OUTSIDE BACK
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2017
Annual
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2017
Annual
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Annual Report 2017 Citrix Systems, Inc.
Annual Report 2017 Citrix Systems, Inc.
FINANCIAL HIGHLIGHTS
CORPORATE INFORMATION
All financial data has been adjusted to reflect continuing operations.
Year ended December 31
(In thousands, except per share data)
2017
2016
2015
Net revenues
Cost of net revenues
Gross margin
Operating expenses
Income from continuing operations
Other (expense), net
Income from continuing operations before income taxes
Income tax expense (benefit)
Income from continuing operations
(Loss) income from discontinued operations, net of income tax expense
Net (loss) income
Net income per share from continuing operations
(Loss) income per share from discontinued operations
Net (loss) earnings per share—diluted
2,824,686
2,736,080
2,646,154
439,646
404,889
474,040
2,385,040
2,331,191
2,172,114
1,814,043
1,771,027
1,969,322
570,997
(20,651)
550,346
528,361
21,985
(42,704)
(20,719)
0.14
(0.27)
(0.13)
560,164
(32,394)
527,770
57,915
469,855
66,257
536,112
2.99
0.42
3.41
202,792
(38,208)
164,584
(50,549)
215,133
104,228
319,361
1.34
0.65
1.99
Weighted average shares outstanding—diluted
155,503
157,084
160,362
In 2017, Citrix
revenue grew by
3%
Revenue (millions)
Earnings Per Share
Operating Cash Flow (millions)
2017
$2,825
2016
$2,736
2015
$2,646
2017*
$0.14
2016
$2.99
2015
$1.34
2017
$964
2016
$947
2015
$832
* Decrease in earnings per share was primarily due to an increase in tax expense as a result of $429 million (or $2.76 per diluted share) in charges related to the
estimated impact from the enactment of the U.S. Tax Cuts and Jobs Act that was signed on December 22, 2017. The impacts of the U.S. Tax Cuts and Jobs Act may
differ from this estimate, and the estimated charges may accordingly be adjusted over the course of 2018.
Citrix (NASDAQ:CTXS) aims to power a world where people, organizations and things
are securely connected and accessible to make the extraordinary possible. We help
customers reimagine the future of work by providing the most comprehensive secure
digital workspace that unifies the apps, data and services people need to be productive,
and simplifies IT’s ability to adopt and manage complex cloud environments. With
2017 annual revenue of $2.82 billion, Citrix solutions are in use by more than 400,000
organizations including 99 percent of the Fortune 100 and 98 percent of the Fortune
500. Learn more at www.citrix.com.
Major Operational Centers
Alpharetta, GA, USA
Bangalore, India
Cambridge, United Kingdom
Chalfont, United Kingdom
Dublin, Ireland
Ft. Lauderdale, FL, USA
Munich, Germany
Nanjing, China
Raleigh, NC, USA
Santa Clara, CA, USA
Schaffhausen, Switzerland
Sydney, Australia
Tokyo, Japan
STOCKHOLDER INFORMATION
Executives
Board of Directors
David J. Henshall
President and Chief Executive Officer
Bob Calderoni
Executive Chairman, Citrix
For further information about Citrix,
additional copies of this report, Form
10-K, or other financial information
without charge, contact:
Bob Calderoni
Executive Chairman
Andrew Del Matto
Executive Vice President and
Chief Financial Officer
Mark M. Coyle
Senior Vice President, Finance
Mark Ferrer
Executive Vice President and
Chief Revenue Officer
Tony Gomes
Senior Vice President and
General Counsel
PJ Hough
Senior Vice President and
Chief Product Officer
Donna Kimmel
Senior Vice President and
Chief People Officer
Tim Minahan
Senior Vice President, Business Strategy
and Chief Marketing Officer
Jeroen van Rotterdam
Senior Vice President, Engineering
Nanci E. Caldwell
Lead Independent Director, Citrix
Jesse A. Cohn
Partner and Head of U.S. Equity Activism,
Elliott Management
Robert D. Daleo
Retired Vice Chairman,
Thomson Reuters
Murray J. Demo
Executive Vice President and
Chief Financial Officer, Rubrik
Ajei S. Gopal
President and Chief Executive Officer, ANSYS
David J. Henshall
President and Chief Executive Officer, Citrix
Peter J. Sacripanti
Partner, McDermott Will & Emery
Graham V. Smith
Former Executive Vice President and
Chief Financial Officer, Salesforce
Godfrey R. Sullivan
Executive Chairman, Splunk
Investor Relations
Citrix’s stock trades on the NASDAQ Global
Select Market under the ticker symbol
CTXS.
The Citrix Annual Report and Form 10-K
are available electronically at http://
investors.citrix.com/annual-reports
Citrix Systems, Inc.
Attn: Investor Relations
851 West Cypress Creek Road
Fort Lauderdale, FL 33309
United States
Tel: +1 954 267 3000
Tel: +1 800 424 8749
www.citrix.com/investors
Transfer Agent and Registrar
Computershare Trust Company, N.A.
P.O. BOX 505000
Louisville, KY 40233-5000
Tel: +1 877 373 6374
http://www.computershare.com/investor
Independent Registered Certified
Public Accountants
Ernst & Young LLP
5100 Town Center Circle, Suite 500
Boca Raton, FL 33486
Annual Meeting of Shareholders
The Annual Meeting of Shareholders of Citrix
Systems, Inc. will be held on June 6, 2018 at
4:00 p.m., Eastern Time
Citrix Headquarters
851 West Cypress Creek Road
Fort Lauderdale, FL 33309
United States
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Annual Report 2017 Citrix Systems, Inc.
To our shareholders, customers,
partners, and employees:
For almost three decades, Citrix has powered a better way to work. We deliver the world’s
most trusted digital workspace, giving employees reliable access to the applications and
information they need to be productive, engage customers, and unlock innovation—anytime,
anywhere. In addition, we give IT a simplified way to manage and secure it all across any
device, application, or cloud.
Our customers are driving our continued evolution and transformation as a company. They are
adopting cloud services and SaaS applications on a broad basis and operating in a multi-cloud,
hybrid-cloud world. This shift creates the opportunity for Citrix to provide simple, secure and
unified solutions, helping our customers and simplifying their roadmap.
2017 was an important year in Citrix’s history, both in terms of how we operate as a company,
with the acceleration of our own business transformation, as well as how we deliver solutions
to help our customers power their own business initiatives. We have defined the strategic
priorities that drive our growth opportunities and expand our total addressable market by up
to a third. Additionally, we have outlined our multi-year financial plan that drives increased
customer and shareholder value.
Our strategic priorities are simple. First, we are accelerating to build cloud services across
our entire portfolio to speed up the delivery of our own innovation and simplify customer
adoption. Today, cloud delivered services represent about 20 percent of our market opportunity,
and by 2020, it is expected to drive more than half.
Next, we are unifying our sector-leading product technologies into a Secure Digital
Workspace, both on premise and in the cloud, to create a better end user experience and
simplified control for IT. Our goal is to provide an intuitive, elegant experience for managing
and delivering apps and data, from any cloud to any device. This creates competitive
differentiation and defensibility, solving real business problems for customers and making
us a strategic part of their businesses.
“ Looking ahead to 2018,
we are not slowing down.
We now have significant
momentum and purpose.”
David J. Henshall
President & CEO
Finally, we are expanding into new areas to help our customers meet the demands of the
future, while driving incremental growth opportunities for Citrix in areas such as security,
analytics and the secure digital perimeter.
In our multi-year plan, we outlined four business initiatives with goals that show how we
are thinking about the shape of our business in the next few years. Those initiatives too
are simple.
First, we shared that we are moving to a subscription business model, aiming to exit 2020
with at least 40 percent of total revenue coming from subscription. This gives us more
predictable recurring revenue and increases customer lifetime value.
Next, knowing that the cloud drastically reduces customer complexity and lets us deliver rapid
innovation, we want to see more than 60 percent of our new bookings coming from Citrix Cloud
subscriptions in 3 years.
Annual Report 2017 Citrix Systems, Inc.
TOTAL 2017 REVENUE
IN BILLIONS
$2.82
A YOY REVENUE
INCREASE OF
3%
DEFERRED REVENUE
INCREASED BY
11%
The third initiative we shared is our commitment to a balanced and efficient financial model.
We have targeted revenue growth of more than 4 percent, trending upwards, with adjusted
operating margins of at least 33 percent.
And finally, we authorized the return of about $2 billion of capital between the fourth quarter
of 2017 and the end of fiscal year 2018, a move we believe demonstrates our confidence in
our strategic priorities and plans, and our commitment to best-in-class capital return for our
shareholders.
Focus on these strategic initiatives has provided an opportunity to better focus and align our
organizational structure against these specific priorities. In 2017, we reorganized our product
and R&D efforts to deliver the integrated solutions our customers need. These actions have
also resulted in increased innovation. In 2017, we had a 100 percent increase in patent filings
year over year and an 80 percent increase in the number of product releases. At the same
time, our product quality continues to improve—showing our focus on our customers and
their success.
2017 Business Performance
This past year, we took a critical step in our business transformation—to focus our portfolio
and accelerate our transition to a subscription model. In early 2017, we completed the
separation of our GoTo business, merging it with LogMeIn. This merger provided a tax-efficient
distribution of value to our shareholders.
Our financial results from continuing operations were strong as we grew revenue to
$2.82 billion, compared to $2.74 billion in 2016, a 3 percent increase, including a record
number of deals over one million dollars, demonstrating an increasingly strategic relationship
with our customers. Additionally, our deferred revenue balance increased 11 percent from
the prior year to $1.86 billion.
We saw our subscription-based revenue accelerate during 2017 as our customers embraced
our new subscription-based offerings. Software as a service revenue increased 31 percent
in the year, and most importantly, our mix of subscription bookings grew to 27 percent as a
percent of total product bookings, compared to 14 percent in 2016, jumpstarting our multi-year
plan and initiatives.
Throughout the year, we continued to improve operational efficiencies to increase our
non-GAAP operating margin to 32 percent in 2017, including a 40 percent non-GAAP
operating margin in Q4, the highest quarterly non-GAAP operating margin in over 10 years.
We increased cash flow from continuing operations to $964 million and repurchased
approximately 15.5 million shares of our stock at an average price of $81 per share. Finally,
we delivered an increase in non-GAAP earnings per share from continuing operations, ending
the year with non-GAAP earnings per share of $4.85, up from $4.45 per share the previous
year from continuing operations. Later, in the annual report section, you can find a full
reconciliation between our non-GAAP and GAAP performance.
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Annual Report 2017 Citrix Systems, Inc.
2018 Focus
Looking ahead to 2018, we are not slowing down. We now have significant momentum and
purpose. We are more aligned and more focused on customer success than I have seen at
Citrix in a long time. Moving into 2018, we expect to only move faster as we gain further
momentum in our three strategic priorities.
It is clear that our customers are looking for ways to operate efficiently and effectively in
a multi-cloud, hybrid-cloud world, and Citrix is clearly positioned to provide simple, secure
and unified solutions to help them address these challenges and simplify their digital
transformation roadmaps.
I joined Citrix in 2003 because I believed in our mission and our opportunity. Today, more than
15 years later as CEO, my belief in Citrix is stronger than ever. Our success over the years
has not been an accident. It is the result of how we as a company work with determination,
growing and proving our ability to innovate at scale. I strongly believe that the work we are
doing to accelerate our initiatives is going to position Citrix for even greater success long into
the future.
It is an exciting time for Citrix, and together, we can keep the momentum going as we
reimagine how people and organizations can work in the future to push the limits of
productivity and innovation. On behalf of the Board and our employees, I thank you for
your support for our teams and your confidence in our company and vision.
Sincerely,
David J. Henshall
President & CEO
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2017
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
(IRS 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 ☒ 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 ☒
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 ☒ 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 ☒ 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. ☒
2
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
12b-2 of the Exchange Act.
☒ Large accelerated filer
☐ Non-accelerated filer (Do not check if a smaller reporting company)
☐ Accelerated filer
☐ Smaller reporting company
☐ Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
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 $10,801,319,391. As of February 9, 2018 there were 136,150,856 shares of the registrant’s Common Stock, $.001 par value
per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31,
2017. Portions of such definitive proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K.
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CITRIX SYSTEMS, INC.
TABLE OF CONTENTS
Part I:
Item 1
Business
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2
Item 3
Item 4
Item 5
Part II:
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . .
Item 8
Changes in and Disagreements With Accountants on Accounting and Financial
Item 9
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part III:
Part IV:
Item 10 Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11
Security Ownership of Certain Beneficial Owners and Management and Related
Item 12
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions and Director Independence . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13
Item 14
Item 15
Item 16
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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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
Business Overview
Citrix is a Delaware corporation incorporated on April 17, 1989.
Our mission is to power a world where people, organizations and things are securely connected and
accessible to make the extraordinary possible. We help customers reimagine the future of work by providing
a comprehensive secure digital workspace that unifies the apps, data and services people need to be
productive, and simplifies IT’s ability to adopt and manage complex cloud environments.
Digital transformation is occurring in every industry at a rapid pace. Businesses today are adopting
cloud services and software as a service, or SaaS, apps on a broad basis. Many businesses are juggling
multiple cloud providers and dozens of new SaaS apps. Yet, we believe many organizations are expected to
have a majority of their workloads still running on-premises in five years. This combination of increased
complexity with mobility and new workstyles results in a fragmented user experience, an increase in security
risks, and IT teams challenged to properly manage the technology needs of organizations.
As a result of this convergence of cloud, legacy systems, and newer technologies, including artificial
intelligence and machine learning, organizations are now seeking to adopt multi-cloud, hybrid-cloud
strategies for their IT infrastructure, so that they can provide flexibility to navigate all systems and security
to address ever-expanding attack surfaces, all without sacrificing experience for their end users.
As we continue to pursue our mission to power a world where people, organizations and things are
securely connected and accessible, we are focused on three strategic initiatives. First, we are accelerating our
move to a subscription-based business model and to offer all of our solutions from the cloud to give
organizations flexibility in how they work. Second, we are unifying our portfolio to simplify user and IT
experience. Finally, to help meet the expected demands of the future, we are expanding our networking
capabilities to provide a secure digital perimeter and broader analytics services.
We market and license our solutions through multiple channels worldwide, including selling through
resellers and direct over the Web. Our partner community comprises thousands of value-added resellers, or
VARs known as Citrix Solution Advisors, value-added distributors, or VADs, systems integrators, or SIs,
independent software vendors, or ISVs, original equipment manufacturers, or OEMs and Citrix Service
Providers, or CSPs.
Separation of GoTo Business
On January 31, 2017, we completed the separation and subsequent merger of the GoTo family of
service offerings of our wholly-owned subsidiary, GetGo, Inc., or GetGo, to LogMeIn, Inc., or LogMeIn,
pursuant to a pro rata distribution to our stockholders of 100% of the shares of common stock of GetGo,
pursuant to a Reverse Morris Trust, or RMT, transaction. The GoTo family of service offerings consisted
of GoToMeeting, GoToWebinar, GoToTraining, GoToMyPC, GoToAssist, Grasshopper and OpenVoice,
or collectively the GoTo Business, and had historically been part of our GoTo Business segment. As a
result, the consolidated financial statements included in this Annual Report on Form 10-K and related
financial information reflect the GoTo Business operations, assets and liabilities, and cash flows as
discontinued operations for all periods presented. See Note 3 to our consolidated financial statements
included in this Annual Report on Form 10-K for further information.
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Subscription Model Transition
In 2017, we announced our intent to transition to a subscription-based business model, and we began
offering our customers the option to purchase our solutions as a subscription, whereby a fee is paid for
continuous access to our software or the right to use our software and receive support for a specified
period. We expect our transition to a subscription-based business model to provide financial and
operational benefits to Citrix: increasing customer life-time-value, expanding our customer use-cases and
innovation opportunities, and extending the use of Citrix services to securely deliver a broader array of
applications, including Web, SaaS apps and services.
Products and Services
We are enabling the future of work by delivering digital workspace, networking, and analytics solutions
that help customers drive innovation and be productive anytime, anywhere. Our unified, contextual and
secure digital workspace enables customers to deliver and manage the apps, desktops, data and devices users
need. Our customers can realize the full benefits of hybrid- and multi-cloud environments while simplifying
management and overcoming security challenges. Our solutions and services target customers of all sizes,
from small businesses to large global enterprises. From time to time, we may evaluate the naming and/or
classification of our product groupings in order to appropriately reflect the current state of the business.
Our secure digital workspace technologies are available as cloud services and can be managed as hybrid
and multi-cloud environments. Our cloud-based services enable our customers to provide a flexible way to
manage their applications and data. This cloud-based approach is designed to provide reduced
infrastructure, centralized control and SaaS-style updates resulting in lower administration cost and
complexity. These services include XenApp and XenDesktop service, XenMobile service, ShareFile service
and NetScaler Gateway service and are available as an integrated service or as individual services scaled to
meet our customers’ business needs.
We offer perpetual, subscription-based and on-premise subscription software licenses for our solutions,
along with annual subscriptions for software updates, technical support and SaaS. Perpetual licenses allow
our customers to use the version of software initially purchased into perpetuity, while on-premise
subscription licenses are limited to a specified period of time. Software maintenance subscriptions, or
Customer Success Services, give customers the right to upgrade to new software versions if and when any
updates are delivered during the subscription term. Perpetual license software comes primarily in
electronic-based forms. We also offer on-premise subscription licenses to service providers through the
Citrix Service Provider program, which are invoiced on a monthly basis or based on reported license usage.
Our services delivered via the cloud 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 support and maintenance.
Workspace Services
Application Virtualization and VDI
Our Application Virtualization and VDI solutions give employees the freedom to work from anywhere
while cutting IT costs, securely delivering Windows, Linux, Web and SaaS apps, plus full virtual desktops to
any device.
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XenDesktop is a fully-integrated, cloud-enabled desktop virtualization solution that gives
customers the flexibility to deliver desktops and applications as a service — from any cloud,
on-premises datacenters or both. XenDesktop includes HDX technologies to give users a
high-definition experience — even when using multimedia, real-time voice and video
collaboration, USB devices and 3D graphics content — while consuming less bandwidth than
competing solutions. XenDesktop is available in multiple editions designed for different
requirements, from simple VDI-only deployments to sophisticated, enterprise-class desktop and
application delivery services that can meet the needs of everything from basic call center
environments to high-powered graphics workstations. In XenDesktop Enterprise and Platinum
editions, customers also receive XenApp to manage and mobilize Windows applications.
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XenApp is a widely deployed solution that allows Windows applications to be delivered as services
to Android and iOS mobile devices, Macs, PCs and thin clients from any cloud, on-premises
datacenter or both. XenApp enables people to work better by running applications in the security
of the data center, or cloud, and using HDX technologies to deliver a superior user experience to
any device, anywhere. XenApp optimizes the application experience for smartphones, tablets and
touchscreen laptops, providing intuitive touch capabilities for the latest generation of devices.
Keeping applications under the centralized control of IT administrators enhances data security
and reduces the costs of managing applications on every PC. XenApp runs on all current versions
of Microsoft Windows Server and tightly integrates with Microsoft Azure, the Microsoft Desktop
Optimization Pack, Microsoft App-V, and Microsoft System Center. Our joint solution with
Microsoft lowers the cost of delivering and maintaining Windows applications for all users in the
enterprise.
Enterprise Mobility Management
Increasingly, for many employees, mobile devices are their workspaces. Our XenMobile solutions are
designed to increase productivity and security with mobile device management, or MDM, mobile
application management, or MAM, mobile content management, or MCM, secure network gateway, and
enterprise-grade mobile apps in one comprehensive solution.
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XenMobile provides unified endpoint management for a secure digital workspace allowing IT to
meet mobile device security and compliance requirements for “bring your own device” programs
and corporate devices while enabling user productivity. As part of a workspace, XenMobile
centralizes the management of mobile devices, traditional desktops, laptops and Internet of
Things, or IoT, through a single platform. XenMobile directly integrates with Microsoft
EMS/Intune to extend the mobility and device management capabilities.
Citrix Workspace
We offer customers the opportunity to acquire our mobility, desktop and app solutions through a
single comprehensive integrated offering, Citrix Workspace, which includes our XenApp, XenDesktop,
XenMobile, ShareFile and NetScaler products. Citrix Workspace securely delivers the apps, desktops,
branch networking and WAN, enterprise mobility management and data people need for business
productivity. We offer one of the industry’s most complete and integrated digital workspaces that is
streamlined for IT control and easily accessible for users.
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Citrix Workspace delivers a unified user experience for any app or desktop on any device,
including tablets, smartphones, PCs, Macs or thin clients. IT can securely deliver content over
low-bandwidth high-latency WANs, highly variable 3G/4G mobile networks or a reliable
corporate LAN to improve end-user experience while offering enterprise-grade security to data
and applications. Citrix Workspace provides a unified, flexible solution that can streamline device,
application and desktop deployment and lifecycle management to reduce IT costs. Citrix
Workspace offers choice of device, cloud and network and can be deployed on-premises, via the
cloud or as a hosted service.
Networking
Our Networking products allow organizations to deliver apps and data with the security, reliability, and
speed trusted by thousands of customers worldwide.
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NetScaler ADC is a software-defined application delivery controller, or ADC, and load balancer
designed to improve application performance and reliability for mobile, remote and branch users;
allow customers to transition their infrastructure to an app-driven, software-defined network;
eliminate multiple remote access solutions for improved security; and consolidate data centers for
greater efficiency. Additionally, we extend the platform with best-of-breed web application
firewall, or WAF, capabilities that protects web applications and sites from both known and
unknown attacks, including application-layer and zero-day threats.
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NetScaler SD-WAN increases the security, performance and reliability of traditional enterprise
applications, SaaS applications and virtual desktops for remote users. It is an integrated platform
that can help customers effectively and economically increase WAN throughput while accelerating
enterprise applications and ensuring the performance and availability of mission critical
applications through a hybrid WAN architecture.
Content Collaboration
Our Content Collaboration offering meets the collaboration and mobility needs of users, with scalable
data security requirements for small business to the enterprise.
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ShareFile is a secure, cloud-based file sharing and storage solution built for mobile business,
giving users enterprise-class data services across all corporate and personal mobile devices, while
maintaining total IT control. ShareFile protects data throughout the storage and transfer process,
using up to 256-bit encryption and SSL or Transport Layer Security, or TLS encryption protocols
for transfer and 256-bit encryption for files at rest on ShareFile servers. Password protection and
granular access to folders and files stored with ShareFile ensure that data remains in control of
the company. With ShareFile Enterprise, organizations can manage their data on-premises in
customer managed StorageZones, select Citrix managed secure cloud options or create a mix of
both to meet the needs for data sovereignty, compliance, performance and costs. Additionally,
ShareFile supports e-signature, feedback and approval workflows that help businesses adopt the
mobile, digital office.
License Updates and Maintenance
Designed to prevent business downtime, we offer technical support that provides anytime access to
expertise, plus product version updates and upgrades. We provide several support options for customers and
partners to choose from.
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Customer Success Services for our software solutions, which gives customers a choice of tiered
support offerings that combine the elements of product version upgrades, guidance, enablement,
support and proactive monitoring to help our customers and our partners fully realize their
business goals and get the most out of their Citrix investments. Additionally, customers may
upgrade to receive personalized support from a dedicated team led by an assigned account
manager. Fees associated with this offering are recognized ratably over the term of the contract.
Hardware Maintenance for our Networking products, which gives customers a choice of tiered
support offerings that includes technical support, latest software upgrades, and replacement of
malfunctioning appliances to minimize organizational downtime. Additionally, dedicated account
management is available as an add-on to the program for an even higher level of service. Fees
associated with this offering are recognized ratably over the term of the contract.
Professional Services
We provide a portfolio of professional 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.
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Citrix Consulting helps guide the successful implementation of Citrix technologies and solutions
through the use of proven methodologies, tools and leading practices. Citrix Consulting focuses
on strategic engagements with enterprise customers who have complex, mission-critical, or
large-scale Citrix deployments. These engagements are typically fee-based engagements for the
most challenging projects in scope and complexity, requiring consultants who are qualified with
project methodology and Citrix expertise. 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.
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Product Training & Certification helps enable our customers and partners to be successful with
Citrix and achieve their business objectives faster. Authorized Citrix training is available when and
how it is needed. Traditional or virtual instructor-led training offerings feature Citrix Certified
Instructors delivering training in a classroom or remote setting at one of our 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 include hands-on practice via virtual labs. Certifications
validate key skills and are available for administrators, engineers, architects and sales professionals.
Technology
Our solutions are based on a full range of core proprietary technologies and certain industry-standard
open source technologies.
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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, which consists of server- and client-side technology that allows graphical user interfaces
to be transmitted securely over any network, and includes optimizations for multimedia, unified
communications, high-end graphics and mobile networks which work together to provide a
high-definition user experience across a wide array of applications, devices and networks.
NetScaler nCore Technology is an architecture that enables execution of multiple packet engines in
parallel. nCore technology allows the distribution of packet flows across multiple central
processing unit cores to achieve efficient, high-performance parallel processing across multiple
packet engines. The architecture incorporates innovations in flow distribution and state sharing
and provides for efficient execution across packet engines.
XenMobile is our foundational technology that delivers a holistic mobile computing platform for
enterprises. Its main components include MDM, MAM, MCM, UEM, end-to-end security and a
set of mobile productivity apps including secure email, corporate app store, Web browsing, data
sharing, secure note taking and document editing on a host of mobile platforms including iOS,
Android and Windows mobile.
Innovation is a core Citrix competency. We have many additional unique innovations that are
important enablers of our continued leadership in application virtualization, VDI and networking.
Customers
We believe that the primary IT buyers involved in decision-making related to our solutions are the
following:
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Strategic IT Executives including chief information officers, chief technology officers, chief
information security 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.
Desktop Operations Managers who are responsible for managing Windows Desktop
environments including corporate help desks.
IT Infrastructure Managers who are responsible for managing and delivering Windows-based
applications.
Directors of Messaging and Mobility, who are, respectively, responsible for messaging
technologies and defining mobile strategies and solutions for securing and managing mobile
devices including their content and applications.
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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Server Operations Managers who are responsible for specifying datacenter systems and managing
daily operations.
Individuals and prosumers, who are responsible for choosing personal solutions and helping small
businesses 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.
Chief technology officer and engineering department (managers and architects, among others) for
telecommunications service providers.
Line of business and functional executives that determine the need for our cloud and
subscription-based offerings at certain enterprises.
Chief information officer and engineering departments within service providers, using our
solutions to deliver desktops and applications as hosted cloud services.
The IT buyers for our solutions include a wide variety of industries including those in financial services,
technology, healthcare, education, government and telecom.
Technology Relationships
We have a number of technology relationships in place to accelerate the development of existing and
future solutions and our go-to-market initiatives. These relationships include cross-licensing, OEM, resell,
joint reference architectures, and other arrangements that result in better solutions for our customers.
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Microsoft
For over 25 years, Citrix and Microsoft have maintained a strategic partnership spanning product
development, go-to-market initiatives and partner development, with the goal of helping customers to
enable secure delivery of applications and data on any device, wherever they go. Over the past two years, the
two companies have expanded that collaboration to help our joint customers make the transition from
delivering apps and desktops using an on-premises IT infrastructure approach to a hybrid and cloud IT
infrastructure model. Citrix and Microsoft are offering services that enable customers to deploy Windows
10 desktops on the Microsoft Azure cloud platform, services to deploy apps directly on Azure, and smart
tools to simplify the deployment of new workspaces. In addition, the partnership is extending to Citrix
mobility and network management products and services that complement Microsoft Enterprise Mobility +
Security (EMS) and provide comprehensive security and value for Citrix and Microsoft customers. This
next-generation model encompasses not just the Microsoft platform but extends to enable customers to
leverage other platforms to deliver the best experiences through Citrix and Microsoft technologies.
Nutanix
Citrix and Nutanix have a joint secure and scalable hyper-converged infrastructure solution that
delivers a strong user experience and value while reducing infrastructure complexity. Nutanix extended their
solution and announced InstantOn for our cloud solutions. This solution enables fast, easy delivery of
secure digital workspaces for today’s hybrid cloud world. By combining Nutanix scale-as-you-grow
architecture with the cloud simplicity of XenApp and XenDesktop Service, customers can reduce ongoing
costs, alleviate infrastructure complexity, and deliver high-performance access to applications and desktops
to every user.
Google
We expanded our multi-year partnership with Google to help deliver secure, cloud-based applications
to enterprise customers, to help organizations solve their requirements for secure digital workspaces and to
seamlessly and confidently accelerate their secure cloud transformation. We continue to build on our
successful partnership to deliver secure, virtual business applications to Chrome OS and Android devices, in
addition to extending ShareFile connectors and workflows to Google G-Suite and Drive. With Citrix
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Workspace solutions and NetScaler CPX running workloads on Google Cloud Platform, we are bringing
cloud delivery of applications and desktops to enterprise customers who are increasingly looking to public
and hybrid clouds to address competitive demands and to solve business challenges.
Additional Relationships
Our partners continue to expand their focus on the broad range of our solutions. We have continued to
invest in our Global System Integrator partnerships, with organizations including IBM, DXC, and Fujitsu,
that have multiple offerings in the market with Citrix Workspace and Citrix Networking solutions. We
extended our 20+ year alliance with Hewlett Packard Enterprise and entered into a three-year strategic
partnership agreement to extend our leadership in the secure delivery of apps and data by building
innovative solutions and services leveraging the full Citrix software stack and our cloud solution. We
launched a partnership with Samsung to deliver secure access to digital workspaces, bringing enterprise
apps and data to any Samsung DeX enabled mobile device. We also have established relationships with Intel
and NVIDIA that complement the benefits provided by our solutions. Supporting our customers and a
multi-cloud strategy, we expanded our partnership with Amazon Workspace Services and in 2017,
announced support for Citrix customers utilizing Oracle Cloud Infrastructure.
Through our Citrix Ready program, we help customers find Citrix-compatible products for their
organization. The program is trusted by customers, providing them choice and confidence when identifying
and choosing Citrix verified partner products critical to solving their business needs. The Citrix Ready
partner community is highly active and takes advantage of numerous programs to incorporate our solutions
and technologies into their solutions, including Citrix Receiver, HDX, XenDesktop, XenApp, NetScaler,
ShareFile, XenMobile and our cloud solution. Our Citrix Receiver and HDX technologies are often
included with thin clients, industry-standard servers and mobile devices, such as Apple’s iPhone and iPad,
Windows Mobile, and Google Android and Chrome devices.
Research and Development
We focus our research and development efforts on developing new solutions and core technologies in
our core markets and to further enhancing the functionality, reliability, performance and flexibility of
existing solutions. 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 our core technologies represent a significant
competitive advantage for us. Included in the software development teams are individuals 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 Extensible
Markup Language, or XML, based software development, integration of acquired technology, multi-tier
Web-based application development and deployment, SSL secure access, hypervisor technologies, cloud
technologies, networking technologies and building SaaS. We incurred research and development expenses
of approximately $415.8 million in 2017, $395.4 million in 2016 and $481.0 million in 2015.
Sales, Marketing and Services
We market and license our solutions through multiple channels worldwide, including selling through
resellers and direct over the Web. Our partner community comprises thousands of value-added resellers
known as Citrix Solution Advisors, VADs, SIs, ISVs, OEMs, and CSPs. Distribution channels are managed
by our worldwide sales and services organization. Partners receive training and certification opportunities
to support our portfolio of solutions and services.
We reward our partners that identify new business, and provide sales expertise, services delivery,
customer education, technical implementation and support of our portfolio of solutions through our
incentive program. We continue to focus on increasing the productivity of our existing partners, and
building capacity through targeted recruitment, introducing programs to increase partner mindshare, limit
channel conflict and increase partner loyalty to us.
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As we lead with the cloud, we have been cultivating a global base of technology partners within our
Citrix Service Provider, or CSP, program. Our CSP program provides subscription-based services in which
the CSP partners host software services to their end users. Our CSP partners, consisting of managed service
providers, ISVs, hosting providers and telcos, among others, license our desktop, application, networking
and enterprise mobility management solutions on a monthly consumption basis. With our software, these
partners then create differentiated offers of their own, consisting of cloud-hosted applications and
cloud-hosted desktops, which they manage for various customers, ranging from SMBs to enterprise IT.
Besides supplying technology, we are actively engaged in assisting these partners in developing their hosted
businesses either within their respective data centers or leveraging public cloud infrastructure by supplying
business and marketing assistance.
Engagement with SIs and ISVs continues to be a substantial part of our strategic roadmap within large
enterprise and government markets. Our integrator partnerships include organizations such as Atos,
Accenture, Avanade, Capgemini, Dimension Data, DXC, Fujitsu, IBM Global Services, TCS and Wipro,
who all deliver consultancy or global offerings powered by the Citrix Workspace. The ISV program
maintains a strong representation across targeted industry verticals including healthcare, financial services
and telecommunications. Members in the ISV program include Allscripts, Cerner Corporation, Epic
Systems Corporation and McKesson Corporation, among several others. For all of our channels, we
regularly take actions to improve the effectiveness of our partner programs and further strengthen our
channel relationships through management of non-performing partners, recruitment of partners with
expertise in selling into new markets and forming additional strategic global and national partnerships.
Our corporate marketing organization provides sales and industry event support, digital and social
marketing, sales enablement tools and collateral, advertising, direct mail, industry analyst relations and
public relations coverage to market our solutions. Our efforts in marketing are focused on generating leads
for our sales organization and our indirect channels to acquire net new accounts and expand our presence
with existing customers. Our partner development organization actively supports our partners to improve
their commitment and capabilities with Citrix solutions. Our customer sales organization consists of
field-based sales engineers and corporate sales professionals who work directly with our largest customers,
and coordinate integration services provided by our partners. Additional sales personnel, working in central
locations and in the field, provide support including recruitment of prospective partners and technical
training with respect to our solutions.
