billion. The Company may use the approved dollar authority to
repurchase stock at any time until the approved amount is exhausted. The objective of the Company’s stock
repurchase program is to improve stockholders’ returns. At December 31, 2009, approximately $160.3 million
was available to repurchase common stock pursuant to the stock repurchase program. All shares repurchased are
recorded as treasury stock. A portion of the funds used to repurchase stock over the course of the program was
provided by proceeds from employee stock option exercises and the related tax benefit.
The Company is authorized to make open market purchases of its common stock using general corporate
funds. Additionally, from time to time, the Company has entered into structured stock repurchase arrangements
with large financial institutions using general corporate funds in order to lower the average cost to acquire shares.
These programs include terms that require the Company to make up-front payments to the counterparty financial
institution and result in the receipt of stock during or at the end of the term of the agreement or the receipt of
either stock or cash at the maturity of the agreement, depending on market conditions.
During the year ended December 31, 2009, the Company expended approximately $214.9 million on open
market purchases, repurchasing 6,475,830 shares of outstanding common stock at an average price of $33.19. In
addition, as of December 31, 2009, the Company did not have any prepaid notional amounts remaining under its
structured stock repurchase programs and during the year it did not make any up-front payments to financial
institutions related to structured stock repurchase agreements.
During the year ended December 31, 2008, the Company took delivery of 4,406,757 shares at an average
price of $33.30 per share from its structured repurchase agreements and it expended approximately $197.6
million on open market purchases, repurchasing 6,451,591 shares of outstanding common stock at an average
price of $30.63. In addition, during the year the Company made up-front payments of $58.9 million to certain
financial institutions related to structured stock repurchase agreements.
During the year ended December 31, 2007, the Company took delivery of 1,655,089 shares at an average
price of $35.34 per share from its structured repurchase agreements and it expended approximately $150.0
million on open market purchases repurchasing 3,720,800 shares of outstanding common stock at an average
price of $40.31. In addition, during the year the Company made up-front payments of $110.0 million to certain
financial institutions related to structured stock repurchase agreements.
Restricted Shares for Tax Withholding
During the year ended December 31, 2009, the Company repurchased 46,732 shares totaling $1.8 million to
satisfy tax withholding obligations that arose on the vesting of shares of unvested stock units. These shares are
reflected as treasury stock in the Company’s consolidated balance sheet.
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock, $0.01 par value per share. No
shares of such preferred stock were issued and outstanding at December 31, 2009 or 2008.
F-30
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. LONG-TERM DEBT
Credit Facility
Effective on August 9, 2005, the Company entered into a revolving credit facility (the “Credit Facility”)
with a group of financial institutions (the “Lenders”). Effective September 27, 2006, the Company entered into
an amendment and restatement of its Credit Facility (the “Amendment”). The Amendment decreased the overall
range of interest rates the Company must pay on amounts outstanding on the Credit Facility and lowered the
facility fee. In addition, the Amendment extended the term of the Credit Facility. The Credit Facility, as
amended, allows the Company to increase the revolving credit commitment up to a maximum aggregate
revolving credit commitment of $175.0 million. The Credit Facility, as amended, currently provides for a
revolving line of credit that will expire on September 27, 2011 in the aggregate amount of $100.0 million, subject
to continued covenant compliance. A portion of the revolving line of credit (i) in the aggregate amount of $25.0
million may be available for issuances of letters of credit and (ii) in the aggregate amount of $15.0 million may
be available for swing line loans. The Credit Facility, as amended, currently bears interest at LIBOR plus 0.32%
and adjusts in the range of 0.32% to 0.80% above LIBOR based on the level of the Company’s total debt and its
adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) as defined in the agreement.
In addition, the Company is required to pay a quarterly facility fee ranging from 0.08% to 0.20% based on the
aggregate amount available under the Credit Facility, as amended, and the level of the Company’s total debt and
its adjusted EBITDA. Borrowings under the Credit Facility, as amended, are guaranteed by the Company and
certain of the Company’s U.S. and foreign subsidiaries, which guarantees are secured by a pledge of shares of
certain foreign subsidiaries. As of December 31, 2009, there were no amounts outstanding under the Credit
Facility, as amended.
The Credit Facility, as amended, contains customary default provisions, and the Company must comply with
various financial and non-financial covenants. The financial covenants consist of a minimum interest coverage
ratio and a maximum consolidated leverage ratio. The primary non-financial covenants contain certain limits on
the Company’s ability to pay dividends, conduct certain mergers or acquisitions, make certain investments and
loans, incur future indebtedness or liens, alter the Company’s capital structure or sell stock or assets. As of
December 31, 2009, the Company was in compliance with all covenants of the Credit Facility.
10. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain office space and equipment under various operating leases. In addition to rent,
the leases require the Company to pay for taxes, insurance, maintenance and other operating expenses. Certain of
these leases contain stated escalation clauses while others contain renewal options. The Company recognizes rent
expense on a straight-line basis over the term of the lease, excluding renewal periods, unless renewal of the lease
is reasonably assured.
F-31
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rental expense for the years ended December 31, 2009, 2008 and 2007 totaled approximately $48.7 million,
$43.5 million and $33.5 million, respectively. Sublease income for the years ended December 31, 2009, 2008 and
2007 was approximately $0.1 million, $0.8 million and $0.8 million, respectively. Lease commitments under
non-cancelable operating leases with initial or remaining terms in excess of one year and sublease income
associated with non-cancelable subleases, are as follows:
Operating
Leases
Sublease
Income
(In thousands)
Years ending December 31,
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 48,123
46,578
40,318
31,874
29,553
54,846
$ 369
336
241
198
—
—
$251,292
$1,144
In 2008, the Company entered into a lease to acquire additional office space in Santa Clara, CA. The rental
commencement date will not begin until 2011 and the pricing for the lease will not be finalized until a future
date. Accordingly, the future payment obligations related to this lease are not included in the table above.
Office Leases
The Company has an operating lease obligation related to a property that is not fully utilized that continues
to 2018 with a total remaining obligation at December 31, 2009 of approximately $4.9 million, of which $1.0
million was accrued as of December 31, 2009, and is reflected in accrued expenses and other liabilities in the
accompanying consolidated balance sheets. In calculating this accrual, the Company made estimates, based on
market information, including the estimated vacancy periods and sublease rates and opportunities. The Company
periodically re-evaluates its estimates related to this vacant facility.
Legal Matters
Due to the nature of the Company’s business, it is subject to patent infringement claims, including current
suits against it or one or more of its wholly-owned subsidiaries alleging infringement by various Citrix products
and services. The Company believes that it has meritorious defenses to the allegations made in its pending cases
and intends to vigorously defend these lawsuits; however, it is unable currently to determine the ultimate
outcome of these or similar matters or the potential exposure to loss, if any.
In addition, the Company is a defendant in various litigation matters generally arising out of the normal
course of business. Although it is difficult to predict the ultimate outcomes of these cases, the Company believes
that the ultimate outcomes will not materially affect its business, financial position, results of operations or cash
flows.