In fiscal year 2017 and 2016, two distributors, Ingram Micro and Arrow, accounted for 13% and 12%,
respectively, of our total net revenues. In fiscal year 2015, two distributors, Ingram Micro and Arrow,
accounted for 13% and 11%, respectively, of our total net revenues. Our distributor arrangements with
Ingram Micro and Arrow consist of several non-exclusive, independently negotiated agreements with its
subsidiaries, each of which covers different countries or regions. 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, 2017 for information regarding our revenue recognition policy.
International revenues (sales outside the United States) accounted for approximately 46.3% of our net
revenues for the year ended December 31, 2017, 46.3% of our net revenues for the year ended December 31,
2016 and 48.7% of our net revenues for the year ended December 31, 2015. 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, 2017.
Segment Revenue
We previously organized our operations into two reportable segments. As a result of the separation of
the GoTo Business, formerly a reportable segment, on January 31, 2017, we re-evaluated our operating
segments and determined that we have one reportable segment. Our chief operating decision maker, or
CODM, reviews financial information presented on a consolidated basis for purposes of allocating
resources and evaluating financial performance. Our Chief Executive Officer is the CODM. The results of
the GoTo Business, formerly a reportable segment, are accounted for as discontinued operations in our
consolidated statement of income for all periods presented. See Note 12 to our consolidated financial
statements included in this Annual Report on Form 10-K for the year ended December 31, 2017.
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Operations
For our Networking products, which include NetScaler ADC, we use independent contractors to
provide a redundant source of manufacture and assembly capabilities. Independent contractors provide us
with the flexibility needed to meet our product quality and delivery requirements. We have manufacturing
relationships that we enter into in the ordinary course of business, primarily with Flextronics under which
we have subcontracted the majority of our hardware manufacturing activity, generally on a purchase order
basis. 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 solutions. Each of the contract manufacturers procures components necessary to assemble
the products in our forecast and test the products according to our specifications. We are dual-sourced on
our components, however, in some instances, those sources may be located in the same geographic area.
Accordingly, if a natural disaster occurred in one of those areas, we may need to seek additional sources.
Products are then shipped to our 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 2017, we did not experience any material difficulties or significant delays
in the manufacture and assembly of our products.
We are responsible for all purchasing, inventory, scheduling, order processing and accounting functions
related to our operations. For our software products, production, warehousing and shipping are performed
by our independent contractors Hewlett Packard Enterprise, Ireland and Digital River. Master software,
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 master software, print
documentation and package and assemble products to our specifications.
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 or license orders may vary, the amount, if any, of such orders at the end of a fiscal
year is not material to our business. We do not believe that backlog, as of any particular date, is a reliable
indicator of future performance.
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 2018. 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 on a sequential basis.
Competition
We sell our solutions 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 solutions and services continue to develop, additional companies, including
those with significant market presence in the computer appliances, software, cloud services 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” included in this Annual Report on Form 10-K for the year ended December 31,
2017.
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Workspace Services
Our Application Virtualization and VDI solutions are based on an alternative technology platform, the
success of which will depend on organizations and customers perceiving technological, operational and
security benefits and cost savings associated with adopting desktop and application virtualization solutions.
We differentiate our platform from basic virtualization solutions with robust security, flexibility and end
user experience to enable IT to deliver Windows apps and desktops for better business outcomes. Our
primary competition in this market is the existing IT desktop management practice of manually configuring
physical desktops, which is time-consuming, expensive and subject to inconsistency. We also face numerous
competitors that provide automation of these processes and alternative approaches, including VMware’s
Horizon product and the emergence of virtual applications and desktop delivery from public and private
cloud services, including Amazon Web Service’s product Amazon WorkSpaces. Also, there continues to be
an increase in the number of alternatives to Windows-based applications and Windows operating system
powered desktops, particularly in SaaS-delivered applications and mobile devices such as smartphones and
tablets. We believe XenApp and XenDesktop give us a competitive advantage by providing customers
multiple ways to virtualize and deliver desktops and/or apps with a single integrated virtualization system
and delivering a higher performance user experience, more robust security and the flexibility for people to
use any device and IT to use any infrastructure, public or private clouds, hyper-converged, traditional
servers and storage, or combinations of each.
Our Enterprise Mobility Management product line, XenMobile, competes with companies including
AirWatch by VMware, MobileIron, Good Technology by BlackBerry and many other competitors. We
believe we differentiate ourselves from these competitors by providing the most complete solution on the
market, with MDM, MAM and superior core mobile productivity applications, including secure mobile
email, calendar, browser, notes and more, along with integration with Microsoft’s mobility management
platform, EMS. Our apps feature unique workflow integrations designed to make people work better, a
significant advantage over competitors that do not focus on the end user experience and either have basic
applications or rely on third parties for their mobile apps and can drive similar integrations.
We also see competition from competitors that are combining mobile and desktop technologies. We
believe our solution, Citrix Workspace, is the best solution available today that can securely deliver a secure
digital workspace — with any Windows, Web, SaaS and native mobile applications, data and virtual
desktops — to any device, anywhere. For example, VMware offers the VMware Workspace Suite and more
recently introduced VMware Workspace ONE. We expect other vendors to follow suit. We offer
market-leading technologies for every component of the Citrix Workspace. Furthermore, we believe that
our end-user experience is a competitive edge when compared to the alternative solutions due to the
integration, intuitiveness and self-service features of our offerings.
Networking
Our NetScaler ADC products compete against other established competitors, including F5 Networks,
Inc., Dell, Inc., KEMP Technologies, Inc., Fortinet Inc., Radware, A10 Networks, Broadcom, Array
Networks, Inc., AVI Networks, Inc. and Amazon Web Services. The ADC segment also includes a number
of emerging start-up and open source-based competitors, such as HA PROXY Technologies, LLC. and
NGINX, Inc. We continue to enhance NetScaler ADC’s feature capability and invest in go-to-market
resources to market NetScaler ADC to our existing customer base and new potential customers as well as
expanding into telco and cloud provider markets.
Our NetScaler SD-WAN product competes against both traditional WAN optimization and
infrastructure vendors, such as Riverbed, Cisco, Silver Peak and Blue Coat, and managed service providers.
Content Collaboration
In the content collaboration space, our ShareFile product’s direct competition includes Dropbox, Box,
Syncplicity, Egnyte, Inc., BlackBerry’s Watchdox, Accellion, Microsoft and Google, as well as legacy
solutions such as traditional file transfer protocol, or FTP. Many of these competitors have strong brand
recognition through consumer and free versions of their solutions. However, we believe our ShareFile
product offers a superior solution for businesses as it is built specifically for the needs of the business.
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Furthermore, we believe that our strong reputation in certain vertical segments, along with ShareFile’s
integration with our other solutions, such as Citrix Receiver and XenMobile, and our unique ability to store
data on-premise or in the Cloud, are key differentiators.
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 established proprietary trademark rights in markets across
the globe, and own hundreds of U.S. and foreign trademark registrations and pending registration
applications for marks such as Citrix, NetScaler ADC, NetScaler SD-WAN, ShareFile, Xen, XenApp,
XenDesktop, XenServer, XenMobile and many others. 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 solutions could be more significant in maintaining our competitive position. See Part I — Item 1A
entitled “Risk Factors” included in this Annual Report on Form 10-K for the year ended December 31,
2017.
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, 2017.
Employees
As of December 31, 2017, we had approximately 7,500 employees. In October 2017, we announced a
strategic restructuring program which contributed to a reduction in headcount when comparing the 2017
fiscal year to the 2016 fiscal year. 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.
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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, 2017, and in the documents incorporated by reference into this Annual Report on Form 10-K
for the year ended December 31, 2017, that are not historical facts, including, but not limited to, statements
concerning our strategy and operational and growth initiatives, our transition to a subscription-based
business model, product development and offerings of solutions and services, market positioning,
distribution and sales channels, our partners and other strategic or technology relationships, financial
information and results of operations for future periods, competition, seasonal factors, stock-based
compensation, licensing and subscription renewal programs, international operations and expansion,
investment transactions and valuations of investments and derivative instruments, restructuring charges,
reinvestment or repatriation of foreign earnings, fluctuations in foreign exchange rates, tax estimates and
other matters, stock repurchases, our debt, changes in accounting rules or guidance, changes in domestic
and foreign economic conditions, delays or reductions in technology purchases, liquidity, litigation matters
and intellectual property matters, 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 could 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, 2017, 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.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
Our transition from a perpetual licenses to a subscription-based business model and from on-premises software
to cloud-delivered services is subject to numerous risks and uncertainties.
The focus of our business model is shifting away from sales of perpetual licenses to sales of
subscriptions. Additionally, we expect our customers will increasingly rely on our cloud-delivered services
instead of on-premises deployments. This transition may give rise to a number of risks, including the
following:
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we may not be able to implement effective go-to-market strategies and train or properly incentivize
our sales team and channel partners in order to effectively market our subscription offerings;
we may be unsuccessful in maintaining our target pricing, adoption and renewal rates;
we may select solution prices that are not optimal and could negatively affect our sales or earnings;
risks related to the timing of revenue recognition and potential reductions in cash flows in the near
term;
we may incur costs at a higher than forecasted rate as we expand our cloud-delivered services
thereby decreasing our gross margins;
we may not be able to meet customer demand or solution requirements for cloud-delivered
services;
customer concerns regarding changes to pricing, service availability, and security; and
our cloud-delivered services are primarily operated through third party data centers, which we do
not control and which may be vulnerable to damage, interruption and cyber-related risks.
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Our subscription-based business model and expansion of our cloud-delivered services may also require
a considerable investment in resources, including technical, financial, legal, sales, information technology
and operation systems. Market acceptance of such offerings is affected by a variety of factors, including but
not limited to: security, reliability, scalability, customization, performance, current license terms, customer
preference, customer concerns with entrusting a third party to store and manage their data, public concerns
regarding privacy and the enactment of restrictive laws or regulations.
In addition, the metrics we use to gauge the status of our business may evolve over the course of the
transition as significant trends emerge. If we are unable to successfully establish our subscription-based
business model or expand our cloud-delivered services, and navigate our transition in light of the foregoing
risks and uncertainties, our business, results of operations and financial condition could be negatively
impacted.
Our business could be adversely impacted by conditions affecting the information technology market.
The markets for our solutions and services are characterized by:
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rapid technological change;
evolving industry standards;
fluctuations in customer demand;
changing customer business models and increasingly sophisticated customer needs; and
frequent new product and service introductions and enhancements.
The demand for our solutions 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. Moreover, the purchase of our solutions and services is often discretionary
and may involve a significant commitment of capital and other resources. U.S. economic forecasts for the
information technology, or IT, sector are uncertain and continue to highlight an industry in transition from
legacy platforms to mobile, cloud, data analytics and social solutions. If our current and prospective
customers cut costs, they may significantly reduce their information technology expenditures. Additionally,
if our current and prospective customers shift their IT spending more rapidly towards newer technologies
and solutions as mobile, cloud, data analytics and social platforms evolve, the demand for our solutions and
services most aligned with legacy platforms (such as our desktop virtualization solutions) could decrease.
Fluctuations in the demand for our solutions and services could have a material adverse effect on our
business, results of operations and financial condition.
We face intense competition, which could result in customer loss, fewer customer orders and reduced revenues
and margins.
We sell our solutions and services 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. We compete based on our ability to offer to our customers the most current and desired
product and services features. We expect that competition will continue to be intense, and there is a risk that
our competitors’ products may be less costly, more heavily discounted or free, provide better performance or
include additional features when compared to our solutions. Additionally, there is a risk that our solutions
may become outdated or that our market share may erode. Further, the announcement of the release, and
the actual release, of new solutions incorporating similar features to our solutions could cause our existing
and potential customers to postpone or cancel plans to license certain of our existing and future product
and service offerings. Existing or new solutions and services that provide alternatives to our solutions and
services could materially impact our ability to compete in these markets. As the markets for our solutions
and services, especially those solutions in early stages of development, continue to develop, additional
companies, including companies with significant market presence in the computer hardware, software,
cloud, networking, mobile, data sharing and related industries, could enter, or increase their footprint in,
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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.
We expect to continue to face additional competition as new participants enter our markets and as our
current competitors seek to increase market share. Further, we may see new and increased competition in
different geographic regions. The generally low barriers to entry in certain of our businesses increase the
potential for challenges from new industry competitors, whether small and medium sized businesses or
larger, more established companies. Smaller companies new to our market may have more flexibility to
develop on more agile platforms and have greater ability to adapt their strategies and cost structures, which
may give them a competitive advantage with our current or prospective customers. We may also experience
increased competition from new types of solutions as the options for Workspace Services, Networking
products and Content Collaboration (formerly Data) offerings increase. Further, as our industry evolves
and if our company grows, companies with which we have strategic alliances may become competitors in
other product areas, or our current competitors may enter into new strategic relationships with new or
existing competitors, all of which may further increase the competitive pressures we face.
A significant portion of our revenues historically has come from our Application Virtualization and VDI
solutions and our Networking products, and decreases in sales for these solutions could adversely affect our
results of operations and financial condition.
A significant portion of our revenues has historically come from our Application Virtualization and
VDI solutions and Networking products. We continue to anticipate that sales of these solutions and
products and related enhancements and upgrades will constitute a majority of our revenue for the near
future. Declines and variability in sales of certain of these solutions and products could occur as a result of:
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new competitive product releases and updates to existing products delivered as on premises
solutions, especially cloud-based products;
industry trend to focus on the secure delivery of applications on mobile devices;
introduction of new or alternative technologies, products or service offerings by third parties;
termination or reduction of our product offerings and enhancements;
potential market saturation;
failure to enter new markets;
price and product competition resulting from rapid and frequent technological changes and
customer needs;
general economic conditions;
complexities and cost in implementation;
failure to deliver satisfactory technical support;
dissatisfied customers; or
lack of commercial success of our technology relationships.
We have experienced increased competition in the Application Virtualization and VDI business from
directly competing solutions, alternative products and products on new platforms. For example, Amazon
Web Services provides Amazon WorkSpaces and VMware provides Horizon, both of which compete with
these offerings among numerous other competitors. Also, there continues to be an increase in the number
of alternatives to Windows operating system powered desktops, in particular mobile devices such as
smartphones and tablets. Users may increasingly turn to these devices to perform functions that would
have been traditionally performed on desktops and laptops, which in turn may reduce the market for our
Application Virtualization and VDI solutions. Further, increased use of certain SaaS applications may
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result in customers relying less on Windows applications. If sales of our Application Virtualization and VDI
solutions decline as a result of these or other factors, our revenue would decrease and our results of
operations and financial condition would be adversely affected.
Similarly, we have experienced increased competition for our Networking products, including our core
Netscaler ADC solution. For example, there are an increasing number of alternatives to traditional ADC
solutions, enabling our customers to build internal solutions, rely on open source technology or leverage
cloud-based offerings. In addition, our Networking business generates a substantial portion of its revenues
from a limited number of customers. As a result, if our Networking business loses certain customers or one
or more such customers significantly decreases its orders, our business, results of operations and financial
condition could be adversely affected.
Recent changes in our support offerings could adversely impact our business.
We recently redefined our support offerings with the introduction of Citrix Customer Success Services
and our customers are migrating to this new service offering. While this offering provides greater benefits to
our customers, it results in a price increase. If customers do not adopt Customer Success Services, we may
be unable to recoup or realize a reasonable return on our investment in this new service, which could
adversely affect our business, results of operations and financial condition.
In order to be successful, we must attract, engage, retain and integrate key employees and have adequate
succession plans in place, and failure to do so could have an adverse effect on our ability to manage our
business.
Our success depends, in large part, on our ability to attract, engage, retain, and integrate qualified
executives and other key employees throughout all areas of our business. Identifying, developing internally
or hiring externally, training and retaining highly-skilled managerial, technical, sales and services, finance
and marketing personnel are critical to our future, and competition for experienced employees can be
intense. In order to attract and retain executives and other key employees in a competitive marketplace, we
must provide a competitive compensation package, including cash- and equity-based compensation. If we
do not obtain the stockholder approval needed to continue granting equity compensation in a competitive
manner, our ability to attract, retain, and motivate executives and key employees could be weakened.
Failure to successfully hire executives and key employees or the loss of any executives and key employees
could have a significant impact on our operations. Competition for qualified personnel in our industry is
intense because of the limited number of people available with the necessary technical skills and
understanding of solutions in our industry. The loss of services of any key personnel, the inability to retain
and attract qualified personnel in the future or delays in hiring may harm our business and results of
operations.
Effective succession planning is also important to our long-term success. We recently experienced
significant changes in our senior management team, including the appointment of David J. Henshall as our
President and Chief Executive Officer in July 2017 and Mark Ferrer as our Executive Vice President and
Chief Revenue Officer in October 2017. Further, we recently announced the appointment of Andrew
Del Matto as our Executive Vice President and Chief Financial Officer, effective February 19, 2018. Failure
to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our
strategic planning and execution. Further, changes in our management team may be disruptive to our
business, and any failure to successfully integrate key new hires or promoted employees could adversely
affect our business and results of operations.
Industry volatility and consolidation may result in increased competition.
The industry has been volatile and there has been a trend toward industry consolidation in our markets
for several years. We expect this trend to continue, especially in light of the increased availability of
domestic cash resulting from the Tax Cuts and Jobs Act. In addition, we expect companies will attempt to
strengthen or hold their market positions in an evolving and volatile industry. For example, some of our
competitors have made acquisitions or entered into partnerships or other strategic relationships to offer a
more comprehensive solution than they had previously offered. Further, some companies are making plans
or may be under pressure by stockholders to divest businesses and such divestitures may result in stronger
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competition. Additionally, as IT companies attempt to strengthen or maintain their market positions in the
evolving workspace services, networking and data sharing markets, these companies continue to seek to
deliver comprehensive IT solutions to end users and combine enterprise-level hardware and software
solutions that may compete with our Workspace Services and Networking and Content Collaboration
solutions. These consolidators or potential consolidators may have significantly greater financial, technical
and other resources and brand loyalty than we do, and may be better positioned to acquire and offer
complementary solutions and services. The companies resulting from these possible combinations may
create more compelling product and service offerings and be able to offer greater pricing flexibility or sales
and marketing support for such offerings than we can. These heightened competitive pressures could result
in a loss of customers or a reduction in our revenues or revenue growth rates, all of which could adversely
affect our business, results of operations and financial condition.
Actual or perceived security vulnerabilities in our solutions and services or cyberattacks on our networks could
have a material adverse impact on our business, results of operations and financial condition.
Use of our solutions and services may involve the transmission and/or storage of data, including in
certain instances customers’ business, financial and personally identifiable information. Thus, maintaining
the security of our solutions, computer networks and data storage resources is important as security
breaches could result in product or service vulnerabilities and loss of and/or unauthorized access to
confidential information. We devote significant resources to addressing security vulnerabilities in our
solutions and services through our efforts to engineer more secure solutions and services, enhance security
and reliability features in our solutions and services, deploy security updates to address security
vulnerabilities and seek to respond to known security incidents in sufficient time to minimize any potential
adverse impact. Despite our efforts to build secure solutions, from time to time, we experience attacks and
other cyber-threats. These attacks can seek to exploit, among other things, known or unknown
vulnerabilities in technology included in our solutions and services. For example, in January 2018,
vulnerabilities in certain microprocessors were publicly announced under the names Spectre and Meltdown.
These vulnerabilities, despite our mitigation efforts, could render our internal systems, solutions and
services susceptible to a cyberattack.
As we discover vulnerabilities in our solutions or underlying technology, our operations and our
customers could be exposed to risk until such vulnerabilities are addressed. In addition, to the extent we are
diverting our resources to address and mitigate these vulnerabilities, it may hinder our ability to deliver and
support our solutions and customers in a timely manner. As a more general matter, unauthorized parties
may attempt to misappropriate or compromise our confidential information or that of third parties, create
system disruptions, product or service vulnerabilities or cause shutdowns. These perpetrators of
cyberattacks also may be able to develop and deploy viruses, worms, malware and other malicious software
programs that directly or indirectly, for example, through a vendor or other third-party, attack our
solutions, services or networks, or otherwise exploit any security vulnerabilities of our solutions, services
and networks. Because techniques used by these perpetrators to sabotage or obtain unauthorized access to
our systems change frequently and generally are not recognized until long after being launched against a
target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
We can make no assurance that we will be able to detect, prevent, timely and adequately address, or mitigate
the negative effects of cyberattacks or other security breaches.
A breach of our security measures as a result of third-party action, malware, employee error,
malfeasance or otherwise could result in (among other consequences):
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interruption in the delivery of our cloud services;
negative publicity and harm to our reputation or brand, which could lead some customers to seek
to cancel subscriptions, stop using certain of our solutions or services, reduce or delay future
purchases of our solutions or services, or use competing solutions or services;
individual and/or class action lawsuits, which could result in financial judgments against us or the
payment of settlement amounts, which would cause us to incur legal fees and costs;
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regulatory enforcement action under the General Data Protection Regulation or other legal
authority, which could result in significant fines and/or penalties or other sanctions and which
would cause us to incur legal fees and costs; and/or
in the event that we or one of our customers were the victim of a cyberattack or other security
breach, additional costs associated with responding to such breach, such as investigative and
remediation costs, and the costs of providing data owners or others with notice of the breach,
legal fees, costs of any additional fraud detection activities required by such customers’ credit card
issuers, and costs incurred by credit card issuers associated with the compromise and additional
monitoring of systems for further fraudulent activity.
Any of these actions could materially adversely impact our business, results of operations and financial
condition.
Regulation of privacy and data security may adversely affect sales of our solutions and result in increased
compliance costs.
We believe increased regulation is likely with respect to the solicitation, collection, processing or use of
personal, financial and consumer information as regulatory authorities around the world are considering a
number of legislative and regulatory proposals concerning data protection, privacy and data security. This
includes the Global Data Protection Regulation, or GDPR, a new European Union-wide legal framework
to govern data collection, use and sharing and related consumer privacy rights, which is expected to take
effect in 2018. The GDPR includes significant penalties for non-compliance. In addition, the interpretation
and application of consumer and data protection laws and industry standards in the United States, Europe
and elsewhere are often uncertain and in flux. The application of existing laws to cloud-based solutions is
particularly uncertain and cloud-based solutions may be subject to further regulation, the impact of which
cannot be fully understood at this time. Moreover, it is possible that these laws may be interpreted and
applied in a manner that is inconsistent with our data and privacy practices. For example, although the
GDPR will apply across the European Union without a need for local implementing legislation, local data
protection authorities will still have the ability to interpret the GDPR through so-called opening clauses,
which permit region-specific data protection legislation and have the potential to create inconsistencies on a
country-by-country basis. In addition to the possibility of fines, application of these laws in a manner
inconsistent with our data and privacy practices could result in an order requiring that we change our data
and privacy practices, which could have an adverse effect on our business and results of operations.
Complying with these various laws could cause us to incur substantial costs or require us to change our
business practices in a manner adverse to our business. Also, any new regulation, or interpretation of
existing regulation, imposing greater fees or taxes or restricting information exchange over the Web, could
result in a decline in the use and adversely affect sales of our solutions and our results of operations.
Finally, as a technology vendor, our customers will expect that we can demonstrate compliance with current
data privacy and security regulation, and our inability to do so may adversely impact sales of our solutions
and services to certain customers, particularly customers in highly-regulated industries.
Our solutions could contain errors that could delay the release of new products or that 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.
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Certain of our offerings have sales cycles which are long and/or unpredictable which could cause significant
variability and unpredictability in our revenue and operating results for any particular period.
Generally, a substantial portion of our large and medium-sized customers implement our Workspace
Services solutions on a departmental or enterprise-wide basis. We have a long sales cycle for these
departmental or 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 solutions 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.
Our long sales cycle for these solutions makes it difficult to predict when these sales will occur, and we
may not be able to sustain these sales on a predictable basis. In addition, the long sales cycle for these
solutions makes 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, and large projects with
significant IT components may fail to meet our customers’ business requirements or be canceled before
delivery, which likewise could adversely affect our revenue and operating results for any particular period.
Overall, the timing of our revenue is difficult to predict. Our quarterly sales have historically reflected
an uneven pattern in which a disproportionate percentage of a quarter’s total sales occur in the last month,
weeks and days of each quarter. In addition, our business is subject to seasonal fluctuations and such
fluctuations are generally most significant in our fourth fiscal quarter, which we believe is due to the impact
on revenue from the availability (or lack thereof) in our customers’ fiscal year budgets and an increase in
expenses resulting from amounts paid pursuant to our sales compensation plans as performance milestones
are often triggered in the fourth quarter. We believe that these seasonal factors are common within our
industry. 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.
Our success depends on our ability to attract and retain and further access large enterprise customers.
We must retain and continue to expand our ability to reach and access large enterprise customers by
adding effective value-added distributors, or VADs, system integrators, or SIs, and other partners, as well as
expanding our direct sales teams and 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. 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, compounded with the longer sales cycles, could reduce our
revenues and operating profits for a given reporting period and make revenues difficult to predict.
Changes to our licensing or subscription renewal programs, or bundling of our solutions, 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
solutions 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,
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for which we would recognize licensing fees over a longer period, including offering additional solutions in a
SaaS 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, auto-renewals and other factors, could impact the timing of the recognition of revenue for our
solutions, related enhancements and services and could adversely affect our operating results and financial
condition.
Further, we may be required to defer the recognition of revenue that we receive from the sale of certain
bundled solutions if we have not established vendor specific objective evidence, or VSOE, for the
undelivered elements in the arrangement in accordance with generally accepted accounting principles in the
United States, or GAAP. A delay in the recognition of revenue from sales of these bundled solutions may
cause fluctuations in our quarterly financial results and may adversely affect our operating margins.
Similarly, companies that we acquire may operate with different cost and margin structures, which could
further cause fluctuations in our operating results and adversely affect our operating margins. Moreover, if
our quarterly financial results or our predictions of future financial results fail to meet the expectations of
securities analysts and investors, our stock price could be negatively affected.
Sales and renewals of our license updates and maintenance solutions constitute a large portion of our deferred
revenue.
We anticipate that sales and renewals of our license updates and maintenance solutions will continue to
constitute a substantial portion of our deferred revenue. Our ability to continue to generate both recognized
and deferred revenue from our license updates and maintenance solutions will depend on our customers
continuing to perceive value in automatic delivery of our software upgrades and enhancements. Further,
our customers are migrating to our new maintenance service offering, Citrix Customer Success Services.
While this offering provides greater benefits to our customers, it results in a price increase. We may
experience a decrease in renewal rate due to the price increase and perceived value of Customer Success
Services offerings. Additionally, a decrease in demand for our license updates and maintenance solutions
could occur as a result of a decrease in demand for our Workspace Services, Networking and Content
Collaboration solutions. If our customers do not continue to purchase our license updates and maintenance
solutions, our deferred revenue would decrease significantly and our results of operations and financial
condition would be adversely affected.
We recently implemented a restructuring program, which we cannot guarantee will achieve its intended result.
We recently implemented a restructuring program, which we cannot guarantee will achieve its intended
result. In October 2017, we announced the implementation of a restructuring program designed to increase
our strategic focus and operational efficiency. It is anticipated that the aggregate total pre-tax restructuring
charges for this program, which primarily relate to employee severance arrangements and consolidation of
leased facilities, will be in the range of $60.0 million to $100.0 million. We cannot guarantee that we will
achieve or sustain the targeted benefits under this restructuring program, or that the benefits, even if
achieved, will be adequate to meet our long-term profitability expectations. Risks associated with this
restructuring program also include additional unexpected costs, adverse effects on employee morale and the
failure to meet operational and growth targets due to the loss of employees or outsourcing of roles, any of
which may impair our ability to achieve anticipated results of operations or otherwise harm our business.
Adverse changes in general global economic conditions could adversely affect our operating results.
As a globally operated company, we are subject to the risks arising from adverse changes in global
economic and market conditions. Economic uncertainty and volatility in our significant geographic
locations may adversely affect sales of our solutions and services and may result in longer sales cycles,
slower adoption of technologies and increased price competition. For example, if the U.S. or the European
Union countries were to experience an economic downturn, these adverse economic conditions could
contribute to a decline in our customers’ spending on our solutions and services. Additionally, in response
to economic uncertainty, we expect that many governmental organizations that are current or prospective
customers for our solutions and services would cutback spending significantly, which would reduce the
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amount of government spending on IT and demand for our solutions and services from government
organizations. 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.
Our international presence subjects us 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, 2017, we derived 46.3% of our
revenues from sales outside the United States. Potential growth and profitability could require us to further
expand our international operations. To successfully maintain and expand international sales, we may need
to establish additional foreign operations, hire additional personnel and recruit additional international
resellers. Our international operations are subject to a variety of risks, which could adversely affect 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, labor conditions and global policy uncertainty
(including the impact of the proposed exit of the United Kingdom from the European Union,
commonly referred to as “Brexit”);
changing restrictions imposed by regulatory requirements, tariffs or other trade barriers or by U.S.
export laws;
regional data privacy laws that apply to the transmission of our customers’ data across
international borders;
health or similar issues such as pandemic or epidemic;
difficulties in staffing and managing international operations;
longer accounts receivable payment cycles;
potentially adverse tax consequences;
difficulties in enforcing and protecting intellectual property rights;
compliance with the Foreign Corrupt Practices Act, including potential violations by acts of
agents or other intermediaries;
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 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 results of operations.
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 solutions
and services. Our distributors generally sell through resellers. Our distributor and reseller base is relatively
concentrated. 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.
Changes to our sales incentive programs can result from a number of factors, including our transition to a
subscription-based business model. Our competitors may in some cases be effective in providing incentives
to current or potential distributors and resellers to favor their products or to prevent or reduce sales of our
solutions. The loss of or reduction in sales to our distributors or resellers could materially reduce our
revenues. 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.
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We are in the process of diversifying our base of channel relationships by adding and training more
channel partners with abilities to reach larger enterprise customers and additional mid-market customers
and to sell our newer solutions and services. We are also in the process of building relationships with new
types of channel partners, such as systems integrators and service providers. In addition to this
diversification of our partner base, we will need to maintain a healthy mix of channel members who service
smaller customers. We may need to add and remove distribution partners to maintain customer satisfaction,
support a steady adoption rate of our solutions, and align with our transition to a subscription-based
business model, which could increase our operating expenses and adversely impact our go-to-market
effectiveness. 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 adversely impact
our results of operations if such channels do not result in increased revenues.
Our Networking business could suffer if there are any interruptions or delays in the supply of hardware or
hardware components from our third-party sources.
We rely on a concentrated number of third-party suppliers, who provide hardware or hardware
components for our Networking products, and contract manufacturers. If we are required to change
suppliers, there could be a delay in the supply of our hardware or hardware components and our ability to
meet the demands of our customers could be adversely affected, which could cause the loss of Networking
sales and existing or potential customers and delayed revenue recognition and adversely affect our results of
operations. While we have not, to date, experienced any material difficulties or delays in the manufacture
and assembly of our Networking 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, or the need to implement costly or time-consuming protocols to comply with
applicable regulations (including regulations related to conflict minerals), equipment malfunction, natural
disasters and environmental factors, any of which could delay or impede their ability to meet our demand.
We are exposed to fluctuations in foreign currency exchange rates, which could adversely affect our future
operating results.
Our results of operations are subject to fluctuations in exchange rates, which could adversely affect our
future revenue and overall operating results. 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. We generally initiate our hedging of currency
exchange risks one year in advance of anticipated foreign currency expenses for those currencies to which
we have the greatest exposure. 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
and there is no guarantee that we will accurately forecast the expenses we are hedging. Further, a substantial
portion of our overseas assets and liabilities are denominated in local currencies. To protect against
fluctuations in earnings caused by changes in currency exchange rates when remeasuring our balance sheet,
we utilize foreign exchange forward contracts to hedge our exposure to this potential volatility. There is no
assurance that our hedging strategies will be effective. In addition, 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.
RISKS RELATED TO ACQUISITIONS, STRATEGIC RELATIONSHIPS AND DIVESTITURES
Acquisitions and divestitures present many risks, and we may not realize the financial and strategic goals we
anticipate.
In recent years, we have addressed the development of new solutions and services and enhancements to
existing solutions 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
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provide any assurance that any of our acquisitions or future acquisitions will be successful in helping us
reach our financial and strategic goals. The risks we commonly encounter in undertaking, managing and
integrating acquisitions are:
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an uncertain revenue and earnings stream from the acquired company, which could dilute our
earnings;
difficulties and delays integrating the personnel, operations, technologies, solutions and systems of
the acquired companies;
undetected errors or unauthorized use of a third-party’s code in solutions of the acquired
companies;
our ongoing business may be disrupted and our management’s attention may be diverted by
acquisition, transition or integration activities;
challenges with implementing adequate and appropriate controls, procedures and policies in the
acquired business;
difficulties managing or integrating an acquired company’s technologies or lines of 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;
potential difficulties integrating the acquired solutions and services into our sales channel;
assuming pre-existing contractual relationships of an acquired company that we would not have
otherwise entered into, the termination or modification of which may be costly or disruptive to
our business;
being subject to unfavorable revenue recognition or other accounting treatment as a result of an
acquired company’s practices; and
intellectual property claims or disputes.
Our failure to 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.
Any future divestitures we make may also involve risks and uncertainties. Any such divestitures could
result in disruption to other parts of our business, potential loss of employees or customers, exposure to
unanticipated liabilities or result in ongoing obligations and liabilities to us following any such divestiture.
For example, in connection with a divestiture, we may enter into transition services agreements or other
strategic relationships, including long-term services arrangements, or agree to provide certain indemnities to
the purchaser in any such transaction, which may result in additional expense. Further, if we do not realize
the expected benefits or synergies of such transactions, our operating results and financial conditions could
be adversely affected.