Guarantees
The authoritative guidance requires certain guarantees to be recorded at fair value and requires a guarantor
to make disclosures, even when the likelihood of making any payments under the guarantee is remote. For those
guarantees and indemnifications that do not fall within the initial recognition and measurement requirements of
F-32
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the authoritative guidance, the Company must continue to monitor the conditions that are subject to the
guarantees and indemnifications, as required under existing generally accepted accounting principles, to identify
if a loss has been incurred. If the Company determines that it is probable that a loss has been incurred, any such
estimable loss would be recognized. The initial recognition and measurement requirements do not apply to the
provisions contained in the majority of the Company’s software license agreements that indemnify licensees of
the Company’s software from damages and costs resulting from claims alleging that the Company’s software
infringes the intellectual property rights of a third party. The Company has not made payments pursuant to these
provisions. The Company has not identified any losses that are probable under these provisions and, accordingly,
the Company has not recorded a liability related to these indemnification provisions.
Purchase Obligations
The Company has agreements with suppliers to purchase inventory and estimates its non-cancelable
obligations under these agreements for the fiscal year ended December 31, 2010 to be approximately $5.8
million.
Liabilities Related to Payroll Taxes
In 2008, the Company recorded a reduction to operating expenses of approximately $6.4 million related to
an adjustment of payroll taxes initially recorded in conjunction with the Audit Committee’s voluntary,
independent investigation of the Company’s historical stock option granting practices which was concluded in
2007. These payroll tax liabilities were reduced upon agreement with the Internal Revenue Service.
11. INCOME TAXES
The United States and foreign components of income before income taxes are as follows:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 16,434
177,458
(In thousands)
$ (13,997)
210,920
$ 46,475
204,433
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$193,892
$196,923
$250,908
2009
2008
2007
The components of the provision for income taxes are as follows:
2009
2008
2007
(In thousands)
Current:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 25,065
21,747
6,913
$
6,315
19,175
—
$
7,692
28,512
855
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,725
(50,850)
25,490
(6,843)
37,059
(634)
Total provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,875
$ 18,647
$ 36,425
F-33
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The significant components of the Company’s deferred tax assets and liabilities consisted of the following:
December 31,
2009
2008
(In thousands)
Deferred tax assets:
Accruals and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock option compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 23,687
(3,316)
15,694
29,723
42,871
3,794
44,517
(8,680)
$ 15,847
696
8,511
5,272
54,381
14,819
43,246
(14,217)
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
148,290
128,555
Deferred tax liabilities:
Acquired technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(42,579)
(13,178)
(67,332)
(10,495)
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(55,757)
(77,827)
Total net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 92,533
$ 50,728
The authoritative guidance requires a valuation allowance to reduce the deferred tax assets reported if it is
not more likely than not that some portion or all of the deferred tax assets will be realized. At December 31,
2009, the Company determined that a $8.7 million valuation allowance relating to deferred tax assets for net
operating losses from acquired companies and unrealized losses from temporary impairments on
available-for-sale investments was necessary.
The Company does not expect to remit earnings from its foreign subsidiaries. Undistributed earnings of the
Company’s foreign subsidiaries amounted to approximately $866.6 million at December 31, 2009. Those
earnings are considered to be permanently reinvested and, accordingly, no U.S. federal and state income taxes
have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the
Company could be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to various foreign countries.
At December 31, 2009, the Company had $111.0 million of remaining net operating loss carry forwards
from acquisitions. The utilization of these net operating loss carry forwards are limited in any one year pursuant
to Internal Revenue Code Section 382 and begin to expire in 2018.
At December 31, 2009, the Company had research and development tax credit carry forwards of
approximately $29.7 million that begin to expire in 2018.
F-34
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows:
Year Ended
December 31,
2009
2008
2007
Federal statutory taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal tax benefit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permanent differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock option compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in accruals for uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
35.0% 35.0% 35.0%
4.3
3.6
(30.1)
(24.1)
(0.2)
2.8
(5.3)
(23.9)
4.9
1.2
1.0
8.8
(0.1)
(1.9)
—
4.1
(21.4)
3.0
(3.2)
1.4
(3.8)
(0.1)
(0.5)
1.5% 9.5% 14.5%
The Company and one or more of its subsidiaries is subject to U.S. federal income taxes, as well as income
taxes of multiple state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S.
federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2004.
During the third quarter of 2009, the IRS concluded its examination of the Company’s income tax returns
for 2004 and 2005 and issued the RAR. The Company agreed with all of the adjustments contained in the RAR,
with the exception of the transfer pricing and consequential adjustments relating to the intercompany transfer of
certain intellectual property in earlier tax years. The RAR asserts income tax deficiencies related to the transfer
pricing and consequential adjustments of approximately $81.3 million for tax years 2004 and 2005, excluding
interest. In addition, the transfer pricing and consequential adjustments to the Company’s 2004 and 2005 tax
years would impact its income tax liabilities in tax years subsequent to 2005. The Company disagrees with the
adjustments and has filed a protest, which caused the matter to be referred to the Appeals Division of the IRS.
The Company is contesting the adjustments through the IRS appeals process and the courts, if necessary. There
can be no assurance, however, that this matter, or any future tax examinations involving similar assertions, will
be resolved in the Company’s favor, and an adverse outcome of this matter could have a material adverse effect
on the Company’s results of operations and financial condition. Regardless of whether this matter is resolved in
the Company’s favor, this matter could be expensive and time-consuming to defend.
During the fourth quarter of 2009, the IRS commenced its examination of the Company’s U.S. federal
income tax returns for the 2006 through 2008 tax years.
F-35
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended
December 31, 2009 and 2008 is as follows (in thousands):
Balance at January 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to the current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions related to the expiration of statutes of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 27,283
2,069
826
(1,849)
—
Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to the current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions related to the expiration of statutes of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,329
4,156
14,731
(994)
—
Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 46,222
The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.
At December 31, 2009, there was $0.8 million related to tax positions for which the ultimate deductibility is
highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of
deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period
would not affect the annual effective tax rate but would accelerate the payment or receipt of cash to an earlier
period.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax
expense. During the year ended December 31, 2009, the Company recognized $0.1 million of expense related to
interest and penalties. The Company has approximately $0.3 million for the payment of interest and penalties
accrued at December 31, 2009.
12. SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS
The Company operates in a single industry segment consisting of the design, development marketing, sales
and support of access virtualization, networking and software-as-a-service solutions. The Company’s revenues
are derived from sales of its Desktop Solutions and Datacenter and Cloud Solutions and related technical services
in the Americas, EMEA and Asia-Pacific regions and from its online services sold by its Online Services
division. These three geographic regions and the Online Services division constitute the Company’s four
reportable segments. In 2010, the Company will realign the way it evaluates its performance and, as a result, it
will change its segment reporting to be consistent with the way it will be internally managing the business.
The Company does not engage in intercompany revenue transfers between segments. The Company’s chief
operating decision maker (“CODM”) evaluates the Company’s performance based primarily on profitability in
the geographic locations in which the Company operates and separately evaluates the performance of its Online
Services division. Segment profit for each segment includes certain sales, marketing, general and administrative
expenses directly attributable to the segment, including research and development costs in the Online Services
division and excludes certain expenses that are managed outside the reportable segments. Costs excluded from
segment profit primarily consist of certain research and development costs associated with the Company’s
Desktop Solutions and Datacenter and Cloud Solutions, restructuring charges, stock-based compensation costs,
amortization of product related technology, amortization of other intangible assets, interest, corporate expenses
and income taxes, as well as charges for in-process research and development. Corporate expenses are comprised
F-36
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
primarily of corporate marketing costs, stock-based compensation costs, operations and certain general and
administrative expenses, which are separately managed. Accounting policies of the Company’s segments are the
same as its consolidated accounting policies.
International revenues (sales outside of the United States) accounted for approximately 43.6%, 45.8% and
44.5% of the Company’s net revenues for the year ended December 31, 2009, 2008, and 2007, respectively. Net
revenues and segment profit for 2009, 2008 and 2007 classified by the Company’s reportable segments, are
presented below.
2009
2008
2007
(In thousands)
Net revenues:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Online Services division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 696,205
480,720
128,986
308,177
$ 670,523
524,465
128,301
260,065
$ 614,181
447,201
116,816
213,744
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,614,088
$1,583,354
$1,391,942
Segment profit (loss):
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Online Services division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 382,330
315,859
22,526
93,748
$ 340,582
337,709
23,366
76,628
$ 295,213
289,590
30,543
65,032
Unallocated expenses(1):
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In-process research and development . . . . . . . . . . . . . . . . . . . .
Research and development
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . .
Other corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(68,889)
(26,473)
—
(255,275)
15,215
(285,149)
(70,752)
—
(1,140)
(262,655)
26,922
(273,737)
(46,983)
—
(9,800)
(183,816)
48,501
(237,372)
Consolidated income before income taxes . . . . . . . . . . . .
$ 193,892
$ 196,923
$ 250,908
(1) Represents expenses presented to management only on a consolidated basis and not allocated to the
geographic operating segments.
F-37
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Identifiable assets classified by the Company’s reportable segments are shown below. Long-lived assets
consist of property and equipment, net, and are shown below.
December 31,
2009
2008
(In thousands)
Identifiable assets:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Online Services division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,858,580
826,275
119,042
287,250
$1,669,469
654,829
87,026
282,982
Total identifiable assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,091,147
$2,694,306
Long-lived assets, net:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 199,617
30,841
17,245
$ 201,713
31,473
21,148
Total long-lived assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 247,703
$ 254,334
Export revenue represents shipments of finished goods and services from the United States to international
customers, primarily in Latin America and Canada. Shipments from the United States to international customers
for 2009, 2008 and 2007 were $74.5 million, $69.5 million and $55.9 million, respectively.
In fiscal years 2009, 2008 and 2007, one distributor, Ingram Micro, accounted for 14%, 12% and 10%,
respectively, of the Company’s total net revenues. The Company’s distributor arrangements with Ingram Micro
consist of several non-exclusive, independently negotiated agreements with its subsidiaries, each of which cover
different countries or regions. Each of these agreements is separately negotiated and is independent of any other
contract (such as a master distribution agreement). None of these contracts were individually responsible for over
10% of the Company’s total net revenues in each of the last three fiscal years. In fiscal years 2009, 2008 and
2007, there were no resellers that accounted for over 10% of the Company’s total net revenues.
In addition to evaluating the Company’s profitability by geography, including the Company’s Online
Services division, its CODM also evaluates revenues by product groupings. Accordingly, the following table
presents revenues for Product Licenses, License Updates and product related Technical Services by product
grouping for the Company’s application virtualization products, application networking products and other
products and Online services revenues for the Online Services division’s products, for the years ended:
December 31,
2009
2008
2007
(In thousands)
Net revenues:
Desktop Solutions revenues(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Online Services division revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Datacenter and Cloud Solutions revenues(2)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,045,969
308,177
241,218
18,724
$1,087,271
260,065
208,357
27,661
$ 998,188
213,744
157,159
22,851
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,614,088
$1,583,354
$1,391,942
(1) Desktop Solutions revenues are primarily comprised of sales from the Company’s application virtualization
product, XenApp and the Company’s desktop virtualization product, XenDesktop.
F-38
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Datacenter and Cloud Solutions revenues are primarily comprised of sales from the Company’s application
networking products, NetScaler, Access Gateway and Branch Repeater and the Company’s server
virtualization products, essentials for XenServer and Hyper-V.
13. RESTRUCTURING
During the first quarter of 2009, the Company announced a restructuring program and reduced its headcount
by approximately 450 full-time positions. The restructuring program was completed in 2009.
Restructuring charges related to the reduction of the Company’s headcount and non-cancelable lease costs
related to the consolidation and exiting of excess facilities by segment consists of the following for the year
ended (in thousands):
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Online Services division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
$16,385
7,458
1,617
1,013
Total restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26,473
Restructuring accruals
As of December 31, 2009, the $3.5 million in outstanding restructuring liability primarily relates to
non-cancelable lease costs related to the consolidation of excess facilities that the Company expects to pay over
the lives of the related obligations through fiscal 2012.
The activity in the Company’s restructuring accruals for the year ended December 31, 2009 is summarized
as follows (in thousands):
Balance at January 1, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee severance and related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cancelable lease costs and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of tenant improvement, furniture, and fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reversal of previous charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$ —
21,634
3,977
862
(22,981)
—
Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,492
As of December 31, 2009, restructuring accruals by segment consisted of the following (in thousands):
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Online services division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$3,153
135
—
204
Total restructuring accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,492
F-39
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. DERIVATIVE FINANCIAL INSTRUMENTS
Cash Flow Hedges
As of December 31, 2009, the Company’s derivative assets and liabilities resulted from cash flow hedges
related to its forecasted operating expenses transacted in local currencies. A substantial portion of the Company’s
overseas expenses are and will continue to be transacted in local currencies. To protect against fluctuations in
operating expenses and the volatility of future cash flows caused by changes in currency exchange rates, the
Company has established a program that uses foreign exchange forward contracts to hedge its exposure to these
potential changes. The terms of these instruments, and the hedged transactions to which they relate, generally do
not exceed 12 months and the maximum term is 18 months.
Generally, when the dollar is weak, foreign currency denominated expenses will be higher, and these higher
expenses will be partially offset by the gains realized from the Company’s hedging contracts. Conversely, if the
dollar is strong, foreign currency denominated expenses will be lower. These lower expenses will in turn be
partially offset by the losses incurred from the Company’s hedging contracts. The change in the derivative
component in accumulated other comprehensive income (loss) includes unrealized gains or losses that arose from
changes in market value of the effective portion of derivatives that were held during the period, and gains or
losses that were previously unrealized but have been recognized in the same line item as the forecasted
transaction in current period net income due to termination or maturities of derivative contracts. This
reclassification has no effect on total comprehensive income or stockholders’ equity.
The total cumulative unrealized gain (loss) on cash flow derivative instruments was $4.3 million and $(3.0)
million at December 31, 2009 and 2008, respectively, and is included in accumulated other comprehensive loss in
the accompanying consolidated balance sheets. The net unrealized gain as of December 31, 2009 is expected to be
recognized in income over the next twelve months at the same time the hedged items are recognized in income.
As of December 31, 2009, the Company had the following net notional foreign currency forward contracts
outstanding (in thousands):
Foreign Currency
Currency
Denomination
30,036
Australian dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AUD
24,803
British pounds sterling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GBP
5,889
Canadian dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CAD
6,216
Danish krone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DKK
42,171
Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EUR
81,416
Hong Kong dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HKD
INR
Indian rupees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
868,483
JPY 1,067,100
Japanese yen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,925
Singapore dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SGD
14,513
Swiss francs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHF
Derivatives not Designated as Hedges
The Company utilizes certain derivative instruments that either do not qualify or are not designated for
hedge accounting treatment under the authoritative guidance. Accordingly, changes in the fair value of these
contracts are recorded in other income (expense), net.