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, from our acquisitions. 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 impairment
annually, or sooner if events or changes in circumstances indicate that the carrying amount could exceed
fair value, at the reporting unit level, which for us also represents our operating segments. Significant
judgments are required to estimate the fair value of our goodwill and intangible assets, including estimating
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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. Although we believe the assumptions, judgments and estimates we have made have been
reasonable and appropriate, different assumptions, judgments and estimates, materially affect our results of
operations. Changes in these estimates and assumptions, including changes in our reporting structure, could
materially affect our determinations of fair value. In addition, 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. Also, we may make
divestitures of businesses in the future. If we determine that any of the intangible assets associated with our
acquisitions is impaired or goodwill is impaired, then we would be required to reduce the value of those
assets or to write them off completely by taking a charge to current 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.
Our inability to maintain or develop our strategic and technology relationships could adversely affect our
business.
We have several strategic and technology relationships with large and complex organizations, such as
Microsoft, and other companies with which we work to offer complementary solutions and services. We
depend on the companies with which we have strategic relationships to successfully test our solutions, to
incorporate our technology into their products and to market and sell those solutions. There can be no
assurance we will realize the expected benefits from these strategic relationships or that they will continue in
the future. If successful, these relationships may be mutually beneficial and result in industry growth.
However, such relationships carry an element of risk because, in most cases, we must compete in some
business areas with a company with which we have a strategic relationship and, at the same time, cooperate
with that company in other business areas. Also, if these companies fail to perform or if these relationships
fail to materialize as expected, we could suffer delays in product development, reduced sales or other
operational difficulties and our business, results of operations and financial condition could be materially
adversely affected.
The separation of our GoTo Business and the subsequent merger of GetGo, Inc. could result in substantial tax
liability.
In January 2017, we closed the divestiture of the GoTo Business via a “Reverse Morris Trust”
transaction pursuant to which a wholly-owned subsidiary of LogMeIn, Inc. merged with and into GetGo,
Inc., with GetGo surviving the merger and becoming a wholly-owned subsidiary of LogMeIn, Inc. The
Reverse Morris Trust transaction was structured to qualify as tax-free to Citrix and its shareholders. We
obtained an opinion of outside counsel that, for U.S. federal income tax purposes, the separation of the
GoTo Business qualified, for both the company and our stockholders, as tax-free, and the subsequent
merger of GetGo with a wholly-owned subsidiary of LogMeIn would not render the separation of the
GoTo Business taxable to Citrix and its shareholders. The opinion of outside counsel was based, among
other things, on various factual assumptions we have authorized and representations we, GetGo and
LogMeIn have made to outside counsel. If any of these assumptions or representations are, or become,
inaccurate or incomplete, reliance on the opinion may be affected. An opinion of outside counsel represents
their legal judgment but is not binding on the Internal Revenue Service, or IRS, or any court. Accordingly,
there can be no assurance that the IRS will not challenge the conclusions reflected in the opinions or that a
court would not sustain such a challenge. If the separation or certain internal transactions undertaken in
anticipation of the separation are determined to be taxable for U.S. federal income tax purposes, we and/or
our stockholders that are subject to U.S. federal income tax could incur significant U.S. federal income tax
liabilities.
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RISKS RELATED TO INTELLECTUAL PROPERTY AND BRAND RECOGNITION
Our efforts to protect our intellectual property may not be successful, which could materially and adversely
affect our business.
We rely primarily on a combination of copyright, trademark, patent and trade secret laws,
confidentiality procedures and contractual provisions to protect our source code, innovations and other
intellectual property, all of which offer only limited protection. The loss of any material trade secret,
trademark, tradename, patent or copyright could have a material adverse effect on our business. Despite our
precautions, it could be possible for unauthorized third parties to infringe our intellectual property rights or
misappropriate, copy, disclose or reverse engineer our proprietary information, including certain portions of
our solutions or to otherwise obtain and use our proprietary source code. We may seek to protect our
intellectual property through offensive litigation, which may be costly, trigger counter suits and may be
unsuccessful. In addition, our ability to monitor and control such misappropriation or infringement is
uncertain, particularly in countries outside of the United States. If we cannot protect our intellectual
property from infringement and our proprietary source code against unauthorized copying, disclosure or
use, loss of our market share could result, including as a result of unauthorized third parties’ development
of solutions and technologies similar to or better than ours.
The scope of our patent protection may be affected by changes in legal precedent and patent office
interpretation of these precedents. Further, 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 of protection we seek, if at all; and if issued, may not provide any
meaningful protection or competitive advantage.
Our ability to protect our proprietary rights could be affected by differences in international law and
the 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 solutions under “click-to-accept” license agreements that are not
signed by licensees and through 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 solutions. Moreover, with respect to the various confidentiality, license or other agreements we
utilize with third parties related to their use of our solutions and technologies, there is no guarantee that
such parties will abide by the terms of such agreements.
Our solutions and services, including solutions obtained through acquisitions, could infringe third-party
intellectual property rights, which could result in material litigation costs.
We are routinely subject to patent infringement claims and may in the future be subject to an increased
number of claims, including claims alleging the unauthorized use of a third-party’s code in our solutions.
This may occur for a variety of reasons, including:
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•
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•
the expansion of our product lines through product development and acquisitions;
the volume of patent infringement litigation commenced by non-practicing entities;
an increase in the number of competitors in our industry segments and the resulting increase in
the number of related solutions and services and the overlap in the functionality of those solutions
and services;
an increase in the number of our competitors and third parties that use their own intellectual
property rights to limit our freedom to operate and exploit our solutions, or to otherwise block us
from taking full advantage of our markets;
our solutions and services may rely on the technology of others and, therefore, require us to
obtain intellectual property licenses from third parties in order for us to commercialize our
solutions or services and we may not be able to obtain or continue to obtain licenses from these
third parties on reasonable terms; and
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the unauthorized or improperly licensed use of third-party code in our solutions.
Further, responding to any infringement claim, regardless of its validity or merit, could result in costly
litigation. Further, intellectual property litigation could compel us to do one or more of the following:
•
•
•
•
pay damages (including the potential for treble damages), license fees or royalties (including
royalties for past periods) to the party claiming infringement;
cease selling solutions or services that use the challenged intellectual property;
obtain a license from the owner of the asserted intellectual property to sell or use the relevant
technology, which license may not be available on reasonable terms, or at all; or
redesign the challenged technology, which could be time consuming and costly, or not be
accomplished.
If we were compelled to take any of these actions, our business, results of operations or financial condition
may be adversely impacted.
Our use of “open source” software could negatively impact our ability to sell our solutions and subject us to
possible litigation.
The solutions or technologies acquired, licensed or developed by us may incorporate so-called “open
source” software, and we may incorporate open source software into other solutions 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. Even though we attempt to monitor our use of open source software in an effort to avoid
subjecting our solutions to conditions we do not intend, it is possible that not all instances of our open
source code usage are properly reviewed. Further, 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 or
enforcement of many of the terms of these types of licenses. 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 expenses defending against such
allegations. If our defenses were not successful, we could be subject to significant damages, enjoined from
the distribution of our solutions that contained open source software, and required to comply with the
terms of the applicable license, which could disrupt the distribution and sale of some of our solutions. In
addition, if we combine our proprietary software with open source software in an unintended manner,
under some open source licenses we could be required to publicly release the source code of our proprietary
software, offer our solutions that use the open source software for no cost, make available source code for
modifications or derivative works we create based upon incorporating or using the open source software,
and/or license such modifications or derivative works under the terms of the particular open source license.
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
technology support, maintenance, warranties or assurance of title or controls on the origin of the software.
If we lose access to third-party licenses, releases of our solutions could be delayed.
We believe that we will continue to rely, in part, on third-party licenses to enhance and differentiate our
solutions. 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 and
indemnification protection;
infringement actions brought by third-parties;
that third parties will create solutions that directly compete with our solutions; and
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termination or expiration of the license.
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 solutions. Any delays could
have a material adverse effect on our business, results of operations and financial condition.
Our business depends on maintaining and protecting the strength of our collection of brands.
The Citrix product and service brands that we have developed have significantly contributed to the
success of our business. Maintaining and enhancing the Citrix product and service brands is critical to
expanding our base of customers and partners. We may be subject to reputational risks and our brand
loyalty may decline if others adopt the same or confusingly similar marks in an effort to misappropriate and
profit on our brand name and do not provide the same level of quality as is delivered by our solutions and
services. Also, others may rely on false comparative advertising and customers or potential customers could
be influenced by false advertising. Additionally, we may be unable to use some of our brands in certain
countries or unable to secure trademark rights in certain jurisdictions where we do business. In order to
police, maintain, enhance and protect our brands, we may be required to make substantial investments that
may not be successful. If we fail to police, maintain, enhance and protect the Citrix brands, if we incur
excessive expenses in this effort or if customers or potential customers are confused by others’ trademarks,
our business, operating results, and financial condition may be materially and adversely affected.
RISKS RELATED TO OUR COMMON STOCK, OUR DEBT AND EXTERNAL FACTORS
Servicing our debt will require a significant amount of cash, which could adversely affect our business,
financial condition and results of operations. We may not have sufficient cash flow from our business to make
payments on our debt, settle conversions of our Convertible Notes or repurchase our Convertible Notes or 2027
Notes upon certain events.
We have aggregate indebtedness of approximately $2.13 billion that we have incurred in connection
with the issuance of our unsecured senior notes due December 1, 2027, or the 2027 Notes, and our 0.500%
Convertible Notes due 2019, or the Convertible Notes, and under our Credit Agreement, and we may incur
additional indebtedness in the future. Our ability to make scheduled payments of the principal of, to pay
interest on or to refinance our indebtedness, depends on our future performance, which is subject to general
economic, financial, competitive and other factors beyond our control. Our business may not generate cash
flow from operations in the future sufficient to service our debt and to make necessary capital expenditures.
If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as
selling assets, reducing capital expenditures, restructuring debt or obtaining additional equity or debt
financing on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will
depend on the capital markets and our financial condition at such time. We may not be able to sell assets,
restructure our indebtedness or obtain additional equity or debt financing on terms that are acceptable to
us or at all, which could result in a default on our debt obligations. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates”
and Note 13 to our consolidated financial statements included in this Annual Report on Form 10-K for the
year ended December 31, 2017 for information regarding our 2027 Notes, our Convertible Notes and our
Credit Facility.
In addition, holders of our Convertible Notes have the right to require us to repurchase their
Convertible Notes upon the occurrence of a fundamental change at a fundamental change repurchase price
equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and
unpaid interest, if any. If a change in control repurchase event occurs with respect to the 2027 Notes, we
will be required, subject to certain exceptions, to offer to repurchase the 2027 Notes at a repurchase price
equal to 101% of the principal amount of the 2027 Notes repurchased, plus accrued and unpaid interest, if
any. Further, upon conversion of the Convertible Notes, we will be required to make cash payments for each
$1,000 in principal amount of Convertible Notes converted of at least the lesser of $1,000 and the sum of
the daily conversion values thereunder. In such events, we may not have enough available cash or be able to
obtain financing to repurchase the Convertible Notes or 2027 Notes or make cash payments upon
conversion of the Convertible Notes. In addition, our ability to repurchase the Convertible Notes or 2027
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Notes or to pay cash upon conversion of the Convertible Notes may be limited by law, by regulatory
authority or by agreements governing our other indebtedness.
Further, we are required to comply with the covenants set forth in the indenture governing the
Convertible Notes, the indenture governing the 2027 Notes and the Credit Agreement. In particular, the
Credit Agreement requires us to maintain certain leverage and interest ratios and contains various
affirmative and negative covenants, including covenants that limit or restrict our ability to grant liens, merge
or consolidate, dispose of all or substantially all of our assets, change our business or incur subsidiary
indebtedness. The indenture governing our 2027 Notes contains covenants limiting our ability and the
ability of our subsidiaries to create certain liens, enter into certain sale and leaseback transactions, and
consolidate or merge with, or sell, assign, convey, lease, transfer or otherwise dispose of all or substantially
all of our assets, taken as a whole, to, another person. If we fail to comply with these covenants or any
other provision of the agreements governing our indebtedness and do not obtain a waiver from the lenders
or noteholders, then, subject to applicable cure periods, our outstanding indebtedness may be declared
immediately due and payable. Additionally, a default under an indenture or the Credit Agreement could
lead to a default under the other agreements governing our current and any future indebtedness. If the
repayment of the related indebtedness were to be accelerated, we may not have enough available cash or be
able to obtain financing to repay the indebtedness.
Our indebtedness, combined with our other financial obligations and contractual commitments, could
have other important consequences. For example, it could:
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make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry
and competitive conditions and adverse changes in government regulation;
limit our flexibility in planning for, or reacting to, changes in our business and our industry;
place us at a disadvantage compared to our competitors who have less debt; and
limit our ability to borrow additional amounts to fund acquisitions, for working capital and for
other general corporate purposes.
Any of these factors could materially and adversely affect our business, financial condition and results
of operations. In addition, if we incur additional indebtedness, the risks related to our business and our
ability to service or repay our indebtedness would increase. Also, changes by any rating agency to our credit
rating may negatively impact the value and liquidity of both our debt and equity securities, as well as the
potential costs associated with any potential refinancing of our indebtedness. Downgrades in our credit
rating could also restrict our ability to obtain additional financing in the future and could affect the terms
of any such financing.
The conditional conversion feature of our Convertible Notes, if triggered, may adversely affect our financial
condition and operating results.
In the event the conditional conversion feature of our Convertible Notes is triggered, holders of the
Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at
their option. If one or more holders elect to convert their Convertible Notes, we would be required to settle
the principal amount in cash and the remaining amount, if any, in shares of our common stock or a
combination of cash and shares of our common stock, at our election. Our payment of cash upon
settlement of conversion of the Convertible Notes could adversely affect our liquidity. In addition, even if
holders do not elect to convert their Convertible Notes, we could be required under applicable accounting
rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather
than long-term liability, which would result in a material reduction in our net working capital.
The accounting method for convertible debt securities that may be settled in cash, such as the Convertible
Notes, could have a material effect on our reported financial results.
Under FASB Accounting Standards Codification 470-20, Debt with Conversion and Other Options, or
ASC 470-20, an entity must separately account for the liability and equity components of the convertible
debt instruments (such as the Convertible Notes) that may be settled entirely or partially in cash upon
conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the
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accounting for the Convertible Notes is that the equity component is required to be included in the
additional paid-in capital section of stockholders’ equity on our consolidated balance sheet, and the value
of the equity component would be treated as original issue discount for purposes of accounting for the debt
component of the Convertible Notes, which will result in non-cash charges to interest expense in our
consolidated statement of income. As a result, we will report lower net income in our financial results as
reported in accordance with U.S. GAAP because ASC 470-20 will require interest to include both the
current period’s amortization of the debt discount and the instrument’s coupon interest, which could
adversely affect our reported or future financial results.
In addition, under certain circumstances, convertible debt instruments (such as the Convertible Notes)
that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method,
the effect of which is that the shares issuable upon conversion of the Convertible Notes are not included in
the calculation of diluted earnings per share except to the extent that the conversion value of the
Convertible Notes exceeds their principal amount. Under the treasury stock method, for diluted earnings
per share purposes, the transaction is accounted for as if the number of shares of common stock that would
be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure
that the accounting standards in the future will continue to permit the use of the treasury stock method. If
we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the
Convertible Notes, then our diluted earnings per share would be adversely affected. Moreover, the warrants
that we issued in connection with the pricing of the Convertible Notes would need to be included in the
number of diluted shares reported if our stock price increases above the relevant exercise price on an
average basis during the applicable period, which would negatively impact our diluted earnings per share.
Our portfolios of liquid securities and strategic investments may lose value or become impaired.
Our investment portfolio consists of agency securities, corporate securities, money market funds,
municipal securities, government securities and commercial paper. 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.
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 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 the IRS. 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, we need to comply with the recently enacted Tax Cuts and Jobs Act of
2017, or the 2017 Tax Act, as well as new, evolving or revised tax laws and regulations globally, and any
changes in the application or interpretation of these regulations may have an adverse effect on our business
or on our results of operations.
The 2017 Tax Act significantly revised the U.S. tax code by, in part but not limited to, reducing the
U.S. corporate tax rate from 35% to 21% and imposing a mandatory one-time transition tax on certain
un-repatriated earnings of foreign subsidiaries. The SEC staff acknowledged the challenges companies face
incorporating the effects of tax reform by their financial reporting deadlines. In response, on December 22,
2017, the SEC staff issued Staff Accounting Bulletin No. 118, or SAB 118, to address the application of
U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or
analyzed in reasonable detail to complete accounting for certain income tax effects of the 2017 Tax Act.
As of December 31, 2017, we recorded a provisional income tax charge of $64.8 million for the
re-measurement of our U.S. deferred tax assets and liabilities because of the federal corporate maximum
tax rate reduction. We also recorded a provisional income tax charge of $364.6 million for the transition tax
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on deemed repatriation of deferred foreign income. The provisional amounts recorded are based on our
current interpretation and understanding of the 2017 Tax Act, are judgmental and may change as we
receive additional clarification and implementation guidance. We will continue to gather and evaluate the
income tax impact of the 2017 Tax Act. Changes to these provisional amounts or any of our other
estimates regarding taxes could result in material charges or credits in future reporting periods.
There can be no assurance that we will continue to repurchase stock or that we will repurchase stock at
favorable prices.
From time to time, our Board of Directors authorizes additional share repurchase authority under our
ongoing stock repurchase program, including, most recently, a $1.7 billion increase in repurchase authority
in November 2017. The amount and timing of stock repurchases are subject to capital availability and our
determination that stock repurchases are in the best interest of our stockholders and are in compliance with
all respective laws and our agreements applicable to repurchases of stock. Our ability to repurchase stock
will depend upon, among other factors, our cash balances and potential future capital requirements for
strategic transactions, debt service, capital expenditures, working capital and other general corporate
purposes, as well as our results of operations, financial condition and other factors that we may deem
relevant. A reduction in, or the completion of, our stock repurchase program could have a negative effect on
our stock price. We can provide no assurance that we will repurchase stock at favorable prices, if at all.
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;
rumors, announcements, or press articles regarding our or our competitors’ operations,
management, organization, financial condition, or financial statements; 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 fluctuations may continue in the future and this could materially and adversely affect the market
price of our stock, regardless of operating performance.
Changes or modifications in financial accounting standards may have a material adverse impact on our
reported results of operations or financial condition.
A change or modification in accounting policies can have a significant effect on our reported results
and may even affect our reporting of transactions completed before the change is effective, including the
potential impact of the adoption and implementation of the accounting standard update on revenue
recognition issued in May 2014 by the Financial Accounting Standards Board. Under the new standard, we
will recognize term license revenues upfront at time of delivery rather than ratably over the related contract
period. We expect revenue recognition related to perpetual software, hardware, cloud offerings and
professional services to remain substantially unchanged. Additionally, under the new standard, we will
capitalize and amortize certain direct costs, such as commissions, over the expected customer life rather
than expensing them as incurred. While the adoption of the new standard does not change the cash flows
received from our contracts with customers, its adoption could have a material adverse effect on our
financial position or results of operations. Refer to Note 18 in the notes to our consolidated financial
statements included in this Annual Report on Form 10-K for additional information on the new standard
and its potential impact on us. New pronouncements and varying interpretations of existing
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pronouncements have occurred with frequency and may occur in the future. Changes to existing rules, or
changes to the interpretations of existing rules, could lead to changes in our accounting practices, and such
changes could materially adversely affect our reported financial results or the way we conduct our business.
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, floods or earthquakes, or other unanticipated catastrophes, such as telecommunications
failures, cyber-attacks, fires or terrorist attacks, at any of the locations in which we or our key partners,
suppliers and customers 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’, suppliers’ 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’, suppliers’ or customers’ businesses, due to natural disasters or other unanticipated
catastrophes could have a material adverse effect on our results of operations.
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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 2017
fiscal year that remain unresolved.
ITEM 2. PROPERTIES
We lease and sublease office space in the Americas, which is comprised of the United States, Canada
and Latin America, EMEA, which is comprised of Europe, the Middle East and Africa, and APJ, which is
comprised of Asia-Pacific and Japan. The following table presents the location and square footage of our
leased office space as of December 31, 2017:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APJ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Square footage
831,809
238,609
616,563
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,686,981
In addition, we own land and buildings in Fort Lauderdale, Florida with approximately 317,000 square
feet of office space used for our corporate headquarters and approximately 41,000 square feet of office
space in Chalfont St. Peter, United Kingdom.
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, or the other matters. We believe that we have meritorious defenses to the allegations
made in our pending cases 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. 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 it is not
reasonably possible that the ultimate outcomes will materially and adversely affect our business, financial
position, results of operations or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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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.
High
Low
Year Ended December 31, 2017:
Fourth quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$88.98
$77.50
Third quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$83.00
$73.33
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$87.95
$77.22
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$87.99
$70.24
Year Ended December 31, 2016:
Fourth quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$75.26
$72.89
$73.30
$64.47
$66.26
$63.99
$62.10
$49.61
On February 9, 2018, the last reported sale price of our common stock on The Nasdaq Global Select
Market was $85.75 per share. As of February 9, 2018, there were 500 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. Historically, we have not paid any cash dividends on our capital
stock, however, we continuously reassess our capital allocation strategy, and evaluate a variety of options,
including share repurchases and dividends, as a means to return capital to our stockholders.
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 $8.5 billion, of which $500.0 million was approved in January 2017 and an
additional $1.7 billion was approved in November 2017. We may use the approved dollar authority to
repurchase stock at any time until the approved amount is exhausted. The objective of the stock repurchase
program is to improve stockholders’ returns. At December 31, 2017, approximately $1.43 billion was
available to repurchase common stock pursuant to the stock repurchase program. All shares repurchased
are recorded as treasury stock.
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The following table shows the monthly activity related to our stock repurchase program for the quarter
ended December 31, 2017.
Total Number
of Shares
Purchased(1)
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)(2)
October 1, 2017 through October 31, 2017 . . . . . .
19,097
November 1, 2017 through November 30, 2017 . .
7,160,577
December 1, 2017 through December 31, 2017 . . .
56,839
$79.43
$84.12
$88.28
—
7,132,668
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,236,513
$84.14
7,132,668
$ 329,049
$1,429,049
$1,429,049
$1,429,049
(1) Represents approximately 7.1 million shares from the ASR agreement described below and 103,845
shares withheld from restricted stock units that vested in the fourth quarter of 2017 to satisfy minimum
tax withholding obligations that arose on the vesting of restricted stock units.
(2) Shares withheld from restricted stock units and stock awards that vested to satisfy minimum tax
withholding obligations that arose on the vesting of awards do not deplete the dollar amount available
for purchases under the repurchase program.
In November 2017, our board of directors authorized us to repurchase up to an additional $1.7 billion
of our common stock, for a total repurchase authorization in excess of $2.0 billion, of which we used
$750.0 million to purchase shares of our common stock through our Accelerated Share Repurchase
(“ASR”) agreement with Citibank (the “ASR Counterparty”). We paid $750.0 million to the ASR
Counterparty under the ASR agreement and received approximately 7.1 million shares of our common
stock from the ASR Counterparty, which represents 80 percent of the value of the shares to be repurchased
pursuant to the ASR Agreement. The total number of shares of common stock that we will repurchase
under the ASR Agreement will be based on the average of the daily volume-weighted average prices of our
common stock during the term of the ASR Agreement, less a discount. Final settlement of the ASR
agreement was completed in January 2018 and we received delivery of an additional 1,371,495 shares of our
common stock. See Note 9 to our consolidated financial statements for detailed information on the ASR.
In February 2018, we entered into an ASR transaction with Goldman Sachs & Co. LLC (“Dealer”) to
pay an aggregate of $750.0 million in exchange for the delivery of approximately 6.5 million shares of our
common stock based on current market prices. The purchase price per share under the ASR is subject to
adjustment and is expected to equal the volume-weighted average price of our common stock during the
term of the ASR, less a discount. The exact number of shares repurchased pursuant to the ASR will be
determined based on such purchase price. The ASR transaction is expected to be completed by the end of
April 2018. The ASR was entered into pursuant to our existing share repurchase program. After taking into
account the additional $750.0 million shares repurchased pursuant to this ASR, we will have approximately
$500.0 million of remaining share repurchase authorization available.
Securities Authorized for Issuance Under Equity Compensation Plans
Information about our equity compensation plans is incorporated herein by reference to Item 12 of
Part III of this Annual Report on Form 10-K.
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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.
2017
Year Ended December 31,
2015(a)
2014(a)
2016(a)
2013(a)
(In thousands, except per share data)
Consolidated Statements of Income Data:
Net revenues . . . . . . . . . . . . . . . . . . . . . $2,824,686 $2,736,080 $2,646,154 $2,563,064 $2,918,434
Cost of net revenues(b)
502,795
. . . . . . . . . . . . . .
2,415,639
Gross margin . . . . . . . . . . . . . . . . . . . . .
Operating expenses(c)
2,034,922
. . . . . . . . . . . . . . .
380,717
Income from operations . . . . . . . . . . . . .
8,194
Interest income . . . . . . . . . . . . . . . . . . .
(128)
Interest expense . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . .
(893)
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . .
Income from continuing operations . . . . .
(Loss) income from discontinued
439,646
2,385,040
1,814,043
570,997
27,808
(51,609)
3,150
404,889
2,331,191
1,771,027
560,164
16,686
(44,949)
(4,131)
474,040
2,172,114
1,969,322
202,792
11,675
(44,153)
(5,730)
493,706
2,069,358
1,894,438
174,920
9,421
(28,332)
(7,694)
164,584
(50,549)
215,133
148,315
(18,904)
167,219
387,890
48,367
339,523
527,770
57,915
469,855
550,346
528,361
21,985
operations, net of income tax expense . .
—
(42,704)
Net (loss) income . . . . . . . . . . . . . . . . . . $ (20,719) $ 536,112 $ 319,361 $ 251,723 $ 339,523
104,228
66,257
84,504
Diluted (loss) earnings per share:
Income from continuing operations . . . .
(Loss) income from discontinued
operations
. . . . . . . . . . . . . . . . . . .
Diluted net (loss) earnings per share . . . . . $
Weighted average shares
0.14
2.99
1.34
0.98
(0.27)
(0.13) $
0.42
3.41 $
0.65
1.99 $
0.49
1.47 $
1.80
—
1.80
outstanding – diluted . . . . . . . . . . . . .
155,503
157,084
160,362
171,270
188,245
2017
2016
2015
2014
2013(a)
December 31,
(In thousands)
Consolidated Balance Sheet Data(d):
Total assets . . . . . . . . . . . . . . . . . . . . . . $5,820,176 $6,390,227 $5,467,517 $5,512,007 $5,212,249
3,319,807
Total equity . . . . . . . . . . . . . . . . . . . . . .
2,173,645
1,973,446
2,608,727
992,461
(a) The selected financial data for fiscal years ending December 31, 2016, 2015 and 2014 has been adjusted
to be presented on a continuing operations basis. The selected financial data for fiscal year 2013 has
not been so adjusted. Refer to Note 3 Discontinued Operations in our Consolidated Financial
Statements for additional information.
(b) Cost of net revenues includes amortization and impairment of product related intangible assets of
$65.7 million, $55.4 million, $127.3 million, $142.2 million, and $97.9 million in 2017, 2016, 2015, 2014
and 2013, respectively.
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(c) Operating expenses includes amortization and impairment of other intangible assets of $17.2 million,
$15.1 million, $97.5 million, $41.9 million, and $41.7 million in 2017, 2016, 2015, 2014 and 2013,
respectively. Operating expenses also include restructuring charges of $72.4 million, $67.4 million,
$98.7 million and $14.1 million in 2017, 2016, 2015 and 2014, respectively. No restructuring charges
were incurred in 2013.
(d) Balance Sheet amounts at December 31, 2017 exclude GoTo Business balances as a result of the
separation of the GoTo Business in January 2017. Balance Sheet amounts prior to 2017 include
amounts for the GoTo Business. Refer to Note 3 Discontinued Operations in our Consolidated
Financial Statements for additional information.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Citrix aims to power a world where people, organizations and things are securely connected and
accessible to make the extraordinary possible. We help customers reimagine the future of work by providing
a comprehensive secure digital workspace that unifies the apps, data and services people need to be
productive, and simplifies IT’s ability to adopt and manage complex cloud environments.
We market and license our solutions through multiple channels worldwide, including selling through
resellers and direct over the Web. Our partner community comprises thousands of value-added resellers, or
VARs known as Citrix Solution Advisors, value-added distributors, or VADs, systems integrators, or SIs,
independent software vendors, or ISVs, original equipment manufacturers, or OEMs and Citrix Service
Providers, or CSPs.
We are a Delaware corporation incorporated on April 17, 1989.
Executive Summary
Our solutions mobilize desktops, apps and data to help our customers drive value. We continue driving
innovation in the datacenter with our solutions across both physical and software defined networking
platforms while powering some of the world’s largest clouds and giving enterprises the capabilities to
combine best-in-class application networking services on a single, consolidated footprint.
On January 31, 2017, we completed the spin-off of our GoTo Business (the “Spin-off ”) and
subsequent merger of that business with LogMeIn. In connection with the Spin-off, we distributed
approximately 26.9 million shares of GetGo common stock to our stockholders of record as of the close of
business on January 20, 2017. We delivered the shares of GetGo common stock to our transfer agent, who
held such shares for the benefit of our stockholders. Immediately thereafter, Merger Sub was merged with
and into GetGo, with GetGo continuing as a wholly owned subsidiary of LogMeIn (the “Merger”). As a
result of the Merger, each share of GetGo common stock was converted into the right to receive one share
of LogMeIn common stock. As a result of these transactions, our stockholders received approximately
26.9 million shares of LogMeIn common stock in the aggregate, or 0.171844291 of a share of LogMeIn
common stock for each share of Citrix common stock held of record by our stockholders as of the close of
business on January 20, 2017. No fractional shares of LogMeIn were issued, and our stockholders instead
received cash in lieu of any fractional shares. The consolidated financial statements included in this Annual
Report on Form 10-K and related financial information reflect the GoTo Business operations, assets and
liabilities, and cash flows as discontinued operations for all periods presented. See Note 3 to our
consolidated financial statements included in this Annual Report on Form 10-K for further information.
The distribution of the shares of GetGo common stock to our stockholders also resulted in an
adjustment to the conversion rate for our 0.500% Convertible Notes due 2019 (the “Convertible Notes”)
under the terms of the related indenture. As a result of this adjustment, the conversion rate for the
Convertible Notes in effect as of the opening of business on February 1, 2017 was 13.9061 shares of our
common stock per $1,000 principal amount of Convertible Notes.
On July 7, 2017, our Board of Directors appointed David J. Henshall as President and Chief Executive
Officer of Citrix, effective as of July 10, 2017. Mr. Henshall succeeded Kirill Tatarinov who stepped down
from his roles as President and Chief Executive Officer and director of Citrix on July 7, 2017. Mr. Henshall
was also elected to our Board of Directors, effective as of July 10, 2017. In connection with Mr. Henshall’s
appointment, Mark M. Coyle, Senior Vice President, Finance, was appointed interim Chief Financial
Officer. Further, we recently announced the appointment of Andrew Del Matto as our Executive Vice
President and Chief Financial Officer, effective February 19, 2018. In July 2017, our Board also formed an
Operations and Capital Committee that has worked with our management team and advises our Board of
Directors on opportunities to drive margin expansion and return capital to stockholders.
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On October 4, 2017, we announced a restructuring program to support our initiatives intended to
accelerate our transformation to a cloud-based subscription business, increase strategic focus, and improve
operational efficiency. The program includes, among other things, the elimination of full-time positions and
facilities consolidation. We currently expect to record in the aggregate approximately $60.0 million to
$100.0 million in pre-tax restructuring charges associated with this program. Included in these pre-tax
charges are approximately $55.0 million to $70.0 million related to employee severance arrangements and
approximately $5.0 million to $30.0 million related to the consolidation of leased facilities and other
charges associated with the program.
On November 13, 2017, we announced that our Board approved an increase of an additional
$1.7 billion to our existing share repurchase program. Additionally, on November 15, 2017, we issued
$750.0 million of unsecured senior notes due December 1, 2027 (the “2027 Notes”). The net proceeds from
this offering were approximately $741.0 million, after deducting the underwriting discount and estimated
offering expenses payable by us. Net proceeds from this offering were used to repurchase $750.0 million of
shares of our common stock through an ASR program.
On February 2, 2018, we entered into an ASR transaction with Goldman Sachs & Co. LLC (“Dealer”)
to pay an aggregate of $750.0 million in exchange for the delivery of approximately 6.5 million shares of
our common stock based on current market prices. The purchase price per share under the ASR is subject
to adjustment and is expected to equal the volume-weighted average price of our common stock during the
term of the ASR, less a discount. The exact number of shares repurchased pursuant to the ASR will be
determined based on such purchase price. The ASR transaction is expected to be completed by the end of
April 2018. The ASR was entered into pursuant to our existing share repurchase program. After taking into
account the additional $750.0 million shares repurchased pursuant to this ASR, we will have approximately
$500.0 million of remaining share repurchase authorization available.
On February 6, 2018, we acquired all of the issued and outstanding securities of Cedexis, Inc.
(“Cedexis”) whose solution is a real-time data driven service for dynamically optimizing the flow of traffic
across public clouds, data centers that provides a dynamic and reliable way to route and manage Internet
performance for customers moving towards hybrid and multi-cloud deployments. The total preliminary
cash consideration for this transaction was approximately $66.5 million, net of $6.2 million cash acquired.