A substantial portion of the Company’s overseas assets and liabilities are and will continue to be
denominated in local currencies. To protect against fluctuations in earnings caused by changes in currency
F-40
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
exchange rates when remeasuring the Company’s balance sheet, it utilizes foreign exchange forward contracts to
hedge its exposure to this potential volatility. There were no assets or liabilities related to derivatives not
designated as hedges as of December 31, 2009 and 2008.
Fair Values of Derivative Instruments
Asset Derivatives
Liability Derivatives
December 31, 2009
December 31, 2008
December 31, 2009
December 31, 2008
(In thousands)
Derivatives Designated as
Hedging Instruments
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Prepaid
and other
current
assets
Prepaid
and other
current
assets
$ 8,981
$ 23,308
Accrued
expenses
and other
current
liabilities
Accrued
expenses
and other
current
liabilities
$ 4,141
$ 27,630
Foreign currency
forward contracts . .
The Effect of Derivative Instruments on Financial Performance
Amount of Gain (Loss)
Recognized in Other
Comprehensive Income
(Effective Portion)
2009
2008
For the Year ended December 31,
(In thousands)
Location of Gain (Loss) Reclassified
from Accumulated Other
Comprehensive Income
(Loss) into Income
(Effective Portion)
Amount of Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive Loss
(Effective Portion)
2009
2008
Derivatives in Cash Flow
Hedging Relationships
Foreign currency forward
contracts . . . . . . . . . . . . . . . . .
$7,295
$(8,416)
Operating expenses
$(152)
$(8,815)
There was no material ineffectiveness in the Company’s foreign currency hedging program in the periods
presented.
Derivatives Not Designated as Hedging Instruments
For the Year ended December 31,
(In thousands)
Location of (Loss)
Gain Recognized in Income
on Derivative
Amount of (Loss)
Gain Recognized in Income
on Derivative
2009
2008
Foreign currency forward contracts . . . . . . . . . . . . . . . . Other income (expense), net
$(2,572)
$3,740
F-41
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
Year Ended December 31,
2009
2008
2007
(In thousands, except per
share information)
Numerator:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$191,017
$178,276
$214,483
Denominator:
Denominator for basic earnings per share—weighted average shares . . . .
Effect of dilutive securities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Denominator for diluted earnings per share—adjusted weighted-average
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
181,805
183,023
181,501
3,180
3,659
5,879
184,985
186,682
187,380
$
$
1.05
1.03
$
$
0.97
0.96
$
$
1.18
1.14
Antidilutive weighted average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,039
23,979
17,096
16. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R). SFAS
No. 167, which amends FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable
Interest Entities, (“FIN No. 46(R)”), prescribes a qualitative model for identifying whether a company has a
controlling financial interest in a variable interest entity (“VIE”) and eliminates the quantitative model prescribed
by FIN No. 46(R). The new model identifies two primary characteristics of a controlling financial interest: (1) it
provides a company with the power to direct significant activities of the VIE, and (2) obligates a company to
absorb losses of and/or provides rights to receive benefits from the VIE. SFAS No. 167 requires a company to
reassess on an ongoing basis whether it holds a controlling financial interest in a VIE. A company that holds a
controlling financial interest is deemed to be the primary beneficiary of the VIE and is required to consolidate the
VIE. The Company will adopt SFAS No. 167 effective January 1, 2010 and is currently evaluating the impact of
adopting this standard.
In August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009–05, Measuring
Liabilities at Fair Value, (“ASU 2009–05”). ASU 2009–05 amends Accounting Standards Codification (“ASC”)
Topic 820, Fair Value Measurements. Specifically, ASU 2009–05 provides clarification that in circumstances in
which a quoted price in an active market for the identical liability is not available, a reporting entity is required to
measure fair value using one or more of the following methods: (1) a valuation technique that uses a) the quoted
price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar
liabilities when traded as assets and/or (2) a valuation technique that is consistent with the principles of Topic
820 of the ASC (e.g. an income approach or market approach). ASU 2009–05 also clarifies that when estimating
the fair value of a liability, a reporting entity is not required to include inputs relating to the existence of transfer
restrictions on that liability. The adoption of this standard did not have any impact on the Company’s financial
position or results of operations. In October 2009, the FASB issued ASU No. 2009–13, Multiple–Deliverable
Revenue Arrangements, (“ASU 2009–13”). ASU 2009–13 amends existing revenue recognition accounting
F-42
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
pronouncements that are currently within the scope of FASB ASC Subtopic 605-25. The consensus to Emerging
Issues Task Force (“EITF”) Issue No. 08–1, Revenue Arrangements with Multiple Deliverables, provides
accounting principles and application guidance on whether multiple deliverables exist, how the arrangement
should be separated, and the consideration allocated. This guidance eliminates the requirement to establish the
fair value of undelivered products and services and also eliminates the residual method of allocating arrangement
consideration. The new guidance provides for separate revenue recognition based upon management’s estimate
of the selling price for an undelivered item when there is no other means to determine the fair value of that
undelivered item. Under the previous guidance, if the fair value of all of the elements in the arrangement was not
determinable, then revenue was deferred until all of the items were delivered or fair value was determined. This
new approach is effective prospectively for revenue arrangements entered into or materially modified in fiscal
years beginning on or after June 15, 2010. The Company is currently evaluating the potential impact on its
financial position and results of operations.
In October 2009, the FASB issued ASU No. 2009–14, Certain Revenue Arrangements That Include
Software Elements, (“ASU 2009–14”). ASU 2009–14 amends existing revenue recognition accounting
pronouncements that are currently within the scope of FASB ASC Subtopic 985-605. The consensus to EITF
Issue No. 09–3, Certain Revenue Arrangements That Include Software Elements, modifies the authoritative
guidance for certain tangible products that include software and non-software components that function together
to deliver the essential functionality of the product to defer revenue recognition until the last deliverable meets
the VSOE threshold of ASC Subtopic 985, among other requirements, even though components of the
arrangement have been delivered or services have been provided. The new guidance allows that certain tangible
products that contain software and non-software deliverables that work together to deliver the product’s essential
functionality should be considered non-software deliverables for revenue recognition. This new approach is
effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on
or after June 15, 2010. The Company is currently evaluating this standard and the potential impact on its
financial position and results of operations.
17. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through February 23, 2010, the date of the issuance of this
Annual Report on Form 10-K.
F-43
CITRIX SYSTEMS, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2009
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per common share . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . .
2008
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per common share . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . .
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total Year
(In thousands, except per share amounts)
$369,058
323,842
5,003
6,927
0.04
0.04
$392,828
348,767
39,726
42,519
0.23
0.23
$401,042
355,624
56,100
53,423
0.29
0.29
$451,160
398,545
77,848
88,148
0.48
0.47
$1,614,088
1,426,778
178,677
191,017
1.05
1.03
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total Year
(In thousands, except per share amounts)
$377,034
336,603
30,291
34,378
0.19
0.18
$391,730
345,873
28,890
34,649
0.19
0.18
$398,893
356,605
47,699
49,149
0.27
0.26
$415,697
369,141
63,121
60,100
0.33
0.33
$1,583,354
1,408,222
170,001
178,276
0.97
0.96
The sum of the quarterly earnings per share amounts do not add to the annual earnings per share amount due to
the weighting of common and common equivalent shares outstanding during each of the respective periods.
F-44
CITRIX SYSTEMS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Beginning
of Period
Charged
to Costs and
Expenses
Charged
to Other
Accounts Deductions
Balance
at End
of Period
(In thousands)
2009
Deducted from asset accounts:
Allowance for doubtful accounts . . . . . . . . . . .
Allowance for returns . . . . . . . . . . . . . . . . . . .
Valuation allowance for deferred tax assets . .
$ 7,061
1,641
14,217
$1,734
—
—
$ (422)(3) $5,154(2,3)
3,356(4)
—
3,332(1)
(5,537)
$ 3,219
1,617
8,680
2008
Deducted from asset accounts:
Allowance for doubtful accounts . . . . . . . . . . .
Allowance for returns . . . . . . . . . . . . . . . . . . .
Valuation allowance for deferred tax assets . .
$ 2, 891
1,670
8,364
$1,613
—
—
$ 3,366(3) $ 809(2)
2,132(4)
—
2,103(1)
5,853(5)
$ 7,061
1,641
14,217
2007
Deducted from asset accounts:
Allowance for doubtful accounts . . . . . . . . . . .
Allowance for returns . . . . . . . . . . . . . . . . . . .
Valuation allowance for deferred tax assets . .
$ 2,370
1,667
1,332
$2,578
—
—
$
23(3) $2,080(2)
3,806(1)(3) 3,803(4)
8,364(5)
1,332
$ 2,891
1,670
8,364
(1) Netted against revenues.
(2) Uncollectible accounts written off, net of recoveries.
(3) Additions and adjustments from acquisitions.
(4) Credits issued for stock-balancing rights.
(5) Related to deferred tax assets on unrealized losses and acquisitions.
F-45
Exhibit No.
Description
EXHIBIT INDEX
2.1
(14)
2.2
(17)
2.3
(18)
3.1
3.2
3.3
4.1
(1)
(22)
(21)
(2)
Agreement and Plan of Merger, dated as of August 4, 2006, by and among Citrix Systems,
Inc., Banyan Acquisition Corporation, Orbital Data Corporation and John Jaggers as the
stockholder
Agreement and Plan of Merger and Reorganization, dated as of August 14, 2007, by and
among Citrix Systems, Inc., PVA Acquisition Corporation, PVA Acquisition LLC, XenSource,
Inc. and John G. Connors as stockholder representative
Amendment No. 1 to Agreement and Plan of Merger and Reorganization dated as of
August 14, 2007 by and among Citrix Systems, Inc. PVA Acquisition Corporation, PVA
Acquisition LLC, XenSource, Inc. and John G. Connors as stockholder representative, dated
September 20, 2007
Amended and Restated Certificate of Incorporation of the Company
Certificate of Amendment of Amended and Restated Certificate of Incorporation
Amended and Restated By-laws of the Company
Specimen certificate representing the Common Stock
10.1*
(37)
Fourth Amended and Restated 1995 Stock Plan
10.2*
(23)
Second Amended and Restated 1995 Non-Employee Director Stock Option Plan
10.3*
(38)
Second Amended and Restated 2000 Director and Officer Stock Option and Incentive Plan
10.4*
10.5*
10.6*
10.7*
10.8
(24)
10.9
(25)
10.10
(26)
2000 Director and Officer Stock Option and Incentive Plan, Non-Qualified Stock Option
Agreement
2000 Director and Officer Stock Option and Incentive Plan, Incentive Stock Option Agreement
Amended and Restated 2000 Stock Incentive Plan of Net6 Inc. (a subsidiary of Citrix Systems,
Inc.)
Amended and Restated 2003 Stock Incentive Plan of Net6 Inc. (a subsidiary of Citrix Systems,
Inc.)
Participation Agreement dated as of April 23, 2002, by and among Citrix Systems, Inc., Citrix
Capital Corp., Selco Service Corporation and Key Corporate Capital, Inc. (the “Participation
Agreement”) (with certain information omitted pursuant to a grant of confidential treatment
and filed separately with the Securities and Exchange Commission)
Amendment No. 1 to Participation Agreement dated as of June 17, 2002 (with certain
information omitted pursuant to a grant of confidential treatment and filed separately with the
Securities and Exchange Commission)
Master Lease dated as of April 23, 2002 by and between Citrix Systems, Inc. and Selco Service
Corporation (with certain information omitted pursuant to a grant for confidential treatment
and filed separately with the Securities and Exchange Commission)
10.11*
(3)
2005 Equity Incentive Plan
10.12* (11)
Amendment to Citrix Systems, Inc. 2005 Equity Incentive Plan
10.13*
(4)
2005 Employee Stock Purchase Plan
10.14* (43)
2005 Equity Incentive Plan Incentive Stock Option Master Agreement (Domestic)
10.15* (44)
2005 Equity Incentive Plan Non-Qualified Stock Option Master Agreement (Domestic)
10.16* (45)
Citrix Systems, Inc. 2005 Equity Incentive Plan Non-Qualified Stock Option Master
Agreement (Domestic)
Exhibit No.
Description
10.17*
(9)
10.18* (27)
10.19* (10)
10.20*
(5)
10.21*
(6)
10.22* (12)
10.23
(13)
10.24
(7)
Form of Restricted Stock Unit Agreement under the Citrix Systems, Inc. 2005 Equity Incentive
Plan
Form of Executive Restricted Stock Unit Agreement under the Citrix Systems, Inc. 2005
Equity Incentive Plan (Time Based Vesting)
Form of Restricted Stock Unit Agreement for Non-Employee Directors under the Citrix
Systems, Inc. 2005 Equity Incentive Plan
Change in Control Agreement dated as of August 4, 2005 by and between Citrix Systems, Inc.
and Mark B. Templeton
Change in Control Agreement dated as of August 4, 2005 by and between Citrix Systems, Inc.
and each of David J. Henshall, David R. Freidman and John C. Burris
Change in Control Agreement, dated as of August 4, 2006, by and between Citrix Systems, Inc.
and Brett M. Caine
Amended and Restated Credit Agreement dated as of September 27, 2006 among Citrix
Systems, Inc., Citrix Systems International GmbH, JPMorgan Chase Bank N.A., and certain
other financial institutions
Term Loan Agreement dated as of August 9, 2005 by and among Citrix Systems, Inc., Citrix
Systems International GMBH, JPMorgan Chase Bank, N.A., J.P. Morgan Securities Inc. and
certain other financial institutions
10.25*
(8)
NetScaler, Inc. 1997 Stock Plan
10.26
(15)
Type # 3 License Form by and between the Company and Microsoft Corporation dated
September 5, 2007 (with certain information omitted pursuant to a request for confidential
treatment and filed with the Securities and Exchange Commission)
10.27* (16)
Second Amendment to Citrix Systems, Inc. 2005 Equity Incentive Plan
10.28* (19)
Employment Agreement dated as of August 14, 2007 by and between Citrix Systems, Inc. and
Peter Levine
10.29* (20)
XenSource, Inc. 2005 Stock Plan
10.30* (28)
Citrix Systems, Inc. Executive Bonus Plan
10.31* (29)
Third Amendment to Citrix Systems, Inc. 2005 Equity Incentive Plan
10.32* (30)
Fourth Amendment to Citrix Systems, Inc. 2005 Equity Incentive Plan
10.33* (31)
10.34* (32)
10.35* (33)
Form of First Amendment to Change of Control Agreement (Chief Executive Officer) between
Citrix Systems, Inc. and Mark Templeton
Form of First Amendment to Change of Control Agreement between Citrix Systems, Inc. and
each of David J. Henshall and David R. Friedman
Form of First Amendment to Employment Agreement between Citrix Systems, Inc. and Peter
Levine
10.36* (34)
Form of Non-Qualified Stock Option Master Agreement (Domestic)
10.37
(39)
Omnibus Assumption and Amendment Agreement dated as of May 30, 2007 by and among
Citrix Systems, Inc., Citrix Capital Corp., Peninsula Investment Corp., Selco Service
Corporation, Key Bank National Association, Allied Irish Banks P.L.C. and Key Bank
National Association
10.38* (35)
Form of Restricted Stock Unit Agreement
10.39
(36)
Amendment No. 1 to Credit Agreement, dated as of September 19, 2008, among Citrix
Systems, Inc., Citrix International GmbH, JPMorgan Chase Bank, N.A., JP Morgan Securities,
Inc. and certain other financial institutions
Exhibit No.