During the year ended December 31, 2017, we accelerated our innovation in the cloud, with the
introduction of new services, features and capabilities in our cloud solution to build out a comprehensive
secure digital workspace. We are seeing an increasing shift in the way customers are purchasing our
solutions, evolving towards a more subscription-based business model. We expect our transition to a
subscription-based business model to provide financial and operational benefits to Citrix, including by
increasing customer life-time-value, expanding our customer use-cases and innovation opportunities, and
extending the use of Citrix services to securely deliver a broader array of applications, including Web, SaaS
apps and services.
During the year ended December 31, 2017, we continued to report our revenues in four groupings:
(1) product and license; (2) license updates and maintenance; (3) professional services; and (4) software as a
service. Beginning in the first quarter of fiscal year 2018, we plan to adjust our groupings for reporting
revenue to align with our subscription-based business model transition as follows: (1) product and license
revenue from perpetual product offerings; (2) support and services revenue for perpetual product and license
offerings; and (3) subscription revenue, which will include revenue from our ratable cloud services offerings
and on-premise subscriptions as well as revenue from our CSP offerings.
Summary of Results
For the year ended December 31, 2017 compared to the year ended December 31, 2016, we delivered
the following financial performance:
•
•
•
Product and license revenue decreased 2.9% to $857.3 million;
Software as a service revenue increased 30.5% to $175.8 million;
License updates and maintenance revenue increased 4.6% to $1.7 billion;
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Professional services revenue increased 0.4% to $131.7 million;
Gross margin as a percentage of revenue decreased 0.8% to 84.4%;
Operating income increased 1.9% to $571.0 million; and
Diluted earnings per share from continuing operations decreased 95.3% to $0.14.
The decrease in our Product and licenses revenue was primarily driven by lower overall sales of our
Networking products. Our Software as a service revenues increased due to increased sales of our Content
Collaboration offerings and our Workspace Services offerings delivered via the cloud. The increase in
License updates and maintenance revenue was primarily due to increased sales of software maintenance
revenues across our Workspace Services and Networking products, partially offset by a decrease in our
Subscription Advantage product, which has reached end of sale, and our technical support as customers
continue to migrate to our new software maintenance solutions. Professional services revenue remained
consistent when comparing 2017 to 2016. We currently expect total revenue to increase when comparing the
first quarter of 2018 to the first quarter of 2017. In addition, when comparing the 2018 fiscal year to the
2017 fiscal year, we currently expect total revenue to increase. Gross margin remained consistent when
comparing 2017 to 2016. The increase in operating income when comparing 2017 to 2016 was primarily due
to an increase in revenues. The decrease in diluted earnings per share when comparing 2017 to 2016 was
primarily due to an increase in tax expense due to charges related to the estimated impact from the
enactment of the Tax Cuts and Jobs Act (the “2017 Tax Act”) that was signed on December 22, 2017.
2017 Business Combination
On January 3, 2017, we acquired all of the issued and outstanding securities of Unidesk Corporation
(“Unidesk” or the “2017 Business Combination”). We acquired Unidesk to enhance our application
management and delivery offerings. The total cash consideration for this transaction was $60.4 million, net
of $2.7 million of cash acquired. Transaction costs associated with the acquisition were not significant.
We have included the effect of the Unidesk acquisition in our results of operations prospectively from
the date of acquisition.
2016 Business Combination
On September 7, 2016, we acquired all of the issued and outstanding securities of a privately-held
company. The acquisition provides a software solution that cuts the cost of desktop and application
virtualization and delivers workspace performance by accelerating desktop logon and application response
times for any Microsoft Windows-based environment. The total cash consideration for this transaction was
approximately $11.5 million, net of $0.8 million cash acquired. Transaction costs associated with the
acquisition were not significant. The assets related to this acquisition primarily include $8.2 million of
product technology identifiable intangible assets with a four year life and goodwill of $4.7 million.
2016 Asset Acquisition
On January 8, 2016, we acquired certain monitoring technology assets from a privately-held company
for total cash consideration of $23.6 million. The acquisition provides a monitoring solution for Citrix’s
solutions as it relates to Microsoft Windows applications and desktop delivery. The identifiable intangible
assets acquired related primarily to product technologies.
2016 Divestiture
On February 29, 2016, we sold our CloudPlatform and CloudPortal Business Manager solutions to
Persistent Telecom Solutions, Inc. The agreement included contingent consideration in the form of an
earnout provision based on revenue for a period of five years following the closing date. Any income
associated with the contingent consideration will be recognized if the earnout provisions are met. No
earnout provisions were met during the years ended December 31, 2017 and December 31, 2016. Therefore,
no income was recognized during the years ended December 31, 2017 and 2016, respectively.
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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, 2017 describes the significant accounting policies and methods used in the
preparation of our Consolidated Financial Statements.
Revenue Recognition
We recognize 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 we have no
remaining obligations; the fee is fixed or determinable; and collectability is probable. We define these four
criteria as follows:
•
•
Persuasive evidence of the arrangement exists. Evidence of an arrangement generally consists of a
purchase order issued pursuant to the terms and conditions of a distributor, reseller or end user
agreement. For SaaS, we generally require the customer or the reseller to electronically accept the
terms of an online services agreement or execute a contract.
Delivery has occurred and we have no remaining obligations. We consider 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 hardware appliance sales, our standard delivery
method is free-on-board shipping point. Consequently, we consider delivery of appliances to have
occurred when the products are shipped pursuant to an agreement and purchase order. For SaaS,
delivery occurs upon providing the users with their login id and password. For product training
and consulting services, we fulfill our obligation when the services are performed. For license
updates and maintenance, we assume that our obligation is satisfied ratably over the respective
terms of the agreements, which are typically 12 to 24 months. For SaaS, we assume that our
obligation is satisfied ratably over the respective terms of the agreements, which are typically
12 months.
•
The fee is fixed or determinable. In the normal course of business, we do not provide customers
with the right to a refund of any portion of their license fees or extended payment terms. The fees
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are considered fixed or determinable upon establishment of an arrangement that contains the final
terms of the sale including description, quantity and price of each product or service purchased.
For SaaS, the fee is considered fixed or determinable if it is not subject to refund or adjustment.
•
Collectability is probable. We assess collectability based primarily on the creditworthiness of the
customer. Management’s judgment is required in assessing the probability of collection, which is
generally based on an evaluation of customer specific information, historical experience and
economic market conditions. If we determine 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.
The majority of our product and license revenue consists of revenue from the sale of software
solutions. Software sales generally include a perpetual license to our software and are subject to the industry
specific software revenue recognition guidance. In accordance with this guidance, we allocate revenue to
license updates related to our software 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 revenues, 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 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. We also make
certain judgments to record estimated reductions to revenue for customer programs and incentive offerings
including volume-based incentives, at the time sales are recorded.
For hardware appliance and software transactions, the arrangement consideration is allocated to
stand-alone software deliverables as a group and the non-software deliverables based on the relative selling
prices of using the selling price hierarchy in the revenue recognition guidance. The selling price hierarchy for
a deliverable is based on its VSOE if available, third-party evidence, or TPE, if VSOE is not available, or
estimated selling price if neither VSOE nor TPE is available. We then recognize revenue on each deliverable
in accordance with our policies for product and service revenue recognition. VSOE of selling price is based
on the price charged when the element is sold separately. In determining VSOE, we require that a
substantial majority of the selling prices fall within a reasonable range based on historical discounting
trends for specific solutions and services. TPE of selling price is established by evaluating competitor
solutions or services in stand-alone sales to similarly situated customers. However, as our solutions contain
a significant element of proprietary technology and our solutions offer substantially different features and
functionality, the comparable pricing of solutions with similar functionality typically cannot be obtained.
Additionally, as we are unable to reliably determine what competitors products’ selling prices are on a
stand-alone basis, we are not typically able to determine TPE. The estimate of selling price is established
considering multiple factors including, but not limited to, pricing practices in different geographies and
through different sales channels and competitor pricing strategies.
For our non-software transactions, we allocate the arrangement consideration based on the relative
selling price of the deliverables. For our hardware appliances, we use ESP as our selling price. For our
support and services, we generally use VSOE as our selling price. When we are unable to establish selling
price using VSOE for our support and services, we use ESP in our allocation of arrangement consideration.
Our Content Collaboration (formerly Data) solutions are considered hosted service arrangements per
the authoritative guidance; accordingly, fees related to online service agreements are recognized ratably over
the contract term. In addition, SaaS revenues may also include set-up fees, which are recognized ratably
over the contract term or the expected customer life, whichever is longer. See Notes 2 and 18 to our
consolidated financial statements included in this Annual Report on Form 10-K for the year ended
December 31, 2017 for further information on our revenue recognition.
Valuation and Classification of Investments
The authoritative guidance 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 available-for-sale investments are measured to fair value on a recurring basis. In addition, we
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hold investments that are accounted for based on the cost method. These investments are periodically
reviewed for impairment and when indicators of impairment exist, are measured to fair value as appropriate
on a non-recurring basis. In determining the fair value of our investments 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: Level 1, observable inputs such as quoted prices in active markets for
identical assets or liabilities, Level 2, inputs, other than 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 requires us to develop our own assumptions. 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, yield curve information, benchmark data, prepayment speeds and
credit quality 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
carrying value of an available-for-sale 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 carrying value our
intent to retain or 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.
For our cost method investments, our quarterly review of impairment indicators encompasses the analysis
of specific criteria of the entity, such as cash position, financing needs, operational performance,
management changes, competition and turnaround potential. If any of the above impairment indicators are
present, we further evaluate whether an other-than-temporary impairment should be recorded. 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 5 and 6 to our consolidated financial statements
included in this Annual Report on Form 10-K for the year ended December 31, 2017 and “Liquidity and
Capital Resources” for more information on our investments.
Intangible Assets
We have product related technology assets and other intangible assets from acquisitions and other
third party agreements. We allocate the purchase price of intangible assets acquired through third party
agreements based on their estimated relative fair values. We allocate a portion of purchase price of acquired
companies to the product related technology assets and other intangible 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 and other intangible 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
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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. Critical estimates in valuing certain other intangible assets include but are not limited to
future expected cash flows from customer contracts, customer retention rates, customer lists, distribution
agreements, patents, brand awareness and market position, as well as discount rates.
Management’s estimates of fair value are based upon assumptions believed to be reasonable.
Unanticipated events and circumstances may occur which may affect the accuracy or validity of such
assumptions, estimates or actual results.
We monitor acquired intangible assets for impairment on a periodic basis by reviewing for indicators
of impairment. If an indicator exists we compare the estimated net realizable value to the unamortized cost
of the intangible asset. The recoverability of the intangible assets is primarily dependent upon our ability to
commercialize solutions utilizing the acquired technologies, retain existing customers and customer
contracts, and maintain brand awareness. The estimated net realizable value of the acquired intangible
assets is based on the estimated undiscounted future cash flows derived from such intangible assets. Our
assumptions about future revenues and expenses require significant judgment associated with the forecast
of the performance of our solutions, customer retention rates and ability to secure and maintain our
market position. Actual revenues and costs could vary significantly from these forecasted amounts. If these
solutions are not ultimately accepted by our customers and distributors, and there is no alternative future
use for the technology; or if we fail to retain acquired customers or successfully market acquired brands, we
could determine that some or all of the remaining $142.0 million carrying value of our acquired intangible
assets 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
The excess of the fair value of purchase price over the fair values of the identifiable assets and
liabilities from our acquisitions is recorded as goodwill. At December 31, 2017, we had $1.61 billion in
goodwill related to our acquisitions. Our revenues are derived from sales of our Workspace Services
solutions, Networking products, and related license updates and maintenance, and our Content
Collaboration offerings. As part of our continued transformation, effective January 1, 2016, we reorganized
a part of our business by creating a new Content Collaboration product grouping. In connection with
this change, we performed an assessment of our goodwill reporting units and determined that the
reorganization resulted in the identification of two goodwill reporting units (excluding the GoTo Business).
Additionally, on January 31, 2017, we completed the Spin-off of the GoTo Business and $380.9 million of
the goodwill attributable to the GoTo Business as of December 31, 2016 was distributed to GetGo. As a
result of the Spin-off, we performed an assessment of the two remaining goodwill reporting units and
determined that they remain unchanged. See Note 12 to our consolidated financial statements included in
this Annual Report on Form 10-K for the year ended December 31, 2017 for additional information
regarding our reportable segment.
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. We
complete our goodwill and certain intangible assets impairment tests on an annual basis, during the fourth
quarter of our fiscal year, or more frequently, if changes in facts and circumstances indicate that an
impairment in the value of goodwill and certain intangible assets recorded on our balance sheet may exist.
In the fourth quarter of 2017, we performed a qualitative assessment to determine whether further
quantitative impairment testing for goodwill and certain intangible assets is necessary, and we refer to this
assessment as the Qualitative Screen. In performing the Qualitative Screen, we are required to make
assumptions and judgments including but not limited to the following: the evaluation of macroeconomic
conditions as related to our business, industry and market trends, and the overall future financial
performance of our reporting units and future opportunities in the markets in which they operate. If after
performing the Qualitative Screen impairment indicators are present, we would perform a quantitative
impairment test to estimate the fair value of goodwill and certain intangible assets. In doing so, we would
estimate future revenue, consider market factors and estimate our future cash flows. Based on these key
assumptions, judgments and estimates, we determine whether we need to record an impairment charge to
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reduce the value of the goodwill and certain intangible assets carried on our balance sheet to its estimated
fair value. Assumptions, judgments and estimates about future values are complex and often subjective and
can be affected by a variety of factors, including external factors such as industry and economic trends, and
internal factors such as changes in our business strategy or our internal forecasts. Although we believe the
assumptions, judgments and estimates we have made have been reasonable and appropriate, different
assumptions, judgments and estimates could materially affect our results of operations. As a result of the
Qualitative Screen, no further quantitative impairment test was deemed necessary. There was no
impairment of goodwill as a result of the annual impairment tests completed during the fourth quarters of
2017 and 2016.
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, 2017, we had
$152.3 million in net 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, 2017, we determined that a $76.8 million valuation allowance relating to
deferred tax assets for net operating losses and tax credits 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 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 2017 Tax Act significantly revised the U.S. tax code by, in part but not limited to, reducing the
U.S. corporate tax rate from 35% to 21% and imposing a mandatory one-time transition tax on certain
un-repatriated earnings of foreign subsidiaries. The SEC staff acknowledged the challenges companies face
incorporating the effects of tax reform by their financial reporting deadlines. In response, on December 22,
2017, the SEC staff issued Staff Accounting Bulletin No. 118, or SAB 118, to address the application of
U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or
analyzed in reasonable detail to complete accounting for certain income tax effects of the 2017 Tax Act.
As of December 31, 2017, we recorded a provisional income tax charge of $64.8 million for the
re-measurement of our U.S. deferred tax assets and liabilities because of the federal corporate maximum
tax rate reduction. We also recorded a provisional income tax charge of $364.6 million for the transition tax
on deemed repatriation of deferred foreign income. The provisional amounts recorded are based on our
current interpretation and understanding of the 2017 Tax Act, are judgmental and may change as we
receive additional clarification and implementation guidance. We will continue to gather and evaluate the
income tax impact of the 2017 Tax Act. Changes to these provisional amounts or any of our other
estimates regarding taxes could result in material charges or credits in future reporting periods.
Convertible Senior Notes
In April 2014, we completed a private placement of our Convertible Notes due 2019 with a net share
settlement feature, meaning that upon conversion, the principal amount will be settled in cash and the
remaining amount, if any, will be settled in shares of our common stock or a combination of cash and
shares of our common stock, at our election. In accordance with accounting guidance for convertible debt
instruments that may be settled in cash or other assets on conversion, we first determine the carrying
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amount of the liability component by measuring the fair value of a similar liability that does not have an
associated equity component. Then we determine the carrying amount of the equity component
represented by the embedded conversion option by deducting the fair value of the liability component from
the initial proceeds ascribed to the convertible debt instrument as a whole. Debt discount and debt issuance
costs are amortized to interest expense using the effective interest method.
As a result of the structure of the RMT transaction with LogMeIn and the notification on October 10,
2016 to noteholders in accordance with the Indenture, the Convertible Notes became convertible until the
earlier of (1) the close of business on the business day immediately preceding the ex-dividend date for the
distribution of the outstanding shares of GetGo common stock to the Company’s stockholders by way of a
pro rata dividend, and (2) the Company’s announcement that such distribution will not take place, even
though the Convertible Notes were not otherwise convertible at December 31, 2016. The $1.44 billion
Convertible Notes became convertible with the notice to noteholders. Accordingly, as of December 31,
2016, the carrying amount of the Convertible Notes of $1.3 billion was reclassified from Other liabilities to
Current liabilities and the difference between the face value and carrying value of $79.5 million was
reclassified from stockholders’ equity to temporary equity in the accompanying condensed consolidated
balance sheets. The conversion period terminated as of the close of business on January 31, 2017 in
connection with the Spin-off. As a result, the Convertible Notes were reclassified to Other liabilities from
Current liabilities, and the amount previously recorded as Temporary equity was reclassified to
Stockholders' equity.
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,” included in this Annual Report
on Form 10-K for the year ended December 31, 2017, which could impact our future performance and
financial position.
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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 (in thousands other than percentages):
Year Ended December 31,
2017
2016
2015
2017
Compared to
2016
2016
Compared to
2015
Revenues:
Product and licenses . . . . . . . . . . . . . . . $ 857,253 $ 882,898 $ 873,808
(2.9)%
1.0%
Software as a service . . . . . . . . . . . . . . .
175,762
134,682
103,851
30.5
License updates and maintenance . . . . . .
1,659,936
1,587,271
1,521,007
Professional services . . . . . . . . . . . . . . .
131,735
131,229
147,488
Total net revenues . . . . . . . . . . . . . . .
2,824,686
2,736,080
2,646,154
Cost of net revenues:
Cost of product and license revenues . . . .
123,356
121,391
118,265
Cost of services and maintenance
revenues . . . . . . . . . . . . . . . . . . . . . .
250,602
228,080
228,503
4.6
0.4
3.2
1.6
9.9
29.7
4.4
(11.0)
3.4
2.6
(0.2)
50,183
54,290
71,001
(7.6)
(23.5)
Amortization of product related
intangible assets . . . . . . . . . . . . . . . .
Impairment of product related intangible
assets . . . . . . . . . . . . . . . . . . . . . . . .
15,505
1,128
56,271
1,274.6
Total cost of net revenues . . . . . . . . . .
439,646
404,889
474,040
Gross margin . . . . . . . . . . . . . . . . . . . . . .
2,385,040
2,331,191
2,172,114
Operating expenses:
Research and development . . . . . . . . . . .
Sales, marketing and services . . . . . . . . .
General and administrative . . . . . . . . . .
Amortization of other intangible assets . .
Impairment of other intangible assets . . .
Restructuring . . . . . . . . . . . . . . . . . . . .
415,801
1,006,112
302,565
14,652
2,538
72,375
395,373
976,339
316,838
15,076
—
67,401
480,957
1,005,802
286,424
30,341
67,137
98,661
Total operating expenses
. . . . . . . . . .
1,814,043
1,771,027
1,969,322
Income from operations . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .
Other income (expense), net
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . .
570,997
27,808
(51,609)
3,150
560,164
16,686
(44,949)
(4,131)
202,792
11,675
(44,153)
(5,730)
550,346
528,361
527,770
57,915
164,584
(50,549)
Income from continuing operations . . . . . . $
21,985 $ 469,855 $ 215,133
(Loss) income from discontinued
8.6
2.3
5.2
3.0
(4.5)
(2.8)
100.0
7.4
2.4
1.9
66.7
14.8
(176.3)
4.3
812.3
(95.3)
(98.0)
(14.6)
7.3
(17.8)
(2.9)
10.6
(50.3)
(100.0)
(31.7)
(10.1)
176.2
42.9
1.8
(27.9)
220.7
(214.6)
118.4
operations . . . . . . . . . . . . . . . . . . . . . .
(42,704)
66,257
104,228
(164.5)
(36.4)
Net (loss) income . . . . . . . . . . . . . . . . . . . $ (20,719) $ 536,112 $ 319,361
(103.9)%
67.9%
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Revenues
Net revenues include Product and licenses, License updates and maintenance, Professional services and
SaaS revenues. Product and licenses primarily represent fees related to the licensing of the following major
solutions:
• Workspace Services is primarily comprised of our Application Virtualization solutions which
include XenDesktop and XenApp, our Enterprise Mobility Management solutions which include
XenMobile solutions and Citrix Workspace; and
•
Networking primarily includes NetScaler ADC and NetScaler SD-WAN.
We offer incentive programs to our VADs and VARs to stimulate demand for our solutions. Product
and license revenues associated with these programs are partially offset by these incentives to our VADs and
VARs. In addition, our CSP program provides subscription-based services in which the CSP partners host
software services to their end users. The fees from the CSP program are recognized based on usage and as
the CSP services are provided to their end users.
License updates and maintenance consists of maintenance and support fees related to the following
offerings:
•
Customer Success Services, which gives customers a choice of tiered support offerings that
combine the elements of product version upgrades, guidance, enablement, support and proactive
monitoring to help our customers and our partners fully realize their business goals. Fees
associated with this offering are recognized ratably over the term of the contract;
• Maintenance for our Networking products, which include technical support and hardware and
software maintenance, are recognized ratably over the contract term; and
•
Subscription Advantage program which has been retired and reached end of sale and end of
renewal for existing customers. Fees associated with these offerings are being recognized ratably
over the remaining term of existing contracts, which was typically 12 to 24 months.
Professional services revenues are comprised of:
•
•
Fees from consulting services related to the implementation of our solutions, which are recognized
as the services are provided; and
Fees from product training and certification, which are recognized as the services are provided.
Our SaaS revenues, which are recognized ratably over the contractual term, primarily consist of fees
related to our Content Collaboration offerings, primarily ShareFile, as well as fees related to our Workspace
Services and Networking offerings and products delivered via the cloud.
Year Ended December 31,
2017
2016
2015
2017
Compared to
2016
2016
Compared to
2015
(In thousands)
Revenues:
Product and licenses . . . . . . . . . . . . . . . $ 857,253 $ 882,898 $ 873,808
103,851
Software as a Service . . . . . . . . . . . . . . .
1,521,007
License updates and maintenance . . . . . .
147,488
Professional Services . . . . . . . . . . . . . . .
Total net revenues . . . . . . . . . . . . . . . $2,824,686 $2,736,080 $2,646,154
175,762
1,659,936
131,735
134,682
1,587,271
131,229
$(25,645)
41,080
72,665
506
$ 88,606
$ 9,090
30,831
66,264
(16,259)
$ 89,926
Product and licenses
Product and licenses revenue decreased during 2017 when compared to 2016 primarily due to lower
sales of our Networking products of $25.9 million. Product and licenses revenue increased during 2016
when compared to 2015 due to higher overall sales of our Workspace Services solutions of $8.3 million and
Networking products of $7.1 million. These increases were partially offset by lower sales of our non-core
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products of $8.0 million as a result of our product portfolio rationalization. We currently expect Product
and licenses revenue to decrease when comparing the first quarter of 2018 to the first quarter of 2017 due
to the continued transition to a subscription-based business model as we are offering our customers the
option to purchase our solutions as a subscription, whereby a fee is paid for the right to use our software
and receive support for a specified period.
Software as a Service
Software as a service revenue increased during 2017 compared to 2016 primarily due to increased sales
of our Content Collaboration offerings of $24.4 million and our Workspace Services offerings delivered via
the cloud of $15.7 million. Software as a service revenue increased during 2016 compared to 2015 primarily
due to increased sales of our Content Collaboration offerings. We currently expect our Software as a
Service revenue to increase when comparing the first quarter of 2018 to the first quarter of 2017 as
customers continue to shift to our cloud-based solutions.
License updates and maintenance
In October 2016, we announced the launch of Customer Success Services, which replaced Software
Maintenance and provides a higher standard of service that empowers customer success whether in the
cloud, on-premises or in a hybrid environment through additional services providing expert guidance,
proactive monitoring and enablement. In connection with this launch, beginning in 2017, our customers
began migrating from the Subscription Advantage and Software Maintenance programs to this new
offering.
License updates and maintenance revenue increased during 2017 compared to 2016 primarily due to
an increase in software maintenance revenues of $343.6 million, primarily driven by increased sales of
maintenance revenues across our Workspace Services solutions, partially offset by a decrease in our
Subscription Advantage product of $259.9 million and our technical support of $30.9 million. License
updates and maintenance revenue increased during 2016 compared to 2015 primarily due to an increase
in hardware and software maintenance revenues of $291.2 million, primarily driven by increased sales of
maintenance revenues across our Workspace Services and Networking products, partially offset by
decreases in our Subscription Advantage product of $180.4 million and our technical and premier support
of $44.6 million. These results are due to our new Customer Success Services offering discussed above. We
currently expect that License updates and maintenance revenue will increase when comparing the first
quarter of 2018 to the first quarter of 2017 due to our new Customer Success Services offerings.
Professional services
Professional services revenue remained consistent when comparing 2017 to 2016. The increase in
Professional services revenue when comparing 2016 to 2015 was primarily due to increased implementation
services and product training and certification related to our Workspace Services solutions. We currently
expect Professional services revenue to remain consistent when comparing the first quarter of 2018 to the
first quarter of 2017.
Deferred Revenue
Deferred revenues are primarily comprised of License updates and maintenance revenue from
maintenance fees, which include software and hardware maintenance, our Subscription Advantage program
and technical support. Deferred revenues also include SaaS revenue from our Content Collaboration and
cloud-based subscription offerings and Professional services revenue primarily related to our consulting
contracts.
Deferred revenues increased approximately $179.9 million as of December 31, 2017 compared to
December 31, 2016 primarily due to an increase in sales of our software maintenance offerings of
$439.7 million and SaaS of $44.1 million, partially offset by a net decrease in sales of our Subscription
Advantage product of $323.6 million. We currently expect deferred revenue to increase in 2018.
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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 any reporting period. We do not
believe that backlog, as of any particular date, is a reliable indicator of future performance.
Deferred revenue primarily consists of billings or payments received in advance of revenue recognition
and is recognized in our consolidated balance sheet and consolidated statements of income as the revenue
recognition criteria are met. Unbilled revenue primarily represents future billings under our subscription
agreements that have not been invoiced and, accordingly, are not recorded in accounts receivable and
deferred revenue within our financial statements. As of December 31, 2017, we had unbilled revenue of
$78.1 million. Deferred revenue and unbilled revenue are influenced by several factors, including new
business seasonality within the year, the specific timing, size and duration of customer subscription
agreements, varying billing cycles of subscription agreements, and invoice timing. Fluctuations in unbilled
revenue may not be a reliable indicator of future performance and the related revenue associated with these
contractual commitments.
International Revenues
International revenues (sales outside the United States) accounted for approximately 46.3% of our net
revenues for the year ended December 31, 2017, 46.3% of our net revenues for the year ended December 31,
2016 and 48.7% of our net revenues for the year ended December 31, 2015. The change in our international
revenues as a percentage of our net revenues for the periods presented is not significant. 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, 2017.
Cost of Net Revenues
Cost of product and license revenues . . . . . . .
Cost of services and maintenance revenues . .
Amortization of product related intangible
Year Ended December 31,
2017
2016
2015
2017
Compared to
2016
2016
Compared to
2015
(In thousands)
$123,356
250,602
$121,391
228,080
$118,265
228,503
$ 1,965
22,522
$ 3,126
(423)
assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,183
54,290
71,001
(4,107)
(16,711)
Impairment of product related intangible
assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,505
1,128
56,271
14,377
(55,143)
Total cost of net revenues . . . . . . . . . . . . .
$439,646
$404,889
$474,040
$34,757
$(69,151)
Cost of product and license revenues consists primarily of hardware, shipping expense, royalties,
product media and duplication, manuals and packaging materials. Cost of services and maintenance
revenues consists primarily of compensation and other personnel-related costs of providing technical
support, consulting, cloud capacity costs, as well as the costs related to providing our SaaS offerings. Also
included in Cost of net revenues is amortization of product related intangible assets.
Cost of product and license revenues increased during 2017 when compared to 2016 primarily due to
royalties from our Workspace Services solutions. Cost of product and license revenues increased during
2016 when compared to 2015 primarily due to higher sales of our Networking products, some of which
contain hardware components that have a higher cost than our software solutions. We currently expect cost
of product and license revenues will decrease when comparing the first quarter of 2018 to the first quarter
of 2017, consistent with the expected decrease in revenues as noted above.
Cost of services and maintenance revenues increased during 2017 compared to 2016 primarily due to
an increase in sales of our software maintenance of $12.8 million from our new Customer Success Services
offering, an increase in sales of our Workspace Services offerings delivered via the cloud of $5.1 million,
and an increase in sales of our Content Collaboration offerings of $2.8 million. Cost of services and
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maintenance revenues decreased during 2016 compared to 2015 primarily due to a decrease in
implementation services and product training and certification costs of $20.1 million related to our
Workspace Services solutions, partially offset by an increase in costs due to higher sales of our Content
Collaboration offerings of $17.8 million and support and maintenance costs related to our Workspace
Services and Networking products of $1.9 million. We currently expect cost of services and maintenance
revenues will increase when comparing the first quarter of 2018 to the first quarter of 2017 consistent with
the increase in SaaS revenue and License updates and maintenance revenues as discussed above.
Amortization of product related intangible assets decreased during 2017 as compared to 2016
primarily due to lower amortization of certain intangible assets becoming fully amortized. Amortization of
product related intangible assets decreased during 2016 as compared to 2015 primarily due to lower
amortization of certain intangible assets becoming fully amortized as a result of impairments during 2015.
Impairment of product related intangible assets increased during 2017 as compared to 2016 primarily
due to the impairments of certain acquired intangible assets in 2017. Impairment of product related
intangible assets decreased during 2016 as compared to 2015 primarily due to the impairments of certain
acquired intangible assets in 2015.
Gross Margin
Gross margin as a percent of revenue was 84.4% for 2017, 85.2% for 2016 and 82.1% for 2015. Gross
margin remained consistent when comparing 2017 to 2016. The increase in gross margin as a percentage of
net revenue when comparing 2016 to 2015 was primarily due to 2015 including the impairment of certain
product related intangible assets.
Operating Expenses
Foreign Currency Impact on Operating Expenses
The functional currency for all of our wholly-owned foreign subsidiaries is the U.S. dollar. 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 12 months 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 gain in our hedging
contracts. When the dollar is strong, the resulting decrease to foreign currency denominated expenses will
be partially offset by the loss in our hedging contracts. There is a risk that there will be fluctuations in
foreign currency exchange rates beyond the timeframe for which we hedge our risk.
Research and Development Expenses
Year Ended December 31,
2017
2016
2015
2017
Compared to
2016
2016
Compared to
2015
(In thousands)
Research and development . . . . . . . . . . . . . . . . $415,801 $395,373 $480,957
$20,428
$(85,584)
Research and development expenses consisted primarily of personnel related costs, facility and
equipment costs and cloud capacity costs directly related to our research and development activities. We
expensed substantially all development costs included in the research and development of our solutions.
Research and development expenses increased during 2017 as compared to 2016 primarily due
to an increase in stock-based compensation of $8.7 million, an increase in compensation and other
employee-related costs of $8.6 million, and an increase in cloud capacity costs of $7.1 million. The increase
in compensation and other employee-related costs was primarily related to a net increase in headcount prior
to the restructuring program announced in October 2017 intended to accelerate the transformation to a
cloud-based subscription business, increase strategic focus, and improve operational efficiency. These
increases are partially offset by a decrease in facility and equipment costs of $3.7 million.
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Research and development expenses decreased during 2016 as compared to 2015 primarily due to a
decrease in compensation and employee-related costs mostly related to a net decrease in headcount resulting
from restructuring activities initiated in 2015.
Sales, Marketing and Services Expenses
Year Ended December 31,
2017
2016
2015
2017
Compared to
2016
2016
Compared to
2015
(In thousands)
Sales, marketing and services . . . . . . . . . . . $1,006,112
$976,339
$1,005,802
$29,773
$(29,463)
Sales, marketing and services expenses consisted primarily of personnel related costs, including sales
commissions, pre-sales support, the costs of marketing programs aimed at increasing revenue, such as brand
development, advertising, trade shows, public relations and other market development programs and costs
related to our facilities, equipment, information systems and cloud capacity that are directly related to our
sales, marketing and services activities.
Sales, marketing and services expenses increased during 2017 compared to 2016 primarily due to an
increase in compensation and other employee-related costs, including variable compensation of
$35.1 million resulting from a net increase in headcount, and an increase in cloud capacity costs of
$10.8 million. The increase in compensation and other employee-related costs was primarily related to a net
increase in headcount prior to the restructuring program announced in October 2017 intended to accelerate
the transformation to a cloud-based subscription business, increase strategic focus, and improve operational
efficiency. These increases are partially offset by a decrease in certain facility and depreciation costs of
$14.9 million.
Sales, marketing and services expenses decreased during 2016 compared to 2015 primarily due to a
decrease in compensation and other employee-related costs of $15.5 million as a result of restructuring
initiatives, a decrease in professional services of $12.2 million and a decrease in facilities costs of
$7.3 million. These decreases are partially offset by an increase in variable compensation of $13.6 million
due to an increase in sales.
General and Administrative Expenses
Year Ended December 31,
2017
2016
2015
2017
Compared to
2016
2016
Compared to
2015
(In thousands)
General and administrative . . . . . . . . . . . .
$302,565
$316,838
$286,424
$(14,273)
$30,414
General and administrative expenses consisted primarily of personnel related costs and expenses
related to outside consultants assisting with information systems, as well as accounting and legal fees.
General and administrative expenses decreased during 2017 compared to 2016 primarily due to a
decrease in compensation and other employee-related costs of $11.5 million and decrease in stock-based
compensation of $5.1 million.
General and administrative expenses increased during 2016 compared to 2015 primarily due to an
increase in stock-based compensation of $21.1 million and an increase in compensation and other
employee-related costs of $9.7 million. These increases are partially offset by a decrease in professional fees
of $10.0 million primarily due to fees incurred in connection with the operational and strategic review of
the business in 2015 and the resulting cost reductions from operational efficiencies in 2016.