Description
10.40* (40)
Form of Long Term Incentive Agreement
10.41* (41)
Fifth Amendment to Citrix Systems, Inc. 2005 Equity Incentive Plan
10.42* (42)
Form of Amendment to Restricted Stock Unit Agreement
18.1
21.1
23.1
24.1
31.1
31.2
32.1
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
Preferability Letter of Independent Registered Public Accounting Firm
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm
Power of Attorney (included in signature page)
Rule 13a-14(a) / 15d-14(a) Certifications
Rule 13a-14(a) / 15d-14(a) Certifications
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Indicates a management contract or any compensatory plan, contract or arrangement.
Incorporated herein by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File
No. 33-98542), as amended.
Incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File
No. 33-98542), as amended.
Incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006.
Incorporated by reference herein to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2005.
Incorporated by reference herein to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2005.
Incorporated by reference herein to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2005.
Incorporated by reference herein to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2005.
Incorporated by reference herein to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2005.
Incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2009.
Incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006.
Incorporated by reference herein to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006.
Incorporated by reference herein to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006.
Incorporated by reference herein to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated as of
September 27, 2006.
Incorporated by reference herein to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2006.
Incorporated by reference herein to Exhibit 10.31 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2006.
Incorporated by reference herein to Exhibit 10.1 to the Company’s Current Report on Form 8- K dated as
of October 19, 2007.
Incorporated by reference herein to Exhibit 2.5 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2007.
Incorporated by reference herein to Exhibit 2.6 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2007.
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
(31)
(32)
(33)
(34)
(35)
(36)
(37)
(38)
(39)
(40)
(41)
(42)
(43)
(44)
(45)
Incorporated by reference herein to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2007.
Incorporated by reference herein to Exhibit 10.4 to the Company’s Quarterly Report on Form 10- Q for the
quarter ended September 30, 2007.
Incorporated by reference herein to Exhibit 3.1 to the Company’s Current Report on Form 8- K dated as of
February 13, 2009.
Incorporated by reference herein to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2007.
Incorporated by reference herein to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2007.
Incorporated by reference herein to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2007.
Incorporated by reference herein to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2007.
Incorporated by reference herein to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2007.
Incorporated by reference herein to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2007.
Incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2008.
Incorporated by reference herein to Exhibit A to the Company’s Definitive Proxy Statement filed with the
Commission on April 29, 2008.
Incorporated by reference herein to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2008.
Incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008.
Incorporated by reference herein to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008.
Incorporated by reference herein to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008.
Incorporated by reference herein to Exhibit 10.4 to the Company’s Quarterly Report on Form 10- Q for the
quarter ended September 30, 2008.
Incorporated by reference herein to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008.
Incorporated by reference herein to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008.
Incorporated by reference herein to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2008.
Incorporated by reference herein to Exhibit to Exhibit 10.4 to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2008.
Incorporated by reference herein to Exhibit to Exhibit 10.42 to the Company’s Annual Report on Form
10-K for the year ended December 31, 2008.
Incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2009.
Incorporated by reference herein to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated as of
May 29, 2009.
Incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2009.
Incorporated by reference herein to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2005.
Incorporated by reference herein to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2005.
Incorporated by reference herein to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006.
EXHIBIT 31.1
CERTIFICATIONS
I, Mark B. Templeton, certify that:
1.
I have reviewed this annual report on Form 10-K of Citrix Systems, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
By:
/s/ MARK B. TEMPLETON
Mark B. Templeton
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 23, 2010
EXHIBIT 31.2
CERTIFICATIONS
I, David J. Henshall, certify that:
1.
I have reviewed this annual report on Form 10-K of Citrix Systems, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
By:
/S/ DAVID J. HENSHALL
David J. Henshall
Chief Financial Officer
(Principal Financial Officer)
Date: February 23, 2010
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of Citrix Systems, Inc. (the “Company”) on Form 10-K for the period
ending December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), we, Mark B. Templeton, Chief Executive Officer of the Company, and David J. Henshall, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, to our knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/S/ MARK B. TEMPLETON
Mark B. Templeton
Chief Executive Officer
/S/ DAVID J. HENSHALL
David J. Henshall
Chief Financial Officer
February 23, 2010
Information Concerning Non-GAAP Financial Measures Used in This Annual Report (Unaudited)
GAAP net income for the twelve months ended December 31, 2009 was $191.0 million, and GAAP net income for the
twelve months ended December 31, 2008 was $178.3 million. GAAP diluted earnings per share for the twelve months ended
December 31, 2009 was $1.03. GAAP diluted earnings per share for the twelve months ended December 31, 2008 was
$0.96. Non-GAAP net income and earnings per share for both periods excludes the effects of the amortization of intangible
assets primarily related to business combinations, stock-based compensation expenses, and the tax effects related to those
items. In addition, non-GAAP net income and earnings per share for 2009 excludes charges recorded in connection with the
restructuring program that the company implemented in January 2009, and the tax effects related to those items. Non-GAAP
net income and earnings per share for 2008 also excludes the non-cash benefit related to payroll taxes taken in the fourth
quarter of fiscal 2008 and the write-off of in-process research and development related to business combinations, and the tax
effects related to those items.
GAAP operating margin for the twelve months ended December 31, 2009 was 11.1%. GAAP operating margin for the
twelve months ended December 31, 2008 was 10.7%. Non-GAAP operating margin for both periods excludes the effects of
the amortization of intangible assets primarily related to business combinations and stock-based compensation expenses. In
addition, non-GAAP operating margin for 2009 excludes charges recorded in connection with the restructuring program that
the company implemented in January 2009. Non-GAAP operating margin for 2008 also excludes the non-cash benefit related
to payroll taxes taken in the fourth quarter of fiscal 2008 and the write-off of in-process research and development related to
business combinations.
The following table shows the non-GAAP financial measures used in this Annual Report reconciled to the most directly
comparable GAAP financial measures.
GAAP net income
Add: stock-based compensation
Add: amortization product related intangible assets
Add: amortization of other intangible assets
Add: restructuring charges
Add: in-process research and development
Less: payroll tax benefit related to stock option
investigation
Less: tax effects related to above items
Non-GAAP net income
GAAP earnings per share – diluted
Add: stock-based compensation
Add: amortization product related intangible assets
Add: amortization of other intangible assets
Add: restructuring charges
Add: in-process research and development
Less: payroll tax benefit related to stock option
investigation
Less: tax effects related to above items
Non-GAAP earnings per share – diluted
Twelve Months Ended December 31,
2009
2008
$191,017
111,419
47,917
20,972
26,473
-
-
(63,641)
$334,157
$178,276
124,615
48,028
22,724
-
1,140
(6,428)
(64,543)
$303,812
Twelve Months Ended December 31,
2009
2008
$1.03
0.60
0.26
0.11
0.14
-
-
(0.33)
$1.81
$0.96
0.67
0.26
0.12
-
0.01
(0.03)
(0.36)
$1.63
GAAP operating margin
Add: stock-based compensation
Add: amortization product related intangible assets
Add: amortization of other intangible assets
Add: restructuring charges
Add: in-process research and development
Less: payroll tax benefit related to stock option
investigation
Non-GAAP operating margin
Twelve Months Ended December 31,
2009
2008
11.1%
6.9%
3.0%
1.3%
1.6%
-
-
23.9%
10.7%
7.9%
3.0%
1.4%
-
0.1%
(0.4)%
22.7%
Pursuant to the requirements of Regulation G, Citrix Systems, Inc. (the “Company”) has provided a reconciliation of each non-
GAAP financial measure used in this 2009 Annual Report to the most directly comparable GAAP financial measure. These measures
differ from GAAP in that they exclude amortization primarily related to business combinations, the write-off of in-process research
and development, stock-based compensation expenses, charges associated with the Company’s 2009 restructuring program, the
non-cash benefit related to the adjustment of payroll taxes accrued in connection with the Company’s voluntary, independent
investigation of historical stock option granting practices that was concluded in 2007 and the related tax effect of those items. The
Company’s basis for these adjustments is described below.
Management uses these non-GAAP measures for internal reporting and forecasting purposes, when publicly providing its business
outlook, to evaluate the Company’s performance and to evaluate and compensate the Company’s executives. The Company has
provided these non-GAAP financial measures in addition to GAAP financial results because it believes that these non-GAAP financial
measures provide useful information to certain investors and financial analysts for comparison across accounting periods not
influenced by certain non-cash items that are not used by management when evaluating the Company’s historical and prospective
financial performance. In addition, the Company has historically provided this or similar information and understands that some
investors and financial analysts find this information helpful in analyzing the Company’s gross margins, operating expenses and net
income and comparing the Company’s financial performance to that of its peer companies and competitors.
Management typically excludes the amounts described above when evaluating the Company’s operating performance and
believes that the resulting non-GAAP measures are useful to investors and financial analysts in assessing the Company’s operating
performance due to the following factors:
•
The Company does not acquire businesses on a predictable cycle. The Company, therefore, believes that the presentation
of non-GAAP measures that adjust for the impact of amortization, in-process research and development and certain
stock-based compensation expenses and the related tax effects that are primarily related to business combinations,
provide investors and financial analysts with a consistent basis for comparison across accounting periods; and, therefore,
are useful to investors and financial analysts in helping them to better understand the Company’s operating results and
underlying operational trends.
•
Amortization costs and the related tax effects are fixed at the time of an acquisition, are then amortized over a period of
several years after the acquisition and generally cannot be changed or influenced by management after the acquisition.
•
•
Although stock-based compensation is an important aspect of the compensation of the Company’s employees and
executives, stock-based compensation expense is generally fixed at the time of grant, then amortized over a period
of several years after the grant of the stock-based instrument, and generally cannot be changed or influenced by
management after the grant.
The charges incurred in conjunction with the Company’s restructuring program, which relate to reductions in headcount
and exit costs associated with consolidating certain facilities, are not anticipated to be ongoing costs; and, thus, are
outside of the normal operations of the Company’s business. The Company, therefore, believes that the exclusion of
these charges will better help investors and financial analysts understand the Company’s operating results and
underlying operational trends as compared to prior periods.
•
The non-cash benefit related to payroll taxes originally arose out of the Company’s voluntary, independent investigation
of its historical stock option granting practices but was a benefit in the fourth quarter of 2008, the exclusion of which
will better help investors and financial analysts understand the Company’s operating results and underlying operational
trends as compared to prior periods.
These non-GAAP financial measures are not prepared in accordance with accounting principles generally accepted in the United
States (“GAAP”) and may differ from the non-GAAP information used by other companies. There are significant limitations
associated with the use of non-GAAP financial measures. The additional non-GAAP financial information presented here should be
considered in conjunction with, and not as a substitute for or superior to, the financial information presented in accordance with
GAAP (such as net income and earnings per share) and should not be considered measures of the Company’s liquidity. Furthermore,
the Company in the future may exclude amortization and in-process research and development primarily related to new business
combinations, additional charges related to its restructuring program and the related tax effects from financial measures that it
releases, and the Company expects to continue to incur stock-based compensation expenses.
Note Regarding Forward-Looking Statements
This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual operating results and financial
condition have varied in the past and could in the future vary significantly depending on a number of factors. From time to
time, information provided by us or statements made by our employees contain forward-looking information that involves
risks and uncertainties. In particular, statements contained in this Annual Report for the year ended December 31, 2009, and
in the documents incorporated by reference into this Annual Report, that are not historical facts, including, but not limited to,
statements concerning trends in information technology, including the prevalence of cloud computing and virtualization and the
adoption of Windows 7, new products, development and offerings of products and services, including our Desktop Solutions,
Online Services and Datacenter and Cloud Solutions and XenClient, market positioning, Citrix Ready, our Partner Network, our
partnership with Microsoft, Product Licenses, License Updates, Technical Services, cash and non-cash charges, product and price
competition, competition and strategy, employees, suppliers, contract manufacturers, product price and inventory, contingent
consideration payments, deferred revenues, government regulation (including the FCC), seasonal factors, natural disasters, stock-
based compensation, licensing and subscription renewal programs, computer system enhancements, international operations and
expansion, revenue recognition, profits, growth of revenues, composition of revenues, cost of net revenues, operating expenses,
sales and sales cycle, marketing and support expenses, general and administrative expenses, research and development expenses,
obsolete materials charges, valuations of investments and derivative instruments, technology relationships, open source software,
reinvestment or repatriation of foreign earnings, gross margins, amortization expense, goodwill and intangible assets, fluctuations
in foreign exchange rates, interest income, interest expense, impairment charges, anticipated operating and capital expenditure
requirements, contractual obligations, our Credit Facility, in-process research and development, tax rates and deductions, tax
liabilities and benefits, transfer pricing, our pending tax appeal, acquisitions, including XenSource and Vapps, cash inflows, the
Financial Accounting Standards Board’s authoritative guidance, leasing activities and obligations, acquisitions, stock repurchases,
investment transactions (including our investment in bonds issued by AIG Matched Funding Corporation, our settlement with
UBS and investments in auction rate and available-for-sale securities) changes in domestic and foreign economic conditions
and credit markets, restructuring activities (including our strategic restructuring program), delays or reductions in technology
purchases, acquired in-process technology, liquidity, litigation matters, intellectual property matters, distribution channels, stock
price, payment of dividends, Advisor Rewards program, price protection rights, proprietary technology, security measures, third
party licenses, and potential debt or equity financings constitute forward-looking statements and are made under the safe harbor
provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended.