Amortization of Other Intangible Assets
Amortization of other intangible assets . . .
$14,652
$15,076
$30,341
$(424)
$(15,265)
Year Ended December 31,
2017
2016
2015
2017
Compared to
2016
2016
Compared to
2015
(In thousands)
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Amortization of other intangible assets consists of amortization of customer relationships, trade
names and covenants not to compete primarily related to our acquisitions.
Amortization of other intangible assets remained consistent when comparing 2017 to 2016.
The decrease in Amortization of other intangible assets when comparing 2016 to 2015 was primarily
due to lower amortization of certain intangible assets becoming fully amortized as a result of impairments
during 2015.
As of December 31, 2017, we had unamortized other identified intangible assets with estimable
useful lives in the net amount of $33.9 million. For more information regarding our acquisitions see,
“— Overview” and Note 4 to our consolidated financial statements included in this Annual Report on
Form 10-K for the year ended December 31, 2017.
Impairment of Other Intangible Assets
Year Ended December 31,
2017
2016
2015
2017
Compared to
2016
2016
Compared to
2015
(In thousands)
Impairment of other intangible assets . . . .
$2,538
$—
$67,137
$2,538
$(67,137)
Impairment of other intangible assets consists of impairment charges related to customer
relationships, trade names and covenants not to compete primarily related to our acquisitions.
The increase in Impairment of other intangible assets when comparing 2017 to 2016 was primarily due
to impairments of certain intangible assets related to certain non-core products.
The decrease in Impairment of other intangible assets when comparing 2016 to 2015 was primarily due
to impairments of certain intangible assets related to ByteMobile during the third quarter of 2015.
Restructuring Expenses
Year Ended December 31,
2017
2016
2015
2017
Compared to
2016
2016
Compared to
2015
(In thousands)
Restructuring . . . . . . . . . . . . . . . . . . . . .
$72,375
$67,401
$98,661
$4,974
$(31,260)
During the year ended December 31, 2017, we incurred costs of $53.7 million related to initiatives
intended to accelerate the transformation to a cloud-based subscription business, increase strategic focus,
and improve operational efficiency. We currently expect to record in the aggregate approximately
$60.0 million to $100.0 million in pre-tax restructuring charges associated with this program. We currently
anticipate completing the remainder of the activities related to this program during fiscal year 2018.
During the year ended December 31, 2017, we incurred costs of $8.1 million related to operational
initiatives designed to improve our infrastructure scalability and cost saving efficiencies. The charges
primarily related to employee severance. Activities related to this program were substantially completed as
of the fourth quarter of 2017.
During the years ended December 31, 2017, 2016 and 2015, we incurred costs of $1.9 million,
$44.5 million and $29.4 million primarily related to our announced plan in November 2015 to simplify our
enterprise go-to-market motion and roles while improving coverage, reflect changes in our product focus,
and balance resources with demand across our marketing, general and administration areas. The charges
are primarily related to employee severance, outplacement, professional service fees, and facility closing
costs. The majority of the activities related to this program were substantially completed as of the end of
the first quarter of 2016.
During the years ended December 31, 2017, 2016 and 2015, we recorded charges of $8.7 million and
$24.0 million and $67.5 million related to our announced plan in January 2015 to increase strategic focus
and operational efficiency. The charges primarily related to the severance and other costs directly related to
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the reduction of our workforce and consolidation of leased facilities. The majority of the activities related
to this program were substantially completed by the end of 2015. For more information regarding our
restructuring see, “— Overview” and Note 17 to our consolidated financial statements included in this
Annual Report on Form 10-K for the year ended December 31, 2017.
2018 Operating Expense Outlook
When comparing the first quarter of 2018 to the fourth quarter of 2017, we expect operating expenses
to increase in Sales, marketing and services, while remaining at consistent levels across the other functional
areas.
Interest income
Year Ended December 31,
2017
2016
2015
2017
Compared to
2016
2016
Compared to
2015
(In thousands)
Interest income . . . . . . . . . . . . . . . . . . . .
$27,808
$16,686
$11,675
$11,122
$5,011
Interest income primarily consists of interest earned on our cash, cash equivalents and investment
balances. Interest income increased during 2017 compared to 2016 primarily due to overall higher average
cash, cash equivalents and investment balances and higher yields on investments as a result of an increase in
interest rates. Interest income increased during 2016 compared to 2015 primarily due to overall higher
average cash, cash equivalents and investment balances and higher yields on investments as a result of an
increase in interest rates. See Note 5 to our consolidated financial statements included in this Annual Report
on Form 10-K for the year ended December 31, 2017 for investment information.
Interest Expense
Year Ended December 31,
2017
2016
2015
2017
Compared to
2016
2016
Compared to
2015
(In thousands)
Interest expense . . . . . . . . . . . . . . . . . . . .
$(51,609)
$(44,949)
$(44,153)
$(6,660)
$(796)
Interest expense consists primarily of interest on our 2027 Notes, Convertible Notes and credit facility.
When comparing 2017 and 2016, the increase is primarily due to the issuance of our 2027 Notes in
2017. When comparing 2016 to 2015, the increase in interest expense was not significant. For more
information regarding our debt, see Note 13 to our consolidated financial statements included in this
Annual Report on Form 10-K for the year ended December 31, 2017.
Other Income (Expense), net
Year Ended December 31,
2017
2016
2015
2017
Compared to
2016
2016
Compared to
2015
(In thousands)
Other income (expense), net . . . . . . . . . . .
$3,150
$(4,131)
$(5,730)
$7,281
$1,599
Other income (expense), net is primarily comprised of remeasurement of foreign currency transaction
gains (losses), realized losses related to changes in the fair value of our investments that have a decline in
fair value considered other-than-temporary and recognized gains (losses) related to our investments, which
was not material for all periods presented.
The change in Other income (expense), net when comparing 2017 to 2016 is primarily driven by an
increase in net gains on remeasurement and settlements of foreign currency transactions.
The change in Other income (expense), net when comparing 2016 to 2015 is primarily driven by a
decrease in losses on the remeasurement and settlements of foreign currency transactions of $5.5 million,
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decrease in impairment charges of $2.2 million recognized on cost method investments and an increase in
gains recognized on available for sale investments of $1.4 million. These changes are partially offset by a
decrease in gains recognized on cost method investments of $7.0 million.
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. We maintain certain strategic management
and operational activities in overseas subsidiaries and our foreign earnings are taxed at rates that are
generally lower than in the United States.
On December 22, 2017, President Donald Trump signed the Tax Cuts and Jobs Act (the “2017 Tax
Act”) into law effective January 1, 2018. The 2017 Tax Act significantly revised the U.S. tax code by, in part
but not limited to: reducing the U.S. corporate maximum tax rate from 35% to 21%, imposing a mandatory
one-time transition tax on certain un-repatriated earnings of foreign subsidiaries, modifying executive
compensation deduction limitations, and repealing the deduction for domestic production activities. Under
Accounting Standards Codification 740, Income Taxes, the Company must recognize the effects of tax law
changes in the period in which the new legislation is enacted.
Our effective tax rate generally differs from the U.S. federal statutory rate primarily due to lower tax
rates on earnings generated by our foreign operations that are taxed primarily in Switzerland. From time to
time, there may be other items that impact the tax rate, such as the items specific to the current period
discussed above.
The SEC staff acknowledged the challenges companies face incorporating the effects of tax reform
by their financial reporting deadlines. In response, on December 22, 2017, the SEC staff issued Staff
Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a
registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to
complete accounting for certain income tax effects of the 2017 Tax Act. As of December 31, 2017, the
Company recorded a provisional income tax charge of $64.8 million for the re-measurement of its
U.S. deferred tax assets and liabilities because of the federal corporate tax rate reduction from 35% to 21%.
The Company recorded a provisional income tax charge of $364.6 million for the transition tax on deemed
repatriation of deferred foreign income. The Company also accounted for the modified executive
compensation deduction limitations pursuant to the 2017 Tax Act as of December 31, 2017.
The provisional amounts recorded are based on the Company’s current interpretation and
understanding of the 2017 Tax Act and may change as the Company receives additional clarification and
implementation guidance. The Company will continue to gather and evaluate the income tax impact of the
2017 Tax Act. Pursuant to SAB 118, the Company will complete the accounting for the tax effects of all of
the provisions of the 2017 Tax Act within the required measurement period not to extend beyond one year
from the enactment date.
Our effective tax rate was approximately 96.0% for the year ended December 31, 2017 and 11.0% for
the year ended December 31, 2016. The increase in the effective tax rate when comparing the year ended
December 31, 2017 to the year ended December 31, 2016 was primarily due to accounting for the estimated
tax impact of the 2017 Tax Act and the separation of the GoTo Business.
As of December 31, 2017, our net unrecognized tax benefits totaled approximately $77.8 million as
compared to $69.8 million as of December 31, 2016. All amounts included in this balance affect the annual
effective tax rate. As of the year ended December 31, 2017, we accrued $2.7 million for the payment of
interest on uncertain tax positions.
We and one or more of our subsidiaries are subject to federal income taxes in the United States, as well
as income taxes of multiple state and foreign jurisdictions. We are currently not subject to a U.S. federal
income tax examination. 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 2014.
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
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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.
As of December 31, 2017, we had $152.3 million in net 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. As of December 31, 2017, we determined that a
$76.8 million valuation allowance relating to deferred tax assets for net operating losses and tax credits 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 currently expect our effective tax rate to decrease in 2018 as compared to 2017 due to capturing the
provisional impact of the 2017 Tax Act and the separation of the GoTo Business executed in and unique to
2017.
Liquidity and Capital Resources
During 2017, we generated continuing operating cash flows of $964.3 million. These operating cash
flows related primarily to net income from continuing operations of $22.0 million, adjusted for, among
other things, non-cash charges, depreciation and amortization expenses of $170.0 million, stock-based
compensation expense of $165.1 million, deferred income tax expense of $94.2 million, and amortization of
debt discount and transaction costs of $38.3 million. Also contributing to these cash inflows was a change
in operating assets and liabilities of $470.5 million, net of effects of acquisitions. The change in our net
operating assets and liabilities was primarily a result of changes in net income taxes of $318.8 million due
to tax reform, and changes in deferred revenue of $174.4 million. Our continuing operations investing
activities used $60.0 million of cash consisting primarily of cash paid for net purchases of investments of
$86.4 million, cash paid for the purchase of property and equipment of $80.9 million, cash paid for
acquisitions of $60.4 million, and cash paid for licensing agreements and technology of $7.4 million. Our
continuing operations financing activities used cash of $694.4 million, primarily due to stock repurchases of
$1.17 billion, amounts paid for, but not settled under our accelerated stock repurchase program of
$150.0 million, cash paid for tax withholding on vested stock awards of $80.0 million, and the transfer of
cash to the GoTo Business resulting from the separation of $28.5 million. This financing cash outflow was
partially offset by proceeds from the 2027 Notes of $741.0 million, net of issuance costs.
During 2016, we generated continuing operating cash flows of $947.2 million. These operating cash
flows related primarily to income from continuing operations of $469.9 million, adjusted for, among other
things, non-cash charges, depreciation, and amortization expenses of $178.4 million and stock-based
compensation expense of $152.7 million. Also contributing to these cash inflows was a change in operating
assets and liabilities of $132.9 million, net of effects of acquisitions. The change in our net operating assets
and liabilities was primarily a result of changes in deferred revenue of $142.4 million, and changes in
income taxes, net of $42.4 million mostly due to an increase in income taxes payable. These inflows are
partially offset by an outflow in accounts receivable of $61.7 million driven by an increase in the receivable
balance due to higher bookings. Our continuing operations investing activities used $434.7 million of cash
consisting primarily of cash paid for net purchases of investments of $311.6 million, cash paid for the
purchase of property and equipment of $85.0 million, cash paid for licensing agreements and technology of
$25.9 million, and cash paid for acquisitions of $13.2 million. Our continuing operations financing
activities used cash of $38.0 million primarily due to cash paid for tax withholding on vested stock awards
of $66.6 million and stock repurchases of $28.7 million. This financing cash outflow was partially offset by
proceeds from the issuance of common stock under our employee stock-based compensation plans of
$41.2 million and excess tax benefit from stock-based compensation $16.0 million.
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Senior Notes
On November 15, 2017, we issued $750.0 million of the 2027 Notes. The 2027 Notes accrue interest
at a rate of 4.500% per annum. Interest on the 2027 Notes is due semi-annually on June 1 and December 1
of each year, beginning on June 1, 2018. The net proceeds from this offering were approximately
$741.0 million, after deducting the underwriting discount and estimated offering expenses payable by us.
Net proceeds from this offering were used to repurchase shares of our common stock through an ASR
transaction which we entered into with the ASR Counterparty on November 13, 2017. The 2027 Notes will
mature on December 1, 2027, unless redeemed or repurchased in accordance with their terms prior to such
date. We may redeem the 2027 Notes at our option at any time in whole or from time to time in part prior
to September 1, 2027 at a redemption price equal to the greater of (a) 100% of the aggregate principal
amount of the 2027 Notes to be redeemed and (b) the sum of the present values of the remaining scheduled
payments under such 2027 Notes, plus in each case, accrued and unpaid interest to, but excluding, the
redemption date. Among other terms, under certain circumstances, holders of the 2027 Notes may require
us to repurchase their 2027 Notes upon the occurrence of a change of control prior to maturity for cash at
a repurchase price equal to 101% of the principal amount of the 2027 Notes to be repurchased plus accrued
and unpaid interest to, but excluding, the repurchase date. See Note 13 to our consolidated financial
statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 for
additional details on the 2027 Notes.
Credit Facility
On January 7, 2015, we entered into a credit agreement, or the Credit Agreement, with Bank of
America, N.A., as Administrative Agent, and the other lenders party thereto from time to time collectively,
the Lenders. The Credit Agreement provides for a $250.0 million unsecured revolving credit facility for a
term of five years, of which we have drawn and repaid $165.0 million during the year ended December 31,
2017. As of December 31, 2017, there were no outstanding borrowings under this Credit Agreement and
the entire $250.0 million credit line remains available for borrowing. We may elect to increase the revolving
credit facility by up to $250.0 million if existing or new lenders provide additional revolving commitments
in accordance with the terms of the Credit Agreement. The proceeds of borrowings under the Credit
Agreement may be used for working capital and general corporate purposes, including acquisitions.
Borrowings under the Credit Agreement will bear interest at a rate equal to either (a) a customary London
interbank offered rate formula or (b) a customary base rate formula, plus the applicable margin with respect
thereto, in each case as set forth in the Credit Agreement.
The Credit Agreement requires us to maintain a consolidated leverage ratio of not more than 3.5:1.0
and a consolidated interest coverage ratio of not less than 3.0:1.0. The Credit Agreement includes
customary events of default, with corresponding grace periods in certain circumstances, including, without
limitation, payment defaults, cross-defaults, the occurrence of a change of control and bankruptcy-related
defaults. The Lenders are entitled to accelerate repayment of the loans under the Credit Agreement upon
the occurrence of any of the events of default. In addition, the Credit Agreement contains customary
affirmative and negative covenants, including covenants that limit or restrict our ability to grant liens, merge
or consolidate, dispose of all or substantially all of its assets, change our business and incur subsidiary
indebtedness, in each case subject to customary exceptions for a credit facility of this size and type. In
addition, the Credit Agreement contains customary representations and warranties. See Note 13 to our
consolidated financial statements included in this Annual Report on Form 10-K for the year ended
December 31, 2017 for additional details on our Credit Agreement.
Convertible Senior Notes
In April 2014, we completed a private placement of $1.44 billion principal amount of 0.500%
Convertible Senior Notes due 2019, or the Convertible Notes. The net proceeds from this offering were
approximately $1.42 billion (including the proceeds from the Over-Allotment Option), after deducting the
initial purchasers’ discounts and commissions and the offering expenses payable by us. We used
approximately $82.6 million of the net proceeds to pay the cost of certain bond hedges entered into in
connection with the offering (after such cost was partially offset by the proceeds to us from certain warrant
transactions). See Note 13 to our consolidated financial statements included in this Annual Report on Form
10-K for the year ended December 31, 2017 for additional details on the Convertible Notes and the related
bond hedges and warrant transactions.
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We used the remainder of the net proceeds from the offering and a portion of our existing cash and
investments to purchase an aggregate of approximately $1.5 billion of our common stock under our share
repurchase program. We used approximately $101.0 million to purchase shares of our common stock from
certain purchasers of the Convertible Notes in privately negotiated transactions concurrently with the
closing of the offering, and the remaining $1.4 billion to purchase additional shares of our common stock
through an accelerated share repurchase transaction in 2014, which we entered into with Citibank, N.A., or
Citibank, on April 25, 2014, and which is discussed in further detail in Note 13 to our consolidated
financial statements.
The conversion period for the Convertible Notes that commenced on October 10, 2016 in connection
with the structure of the RMT transaction with LogMeIn, terminated as of the close of business on
January 31, 2017. As a result, the Convertible Notes were reclassified to Other liabilities from Current
liabilities and the amount previously recorded as Temporary equity was reclassified to permanent equity as
of January 31, 2017. The Distribution also resulted in an adjustment to the conversion rate for the
Convertible Notes under the terms of the related indenture. As a result of this adjustment, the conversion
rate for the Convertible Notes in effect as of the opening of business on February 1, 2017 was 13.9061
shares of the Company’s common stock per $1,000 principal amount of Convertible Notes, which
corresponds to a conversion price of approximately $71.91 per share of common stock. Corresponding
adjustments were made to the conversion rates for the Convertible Note Hedge and Warrant Transactions
as of the opening of business on February 1, 2017.
Historically, significant portions of our cash inflows were generated by our operations. We currently
expect this trend to continue throughout 2017. 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 companies we believe are related to our strategic objectives. We
could from time to time continue to seek to raise additional funds through the issuance of debt or equity
securities for larger acquisitions, potential redemption of our Convertible Notes and for general corporate
purposes.
Cash, Cash Equivalents and Investments
December 31,
2017
2016
2017
Compared to
2016
(In thousands)
Cash, cash equivalents and investments . . . . . . . . . . . . . . . . . . . . . $2,731,974 $2,543,160
$188,814
The increase in cash, cash equivalents and investments at December 31, 2017 as compared to
December 31, 2016, is primarily due to cash provided by our operating activities of $964.3 million,
proceeds from our 2027 Notes, net of issuance costs of $741.0 million, partially offset by cash paid for stock
repurchases of $1.17 billion, purchases of property and equipment of $80.9 million, cash paid for tax
withholding on vested stock awards of $80.0 million, cash paid for acquisitions, net of cash acquired,
of $60.4 million, transfer of $28.5 million in cash during the first quarter of 2017 to the GoTo Business
resulting from the separation, and cash paid for licensing agreements and technology of $7.4 million. As
of December 31, 2017, $2.13 billion of the $2.73 billion of cash, cash equivalents and investments was held
by our foreign subsidiaries. As a result of the 2017 Tax Act, the cash, cash equivalents and investments held
by our foreign subsidiaries can be repatriated without incurring any additional U.S. federal tax. Upon
repatriation of these funds, we could be subject to foreign and U.S. State income taxes. The amount of taxes
due is dependent on the amount and manner of the repatriation, as well as the locations from which the
funds are repatriated and received. 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.
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Accounts Receivable, Net
December 31,
2017
2016
2017
Compared to
2016
(In thousands)
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$717,180
$687,089
$30,091
Allowance for returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts
. . . . . . . . . . . . . . . . . . . . . . . . .
(1,225)
(3,420)
(1,994)
(3,889)
769
469
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$712,535
$681,206
$31,329
The increase in accounts receivable at December 31, 2017 compared to December 31, 2016 was
primarily due to higher sales during the year ended December 31, 2017. The activity in our allowance for
returns was comprised primarily of $5.7 million in credits issued for returns recorded during 2017, partially
offset by $4.9 million of provisions for returns recorded during 2017. The activity in our allowance for
doubtful accounts was comprised primarily of $4.4 million of uncollectible accounts written off, net of
recoveries, partially offset by $3.9 million in provisions for doubtful accounts.
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 condition of our distributors or customers deteriorates, our
operating results could be adversely affected. At December 31, 2017, one distributor, the Arrow Group,
accounted for 14% of gross accounts receivable. At December 31, 2016, two distributors, the Arrow Group
and Ingram Micro, accounted for 14% and 10% of gross accounts receivable, respectively. 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, 2017.
Stock Repurchase Program
Our Board of Directors authorized an ongoing stock repurchase program with a total repurchase
authority granted to us of $8.5 billion, of which $500.0 million was approved in January 2017 and an
additional $1.7 billion was approved in November 2017. 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, 2017, approximately $1.43 billion
was available to repurchase common stock pursuant to the stock repurchase program. All shares
repurchased are recorded as treasury stock in our consolidated balance sheets included in this Annual
Report on Form 10-K for the year ended December 31, 2017. A portion of the funds used to repurchase
stock over the course of the program was provided by net proceeds from the 2027 Notes and Convertible
Notes offerings, as well as 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
through open market purchases or pursuant to a Rule 10b5-1 plan or in privately negotiated transactions.
During the year ended December 31, 2017, we expended approximately $575.0 million on open market
purchases under the stock repurchase program, repurchasing 7,384,368 shares of outstanding common
stock at an average price of $77.86.
In addition to the repurchases described above, we used the net proceeds from our 2027 Notes offering
and existing cash and investments to repurchase an aggregate of approximately $750.0 million of our
common stock as authorized under our stock repurchase program. We paid $750.0 million to the ASR
Counterparty under the ASR Agreement and received approximately 7.1 million shares of our common
stock from the ASR Counterparty, which represents 80 percent of the shares pursuant to the ASR
agreement. The total number of shares of common stock that we will repurchase under the ASR
Agreement will be based on the average of the daily volume-weighted average prices of our common stock
during the term of the ASR Agreement, less a discount. At settlement, the ASR Counterparty may be
required to deliver additional shares of our common stock to us or, under certain circumstances, we may be
required to deliver shares of our common stock or make a cash payment to the ASR Counterparty. Final
settlement of the ASR agreement was completed in January 2018 and we received delivery of an additional
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1,371,495 shares of our common stock. See Note 13 to our consolidated financial statements included in
this Annual Report on Form 10-K for the year ended December 31, 2017 for detailed information on our
2027 Notes offering and the transactions related thereto.
During the year ended December 31, 2016, we expended approximately $28.7 million on open market
purchases, repurchasing 426,300 shares of outstanding common stock at an average price of $67.30.
During the year ended December 31, 2015, we expended approximately $755.7 million on open market
purchases, repurchasing 10,716,850 shares of outstanding common stock at an average price of $70.52.
Shares for Tax Withholding
During the years ended December 31, 2017, 2016, and 2015, we withheld 974,501 shares, 830,155
shares and 679,694 shares, respectively, from equity awards that vested. Amounts withheld to satisfy
minimum tax withholding obligations that arose on the vesting of equity awards was $80.0 million for 2017,
$66.6 million for 2016 and $46.3 million for 2015. These shares are reflected as treasury stock in our
consolidated balance sheets included in this Annual Report on Form 10-K for the year ended December 31,
2017.
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, 2017 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):
Payments due by period
Total
Less than
1 Year
1 – 3 Years
3 – 5 Years
Operating lease obligations(1)
Convertible senior notes(2)
. . . . . . . . . . . .
Senior Notes due 2027(3)
. . . . . . . . . . . . .
Purchase obligations(4) . . . . . . . . . . . . . . .
Total contractual obligations(5)
. . . . . . . . . . $ 340,034
1,437,483
750,000
25,700
. . . . . . . . . $2,553,217
$
$56,736
98,077
— 1,437,483
—
—
—
25,700
$70,888
—
—
—
$82,436
$1,535,560
$70,888
$864,333
More than
5 Years
$114,333
—
750,000
—
(1) The amounts in the table above include $76.5 million in exited facility costs related to restructuring
activities.
(2) During the second quarter of 2014, we completed a private placement of $1.44 billion principal
amount of 0.500% Convertible Senior Notes due 2019. The amount above represents the principal
balance to be repaid. See Note 13 to our consolidated financial statements included in this Annual
Report on Form 10-K for the year ended December 31, 2017 for detailed information on the
Convertible Notes offering and the transactions related thereto.
(3) During the fourth quarter of 2017, we completed the issuance of $750.0 million principal amount of
4.500% Senior Notes due 2027. The amount above represents the balance to be repaid. See Note 13 to
our consolidated financial statements included in this Annual Report on Form 10-K for the year ended
December 31, 2017 for detailed information on the 2027 Notes offering and the transactions related
thereto.
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(4) Purchase obligations represent non-cancelable commitments to purchase inventory ordered before
year-end 2018 of approximately $6.3 million and a contingent obligation to purchase inventory of
approximately $19.4 million.
(5) Total contractual obligations do not include agreements where our commitment is variable in nature or
where cancellations without payment provisions exist and excludes $77.8 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, 2017 for further information.
As a result of the 2017 Tax Act, we recorded a provisional income tax charge of $364.6 million for the
transition tax on deemed repatriation of deferred foreign income, which is payable up to eight years. See
Note 11 to our consolidated financial statements included in this Annual Report on Form 10-K for the year
ended December 31, 2017 for further information.
As of December 31, 2017, we did not have any individually material capital lease obligations or other
material long-term commitments reflected on our consolidated balance sheets.
Off-Balance Sheet Arrangements
We do not have any special purpose entities or off-balance sheet financing arrangements.
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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, 2017. 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, 2017.
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, Swiss francs, Indian
rupees, Hong Kong dollars, Canadian dollars, Singapore dollars and Chinese yuan renminbi. To reduce 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, 2017 and 2016, we had in place foreign currency forward sale contracts with a
notional amount of $128.1 million and $113.8 million, respectively, and foreign currency forward purchase
contracts with a notional amount of $113.6 million and $152.3 million, respectively. At December 31, 2017,
these contracts had an aggregate fair value asset of $1.7 million and at December 31, 2016, these contracts
had an aggregate fair value liability of $1.9 million. Based on a hypothetical 10% appreciation of the
U.S. dollar from December 31, 2017 market rates, the fair value of our foreign currency forward contracts
would increase by $1.3 million. Conversely, a hypothetical 10% depreciation of the U.S. dollar from
December 31, 2017 market rates would decrease the fair value of our foreign currency forward contracts by
$1.3 million. 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 investments. We
maintain available-for-sale 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 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, 2017 and 2016 levels, the fair value of the
available-for-sale portfolio would decline by approximately $17.1 million and $19.2 million, respectively. If
market interest rates were to decrease by 100 basis points from December 31, 2017 and 2016 levels, the fair
value of the available-for-sale portfolio would increase by approximately $17.0 million and $17.8 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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and related financial statement schedule, together with the
report of independent registered certified public accounting firm, appear at pages F-1 through F-50 of this
Annual Report on Form 10-K for the year ended December 31, 2017.
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 certified public
accountants on accounting or financial disclosure matters during our two most recent fiscal years.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2017, our management, with the participation of our President and Chief
Executive Officer and our Interim 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 Interim Chief Financial Officer concluded that, as of December 31, 2017, 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 Interim 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, 2017, 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,
2017. In making this assessment, our management used the criteria set forth in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, or
the COSO criteria. Based on our assessment we believe that, as of December 31, 2017, 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, 2017 has been audited by Ernst & Young LLP, an independent
registered certified public accounting firm, as stated in their report which appears below.
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Report of Independent Registered Certified Public Accounting Firm
The Board of Directors and Stockholders of Citrix Systems, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Citrix Systems, Inc.’s internal control over financial reporting as of December 31, 2017,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our
opinion, Citrix Systems, Inc. (the Company) maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2017, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2017 and 2016, the
related consolidated statements of income, comprehensive income, equity, and cash flows for each of the
three years in the period ended December 31, 2017, and the related notes and financial statement schedule
listed in the Index at Item 15(a) of the Company and our report dated February 16, 2018 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’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 are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Boca Raton, Florida
February 16, 2018
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ITEM 9B. OTHER INFORMATION
Our policy governing transactions in our securities by our directors, officers and employees permits
our officers, directors and certain other persons to enter into trading plans complying with Rule 10b5-1
under the Securities Exchange Act of 1934, as amended. We have been advised that Robert Calderoni, our
Executive Chairman, entered into a new trading plan in the fourth quarter of 2017 in accordance with
Rule 10b5-1 and our policy governing transactions in our securities. We undertake no obligation to update
or revise the information provided herein, including for revision or termination of an established trading
plan.
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, 2017.
4
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, 2017.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
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, 2017.
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, 2017.
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, 2017.
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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
2.4
2.5
2.6
3.1
3.2
4.1
4.2
4.3
4.4
4.5
Agreement and Plan of Merger, dated as of July 26, 2016, among Citrix Systems, Inc., GetGo,
Inc., LogMeIn, Inc. and Lithium Merger Sub, Inc. (incorporated herein by reference to
Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on July 28, 2016)**
Amendment No. 1, dated as of December 8, 2016, to Agreement and Plan of Merger, dated as
of July 26, 2016, by and among Citrix Systems, Inc., GetGo, Inc., LogMeIn, Inc. and Lithium
Merger Sub, Inc. (incorporated herein by reference to Exhibit 2.4 to the Company’s Annual
Report on Form 10-K filed on February 16, 2017)**
Amendment No. 2, dated as of May 4, 2017 and effective as of May 1, 2017, to Agreement and
Plan of Merger, dated as of July 26, 2016, by and among Citrix Systems, Inc., GetGo, Inc. and
LogMeIn, Inc. (incorporated herein by reference to Exhibit 2.1 to the Company’s Quarterly
Report on Form 10-Q filed on August 4, 2017)
Amendment No. 3, dated as of September 29, 2017, to Agreement and Plan of Merger, dated as
of July 26, 2016, by and among Citrix Systems, Inc., GetGo, Inc. and LogMeIn, Inc.
(incorporated herein by reference to Exhibit 2.1 to the Company’s Quarterly Report on
Form 10-Q filed on November 2, 2017)
Separation and Distribution Agreement, dated as of July 26, 2016, by and among Citrix
Systems, Inc., GetGo, Inc. and LogMeIn, Inc. (incorporated herein by reference to Exhibit 2.2
to the Company’s Current Report on Form 8-K filed on July 28, 2016)**
Amended and Restated Tax Matters Agreement, dated as of September 13, 2016, by and
among LogMeIn, Inc., Citrix Systems, Inc. and GetGo, Inc. (incorporated herein by reference
to Exhibit 2.3 to the Company’s Annual Report on Form 10-K filed on February 16, 2017)**
Amended and Restated Certificate of Incorporation of the Company (incorporated herein by
reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 29, 2013)
Amended and Restated By-laws of the Company (incorporated herein by reference to
Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 31, 2015)
Specimen certificate representing Common Stock (incorporated herein by reference to
Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File No. 33-98542), as
amended)(P)
Indenture, dated as of April 30, 2014, between Citrix Systems, Inc. and Wilmington Trust,
National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed on April 30, 2014)
Form of 0.500% Convertible Senior Notes due 2019 (included in Exhibit 4.2)
Indenture, dated as of November 15, 2017, between Citrix Systems, Inc. and Wilmington Trust,
National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed on November 15, 2017)
Supplemental Indenture, dated as of November 15, 2017, between the Company and
Wilmington Trust, National Association, as Trustee (incorporated herein by reference to
Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on November 15, 2017)
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Exhibit No.
Description
4.6
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
Form of 4.500% Senior Notes due 2027 (included in Exhibit 4.5)
Amended and Restated 2005 Equity Incentive Plan (incorporated herein by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 5, 2010)
First Amendment to Citrix Systems, Inc. Amended and Restated 2005 Equity Incentive Plan
(incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form
8-K filed on May 28, 2010)
Second Amendment to the Citrix Systems, Inc. Amended and Restated 2005 Equity Incentive
Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on June 2, 2011)
Third Amendment to the Citrix Systems, Inc. Amended and Restated 2005 Equity Incentive
Plan (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K filed on June 2, 2011)
Fourth Amendment to the Citrix Systems, Inc. Amended and Restated 2005 Equity Incentive
Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on May 31, 2012)
Fifth Amendment to the Citrix Systems, Inc. Amended and Restated 2005 Equity Incentive
Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q filed on August 6, 2013)
Sixth Amendment to the Citrix Systems, Inc. Amended and Restated 2005 Equity Incentive
Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on May 29, 2013)
Form of Global Stock Option Agreement under the Citrix Systems, Inc. Amended and
Restated 2005 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q filed on May 9, 2011)
Form of Restricted Stock Unit Agreement For Non-Employee Directors under the Citrix
Systems, Inc. Amended and Restated 2005 Equity Incentive Plan (incorporated herein by
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 9,
2011)
Form of Global Restricted Stock Unit Agreement under the Citrix Systems, Inc. Amended and
Restated 2005 Equity Incentive Plan (Performance Based Awards) (incorporated herein by
reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on May 9,
2011)
Form of Global Restricted Stock Unit Agreement under the Citrix Systems, Inc. Amended and
Restated 2005 Equity Incentive Plan (Time Based Awards) (incorporated herein by reference to
Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on May 9, 2011)
Form of Global Restricted Stock Unit Agreement under the Citrix Systems, Inc. Amended and
Restated 2005 Equity Incentive Plan (Long Term Incentive) (incorporated herein by reference
to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 7, 2012)
Form of Long Term Incentive Agreement under the Citrix Systems, Inc. Amended and
Restated 2005 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.13 to the
Company’s Annual Report on Form 10-K filed on February 19, 2015)
10.14* Amended and Restated 2005 Employee Stock Purchase Plan (incorporated herein by reference
to Exhibit 10.14 to the Company’s Annual Report on Form 10-K filed on February 23, 2012)
10.15* Amendment to Amended and Restated 2005 Employee Stock Purchase Plan (incorporated
herein by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K filed on
February 21, 2013)
10.16*
Citrix Systems, Inc. Executive Bonus Plan (incorporated herein by reference to Exhibit 10.2 to
the Company’s Annual Report on Form 10-K filed on February 20, 2014)
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Exhibit No.