These statements are neither promises nor guarantees. Our actual results of operations and financial condition have varied
and could in the future vary materially from those stated in any forward-looking statements. The following factors, among
others, could cause actual results to differ materially from those contained in forward-looking statements made in this Annual
Report, in the documents incorporated by reference into this Annual Report or presented elsewhere by our management from
time to time: adverse changes in general economic conditions in the United States or any of the major countries in which we do
business, conditions affecting the information technology market, our long sales cycle for enterprise-wide sales, competition,
concentration of revenue from Desktop Solutions products, the uncertainty of the market for XenDesktop products, an adverse
outcome of any tax examination, including the effect of Revenue Agent’s Report from the Internal Revenue Service asserting
tax deficiencies in certain tax returns, failure to develop new products and services or enhancements to our existing products
and services, investment portfolio impairment charges due to further deterioration of the capital markets, loss of key personnel
or inability to hire enough qualified employees in certain areas of our business, failure to manage operations and grow revenue,
inability to effectively control operating expenses inability to realize acquisition-related financial and strategic goals, lack of
attractive acquisition opportunities, impairment of goodwill or intangible assets, inability to expand and diversify distribution
channels, changes in our licensing programs or subscription renewal programs, concentration of License Updates revenue
and deferred revenue, international risks, unanticipated changes in tax rates or exposure to additional income tax liabilities,
credit exposure to our hedging counterparties, limited protection of proprietary rights, infringement of third-party intellectual
property rights including those obtained through acquisitions, use of open source software, reliance on open source software
programmers, investment in open source Xen hypervisor, development of new XenServer products, failure to enhance XenServer
products, failure to meet customer requirements for innovation, quality and price of the Xen products, outcomes of strategic and
technology relationships, loss of access to third-party licenses, products release delays, ability to attract and retain and further
penetrate large enterprise customers, issues arising during the upgrade of our enterprise resource planning system, reliance on
indirect distribution channels and major distributors, reliance on third-party suppliers and contract manufacturers, errors in our
products, delay in the release of new products, restrictions under our credit facility, security breaches, evolving regulation of the
Web, regulation of our Online Audio products and services, natural disasters or other unanticipated catastrophes, availability
of funding for product development and acquisitions, stock balancing returns or price adjustments exceeding our reserves,
volatility of stock price, volatility in domestic and international stock markets, changes or modifications in financial accounting
standards, seasonal fluctuations, and inability to access funds from certain of our auction rate securities investments, as well as
other risks detailed in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K
for the year ended December 31, 2009, or in the documents incorporated by reference into the Annual Report on Form 10-K
for the year ended December 31, 2009. Such factors, among others, could have a material adverse effect upon our business,
results of operations and financial condition. We caution readers not to place undue reliance on any forward-looking statements,
which only speak as of the date made. We undertake no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made.
©2009 Citrix Systems, Inc. All rights reserved. Citrix® is a registered trademark of Citrix Systems, Inc. and/or one or more of
its subsidiaries, and may be registered in the U.S. Patent and Trademark Office and in other countries. All other trademarks and
registered trademarks are property of their respective owners.
Total Return To Stockholders
(Includes reinvestment of dividends)
Company Name/Index
Citrix Systems, Inc.
S&P 500 Index
Nasdaq Index
Peer Group
Annual Return Percentage
Years Ended
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
17.46
4.91
1.33
-1.43
-5.85
15.79
12.51
15.97
40.52
5.49
8.51
15.36
-37.99
-37.00
-40.90
-38.07
76.54
26.46
44.45
48.66
Base Period
Indexed Returns
Years Ended
Company Name/Index
Dec 04
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Citrix Systems, Inc.
S&P 500 Index
Nasdaq Index
Peer Group
100
100
100
100
117.46
104.91
101.33
110.59
155.40
121.48
128.16
114.01
123.71
98.57
114.31
131.87
96.36
80.74
73.11
81.68
170.11
102.11
105.61
121.42
Peer Group consists of companies with a SIC Code of 7372.
Corporate Information
Citrix Systems, Inc. (NASDAQ:CTXS) is a leading provider of virtual computing solutions that help companies deliver IT as an on-demand
service. Founded in 1989, Citrix combines virtualization, networking, and cloud computing technologies into a full portfolio of products
that enable virtual workstyles for users and virtual datacenters for IT. More than 230,000 organizations worldwide rely on Citrix to help
them build simpler and more cost-effective IT environments. Citrix partners with over 10,000 companies in more than 100 countries.
Annual revenue in 2009 was $1.61 billion.
Learn more at www.citrix.com.
Corporate Headquarters
Ft. Lauderdale, FL, USA
Online Division Headquarters
Santa Barbara, CA, USA
Silicon Valley Headquarters
Santa Clara, CA, USA
EMEA Headquarters
Schaffhausen, Switzerland
Pacific Headquarters
Hong Kong, China
Latin America Headquarters
Coral Gables, FL, USA
India Development Center
Bangalore, India
Sydney Development Center
Sydney, Australia
UK Development Center
Chalfont, United Kingdom
Stockholder Information
Corporate Officers
Board of Directors
Investor Relations
Mark B. Templeton
President and Chief Executive Officer
Thomas F. Bogan
Venture Partner, Greylock Partners
Citrix’s stock trades on the NASDAQ Global
Select Market under the ticker symbol CTXS.
Brett M. Caine
Senior Vice President,
Online Services Division
David R. Friedman
General Counsel and Senior Vice President,
Human Resources
David J. Henshall
Senior Vice President and
Chief Financial Officer
Peter J. Levine
Senior Vice President,
Datacenter and Cloud Division
Al J. Monserrat
Senior Vice President, Sales and Services
Gordon Payne
Senior Vice President,
Desktop Division
Wes R. Wasson
Senior Vice President and
Chief Marketing Officer
Transfer Agent and Registrar
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
Tel: +1 877 282 1168
www.computershare.com
Nanci Caldwell
Former Executive Vice President and CMO,
PeopleSoft, Inc.
The Citrix Annual Report and Form 10-K
are available electronically at
www.citrix.com/annualreport.
Murray J. Demo
Executive Vice President and
Chief Financial Officer,
Dolby Laboratories
Stephen M. Dow
General Partner, Sevin Rosen Funds
Asiff S. Hirji
Partner, TPG Capital, L.P.
Gary E. Morin
Former Executive Vice President and
Chief Financial Officer,
Lexmark International, Inc.
Godfrey R. Sullivan
President and Chief Executive Officer,
Splunk, Inc.
Mark B. Templeton
President and Chief Executive Officer,
Citrix Systems, Inc.
Independent Registered
Public Accountants
Ernst & Young LLP
100 Northeast Third Avenue, Suite 700
Fort Lauderdale, FL 33301
For further information about Citrix, additional
copies of this report, Form 10-K, or other
financial information without charge, contact:
Citrix Systems, Inc.
Attn: Investor Relations
851 W. Cypress Creek Road
Fort Lauderdale, FL 33309
United States
Tel: +1 954 267 3000
Tel: +1 800 424 8749
www.citrix.com/investors
Annual Meeting of Stockholders
The Annual Meeting of Shareholders of Citrix
Systems, Inc. will be held on May 26, 2010
at 5:00 p.m., PST
4988 Great America Parkway
Santa Clara, CA 95054
United States