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
Description
Citrix Systems, Inc. 2014 Equity Incentive Plan (incorporated herein by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 28, 2014)
Form of Restricted Stock Unit Agreement under the Citrix Systems, Inc. 2014 Equity Incentive
Plan (2016 Performance-Based Awards) (incorporated herein by reference to Exhibit 10.7 of the
Company’s Quarterly Report on Form 10-Q filed on May 6, 2016)
Form of Global Restricted Stock Unit Agreement under the Citrix Systems, Inc. 2014 Equity
Incentive Plan (Time Based Awards) (incorporated herein by reference to Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q filed on May 8, 2017)
Form of Global Restricted Stock Unit Agreement under the Citrix Systems, Inc. 2014 Equity
Incentive Plan (Performance Based Awards) (incorporated herein by reference to Exhibit 10.4
to the Company’s Quarterly Report on Form 10-Q filed on May 8, 2017)
2015 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 10-Q filed on August 7, 2015)
Amendment to 2015 Employee Stock Purchase Plan, dated October 27, 2016 (incorporated
herein by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K filed on
February 16, 2017)
Citrix Systems, Inc. Amended and Restated 2014 Equity Incentive Plan (incorporated herein by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 27,
2017)
Form of Global Restricted Stock Unit Agreement under the Citrix Systems, Inc. Amended and
Restated 2014 Equity Incentive Plan (Performance Based Awards — August 2017)
(incorporated herein by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form
10-Q filed on November 2, 2017)
Form of Global Restricted Stock Unit Agreement under the Citrix Systems, Inc. Amended and
Restated 2014 Equity Incentive Plan (Performance Based Awards — August 2017)
(incorporated herein by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form
10-Q filed on November 2, 2017)
Form of Global Restricted Stock Unit Agreement under the Citrix Systems, Inc. Amended and
Restated 2014 Equity Incentive Plan (Time Based Awards — August 2017) (incorporated herein
by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q filed on
November 2, 2017)
Form of Indemnification Agreement by and between the Company and each of its Directors
and executive officers (incorporated herein by reference to Exhibit 10.4 to the Company’s
Quarterly Report on Form 10-Q filed on August 8, 2011)
Form of Executive Agreement of Citrix Systems, Inc. by and between the Company and each
of its executive officers (other than the Executive Chairman and CEO) (incorporated herein by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 20,
2017)
Retention Agreement, dated October 12, 2015, by and between Citrix Systems, Inc. and
Mark B. Templeton (incorporated herein by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on October 16, 2015)
Retention Agreement, dated as of July 1, 2016, by and between Citrix Systems, Inc. and
William Burley (incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q filed on November 4, 2016)
Amended and Restated Employment Agreement, dated July 7, 2017, by and between Citrix
Systems, Inc. and Robert M. Calderoni (incorporated herein by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on July 10, 2017)
10.32*† Restricted Stock Unit Agreement under the Citrix Systems, Inc. 2014 Equity Incentive Plan for
Robert M. Calderoni granted February 1, 2017 (Time Based Awards)
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Exhibit No.
10.33*
10.34*
10.35*
10.36*
10.37*
10.38*
Description
Employment Agreement, dated January 19, 2016, by and between Citrix Systems, Inc. and
Kirill Tatarinov (incorporated herein by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on January 20, 2016)
Restricted Stock Award Agreement under the Citrix Systems, Inc. 2014 Equity Incentive Plan
for Kirill Tatarinov (incorporated herein by reference to Exhibit 10.5 to the Company’s
Quarterly Report on Form 10-Q filed on May 6, 2016)
Restricted Stock Unit Agreement under the Citrix Systems, Inc. 2014 Equity Incentive Plan for
Kirill Tatarinov (2016 Performance-Based Awards) (incorporated herein by reference to
Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2016)
Separation Agreement and Release, dated July 7, 2017, by and between Citrix Systems, Inc. and
Kirill Tatarinov (incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly
Report on Form 10-Q filed on November 2, 2017)
Amended and Restated Incentive Agreement, dated February 16, 2016, by and between Citrix
Systems, Inc. and Christopher Hylen (incorporated herein by reference to Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q filed on May 6, 2016)
Form of Restricted Stock Unit Agreement under the Citrix Systems, Inc. 2014 Equity Incentive
Plan for executive officers (Performance Based Awards) (incorporated herein by reference to
Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed on November 4, 2015)
10.39*† Letter Agreement, dated November 2, 2017, between Citrix Systems, Inc. and Carlos Sartorius
Employment Agreement, dated July 10, 2017, by and between Citrix Systems, Inc. and David J.
10.40*
Henshall (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on July 10, 2017)
10.41* Restricted Stock Unit Agreement with David J. Henshall under the Citrix Systems, Inc.
Amended and Restated 2014 Equity Incentive Plan (Performance Based Awards —
August 2017) (incorporated herein by reference to Exhibit 10.5 to the Company’s Quarterly
Report on Form 10-Q filed on November 2, 2017)
10.42* Restricted Stock Unit Agreement with David J. Henshall under the Citrix Systems, Inc.
Amended and Restated 2014 Equity Incentive Plan (Performance Based Awards —
August 2017) (incorporated herein by reference to Exhibit 10.6 to the Company’s Quarterly
Report on Form 10-Q filed on November 2, 2017)
10.43* Restricted Stock Unit Agreement with David J. Henshall under the Citrix Systems, Inc. 2014
10.44
10.45
10.46
10.47
Equity Incentive Plan (Time Based Awards — August 2017) (incorporated herein by reference
to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed on November 2, 2017)
Form of Call Option Transaction Confirmation between Citrix Systems, Inc. and each of
JPMorgan Chase Bank, National Association, London Branch; Goldman, Sachs & Co.; Bank
of America, N.A.; and Royal Bank of Canada (incorporated herein by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K filed on April 30, 2014)
Form of Warrants Confirmation between Citrix Systems, Inc. and each of JPMorgan Chase
Bank, National Association, London Branch; Goldman, Sachs & Co.; Bank of America, N.A.;
and Royal Bank of Canada (incorporated herein by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed on April 30, 2014)
Form of Additional Call Option Transaction Confirmation between Citrix Systems, Inc. and
each of JPMorgan Chase Bank, National Association, London Branch; Goldman, Sachs &
Co.; Bank of America, N.A.; and Royal Bank of Canada (incorporated herein by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2014)
Form of Additional Warrants Confirmation between Citrix Systems, Inc. and each of
JPMorgan Chase Bank, National Association, London Branch; Goldman, Sachs & Co.; Bank
of America, N.A.; and Royal Bank of Canada (incorporated herein by reference to Exhibit 10.2
to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2014)
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Exhibit No.
10.48
10.49
10.50
10.51
10.52
10.53
12.1†
21.1†
23.1†
24.1
31.1†
31.2†
32.1††
Description
Master Confirmation between Citibank, N.A. and Citrix Systems, Inc., dated April 25, 2014
(incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form
8-K filed on April 30, 2014)
Master Confirmation between Citibank, N.A. and Citrix Systems, Inc., dated November 13,
2017 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on November 14, 2017)
Credit Agreement, dated as of January 7, 2015, by and among Citrix Systems, Inc., the initial
lenders named therein and Bank of America, N.A., as Administrative Agent (incorporated
herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on
January 8, 2015)
First Amendment to Credit Agreement, dated as of August 7, 2015, by and among Citrix
Systems, Inc., the lenders named therein and Bank of America, N.A., as Administrative Agent
(incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form
10-Q filed on November 4, 2015)
Cooperation Agreement, by and among Citrix Systems, Inc., Elliott Associates, L.P., Elliott
International, L.P. and Elliott International Capital Advisors Inc., dated July 28, 2015
(incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form
8-K filed on July 28, 2015)
Letter Agreement, dated as of July 26, 2016, among Citrix Systems, Inc., GetGo, Inc.,
LogMeIn, Inc., Elliott Associates, L.P. and Elliott International, L.P. (incorporated herein by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 28, 2016)
Computation of Ratio of Earnings to Fixed Charges
List of Subsidiaries
Consent of Independent Registered Certified Public Accounting Firm
Power of Attorney (included in signature page)
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
Section 1350 Certification of Principal Executive Officer and Principal Financial Officer
101.INS† XBRL Instance Document
101.SCH† XBRL Taxonomy Extension Schema Document
101.CAL† XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF† XBRL Taxonomy Extension Definition Linkbase Document
101.LAB† XBRL Taxonomy Extension Label Linkbase Document
101.PRE† XBRL Taxonomy Extension Presentation Linkbase Document
*
Indicates a management contract or a compensatory plan, contract or arrangement.
** Schedules (or similar attachments) have been omitted pursuant to Item 601(b)(2) of Regulation S-K.
The registrant hereby undertakes to furnish supplementally copies of any of the omitted schedules (or
similar attachments) upon request by the SEC.
†
Filed herewith.
†† Furnished herewith.
(P) This exhibit has been paper filed and is not subject to the hyperlinking requirements of Item 601 of
Regulation S-K.
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(b) Exhibits.
The Company hereby files as part of this Annual Report on Form 10-K for the year ended
December 31, 2017, 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, 2017 the consolidated financial statement schedule listed in Item 15(a)(2) above, which is
attached hereto.
ITEM 16. FORM 10-K SUMMARY
None.
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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 16th day of February, 2018.
SIGNATURES
By:
CITRIX SYSTEMS, INC.
/s/ DAVID J. HENSHALL
David J. Henshall
President and Chief Executive Officer
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POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Citrix Systems, Inc., hereby severally constitute and
appoint David J. Henshall and Mark M. Coyle, 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
16th day of February, 2018.
Signature
Title(s)
/S/ DAVID J. HENSHALL
David J. Henshall
President, Chief Executive Officer and Director
(Principal Executive Officer)
/S/ MARK M. COYLE
Mark M. Coyle
/S/ JESSICA SOISSON
Jessica Soisson
Senior Vice President, Finance and Interim Chief
Financial Officer (Principal Financial Officer)
Vice President, Chief Accounting Officer and
Corporate Controller (Principal Accounting Officer)
/S/ ROBERT M. CALDERONI
Executive Chairman of the Board of Directors
Robert M. Calderoni
/S/ NANCI E. CALDWELL
Director
Nanci E. Caldwell
/S/ JESSE A. COHN
Director
Jesse A. Cohn
/S/ ROBERT D. DALEO
Director
Robert D. Daleo
/S/ MURRAY J. DEMO
Director
Murray J. Demo
/S/ AJEI S. GOPAL
Ajei S. Gopal
Director
/S/ PETER J. SACRIPANTI
Director
Peter J. Sacripanti
/S/ GRAHAM V. SMITH
Director
Graham V. Smith
/S/ GODFREY R. SULLIVAN
Director
Godfrey R. Sullivan
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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 Certified Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets — December 31, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income — Years ended December 31, 2017, 2016 and 2015 . . . . . . . . F-4
Consolidated Statements of Comprehensive Income — Years ended December 31, 2017, 2016
and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Equity — Years ended December 31, 2017, 2016 and 2015 . . . . . . . . . F-6
Consolidated Statements of Cash Flows — Years ended December 31, 2017, 2016 and 2015 . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
The following consolidated financial statement schedule of Citrix Systems, Inc. is included in
Item 15(a):
Schedule II Valuation and Qualifying Accounts
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.
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Report of Independent Registered Certified Public Accounting Firm
The Board of Directors and Stockholders of Citrix Systems, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Citrix Systems, Inc. (the Company) as of
December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, equity,
and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and
financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the
results of its operations and its cash flows for each of the three years in the period ended December 31,
2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the Company’s internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report
dated February 16, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1989.
Boca Raton, Florida
February 16, 2018
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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 $4,645 and $5,883 at December 31,
2017 and 2016, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments, available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities, Temporary Equity and Stockholders’ Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible notes, short-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities of discontinued operations
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term portion of deferred revenues
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Temporary equity from Convertible notes
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
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; 305,751 and
302,851 shares issued and outstanding at December 31, 2017 and 2016,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
December 31,
2017
December 31,
2016
(In thousands, except par value)
$ 1,115,130
632,516
$
836,095
726,923
712,535
13,912
147,330
—
2,621,423
984,328
252,932
1,614,494
141,952
152,362
52,685
—
$ 5,820,176
$
66,893
277,679
34,033
1,308,474
—
—
1,687,079
555,769
2,127,474
335,457
121,936
—
—
—
681,206
12,522
124,842
179,689
2,561,277
980,142
261,954
1,585,893
173,681
233,900
54,449
538,931
$ 6,390,227
$
72,724
256,799
39,771
1,208,229
1,348,156
172,670
3,098,349
476,135
—
—
119,813
7,708
79,495
—
306
4,883,670
3,509,484
(10,806)
8,382,654
303
4,761,588
4,010,737
(28,704)
8,743,924
Less – common stock in treasury, at cost (162,044 and 146,552 shares at
December 31, 2017 and 2016, respectively) . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities, temporary equity and stockholders’ equity . . . . . . . . . . . . . .
(7,390,193)
992,461
$ 5,820,176
(6,135,197)
2,608,727
$ 6,390,227
See accompanying notes.
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CITRIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
2016
(In thousands, except per share information)
2015
2017
Revenues:
Product and licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software as a service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
License updates and maintenance . . . . . . . . . . . . . . . . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 857,253
175,762
1,659,936
131,735
2,824,686
$ 882,898
134,682
1,587,271
131,229
2,736,080
$ 873,808
103,851
1,521,007
147,488
2,646,154
Cost of net revenues:
Cost of product and license revenues . . . . . . . . . . . . . . . . . . . . . .
Cost of services and maintenance revenues . . . . . . . . . . . . . . . . . .
Amortization of product related intangible assets
. . . . . . . . . . . . .
Impairment of product related intangible assets . . . . . . . . . . . . . . .
Total cost of net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Research and development
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales, marketing and services . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of other intangible assets . . . . . . . . . . . . . . . . . . . .
Impairment of other intangible assets . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations
. . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations
(Loss) income from discontinued operations, net of income tax expense
of $2,900, $22,737, and $43,065, respectively . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic (loss) earnings per share:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from discontinued operations . . . . . . . . . . . . . . . . .
Basic net (loss) earnings per share . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted (loss) earnings per share:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from discontinued operations . . . . . . . . . . . . . . . . .
Diluted net (loss) earnings per share . . . . . . . . . . . . . . . . . . . . . . . .
123,356
250,602
50,183
15,505
439,646
2,385,040
415,801
1,006,112
302,565
14,652
2,538
72,375
1,814,043
570,997
27,808
(51,609)
3,150
550,346
528,361
21,985
121,391
228,080
54,290
1,128
404,889
2,331,191
395,373
976,339
316,838
15,076
—
67,401
1,771,027
560,164
16,686
(44,949)
(4,131)
527,770
57,915
469,855
118,265
228,503
71,001
56,271
474,040
2,172,114
480,957
1,005,802
286,424
30,341
67,137
98,661
1,969,322
202,792
11,675
(44,153)
(5,730)
164,584
(50,549)
215,133
(42,704)
66,257
$ (20,719) $ 536,112
104,228
$ 319,361
$
$
$
$
$
0.15
(0.28)
(0.13) $
$
0.14
(0.27)
(0.13) $
3.03
0.43
3.46
2.99
0.42
3.41
$
$
$
$
1.35
0.66
2.01
1.34
0.65
1.99
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
150,779
155,503
155,134
157,084
158,874
160,362
See accompanying notes.
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CITRIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31,
2017
2016
2015
(In thousands)
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(20,719) $536,112
$319,361
Other comprehensive income (loss):
Available for sale securities:
Change in net unrealized (losses) gains . . . . . . . . . . . . . . . . . . . . .
(3,285)
996
(2,080)
Less: reclassification adjustment for net (gains) losses included in
net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(273)
(1,204)
Net change (net of tax effect)
. . . . . . . . . . . . . . . . . . . . . . . . .
Gain on pension liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,558)
2,768
(208)
906
170
(1,910)
4,083
Cash flow hedges:
Change in unrealized gains (losses) . . . . . . . . . . . . . . . . . . . . . . .
Less: reclassification adjustment for net (gains) losses included in
6,046
(2,638)
(6,937)
net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(758)
1,763
13,027
Net change (net of tax effect)
. . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . .
5,288
4,498
(875)
(177)
6,090
8,263
Comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(16,221) $535,935
$327,624
See accompanying notes.
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CITRIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
Common Stock
Shares Amount
Additional
Paid In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(loss) income
Common Stock
in Treasury
Shares
Amount
Total
Equity
Balance at December 31, 2014 . . . . . . . . . . . . . . . . . 294,674
$295
$4,292,706 $3,155,264
$(36,790)
(133,898) $(5,237,830) $2,173,645
Shares issued under stock-based compensation plans . . .
3,878
Stock-based compensation expense . . . . . . . . . . . . . .
—
Common stock issued under employee stock purchase
plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
561
Tax deficiency from employer stock plans, net
. . . . . . .
Stock repurchases, net
. . . . . . . . . . . . . . . . . . . . .
Restricted shares turned in for tax withholding . . . . . . .
Other comprehensive income, net of tax . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
3
—
1
—
—
—
—
—
112,282
139,816
37,228
(15,013)
—
—
—
(100)
—
—
—
—
—
—
—
—
—
—
—
—
—
8,263
— 319,361
—
—
—
—
—
— 112,285
— 139,816
—
—
37,229
(15,013)
(10,717)
(755,704)
(755,704)
(681)
(46,336)
(46,336)
—
—
—
8,263
(100)
— 319,361
Balance at December 31, 2015 . . . . . . . . . . . . . . . . . 299,113
$299
$4,566,919 $3,474,625
$(28,527)
(145,296) $(6,039,870) $1,973,446
Shares issued under stock-based compensation plans . . .
3,009
Stock-based compensation expense . . . . . . . . . . . . . .
—
Common stock issued under employee stock purchase
plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
729
Tax deficiency from employer stock plans, net
. . . . . . .
Stock repurchases, net
. . . . . . . . . . . . . . . . . . . . .
Restricted shares turned in for tax withholding . . . . . . .
Other comprehensive loss, net of tax . . . . . . . . . . . . .
Temporary equity reclassification . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
3
—
1
—
—
—
—
—
—
41,244
175,980
57,514
(574)
—
—
—
(79,495)
—
—
—
—
—
—
—
—
— 536,112
—
—
—
—
—
—
(177)
—
—
—
—
—
—
—
41,247
— 175,980
—
—
57,515
(574)
(426)
(830)
(28,689)
(28,689)
(66,638)
(66,638)
—
—
—
—
—
(177)
(79,495)
— 536,112
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . 302,851
303
4,761,588
4,010,737
(28,704)
(146,552)
(6,135,197) 2,608,727
Shares issued under stock-based compensation plans . . .
2,614
Stock-based compensation expense . . . . . . . . . . . . . .
Temporary equity reclassification . . . . . . . . . . . . . . .
—
—
Common stock issued under employee stock purchase
plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
286
Stock repurchases, net
. . . . . . . . . . . . . . . . . . . . .
Restricted shares turned in for tax withholding . . . . . . .
Accelerated stock repurchase program . . . . . . . . . . . .
Cumulative-effect adjustment from adoption of
accounting standard on stock-based compensation . . .
Distribution of the net assets of the GoTo Business . . . .
Other comprehensive income, net of tax . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
—
—
—
—
2,110
166,308
79,495
19,326
—
—
(150,000)
—
—
—
—
—
—
—
5,691
(5,303)
— (475,231)
—
(848)
—
—
—
(20,719)
—
—
—
—
—
—
—
—
13,400
4,498
—
—
—
—
—
—
—
2,113
— 166,308
—
—
79,495
19,326
(7,384)
(574,956)
(574,956)
(975)
(80,040)
(80,040)
(7,133)
(600,000)
(750,000)
—
—
—
—
—
388
— (461,831)
4,498
(848)
(20,719)
—
—
Balance at December 31, 2017 . . . . . . . . . . . . . . . . . 305,751
$306
$4,883,670 $3,509,484
$(10,806)
(162,044) $(7,390,193) $ 992,461
See accompanying notes.
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CITRIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating Activities
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (income) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(20,719)
42,704
$
536,112
(66,257)
$
319,361
(104,228)
2017
Year Ended December 31,
2016
(In thousands)
2015
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Amortization and impairment of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt discount and transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax expense (benefit)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies . . . . . .
Other non-cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total adjustments to reconcile net (loss) income to net cash provided by operating activities . . . . . . . . . .
Changes in operating assets and liabilities, net of the effects of acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total changes in operating assets and liabilities, net of the effects of acquisitions . . . . . . . . . . . . . . . .
Net cash provided by operating activities of continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by operating activities of discontinued operations . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for licensing agreements and product related intangible assets . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing activities of continuing operations
. . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing Activities
Proceeds from issuance of common stock under stock-based compensation plans . . . . . . . . . . . . . . . . . . .
Proceeds from revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from 2027 notes, net of issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of acquired debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchases, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accelerated stock repurchase program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for tax withholding on vested stock awards
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer of cash to GoTo Business resulting from the separation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities of continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 period, including cash of discontinued operations of $120,861, $57,762
and $34,651, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less cash of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental Cash Flow Information
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for interest
See accompanying notes.
F-7
82,878
87,137
38,298
165,120
94,158
—
(7,645)
11,924
471,870
(33,904)
(2,545)
(18,327)
2,116
318,795
(7,238)
34,886
174,426
2,282
470,491
964,346
(56,070)
908,276
(1,155,659)
775,135
466,900
(80,901)
(60,449)
(7,379)
2,323
(60,030)
(3,891)
(63,921)
2,114
165,000
(165,000)
741,039
(4,000)
—
(1,174,957)
(150,000)
(80,040)
(28,523)
(694,367)
—
(694,367)
8,186
158,174
70,494
107,954
37,085
152,739
(21,654)
(16,049)
5,189
8,618
344,376
(61,662)
(4,133)
(12,077)
(2,747)
42,431
(16,365)
22,650
142,381
22,459
132,937
947,168
168,662
1,115,830
(2,238,784)
1,294,636
632,517
(85,035)
(13,242)
(25,940)
1,181
(434,667)
(49,537)
(484,204)
41,247
—
—
—
—
16,049
(28,689)
—
(66,638)
—
(38,031)
—
(38,031)
(5,157)
588,438
956,956
1,115,130
—
$ 1,115,130
$
$
61,126
8,764
368,518
956,956
(120,861)
836,095
64,361
7,847
$
$
$
$
$
$
224,750
102,207
36,013
128,262
(85,235)
(5,873)
13,815
6,767
420,706
(8,866)
703
(10,257)
(1,487)
48,675
6,408
49,662
102,330
8,900
196,068
831,907
202,641
1,034,548
(2,182,681)
1,745,290
637,052
(97,566)
(95,331)
(10,795)
5,209
1,178
(225,593)
(224,415)
112,285
95,000
(95,000)
—
(3,175)
5,873
(755,704)
—
(46,336)
—
(687,057)
(4,394)
(691,451)
(10,313)
108,369
260,149
368,518
(57,762)
310,756
45,827
8,215
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND ORGANIZATION
Citrix Systems, Inc. (“Citrix” or the “Company”), is a Delaware corporation incorporated on April 17,
1989. Citrix delivers solutions to make applications secure and easy to access, anywhere, anytime and on
any device or network.
Citrix markets and licenses its solutions through multiple channels worldwide, including selling
through resellers and direct over the Web. Citrix’s partner community comprises thousands of value-added
resellers, or VARs known as Citrix Solution Advisors, value-added distributors, or VADs, systems
integrators, or SIs, independent software vendors, or ISVs, original equipment manufacturers, or OEMs
and Citrix Service Providers, or CSPs.
On January 31, 2017, the Company completed the spin-off of its GoTo family of service offerings (the
“Spin-off ”) and subsequent merger of that business with LogMeIn, Inc. (“LogMeIn”) (the “Merger”)
pursuant to a pro rata distribution to its stockholders of 100% of the shares of common stock of GetGo,
Inc., or GetGo, its wholly-owned subsidiary. Pursuant to the transaction, the Company transferred its
GoTo Business to GetGo, and after the close of business on January 31, 2017, the Company distributed
approximately 26.9 million shares of GetGo common stock to the Company’s stockholders of record as of
the close of business on January 20, 2017 (the “Record Date”). Immediately following the distribution,
Lithium Merger Sub, Inc., a wholly-owned subsidiary of LogMeIn, merged with and into GetGo, with
GetGo as the surviving corporation. In connection with the Merger, GetGo became a wholly-owned
subsidiary of LogMeIn, and each share of GetGo common stock was converted into the right to receive
one share of LogMeIn common stock. As a result of these transactions, the Company’s stockholders
received approximately 26.9 million shares of LogMeIn common stock in the aggregate, or 0.171844291 of
a share of LogMeIn common stock for each share of the Company’s common stock held of record by such
stockholders on the Record Date. No fractional shares of LogMeIn were issued, and the Company’s
stockholders instead received cash in lieu of any fractional shares.
The Company’s revenues are derived from sales of its Workspace Services solutions, Networking
products (formerly Delivery Networking), Content Collaboration offerings (formerly Data) and related
License updates and maintenance and Professional services. Prior to the Spin-off, the Company also derived
its revenues from sales of the GoTo Business, which were delivered as cloud-based SaaS, and included
Communications Cloud and Workflow Cloud service offerings. Subsequent to the Spin-off, the Company
determined that it has one reportable segment. The Company identified its segment using the “management
approach” which designates the internal organization that is used by management for making operating
decisions and assessing performance. See Note 12 for more information on the Company’s segment.
In these consolidated financial statements, unless otherwise indicated, references to Citrix and the
Company, refer to Citrix Systems, Inc. and its consolidated subsidiaries after giving effect to the Spin-off.
As a result of the Spin-off, the consolidated financial statements reflect the GoTo Business operations,
assets and liabilities, and cash flows as discontinued operations for all periods presented. Refer to Note 3 for
additional information regarding discontinued operations.
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”); and Asia-Pacific and Japan
(“APJ”). All significant transactions and balances between the Company and its subsidiaries have been
eliminated in consolidation.
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
Cash and cash equivalents at December 31, 2017 and 2016 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.
Available-for-sale Investments
Short-term and long-term investments at December 31, 2017 and 2016 primarily consist of agency
securities, corporate securities, municipal securities and government securities. 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. 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.
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 a variety of inputs and may
include interest rates, known historical trades, yield curve information, benchmark data, prepayment speeds,
credit quality and broker/dealer quotes. See Note 5 for investment information.
Accounts Receivable
The Company’s accounts receivable are attributable primarily to direct sales to end customers via the
Web and through value-added resellers, or VARs known as Citrix Solution Advisors, value-added
distributors, or VADs, systems integrators, or SIs, independent software vendors, or ISVs, original
equipment manufacturers, or OEMs and Citrix Service Providers, or CSPs. Collateral is generally 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 which includes both general and specific
reserves. The Company periodically reviews these estimated allowances by conducting an analysis of the
customer’s payment history and credit worthiness, the age of the trade receivable balances and current
economic conditions that may affect a customer’s ability to make payments. Based on this review, the
Company specifically reserves for those accounts deemed uncollectible. When receivables are determined to
be uncollectible, principal amounts of such receivables outstanding are deducted from the allowance. The
allowance for doubtful accounts was $3.4 million and $3.9 million as of December 31, 2017 and 2016,
respectively. If the financial condition of a significant customer were to deteriorate, the Company’s
operating results could be adversely affected. As of December 31, 2017, one distributor, the Arrow Group,
accounted for 14% of gross accounts receivable. At December 31, 2016, two distributors, the Arrow Group
and Ingram Micro, accounted for 14% and 10% of gross accounts receivable, respectively.
Inventory
Inventories are stated at the lower of cost or net realizable value on a standard cost basis, which
approximates actual cost. The Company’s inventories primarily consist of finished goods as of
December 31, 2017 and 2016.
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 and software;
the lesser of the lease term or ten years for leasehold improvements, which is the estimated useful life;
seven years for office equipment and furniture and the Company’s enterprise resource planning systems;
and 40 years for buildings.
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2017 and 2016, the Company retired $16.9 million and $118.0 million, respectively, in property
and equipment that were no longer in use. At the time of retirement, the remaining net book value of the
assets retired was not material and no material asset retirement obligations were associated with them.
Property and equipment consist of the following:
December 31,
2017
2016
(In thousands)
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 76,152
$ 76,152
Computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment and furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
176,140
388,583
73,700
170,252
350,195
71,182
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
168,656
164,090
Less: accumulated depreciation and amortization . . . . . . . . . . . . . . . . .
Assets under construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
883,231
(675,892)
28,824
16,769
831,871
(602,433)
15,747
16,769
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 252,932
$ 261,954
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 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.
Goodwill
The Company accounts for goodwill in accordance with the authoritative guidance, which requires that
goodwill and certain intangible assets are not amortized, but are subject to an annual impairment test. As
part of its continued transformation, effective January 1, 2016, the Company reorganized a part of its
business by creating a new Content Collaboration product grouping. In connection with this change, the
Company performed an assessment of its goodwill reporting units and determined that the reorganization
resulted in the identification of two goodwill reporting units (excluding the GoTo Business).
On January 31, 2017, the Company completed the Spin-off of the GoTo Business and $380.9 million
of the goodwill attributable to the GoTo Business as of December 31, 2016 was distributed to GetGo. As a
result of the Spin-off, the Company performed an assessment of the two remaining goodwill reporting units
during the first quarter of fiscal year 2017 and determined that these goodwill reporting units remain
unchanged. The Company performed a qualitative assessment in connection with its annual goodwill
impairment test in the fourth quarter of 2017. As a result of the qualitative analysis, a quantitative
impairment test was not deemed necessary. There was no impairment of goodwill or indefinite lived
intangible assets as a result of the annual impairment analysis completed during the fourth quarters of 2017
and 2016, respectively. See Note 4 for more information regarding the Company’s acquisitions and Note 12
for more information regarding the Company’s segments.
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the change in goodwill during 2017 and 2016 (in thousands):
Balance at
January 1,
2017
Additions Other
Balance at
December 31,
2017
Balance at
January 1,
2016
Goodwill . . . $1,585,893 $28,601(1) $— $1,614,494 $1,585,621
Additions
$897(2)
Other
$(625)(3)
Balance at
December 31,
2016
$1,585,893
(1) Amount relates to purchase price allocation of goodwill associated with the 2017 business
combination. See Note 4 for more information regarding the Company’s acquisitions.
(2) Amount relates to purchase price allocation of goodwill associated with the 2016 business
combination. See Note 4 for more information regarding the Company’s acquisitions.
(3) Amount relates to goodwill associated with the sale of the Company’s CloudPlatform and CloudPortal
Business Manager solutions and to adjustments to the preliminary purchase price allocation associated
with 2015 acquisitions. See Note 4 for more information regarding the Company’s acquisitions and
divestitures.
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 computed 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-process R&D is initially capitalized at fair value as an intangible asset with an
indefinite life and assessed for impairment thereafter. When in-process R&D projects are completed, the
corresponding amount is reclassified as an amortizable intangible asset and is amortized over the asset’s
estimated useful life.
Intangible assets consist of the following (in thousands):
December 31, 2017
Gross Carrying
Amount
Accumulated
Amortization
Weighted-
Average Life
(Years)
Product related intangible assets . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$663,004
222,923
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$885,927
$554,934
189,041
$743,975
6.10
6.49
6.20
December 31, 2016
Gross Carrying
Amount
Accumulated
Amortization
Product related intangible assets . . . . . . . . . . . . . . . . .
$647,594
$520,746
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
223,692
176,859
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$871,286
$697,605
Weighted-
Average Life
(Years)
6.12
6.54
6.23
Amortization and impairment of product related intangible assets, which consists primarily of
product-related technologies and patents, was $65.7 million and $55.4 million for the year ended
December 31, 2017 and 2016, respectively, and is classified as a component of Cost of net revenues in the
accompanying consolidated statements of income. Amortization and impairment of other intangible assets,
which consist primarily of customer relationships, trade names and covenants not to compete was
$17.2 million and $15.1 million for the year ended December 31, 2017 and 2016, respectively, and is
classified as a component of Operating expenses in the accompanying consolidated statements of income.
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company monitors its intangible assets for indicators of impairment. If the Company determines
that impairment has occurred, it writes-down the intangible asset to its fair value. For certain intangible
assets where the unamortized balances exceed the undiscounted future net cash flow, the Company
measures the amount of the impairment by calculating the amount by which the carrying values exceed the
estimated fair values, which are based on projected discounted future net cash flows. During the year ended
December 31, 2017, the Company tested certain intangible assets for recoverability and, as a result,
identified certain definite-lived intangible assets, primarily developed technology, that were impaired and
recorded non-cash impairment charges of $18.0 million to write down the intangible assets to their
estimated fair value of $1.6 million. Of the impairment charge, $15.5 million is included in Impairment of
product related intangible assets and $2.5 million is included in Impairment of other intangible assets in the
accompanying consolidated statements of income. These non-recurring fair value measurements were
categorized as Level 3, as significant unobservable inputs were used in the valuation analysis. Key
assumptions used in the valuation include forecasts of revenue and expenses over an extended period of
time, customer retention rates, tax rates, and estimated costs of debt and equity capital to discount the
projected cash flows. Certain of these assumptions involve significant judgment, are based on
management’s estimate of current and forecasted market conditions and are sensitive and susceptible to
change; therefore, further disruptions in the business could potentially result in additional amounts
becoming impaired.
During the year ended December 31, 2015, the Company tested certain intangible assets for
recoverability due to changes in facts and circumstances associated with the shift in strategic focus and
reduced profitability expectations. As a result, due to disruptions in the business as a result of the
announced plan to explore strategic alternatives, the Company identified certain definite-lived intangible
assets, primarily customer relationships from the acquisition of ByteMobile, that were impaired and
recorded non-cash impairment charges of $123.0 million to write down the intangible assets to their
estimated fair value of $26.8 million. Of the impairment charge, $67.1 million is included in Impairment of
other intangible assets and $55.9 million is included in Impairment of product related intangible assets in
the accompanying consolidated statements of income. This non-recurring fair value measurement was
categorized as Level 3, as significant unobservable inputs were used in the valuation analysis. Key
assumptions used in the valuation include forecasts of revenue and expenses over an extended period of
time, customer retention rates, tax rates, and estimated costs of debt and equity capital to discount the
projected cash flows. Certain of these assumptions involve significant judgment, are based on
management’s estimate of current and forecasted market conditions and are sensitive and susceptible to
change; therefore, further disruptions in the business could potentially result in additional amounts
becoming impaired.
Estimated future amortization expense of intangible assets with finite lives as of December 31, 2017 is
as follows (in thousands):
Year ending December 31,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 54,486
35,213
23,050
9,061
7,210
12,932
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$141,952
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Software Development Costs
The authoritative guidance requires certain internal software development costs related to software to
be sold to be capitalized upon the establishment of technological feasibility. The Company’s 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 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 new functionality in internal use software. The amount of costs capitalized during
the years ended 2017 and 2016 relating to internal use software was $41.5 million and $29.2 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. The total amounts charged to expense relating to internal use software was
approximately $27.3 million, $37.8 million and $36.1 million, during the years ended December 31, 2017,
2016 and 2015, respectively.
The Company capitalized costs related to internally developed computer software to be sold as a
service related to its Content Collaboration offerings, incurred during the application development stage, of
$15.2 million and $18.2 million, during the years ended December 31, 2017 and 2016, respectively, and is
amortizing these costs over the expected lives of the related services, which is generally two years, and are
included in property and equipment in the accompanying consolidated balance sheets. The total amounts
charged to expense relating to internally developed computer software to be sold as a service was
approximately $18.5 million, $16.8 million and $9.2 million, during the years ended December 31, 2017,
2016 and 2015, respectively.
Revenue Recognition
Net revenues include the following categories: Product and licenses, SaaS, License updates and
maintenance and Professional services. Product and licenses revenues primarily represent fees related to the
licensing of the Company’s software and sales of hardware appliances. These revenues are reflected net of
sales allowances, cooperative advertising agreements, partner incentive programs and provisions for returns.
SaaS revenues consist primarily of fees related to online service agreements, which are recognized ratably
over the contract term. Should the Company charge set-up fees, they would be recognized ratably over the
contract term or the expected customer life, whichever is longer. License updates and maintenance revenues
consist of fees related to maintenance and support, which include technical support and hardware and
software maintenance. Maintenance and support fees are recognized ratably over the term of the contract,
which is typically 12 to 24 months. The Company capitalizes certain third-party commissions related to
maintenance and support renewals. The capitalized commissions are amortized to Sales, marketing and
services expense at the time the related deferred revenue is recognized as revenue. Hardware and software
maintenance and support contracts are typically sold separately. Hardware maintenance includes
technical support, the latest software upgrades when and if they become available, and replacement of
malfunctioning appliances. Dedicated account management is available as an add-on to the program for a
higher level of service. Software maintenance, including the new Customer Success Services, includes
unlimited technical support, immediate access to software upgrades, enhancements and maintenance
releases when and if they become available during the term of the contract and configuration and
installation support along with acceleration and automation tools. Professional services revenues are
comprised of fees from consulting services related to the implementation of the Company’s solutions and
fees from product training and certification, which are recognized as the services are provided.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recognizes revenue when it is earned and when all of the following criteria are met:
(1) persuasive evidence of the arrangement exists; (2) delivery has occurred or the service has been provided
and the Company has no remaining obligations; (3) the fee is fixed or determinable; and (4) collectability is
probable.
The majority of the Company’s product and license revenue consists of revenue from the sale of
software solutions. Software sales generally include a perpetual license to the Company’s software and are
subject to the industry specific software revenue recognition guidance. In accordance with this guidance, the
Company allocates revenue to license updates related to its stand-alone software and any other undelivered
elements of the arrangement based on vendor specific objective evidence (“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 revenues, 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 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.
For hardware appliance and software transactions, the arrangement consideration is allocated to
stand-alone software deliverables as a group and the non-software deliverables based on the relative selling
prices using the selling price hierarchy in the revenue recognition guidance. The selling price hierarchy for a
deliverable is based on its VSOE if available, third-party evidence of selling price (“TPE”) if VSOE is not
available, or estimated selling price (“ESP”) if neither VSOE nor TPE is available. The Company then
recognizes revenue on each deliverable in accordance with its policies for product and service revenue
recognition. VSOE of selling price is based on the price charged when the element is sold separately. In
determining VSOE, the Company requires that a substantial majority of the selling prices fall within a
reasonable range based on historical discounting trends for specific solutions and services. TPE of selling
price is established by evaluating competitor products or services in stand-alone sales to similarly situated
customers. However, as the Company’s solutions contain a significant element of proprietary technology
and its solutions offer substantially different features and functionality, the comparable pricing of solutions
with similar functionality typically cannot be obtained. Additionally, as the Company is unable to reliably
determine what competitors products’ selling prices are on a stand-alone basis, the Company is not typically
able to determine TPE. The estimate of selling price is established considering multiple factors including,
but not limited to, pricing practices in different geographies and through different sales channels and
competitor pricing strategies.
The CSP program provides subscription-based services in which the CSP partners host software
services to their end users. The fees from the CSP program are recognized based on usage and as the CSP
services are provided to their end users.
For the Company’s non-software transactions, it allocates the arrangement consideration based on the
relative selling price of the deliverables. For the Company’s hardware appliances, it uses ESP as its selling
price. For the Company’s support and services, it generally uses VSOE as its selling price. When the
Company is unable to establish selling price using VSOE for its support and services, the Company uses
ESP in its allocation of arrangement consideration.
The Company’s SaaS offerings are considered hosted service arrangements per the authoritative
guidance.
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. 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
and the impact of any new product releases and projected economic conditions. Product returns are
provided for in the consolidated financial statements and have historically been within management’s
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
expectations. Allowances for estimated product returns amounted to approximately $1.2 million and
$2.0 million at December 31, 2017 and December 31, 2016, respectively. 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 Workspace Services solutions,
which include its XenDesktop and XenApp solutions and related services, and anticipates that these
solutions and future derivative solutions and product lines based upon this technology will continue to
constitute a majority of its revenue. The Company could experience declines in demand for its Workspace
Services solutions and other solutions, whether as a result of general economic conditions, the delay or
reduction in technology purchases, new competitive product releases, price competition, and lack of success
of its strategic partners, technological change or other factors. Additionally, the Company’s Networking
products generate revenues from a limited number of customers. As a result, if the Networking product
grouping loses certain customers or one or more such customers significantly decreases its orders, the
Company’s business, results of operations and financial condition could be adversely affected.
Cost of Net Revenues
Cost of product and license revenues consists primarily of hardware, royalties, product media and
duplication, manuals, shipping expense, and packaging materials. 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 solutions or in the development of future solutions 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 are perpetual unless
expressly terminated. Royalties and other costs related to these agreements are also included in Cost of net
revenues.
Cost of services and maintenance revenues consists primarily of compensation and other
personnel-related costs of providing technical support, consulting, cloud capacity costs, as well as the costs
related to providing our SaaS offerings. Also included in Cost of net revenues is amortization and
impairment of product related intangible assets.
Foreign Currency
The functional currency for all of the Company’s wholly-owned foreign subsidiaries is the U.S. dollar.
Monetary assets and liabilities of such 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. Foreign currency transaction gains and losses are the result of exchange rate changes on
transactions denominated in currencies other than the functional currency, including U.S. dollars. The
remeasurement of those foreign currency transactions is included in determining net income or loss for the
period of exchange. As a result of the Spin-off, accumulated net translation adjustments associated with the
GoTo Business recorded in Accumulated other comprehensive loss of $13.4 million were reclassified to
Retained earnings during the year ended December 31, 2017. See Note 3 for additional information
regarding discontinued operations.
Derivatives and Hedging Activities
In accordance with the authoritative guidance, 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 loss and reclassified into
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
earnings as operating expense, net, when the hedged transaction affects earnings. Derivatives not designated
as hedging instruments are adjusted to fair value through earnings as Other income (expense), net, in the
period during which changes in fair value occur. The application of the authoritative guidance 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. 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 of the
hedged item. Fluctuations in the value of the derivative instruments are generally offset by changes in the
hedged item; 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 this risk 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.
The Company had accrued $13.2 million and $13.2 million for these pension liabilities at December 31,
2017 and 2016, respectively. Expenses for the programs for 2017, 2016 and 2015 amounted to $2.6 million,
$2.5 million and $3.8 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 solutions. The Company also has
cooperative advertising agreements with certain distributors and resellers whereby the Company will
reimburse distributors and resellers for qualified advertising of Company solutions. 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 in the accompanying consolidated statements of income. The total costs the Company
recognized related to advertising were approximately $85.6 million, $72.8 million and $70.7 million, during
the years ended December 31, 2017, 2016 and 2015, 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. The Company is currently not subject to a
U.S. federal income tax examination. 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 2014.
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
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 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 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.
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 net realizable value, 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 in the event of
an acquisition, net realizable value of product related and other intangible assets, the fair value of
convertible senior notes, the provision for lease losses, 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 Plans
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 8 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
vesting or exercise of stock awards (calculated using the treasury stock method) during the period they were
outstanding and potential dilutive common shares from the conversion spread on the Company’s
Convertible Notes. Certain shares under the Company’s stock-based compensation programs were excluded
from the computation of diluted earnings per share due to their anti-dilutive effect for the respective
periods in which they were outstanding. Additionally, the computation of diluted earnings per share does
not include common stock issuable upon the exercise of the Company’s warrants because the effect would
have been anti-dilutive. The reconciliation of the numerator and denominator of the earnings per share
calculation is presented in Note 15.
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reclassifications
Certain reclassifications of the prior years’ amounts have been made to conform to the current year’s
presentation.
3. DISCONTINUED OPERATIONS
On January 31, 2017, the Company completed the Spin-off of the GoTo Business. Refer to Note 1 for
additional information regarding the Spin-off. The financial results of the GoTo Business are presented as
(Loss) income from discontinued operations, net of income tax expense in the consolidated statements of
income. The following table presents the financial results of the GoTo Business through the date of the
Spin-off for the indicated periods and do not include corporate overhead allocations:
Major classes of line items constituting (Loss) Income from discontinued operations related to the GoTo
Business:
Year Ended December 31,
2017
2016
2015
(in thousands)
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 58,215
$682,185
$629,440
Cost of net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,456
42,759
154,652
140,324
527,533
489,116
Operating expenses:
Research and development
. . . . . . . . . . . . . . . . . . . . . . . . .
Sales, marketing and services . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of other intangible assets . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Separation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses
. . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from discontinued operations before income
9,108
20,881
7,636
1,176
3,189
40,573
82,563
93,892
209,475
63,270
14,097
3,721
54,084
83,018
189,560
50,068
11,254
1,750
6,173
438,539
341,823
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(39,804)
2,900
88,994
22,737
147,293
43,065
(Loss) income from discontinued operations, net of income
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(42,704) $ 66,257
$104,228
The Company incurred significant costs in connection with the separation of its GoTo Business, which
were primarily included in discontinued operations. These costs relate primarily to third-party advisory and
consulting services, retention payments to certain employees, incremental stock-based compensation and
other costs directly related to the separation of the GoTo Business. During the years ended December 31,
2017, 2016 and 2015, the Company incurred $0.5 million, $2.5 million and $0.2 million of separation costs
in continuing operations, which are included in General and administrative expense in the accompanying
consolidated statements of income.
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The assets and liabilities of the GoTo Business have been classified as discontinued operations as of
December 31, 2016.
Carrying amounts of major classes of assets and liabilities included as part of discontinued operations related
to the GoTo Business:
Current assets:
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total major classes of assets of discontinued operations . . . . . . . . . . . . . . . . . . . .
Current liabilities:
Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities of discontinued operations . . . . . . . . . . . . . . . . . . . . .
Long-term portion of deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities
Long-term liabilities of discontinued operations
. . . . . . . . . . . . . . . . . . . . . . . . .
Total major classes of liabilities of discontinued operations . . . . . . . . . . . . . . . . . .
December 31,
2016
(in thousands)
$120,861
44,734
14,094
179,689
81,866
380,917
54,312
18,496
3,340
$538,931
$718,620
$ 11,333
46,088
115,249
172,670
4,224
3,484
$
7,708
$180,378
As a result of the Spin-off, the Company recorded a $475.2 million reduction in retained earnings
which included net assets of $461.8 million as of January 31, 2017. Of this amount, $28.5 million represents
cash transferred to the GoTo Business, with the remainder considered a non-cash activity in the
consolidated statements of cash flows. The Spin-off also resulted in a reduction of Accumulated other
comprehensive loss associated with foreign currency translation adjustments of $13.4 million, which was
reclassified to Retained earnings.
Citrix and GetGo entered into several agreements in connection with the Spin-off, including a
transition services agreement (“TSA”), separation and distribution agreement, tax matters agreement,
intellectual property matters agreement, and an employee matters agreement. Pursuant to the TSA, Citrix,
GetGo and their respective subsidiaries are providing various services to each other on an interim,
transitional basis. Services being provided by Citrix include, among others, finance, information technology
and certain other administrative services. The services generally commenced on February 1, 2017 and
terminated on February 1, 2018. Billings by Citrix under the TSA were not material during the year ended
December 31, 2017.
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. ACQUISITIONS AND DIVESTITURES
2017 Business Combination
On January 3, 2017, the Company acquired all of the issued and outstanding securities of Unidesk
Corporation (“Unidesk” or the “2017 Business Combination”). Citrix acquired Unidesk to enhance its
application management and delivery offerings. The total cash consideration for this transaction was
$60.4 million, net of $2.7 million of cash acquired. Transaction costs associated with the acquisition were
not significant.
Purchase Accounting for the 2017 Business Combination
The purchase price for Unidesk was allocated to the acquired net tangible and intangible assets based
on estimated fair values as of the date of the acquisition. The allocation of the total purchase price is
summarized below (in thousands):
Unidesk
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
Long term portion of deferred revenues . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset Life
4 years
Indefinite
Purchase
Price
Allocation
$ 5,321
131
39,470
28,601
1,364
90
74,977
2,290
3,042
2,412
4,086
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$63,147
Current assets acquired in connection with the Unidesk acquisition consisted primarily of cash,
accounts receivable and other short term assets. Current liabilities assumed in connection with the
acquisition consisted primarily of accounts payable and other accrued expenses. Long-term liabilities
assumed in connection with the acquisition consisted primarily of long-term debt, which was paid in full
subsequent to the acquisition date.
The goodwill related to the Unidesk acquisition is not deductible for tax purposes and is comprised
primarily of expected synergies from combining operations and other intangible assets that do not qualify
for separate recognition.
The Company has included the effect of the Unidesk acquisition in its results of operations
prospectively from the date of acquisition. The effect of the acquisition was not material to the Company’s
consolidated results for the periods presented; accordingly, pro forma financial disclosures have not been
presented.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Identifiable intangible assets acquired in connection with the Unidesk acquisition (in thousands) and
the weighted-average lives are as follows:
Developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$35,230
4 years
Customer contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,240
4 years
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$39,470
Unidesk
Asset Life
2016 Business Combination
On September 7, 2016, the Company acquired all of the issued and outstanding securities of a
privately held company. The acquisition provides a software solution that cuts the cost of desktop and
application virtualization and delivers workspace performance by accelerating desktop logon and
application response times for any Microsoft Windows-based environment. The total cash consideration for
this transaction was approximately $11.5 million, net of $0.8 million cash acquired. Transaction costs
associated with the acquisition were not significant. The assets related to this acquisition primarily include
$8.2 million of product technology identifiable intangible assets with a 4 year life and goodwill of
$4.7 million.
2016 Asset Acquisition
On January 8, 2016, the Company acquired certain monitoring technology assets from a privately-held
company for total cash consideration of $23.6 million. The acquisition provides a monitoring solution for
Citrix’s solutions as it relates to Microsoft Windows applications and desktop delivery. The identifiable
intangible assets acquired related primarily to product technologies.
2016 Divestiture
On February 29, 2016, the Company sold its CloudPlatform and CloudPortal Business Manager
solutions to Persistent Telecom Solutions, Inc. The agreement included contingent consideration in the
form of an earnout provision based on revenue for a period of five years following the closing date. Any
income associated with the contingent consideration will be recognized if the earnout provisions are met.
No earnout provisions were met during the years ended December 31, 2017 and December 31, 2016.
Therefore, no income was recognized during the years ended December 31, 2017 and 2016, respectively.
5. INVESTMENTS
Available-for-sale Investments
Investments in available-for-sale securities at fair value were as follows for the periods ended (in
thousands):
Description of the Securities
December 31, 2017
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Fair Value
Amortized
Cost
December 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Agency securities . . . . . . . $ 441,315
810,444
Corporate securities . . . . .
3,965
Municipal securities . . . . .
367,595
Government securities . . . .
Total . . . . . . . . . . . . . . . $1,623,319
$509
268
2
44
$823
$(2,760) $ 439,064 $ 411,963
842,887
807,692
(3,020)
9,989
3,965
(2)
445,083
366,123
(1,516)
$ 699
193
3
135
$(1,169) $ 411,493
840,966
(2,114)
9,988
(4)
444,618
(600)
$(7,298) $1,616,844 $1,709,922
$1,030
$(3,887) $1,707,065
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The change in net unrealized (losses) gains on available-for-sale securities recorded in Other
comprehensive income (loss) includes unrealized (losses) gains that arose from changes in market value of
specifically identified securities that were held during the period, gains (losses) that were previously
unrealized, but have been recognized in current period net income due to sales, as well as prepayments of
available-for-sale investments purchased at a premium. See Note 16 for more information related to
comprehensive income.
The average remaining maturities of the Company’s short-term and long-term available-for-sale
investments at December 31, 2017 were approximately six months and two years, respectively.
Realized Gains and Losses on Available-for-sale Investments
For the years ended December 31, 2017 and 2016, the Company had realized gains on the sales of
available-for-sale investments of $0.8 million and $1.7 million, respectively. For the years ended
December 31, 2017 and 2016, the Company had realized losses on available-for-sale investments of
$0.5 million and $0.5 million, respectively, primarily related to sales of these investments during the period.
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 may be required to make adjustments to the carrying value of the securities in its investment
portfolio and recognize impairment charges for declines in fair value that are determined to be
other-than-temporary.
Unrealized Losses on Available-for-Sale Investments
The gross unrealized losses on the Company’s available-for-sale investments that are not deemed to be
other-than-temporarily impaired were $7.3 million and $3.9 million as of December 31, 2017 and 2016,
respectively. Because the Company does not intend to sell any of its investments in an unrealized loss
position and it is more likely than not that it will not be required to sell the securities before the recovery of
its amortized cost basis, which may not occur until maturity, it does not consider the securities to be
other-than-temporarily impaired.
Cost Method Investments
The Company held direct investments in privately-held companies of approximately $18.6 million
and $19.2 million as of December 31, 2017 and 2016, respectively, which are accounted for based on the
cost method and are included in Other assets in the accompanying consolidated balance sheets. The
Company periodically reviews these investments for impairment. If the Company determines that an
other-than-temporary impairment has occurred, it will write-down the investment to its fair value. The
Company determined that certain cost method investments were impaired during 2017, 2016 and 2015 and
recorded a total charge of $1.4 million, $1.1 million, and $3.3 million, respectively, which is included in
Other income (expense), net in the accompanying consolidated statements of income. During 2017, 2016
and 2015, certain companies in which the Company held direct investments were acquired by third parties
and as a result of these sales transactions the Company recorded gains of $2.6 million, $1.7 million and
$8.7 million, respectively, which was included in Other income (expense), net in the accompanying
consolidated statements of income. See Note 6 for more information.
6. FAIR VALUE MEASUREMENTS
The authoritative guidance defines fair value 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
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
or indirectly; and
Inputs, other than the quoted prices in active markets, that are observable either directly
Level 3. Unobservable inputs in which there is little or no market data, which require the
reporting entity to develop its own assumptions.
Available-for-sale securities included in Level 2 are valued utilizing inputs obtained from an
independent pricing service (the “Service”) which uses quoted market prices for identical or comparable
instruments rather than direct observations of quoted prices in active markets. The Service applies a four
level hierarchical pricing methodology to all of the Company’s fixed income securities based on the
circumstances. The hierarchy starts with the highest priority pricing source, then subsequently uses inputs
obtained from other third-party sources and large custodial institutions. The Service’s providers utilize a
variety of inputs to determine their quoted prices. These inputs may include interest rates, known historical
trades, yield curve information, benchmark data, prepayment speeds, credit quality and broker/dealer
quotes. Substantially all of the Company’s available-for-sale investments are valued utilizing inputs obtained
from the Service and accordingly are categorized as Level 2 in the table below. The Company periodically
independently assesses the pricing obtained from the Service and historically has not adjusted the Service’s
pricing as a result of this assessment. Available-for-sale securities are included in Level 3 when relevant
observable inputs for a security are not available.
The Company’s assessment of the significance of a particular input to the fair value measurement
requires judgment and may affect the classification of assets and liabilities within the fair value hierarchy. In
certain instances, the inputs used to measure fair value may meet the definition of more than one level of
the fair value hierarchy. The input with the lowest level priority is used to determine the applicable level in
the fair value hierarchy.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of
December 31,
2017
Quoted
Prices In
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Assets:
Cash and cash equivalents:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market funds . . . . . . . . . . . . . . . . . .
Corporate securities . . . . . . . . . . . . . . . . . . .
$ 556,520
555,826
2,784
$ 556,520
555,826
—
$
—
—
2,784
Available-for-sale securities:
Agency securities . . . . . . . . . . . . . . . . . . . . .
Corporate securities . . . . . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . .
Government securities . . . . . . . . . . . . . . . . .
439,064
807,692
3,965
366,123
—
—
—
—
439,064
807,299
3,965
366,123
Prepaid expenses and other current assets:
Foreign currency derivatives . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets
2,498
$2,734,472
—
$1,112,346
2,498
$1,621,733
Accrued expenses and other current liabilities:
Foreign currency derivatives . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
$
814
814
$
—
— $
814
814
$ —
—
—
—
393
—
—
—
$393
—
$ —
As of
December 31,
2016
Quoted
Prices In
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Assets:
Cash and cash equivalents:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market funds . . . . . . . . . . . . . . . . . .
Corporate securities . . . . . . . . . . . . . . . . . . .
$ 528,637
224,765
82,693
$528,637
224,765
—
$
—
—
82,693
Available-for-sale securities:
Agency securities . . . . . . . . . . . . . . . . . . . . .
Corporate securities . . . . . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . .
Government securities . . . . . . . . . . . . . . . . .
411,493
840,966
9,988
444,618
—
—
—
—
411,493
839,968
9,988
444,618
Prepaid expenses and other current assets:
Foreign currency derivatives . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets
2,506
$2,545,666
—
$753,402
2,506
$1,791,266
Accrued expenses and other current liabilities:
Foreign currency derivatives . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,435
4,435
$
—
— $
4,435
4,435
$ —
—
—
—
998
—
—
—
$998
—
$ —
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s fixed income available-for-sale security portfolio generally consists of investment grade
securities from diverse issuers with a minimum credit rating of A-/A3 and a weighted-average credit rating
of AA-/Aa3. The Company values these securities based on pricing from the Service, whose sources may
use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices
that are observable either directly or indirectly (Level 2 inputs) in determining fair value, and accordingly,
the Company classifies all of its fixed income available-for-sale securities as Level 2.
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 (Level 2 inputs).
Assets Measured at Fair Value on a Non-recurring Basis Using Significant Unobservable Inputs (Level 3)
During 2017, certain cost method investments with a combined carrying value of $2.6 million were
determined to be impaired and written down to their fair values of $1.2 million, resulting in impairment
charges of $1.4 million. During 2016, certain cost method investments with a combined carrying value of
$1.2 million were determined to be impaired and have been written down to their fair values of $0.1 million
resulting in impairment charges of $1.1 million. The impairment charges are included in Other income
(expense), net in the accompanying consolidated statements of income for the years ended December 31,
2017 and 2016. In determining the fair values of cost method investments, the Company considers many
factors including but not limited to operating performance of the investee, the amount of cash that the
investee has on-hand, the ability to obtain additional financing and the overall market conditions in which
the investee operates. The fair value of the cost method investments represent a Level 3 valuation as the
assumptions used in valuing these investments were not directly or indirectly observable. See Note 5 for
more information regarding cost method investments.
For certain intangible assets where the unamortized balances exceeded the undiscounted future net
cash flows, the Company measures the amount of the impairment by calculating the amount by which the
carrying values exceed the estimated fair values, which are based on projected discounted future net cash
flows. These non-recurring fair value measurements are categorized as Level 3 significant unobservable
inputs. See Note 2 to the Company’s consolidated financial statements for detailed information related to
Goodwill and Other Intangible Assets.
Additional Disclosures Regarding Fair Value Measurements
The carrying value of accounts receivable, accounts payable and accrued expenses approximate their
fair value due to the short maturity of these items.
On November 15, 2017, the Company issued $750.0 million of unsecured senior notes due
December 1, 2027 (the “2027 Notes”). As of December 31, 2017, the fair value of the 2027 Notes and
Convertible Notes, which was determined based on inputs that are observable in the market (Level 2) based
on the closing trading price per $100 as of the last day of trading for the year ended December 31, 2017,
and carrying value of debt instruments (carrying value excludes the equity component of the Company’s
Convertible Notes classified in equity) was as follows (in thousands):
2027 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 764,325
$ 741,150
Convertible Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,868,944
$1,386,324
Fair Value
Carrying Value
See Note 13 for more information on the 2027 Notes and Convertible Notes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses consist of the following:
December 31,
2017
2016
(In thousands)
Accrued compensation and employee benefits . . . . . . . . . . . . . . . . . . . .
$161,049
$143,666
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
116,630
113,133
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$277,679
$256,799
8. EMPLOYEE STOCK-BASED COMPENSATION AND BENEFIT PLANS
Plans
The Company’s stock-based compensation program is a long-term retention program that is intended
to attract and reward talented employees and align stockholder and employee interests. As of December 31,
2017, the Company had one stock-based compensation plan under which it was granting equity awards.
The Company is currently granting stock-based awards from its Amended and Restated 2014 Equity
Incentive Plan (the “2014 Plan”), which was approved at the Company’s Annual Meeting of Stockholders
on June 22, 2017. In connection with certain of the Company’s acquisitions, the Company has assumed
certain plans from acquired companies. The Company’s Board of Directors has provided that no new
awards will be granted under the Company’s acquired stock plans. Awards previously granted under the
Company’s superseded stock plans that are still outstanding typically expire between five and ten years from
the date of grant and will continue to be subject to all the terms and conditions of such plans, as applicable.
The Company’s superseded stock plans with outstanding awards include the Amended and Restated 2005
Equity Incentive Plan (“2005 Plan”).
Under the terms of the 2014 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 to
consultants and non-employee directors of the Company. SARs and ISOs are not currently being granted.
Currently, the 2014 Plan provides for the issuance of 46,000,000 shares of common stock. In addition,
shares of common stock underlying any awards granted under the Company’s 2014 Plan or the 2005 Plan
that are forfeited, canceled or otherwise terminated (other than by exercise) are added to its shares of
common stock available for issuance under the 2014 Plan. Under the 2014 Plan, NSOs must be granted at
exercise prices no less than fair market value on the date of grant. 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. Stock-based awards are generally
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, 2017, there were 28,197,138 shares of common stock
reserved for issuance pursuant to the Company’s stock-based compensation plans, including authorization
under its 2014 Plan to grant stock-based awards covering 23,521,681 shares of common stock. In
connection with the completion of the Spin-off, these awards were modified as described below.
In December 2014, the Company’s Board of Directors approved the 2015 Employee Stock Purchase
Plan (the “2015 ESPP”), which was approved by stockholders at the Company’s Annual Meeting of
Stockholders held on May 28, 2015. Under the 2015 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 either the first business day of
the Payment Period or the last business day of the Payment Period, whichever is lower. Employees who,
after exercising their rights to purchase shares of common stock in the 2015 ESPP, would own shares
representing 5% or more of the voting power of the Company’s common stock, are ineligible to continue to
participate under the 2015 ESPP. The 2015 ESPP provides for the issuance of a maximum of 16,000,000
shares of common stock. As of December 31, 2017, 1,260,420 shares have been issued under the 2015
ESPP. The Company recorded stock-based compensation costs related to its employee stock purchase plans
of $10.0 million, $7.5 million and $6.5 million for the years ended December 31, 2017, 2016 and 2015,
respectively.
The Company used the Black-Scholes model to estimate the fair value of the 2015 ESPP awards with
the following weighted-average assumptions:
Year Ended
December 31, 2017
Year Ended
December 31, 2016
Year Ended
December 31, 2015
Expected volatility factor . . . . . . . . . . . . .
Risk free interest rate . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . .
Expected life (in years) . . . . . . . . . . . . . . .
0.27 – 0.29
0.27 – 0.41
0.60% – 1.12% 0.25% – 0.42%
0%
0.5
0%
0.5
0.35
0.25%
0%
0.5
The Company determined the expected volatility factor by considering the implied volatility in
six-month market-traded options of the Company’s common stock based on third party volatility quotes.
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 risk-free interest rate was based on a U.S. Treasury
instrument whose term is consistent with the expected term of the stock options. The Company’s expected
dividend yield input was zero as it has not historically paid, nor expects in the future to pay, cash dividends
on its common stock. The expected term is based on the term of the purchase period for grants made under
the ESPP.
Modifications of Share-Based Awards
In connection with the completion of the Spin-off, the terms of the Company’s existing stock-based
compensation arrangements required adjustments to the number and exercise price of outstanding stock
options, non-vested stock units, non-vested stock, performance units, and other share-based awards to
preserve the intrinsic value of the awards immediately before and after the Spin-off. The outstanding awards
continue to vest over the original vesting periods. Certain outstanding awards at the time of the Spin-off
held by employees of the GoTo Business were forfeited at the time of the separation. The stock awards held
as of January 31, 2017 were adjusted as follows:
•
•
•
The number of shares of common stock subject to each outstanding stock option was increased
and the corresponding exercise price was decreased to maintain the intrinsic value of each
outstanding stock option immediately before and after the Spin-off. There was no incremental
expense related to this adjustment.
The number of shares of common stock underlying each outstanding non-vested stock unit and
performance unit was increased to preserve the intrinsic value of such award immediately prior to
the Spin-off.
The opening prices of the performance units granted in 2015 and 2016 were adjusted to reflect the
value of the shares of LogMeIn stock distributed to the Company’s stockholders as a result of the
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Spin-off. These adjustments resulted in $6.5 million in incremental compensation expense to be
recognized over the remaining vesting life of the underlying awards.
Expense Information
As required by the authoritative guidance prior to January 1, 2017, the Company estimated forfeitures
of stock awards and recognized compensation costs only for those awards expected to vest. Forfeiture rates
were determined based on historical experience. The Company also considered whether there had been any
significant changes in facts and circumstances that would affect its forfeiture rate quarterly. Estimated
forfeitures were adjusted to actual forfeiture experience as needed. Subsequent to January 1, 2017, in
connection with the adoption of an accounting standard update, the Company made a policy election to
account for forfeitures as they occur rather than on an estimated basis. See Note 18 for additional
information on recent accounting pronouncements.
The Company recorded stock-based compensation costs, related deferred tax assets and tax benefits of
$165.1 million, $46.1 million and $72.9 million, respectively, in 2017, $152.7 million, $53.5 million and
$64.7 million, respectively, in 2016 and $128.3 million, $40.2 million and $50.5 million, respectively, in 2015.
The detail of the total stock-based compensation recognized by income statement classification is as
follows (in thousands):
Income Statement Classifications
Cost of services and maintenance revenues . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
Sales, marketing and services . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . .
$
2017
4,281
47,291
55,173
58,375
$
2016
2,179
38,578
48,514
63,468
$
2015
1,924
38,910
45,041
42,387
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$165,120
$152,739
$128,262
Non-vested Stock Units
Market Performance and Service Condition Stock Units
In March 2017, the Company granted senior level employees non-vested stock unit awards
representing, in the aggregate, 275,148 non-vested stock units that vest based on certain target performance
and service conditions. The number of non-vested stock units underlying the award will be determined
within sixty days of the three-year performance period ending December 31, 2019. The attainment level
under the award will be based on the Company’s relative total return to stockholders over the performance
period compared to a pre-established custom index group. If the Company’s relative total return to
stockholders is between the 41st percentile and the 80th percentile when compared to the index companies,
the number of non-vested stock units earned will be based on interpolation. The maximum number of
non-vested stock units that may vest pursuant to the awards is capped at 200% of the target number of
non-vested stock units set forth in the award agreement and is earned if the Company’s relative total return
to stockholders when compared to the index companies is at or greater than the 80th percentile. If the
Company’s total return to stockholders is negative, the number of non-vested stock units earned will be no
more than 100% regardless of the Company’s relative total return to stockholders compared to the index
companies. If the awardee is not employed by the Company at the end of the performance period, the
extent to which the awardee will vest in the award, if at all, is dependent upon the timing and character of
the termination as provided in the award agreement. Each non-vested stock unit, upon vesting, represents
the right to receive one share of the Company’s common stock.
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 2016, the Company granted its former Chief Executive Officer 220,235 non-vested
stock units that vest based on certain target performance conditions; and in March 2016, the Company
granted senior level employees 234,816 non-vested stock units that vest based on certain target performance
conditions. These awards were modified as described above as a result of the Spin-off. The attainment level
under the awards will be based on the Company’s compound annualized total return to stockholders over a
three-year performance period, with 100% of such stock units earned if the Company achieves total
shareholder return of 10% over the performance period. Further, if the Company achieves annualized total
shareholder return of less than 10% during the performance period, the awardees may earn all or a portion
of the target award, but not in excess of 100% of such stock units, depending upon the Company’s relative
total shareholder return compared to companies listed in the S&P Computer Software Select Index. If the
Company’s compound annualized total shareholder return is 5% or above, the number of non-vested
stock units earned will be based on interpolation, with the maximum number of non-vested stock units
earned capped at 200% of the target number of non-vested stock units for a compound annualized total
return to stockholders of 30% over a three-year performance period as set forth in the award agreement.
Within sixty days following an interim measurement period of 18 months, the Compensation Committee
will determine the number of restricted stock units that would be deemed earned based on performance to
date, and up to 33% of the target award may be earned based on such performance; however, any
stock units that are deemed earned will remain subject to continued service vesting until the end of the
three-year performance period, or a change in control, if earlier. Within sixty days following the conclusion
of the performance period, the Company’s Compensation Committee will determine the number of
restricted stock units that would vest upon the final day of the performance period based on the Company’s
performance during the period and in accordance with the terms of the award. On the vesting date, the
greater of the full period restricted stock units, or the interim earned restricted stock units, will vest in one
installment.
In March 2015, the Company granted senior level employees non-vested stock unit awards
representing, in the aggregate, 393,464 non-vested stock units that vest based on certain target market
performance and service conditions. The number of non-vested stock units underlying each award will be
determined within sixty days of the calendar year following the end of a three-year performance period
ending December 31, 2017. The attainment level under the award will be based on the Company’s total
return to stockholders over the performance period compared to the return on the Nasdaq Composite Total
Return Index (the “XCMP”). If the Company’s return is positive and meets or exceeds the indexed return,
the number of non-vested stock units earned will be based on interpolation, with the maximum number of
non-vested stock units earned pursuant to the award capped at 200% of the target number of non-vested
stock units set forth in the award agreement if the Company’s return exceeds the indexed return by 40% or
more. If the Company’s return over the performance period is positive but underperforms the index, a
number of non-vested stock units will be issued, below the target award, based on interpolation; however,
no non-vested stock units will be issued if the Company’s return underperforms the index by more than
20% over the performance period. In the event the Company’s return to stockholders is negative but still
meets or exceeds the indexed return, only 75% of the target award shall be issued. If the awardee is not
employed by the Company at the end of the performance period; the extent to which the awardee will vest
in the award, if at all, is dependent upon the timing and character of the termination as provided in the
award agreement. Each non-vested stock unit, upon vesting, represents the right to receive one share of the
Company’s common stock. The performance metric under the March 2015 award was met, therefore
awards vested as of December 31, 2017.
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 non-vested
performance stock unit awards was determined through the use of a Monte Carlo simulation model, which
utilized multiple input variables that determined the probability of satisfying the market condition
requirements applicable to each award as follows:
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 2017
Grant
March 2016
Grant
January 2016
Grant
March 2015
Grant
Expected volatility factor . . . . . . . . . . . . .
0.27 – 0.32
0.29 – 0.39
0.29 – 0.37
0.14 – 0.29
Risk free interest rate . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . .
1.48%
0%
0.91%
0%
1.10%
0%
0.85%
0%
For the March 2017 grant, the range of expected volatilities utilized was based on the historical
volatilities of the Company’s common stock and the average of its peer group. 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 its peer group in order to model the stock price movements. The
volatilities used were calculated over the most recent 2.75 year period, which is commensurate with the
awards’ 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 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 estimated fair value of each award as of the
date of grant was $104.05.
For the March 2016 and January 2016 grants, the range of expected volatilities utilized was based on
the historical volatilities of the Company’s common stock and the average of its peer group. 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 its peer group in order to model the stock price
movements. The volatilities used were calculated over a 3.00 year period, which is commensurate with the
awards’ 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 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 estimated fair value of each award as of the
date of grant was $66.18 for the March 2016 grant and $49.68 for the January 2016 grant.
For the March 2015 grant, the range of expected volatilities utilized was based on the historical
volatilities of the Company’s common stock and the XCMP. 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 the XCMP in order to model the stock price movements. The volatilities used
were calculated over the most recent 2.76 year period, which is commensurate with the awards’ 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 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 estimated fair value of each award as of the date of grant
was $61.01 for the March 2015 grant.
Service Based Stock Units
The Company also awards senior level employees, certain other employees and new non-employee
directors, non-vested stock units granted under the 2014 Plan that vest based on service. The majority of
these non-vested stock unit awards generally vest 33.33% on each anniversary subsequent to the date of the
award. The Company also assumes non-vested stock units in connection with certain of its acquisitions.
The assumed awards have the same three year vesting schedule. Each non-vested stock unit, upon vesting,
represents the right to receive one share of the Company’s common stock. In addition, the Company
awards non-vested stock units to all of its continuing non-employee directors. These awards vest monthly in
12 equal installments based on service and, upon vesting, each stock unit represents the right to receive one
share of the Company’s common stock.
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company Performance Stock Units
On August 1, 2017, the Company awarded certain senior level employees non-vested performance
stock units granted under the 2014 Plan. The number of non-vested stock units underlying each award will
be determined within sixty days of the calendar year following completion of the performance period
ending December 31, 2019 and will be based on achievement of specific corporate financial performance
goals related to non-GAAP net operating margin and cloud bookings targets that are expected to be
defined in the first quarter of 2018. The number of non-vested stock units issued will be based on a
graduated slope, with the maximum number of non-vested stock units issuable pursuant to the award
capped at 200% of the base number of non-vested stock units set forth in the award agreement. The
Company is required to estimate the attainment expected to 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. 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 be recognized and any previously recognized compensation cost will be reversed.
Since the non-GAAP net operating margin and cloud bookings targets have not been determined yet, the
awards are not considered outstanding for GAAP purposes as the Company and the employees have not
reached a mutual understanding of the key terms and conditions of the award. Therefore, no compensation
expense has been recorded to date on these awards. Compensation expense will begin once the targets are
set and will be recorded through the end of the performance period on December 31, 2019 if it is deemed
probable that the targets will be met.
The following table summarizes the Company’s non-vested stock unit activity for the year ended
December 31, 2017:
Non-vested stock units at December 31, 2016 . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
Adjustment due to the Spin-Off of the GoTo Business
Number of
Shares
4,391,836
3,155,701
(2,259,454)
(1,592,566)
927,029
Non-vested stock units at December 31, 2017 . . . . . . . . . . . . . . . .
4,622,546
Weighted-Average
Fair Value
at Grant Date
$70.67
86.41
66.39
55.42
5.57
82.83
For the years ended December 31, 2017, 2016 and 2015, the Company recognized stock-based
compensation expense of $149.8 million, $135.7 million and $117.9 million, respectively, related to
non-vested stock units. The fair value of the non-vested stock units released in 2017, 2016, and 2015 was
$150.0 million, $163.8 million and $132.9 million, respectively. As of December 31, 2017, there was
$245.5 million of total unrecognized compensation cost related to non-vested stock units. The unrecognized
cost is expected to be recognized over a weighted-average period of 1.75 years.
Benefit Plan
The Company maintains a 401(k) benefit plan allowing eligible U.S.-based employees to contribute up
to 90% of their annual eligible earnings to the plan on a pretax and after-tax basis, including Roth
contributions, limited to an annual maximum amount as set periodically by the IRS. 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 $13.7 million, $14.0 million and $12.1 million in 2017, 2016 and
2015, respectively. Prior to June 2015, the Company’s contributions vested over a four-year period at 25%
per year. Effective in June 2015, all matching contributions vest immediately.
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. 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 $8.5 billion, of which $500.0 million was approved in
January 2017 and an additional $1.7 billion was approved in November 2017. 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,
2017, approximately $1.43 billion 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 net proceeds from the Convertible Notes
offering, as well as 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
through open market purchases, pursuant to a Rule 10b5-1 plan or in privately negotiated transactions.
During the year ended December 31, 2017, the Company expended approximately $575.0 million on
open market purchases under the stock repurchase program, repurchasing 7,384,368 shares of outstanding
common stock at an average price of $77.86.
In addition to the repurchases described above, the Company used the net proceeds from the 2027
Notes offering to repurchase an aggregate of approximately $750.0 million of shares of its common stock
as authorized under the Company’s share repurchase program. The Company paid $750.0 million to
Citibank N.A. (the “ASR Counterparty”) under the Accelerated Share Repurchase (“ASR”) agreement and
received approximately 7.1 million shares of its common stock from the ASR Counterparty, which
represents 80 percent of the shares pursuant to the ASR agreement. The total number of shares of common
stock that the Company will repurchase under the ASR agreement will be based on the average of the daily
volume-weighted average prices of the common stock during the term of the ASR agreement, less a
discount. At settlement, the ASR Counterparty may be required to deliver additional shares of the
Company’s common stock to the Company or, under certain circumstances, the Company may be required
to deliver shares of its common stock or make a cash payment to the ASR Counterparty. Final settlement
of the ASR agreement was completed in January 2018 and the Company received delivery of 1,371,495
additional shares of its common stock.
During the year ended December 31, 2016, the Company expended approximately $28.7 million on
open market purchases under the stock repurchase program, repurchasing 426,300 shares of outstanding
common stock at an average price of $67.30.
During the year ended December 31, 2015, the Company expended approximately $755.7 million on
open market purchases under the stock repurchase program, repurchasing 10,716,850 shares of outstanding
common stock at an average price of $70.52.
Shares for Tax Withholding
During the years ended December 31, 2017, 2016 and 2015, the Company withheld 974,501 shares,
830,155 shares and 679,694 shares, respectively, from equity awards that vested. Amounts withheld to
satisfy minimum tax withholding obligations that arose on the vesting of equity awards was $80.0 million,
$66.6 million and $46.3 million, for 2017, 2016 and 2015, respectively. These shares are reflected as treasury
stock in the Company’s consolidated balance sheets and the related cash outlays do not reduce the
Company’s total stock repurchase authority.
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, 2017 or 2016.
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Rental expense for the year ended December 31, 2017 totaled approximately $64.3 million, of which
$9.7 million related to charges for the consolidation of leased facilities related to restructuring activities.
Rental expense for the year ended December 31, 2016 totaled approximately $84.6 million, of which
$28.9 million related to charges for the consolidation of leased facilities related to restructuring activities.
Rental expense for the year ended December 31, 2015 totaled approximately $89.9 million, of which
$22.1 million related to charges for the consolidation of leased facilities related to restructuring activities.
Sublease income for the years ended December 31, 2017, 2016 and 2015 was approximately $0.2 million,
$0.2 million and $0.2 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,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 56,736
53,288
44,789
37,341
33,547
114,333
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$340,034
$204
—
—
—
—
—
$204
Liabilities for Loss on Lease Obligations
The Company recognizes liabilities for costs that will continue to be incurred under operating lease
obligations for their remaining terms without economic benefit to the Company. The liabilities are
measured and recorded at their fair values as of the cease-use date (the date the Company vacates the leased
space and no longer derives economic benefit from the leases). The liabilities are included in Accrued
expenses and other current liabilities and Other long-term liabilities in the consolidated balance sheets and
the related expense is included in Restructuring expenses in the consolidated statements of income.
The fair values of the liabilities are determined by discounting certain future cash flows related to the
leases using a credit-adjusted risk-free interest rate as of the cease-use date (Level 3). The future cash flows
that are discounted include the remaining base rentals due under the leases, reduced by the estimated
sublease rentals that could be reasonably obtained for the properties even if the Company has no intention
to enter into a sublease. The estimate of sublease rentals may change, which would require future changes to
the liabilities for loss on lease obligations.
As of December 31, 2017, the Company’s liabilities for loss on lease obligations total approximately
$38.7 million, of which approximately $34.9 million relates to the Company’s Santa Clara office. The
calculation of these liabilities requires judgment in estimating the timing of securing subleases for the
vacant space, as well as the terms of possible subleases, including the length of the sublease periods,
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
sublease rentals, rent concessions and other tenant incentives. While the Company believes that the
assumptions used in the calculation of these liabilities are reasonable, due to the inherent uncertainties
related to such assumptions, there can be no assurance that the Company will be able to secure such
subleases within the timing assumed in its calculations, or at all, and with terms consistent with the
assumptions used. In the Company’s Santa Clara office, if the price per square foot assumption were to
change by $0.50 or approximately 18%, it would impact the estimate of sublease rentals, which would result
in a change of $5.6 million to the liabilities for loss on lease obligation.
Legal Matters
The Company accrues a liability for legal contingencies when it believes that it is both probable that a
liability has been incurred and that it can reasonably estimate the amount of the loss. The Company reviews
these accruals and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel
and other relevant information. To the extent new information is obtained and the Company’s views on the
probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in the
Company’s accrued liabilities would be recorded in the period in which such determination is made. In
addition, in accordance with the relevant authoritative guidance, for matters in which the likelihood of
material loss is at least reasonably possible, the Company provides disclosure of the possible loss or range of
loss. If a reasonable estimate cannot be made, however, the Company will provide disclosure to that effect.
Due to the nature of the Company’s business, the Company is subject to patent infringement claims,
including current suits against it or one or more of its wholly-owned subsidiaries alleging infringement by
various Company solutions 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 it is not reasonably possible that the ultimate outcomes will materially and adversely
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 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 material payments pursuant to these provisions as of
December 31, 2017. 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, 2018 to be approximately
$6.3 million. The Company also has contingent obligations to purchase inventory for the fiscal year ended
December 31, 2018 of approximately $19.4 million. The Company does not have any purchase obligations
beyond December 31, 2018.
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES
On December 22, 2017, President Donald Trump signed the Tax Cuts and Jobs Act (the “2017 Tax
Act”) into law effective January 1, 2018. The 2017 Tax Act significantly revised the U.S. tax code by, in part
but not limited to: reducing the U.S. corporate maximum tax rate from 35% to 21%, imposing a mandatory
one-time transition tax on certain un-repatriated earnings of foreign subsidiaries, modifying executive
compensation deduction limitations, and repealing the deduction for domestic production activities. Under
Accounting Standards Codification 740, Income Taxes, the Company must recognize the effects of tax law
changes in the period in which the new legislation is enacted.
The SEC staff acknowledged the challenges companies face incorporating the effects of the 2017 Tax
Act by their financial reporting deadlines. In response, on December 22, 2017, the SEC staff issued Staff
Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a
registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to
complete accounting for certain income tax effects of the 2017 Tax Act. As of December 31, 2017, the
Company recorded a provisional income tax charge of $64.8 million for the re-measurement of its
U.S. deferred tax assets and liabilities because of the federal corporate tax rate reduction from 35% to 21%.
The Company recorded a provisional income tax charge of $364.6 million for the transition tax on deemed
repatriation of deferred foreign income. The Company also provisionally accounted for the modified
executive compensation deduction limitations pursuant to the 2017 Tax Act as of December 31, 2017.
The Company considers the accounting of the transition tax, deferred tax re-measurements and its
ongoing analysis of final year-end data and tax positions to be estimates. The provisional amounts recorded
are based on the Company’s current interpretation and understanding of the 2017 Tax Act and may change
as the Company receives additional clarification and implementation guidance and finalizes their analysis of
all impacts and positions with regard to the 2017 Tax Act. The Company will continue to gather and
evaluate the data and guidance to refine the income tax impact of the 2017 Tax Act. Pursuant to SAB 118,
the Company will complete the accounting for the tax effects of all of the provisions of the 2017 Tax Act
within the required measurement period not to extend beyond one year from the enactment date.
The United States and foreign components of income before income taxes are as follows:
2017
United States
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 78,897
471,449
$550,346
The components of the provision for income taxes are as follows:
2016
(In thousands)
$ 59,344
468,426
$527,770
2015
$(135,978)
300,562
$ 164,584
2017
2016
(In thousands)
2015
Current:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current
$374,602
56,526
3,075
434,203
$ 18,832
52,978
7,759
79,569
$(12,450)
40,613
6,523
34,686
Deferred:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52,842
(5,468)
46,784
94,158
$528,361
(7,688)
(3,139)
(10,827)
(21,654)
$ 57,915
(69,104)
(2,991)
(13,140)
(85,235)
$(50,549)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the breakdown of net deferred tax assets:
December 31,
2017
2016
(In thousands)
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$152,362
$233,900
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(237)
(1,472)
Total net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$152,125
$232,428
The significant components of the Company’s deferred tax assets and liabilities consisted of the
following:
December 31,
2017
2016
(In thousands)
Deferred tax assets:
Accruals and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating losses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 30,317
65,016
80,772
36,674
21,714
—
4,939
—
(76,789)
$ 41,094
95,969
50,072
41,986
34,349
557
1,933
267
(14,156)
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
162,643
252,071
Deferred tax liabilities:
Acquired technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,882)
(7,414)
(222)
(8,524)
(11,119)
—
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(10,518)
(19,643)
Total net deferred tax assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$152,125
$232,428
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, 2017, the Company determined a $76.8 million valuation allowance was necessary, which
relates to deferred tax assets for net operating losses and tax credits that may not be realized.
At December 31, 2017, the Company retained $135.9 million of remaining net operating loss carry
forwards in the United States 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 may begin to expire in 2018.
At December 31, 2017, the Company held $47.2 million of remaining net operating loss carry forwards in
foreign jurisdictions that do not expire. At December 31, 2017, the Company held $108.6 million of federal
and state research and development tax credit carry forwards in the United States, a portion of which may
begin to expire in 2018.
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A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows:
Year Ended December 31,
2017
2016
Federal statutory taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.0%
35.0%
State income taxes, net of federal tax benefit
. . . . . . . . . . . . . . . . . .
2.1
Foreign operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(20.0)
Permanent differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The 2017 Tax Act – tax rate impact on deferred taxes . . . . . . . . . . . .
The 2017 Tax Act – transition tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance reserve . . . . . . . . . . . . . . . . . . . . . . .
Change in deferred tax liability related to acquired intangibles . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in accruals for uncertain tax positions . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.6
11.8
66.3
8.8
0.3
(7.6)
(3.6)
0.3
—
0.8
(21.6)
3.2
—
—
—
(0.8)
(7.9)
0.3
2.2
(0.2)
2015
35.0%
(1.0)
(41.1)
13.9
—
—
—
(12.6)
(20.7)
0.8
(5.9)
0.9
96.0%
11.0%
(30.7)%
The Company’s effective tax rate generally differs from the U.S. federal statutory rate primarily due to
lower tax rates on earnings generated by the Company’s foreign operations that are taxed primarily in
Switzerland.
The Company’s effective tax rate was approximately 96.0% and 11.0% for the year ended December 31,
2017 and 2016, respectively. The increase in the effective tax rate when comparing the year ended
December 31, 2017 to the year ended December 31, 2016 was primarily due to accounting for the estimated
tax impact of the 2017 Tax Act and the separation of the GoTo Business. Specifically, the Company
recorded a $364.6 million provisional income tax charge for the transition tax on deemed repatriation of
deferred foreign income, and a $64.8 million provisional income tax charge for the re-measurement of U.S.
deferred tax assets and liabilities because of the maximum U.S. federal corporate rate reduction from 35%
to 21%. The Company also recorded a $48.6 million income tax charge to establish a valuation allowance
primarily due to a change in expectation of realizability of state R&D credits arising from the separation of
the GoTo Business. These charges were marginally offset by a $22.0 million tax benefit due to the adoption
of an accounting standard update requiring recognition of income tax effects related to stock based
compensation when the awards vest or settle.
The increase in the effective tax rate when comparing the year ended December 31, 2016 to the year
ended December 31, 2015 was primarily due to change in the combination of income between the
Company’s U.S. and foreign operations, the impact of discrete tax benefits related to the extension of the
2015 federal research and development tax credit and the impact of settling the Internal Revenue Service
(“IRS”) examination for tax years 2011 and 2012 that closed during 2015. Specifically, during the quarter
ended June 30, 2015, the IRS concluded its field examination, finalized tax adjustments primarily related to
transfer pricing and the research and development tax credit, and formally closed the audit for the 2011 and
2012 tax years. Subsequently, during 2015 the Company recognized a net tax benefit of $20.3 million
related to the IRS examination settlement.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended
December 31, 2017 and 2016 is as follows (in thousands):
Balance at January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$54,621
Additions based on tax positions related to the current year . . . . . . . . . . . . . . . . . .
11,588
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,759
Reductions related to the expiration of statutes of limitations . . . . . . . . . . . . . . . . .
(1,167)
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69,801
Additions based on tax positions related to the current year . . . . . . . . . . . . . . . . . .
$ 9,293
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions related to audit settlements
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,656
(137)
Reductions related to the expiration of statutes of limitations . . . . . . . . . . . . . . . . .
(8,764)
Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$77,849
As of December 31, 2017, unrecognized tax benefits of $31.6 million were offset against long-term
deferred tax assets. All amounts included in this balance affect the annual effective tax rate. The Company
recognizes interest accrued related to uncertain tax positions and penalties in income tax expense. For the
year ended December 31, 2017, the Company accrued $2.7 million for the payment of interest.
The Company and one or more of its subsidiaries are subject to U.S. federal income taxes in the
United States, as well as income taxes of multiple state and foreign jurisdictions. The Company is currently
no longer subject to U.S. federal income tax examination. With few exceptions, the Company is generally
not under examination for state and local income tax, or non-U.S. jurisdictions by tax authorities for years
prior to 2014.
12. SEGMENT INFORMATION
On January 31, 2017, Citrix completed the Spin-off of the GoTo Business. As a result, the Company
re-evaluated its operating segments in the first quarter of 2017, and determined that it has one reportable
segment. The Company’s chief operating decision maker (“CODM”) reviews financial information
presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.
The Company’s CEO is the CODM. During the first quarter of 2017, the Company classified the results of
the GoTo Business, formerly a reportable segment, as discontinued operations in its consolidated statement
of income for all periods presented. See Note 3 for more information regarding discontinued operations.
On July 7, 2017, the Company’s board of directors appointed David J. Henshall, formerly the chief
financial officer and chief operating officer of the Company, as the Company’s president, chief executive
officer and a member of the board of directors. As a result, during the third quarter of 2017, the Company
re-evaluated its CODM and determined that the CODM continues to be the CEO and that the Company’s
operating segment remains unchanged.
International revenues (sales outside of the United States) accounted for approximately 46.3%, 46.3%
and 48.7% of the Company’s net revenues for the year ended December 31, 2017, 2016, and 2015,
respectively.
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-lived assets consist of property and equipment, net, and are shown below.
December 31,
2017
2016
(In thousands)
Property and equipment, net:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$189,465
$197,077
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,171
39,296
25,321
39,556
Total property and equipment, net
. . . . . . . . . . . . . . . . . . . . .
$252,932
$261,954
In fiscal year 2017 and 2016, two distributors, Ingram Micro and Arrow, accounted for 13% and 12%,
respectively, of the Company’s total net revenues. In fiscal year 2015, two distributors, Ingram Micro and
Arrow, accounted for 13% and 11%, respectively, of the Company’s total net revenues. The Company’s
distributor arrangements with Ingram Micro and Arrow consist of several non-exclusive, independently
negotiated agreements with its subsidiaries, each of which covers different countries or regions.
Revenues by product grouping were as follows for the years ended:
December 31,
2017
2016
2015
(In thousands)
Net revenues:
Workspace Services revenues(1)
. . . . . . . . . . . . . . . .
Networking revenues(2)
. . . . . . . . . . . . . . . . . . . . .
Content Collaboration revenues(3) . . . . . . . . . . . . . .
Professional services(4) . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Total net revenues
$1,734,837
790,434
167,115
132,300
$1,684,897
782,875
136,842
131,466
$1,633,820
749,910
106,655
155,769
$2,824,686
$2,736,080
$2,646,154
(1) Workspace Services revenues are primarily comprised of sales from the Company’s application
virtualization solutions, which include XenDesktop and XenApp, the Company’s enterprise mobility
management solutions, which include XenMobile, related license updates and maintenance and
support and cloud offerings.
(2) Networking revenues primarily include NetScaler ADC and NetScaler SD-WAN, related license
updates and maintenance and support and cloud offerings.
(3) Content Collaboration revenues primarily include ShareFile, Podio and related cloud offerings.
(4) Professional services revenues are primarily comprised of revenues from consulting services and
product training and certification services.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenues by Geographic Location
The following table presents revenues by geographic location, for the years ended:
December 31,
2017
2016
2015
(In thousands)
Net revenues:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,644,008
$1,598,896
$1,487,364
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APJ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
888,072
292,606
863,517
273,667
873,620
285,170
Total net revenues
. . . . . . . . . . . . . . . . . . . . . . .
$2,824,686
$2,736,080
$2,646,154
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 2017, 2016 and 2015 were $151.9 million, $160.5 million and $178.7 million,
respectively.
13. DEBT
Senior Notes
On November 15, 2017, the Company issued $750.0 million of unsecured senior notes due
December 1, 2027 (the “2027 Notes”). The 2027 Notes accrue interest at a rate of 4.500% per annum.
Interest on the 2027 Notes is due semi-annually on June 1 and December 1 of each year, beginning on
June 1, 2018. The net proceeds from this offering were approximately $741.0 million, after deducting the
underwriting discount and estimated offering expenses payable by the Company. Net proceeds from this
offering were used to repurchase shares of the Company’s common stock through an ASR transaction
which the Company entered into with the ASR Counterparty on November 13, 2017. The 2027 Notes will
mature on December 1, 2027, unless earlier redeemed in accordance with their terms prior to such date. The
Company may redeem the 2027 Notes at its option at any time in whole or from time to time in part prior
to September 1, 2027 at a redemption price equal to the greater of (i) 100% of the aggregate principal
amount of the 2027 Notes to be redeemed and (ii) the sum of the present values of the remaining scheduled
payments under such 2027 Notes, plus in each case, accrued and unpaid interest to, but excluding, the
redemption date. Among other terms, under certain circumstances, holders of the 2027 Notes may require
the Company to repurchase their 2027 Notes upon the occurrence of a change of control prior to maturity
for cash at a repurchase price equal to 101% of the principal amount of the 2027 Notes to be repurchased
plus accrued and unpaid interest to, but excluding, the repurchase date.
Credit Facility
Effective January 7, 2015, the Company entered into a Credit Facility with a group of financial
institutions (the “Lenders”). The Credit Facility provides for a five year revolving line of credit in the
aggregate amount of $250.0 million, subject to continued covenant compliance. The Company may elect to
increase the revolving credit facility by up to $250.0 million if existing or new lenders provide additional
revolving commitments in accordance with the terms of the Credit Agreement. 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 $10.0 million may be available for swing line loans, as part of, not in
addition to, the aggregate revolving commitments. The Credit Facility bears interest at the LIBOR plus
1.10% and adjusts in the range of 1.00% to 1.30% above LIBOR based on the ratio of the Company’s total
debt to its adjusted earnings before interest, taxes, depreciation, amortization and certain other items
(“EBITDA”) as defined in the agreement. In addition, the Company is required to pay a quarterly facility
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fee ranging from 0.125% to 0.20% of the aggregate revolving commitments under the Credit Facility and
based on the ratio of the Company’s total debt to the Company’s consolidated EBITDA. As of
December 31, 2017, there were no amounts outstanding under the Credit Facility.
The Credit Agreement contains certain financial covenants that require the Company to maintain a
consolidated leverage ratio of not more than 3.5:1.0 and a consolidated interest coverage ratio of not less
than 3.0:1.0. In addition, the Credit Agreement contains customary affirmative and negative covenants,
including covenants that limit or restrict the ability of the Company to grant liens, merge, dissolve or
consolidate, dispose of all or substantially all of its assets, pay dividends during the existence of a default
under the Credit Agreement, change its business and incur subsidiary indebtedness, in each case subject to
customary exceptions for a credit facility of this size and type. The Company was in compliance with these
covenants as of December 31, 2017.
Convertible Notes Offering
During 2014, the Company completed a private placement of approximately $1.44 billion principal
amount of 0.500% Convertible Notes due 2019. The net proceeds from this offering were approximately
$1.42 billion, after deducting the initial purchasers’ discounts and commissions and the estimated offering
expenses payable by the Company. The Company used approximately $82.6 million of the net proceeds to
pay the cost of the Bond Hedges described below (after such cost was partially offset by the proceeds to the
Company from the Warrant Transactions described below). The Company used the remainder of the net
proceeds from the offering and a portion of its existing cash and investments to purchase an aggregate of
approximately $1.5 billion of its common stock, as authorized under its share repurchase program. The
Company used approximately $101.0 million to purchase shares of common stock from certain purchasers
of the Convertible Notes in privately negotiated transactions concurrently with the closing of the offering,
and the remaining $1.4 billion to purchase additional shares of common stock through an Accelerated
Share Repurchase (“ASR”) which the Company entered into with Citibank, N.A. (the “ASR
Counterparty”) on April 25, 2014 (the “ASR Agreement”).
The Convertible Notes are governed by the terms of an indenture, dated as of April 30, 2014 (the
“Indenture”), between the Company and Wilmington Trust, National Association, as trustee (the
“Trustee”). The Convertible Notes are the senior unsecured obligations of the Company and bear interest
at a rate of 0.5% per annum, payable semi-annually in arrears on April 15 and October 15 of each year. The
Convertible Notes will mature on April 15, 2019, unless earlier repurchased or converted. Upon conversion,
the Company will pay cash up to the aggregate principal amount of the Convertible Notes to be converted
and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares
of common stock, at the Company’s election, in respect of the remainder, if any, of the Company’s
conversion obligation in excess of the aggregate principal amount of the Convertible Notes being
converted.
Prior to the Spin-Off of the GoTo Business, the conversion rate for the Convertible Notes was
11.1111 shares of common stock per $1,000 principal amount of Convertible Notes, which corresponded to
a conversion price of approximately $90.00 per share of common stock. The conversion rate is subject to
adjustment from time to time upon the occurrence of certain events, including, but not limited to, the
issuance of certain stock dividends on common stock, the issuance of certain rights or warrants,
subdivisions, combinations, distributions of capital stock, indebtedness, or assets, the payment of cash
dividends and certain issuer tender or exchange offers.
The Company may not redeem the Convertible Notes prior to the maturity date and no “sinking fund”
is provided for the Convertible Notes, which means that the Company is not required to periodically redeem
or retire the Convertible Notes. Upon the occurrence of certain fundamental changes involving the
Company, holders of the Convertible Notes may require the Company to repurchase for cash all or part of
their Convertible Notes in principal amounts of $1,000 or an integral multiple thereof at a repurchase price
equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and
unpaid interest to, but excluding, the fundamental change repurchase date.
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accounting for the issuance of the Convertible Notes, the Company separated the Convertible Notes
into liability and equity components. The carrying amount of the liability component was calculated by
measuring the estimated fair value of a similar liability that does not have an associated convertible feature.
The carrying amount of the equity component representing the conversion option was determined by
deducting the fair value of the liability component from the face value of the Convertible Notes as a whole.
The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is
amortized to interest expense over the term of the Convertible Notes using the effective interest method
with an effective interest rate of 3.0 percent per annum. The equity component is not remeasured as long as
it continues to meet the conditions for equity classification.
In accounting for the transaction costs related to the Convertible Note issuance, the Company
allocated the total amount incurred to the liability and equity components based on their relative values.
Issuance costs attributable to the $1.4 billion liability component are being amortized to expense over the
term of the Convertible Notes, and issuance costs attributable to the equity component are included along
with the equity component in stockholders’ equity. Additionally, a deferred tax liability of $8.2 million
related to a portion of the equity component transaction costs which are deductible for tax purposes is
included in Other liabilities in the accompanying consolidated balance sheets.
As a result of the structure of the Reverse Morris Trust (RMT) transaction with LogMeIn, Inc., and
the notification on October 10, 2016 to noteholders in accordance with the Indenture, the Convertible
Notes became convertible until the earlier of (1) the close of business on the business day immediately
preceding the ex-dividend date for the distribution of the outstanding shares of GetGo common stock to
the Company’s stockholders by way of a pro rata dividend, and (2) the Company’s announcement that such
distribution will not take place, even though the Convertible Notes were not otherwise convertible at
December 31, 2016. The $1.44 billion Convertible Notes became convertible with the notice to noteholders.
Accordingly, as of December 31, 2016, the carrying amount of the Convertible Notes of $1.3 billion was
reclassified from Other liabilities to Current liabilities and the difference between the face value and
carrying value of $79.5 million was reclassified from stockholders’ equity to temporary equity in the
accompanying consolidated balance sheets. The conversion period terminated as of the close of business on
January 31, 2017 in connection with the Spin-off. As a result, the Convertible Notes were reclassified to
Other liabilities from Current liabilities, and the amount previously recorded as Temporary equity was
reclassified to Stockholders’ equity. Additionally, the Spin-off also resulted in an adjustment to the
conversion rate for the Convertible Notes under the terms of the Indenture. As a result of this adjustment,
the conversion rate for the Convertible Notes in effect as of the opening of business on February 1, 2017 is
13.9061 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes, which
corresponds to a conversion price of approximately $71.91 per share of common stock. Corresponding
adjustments were made to the conversion rates for the Convertible Note Hedge and Warrant Transactions
as of the opening of business on February 1, 2017.
The Convertible Notes consist of the following (in thousands):
December 31,
2017
December 31,
2016
Liability component
Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: note discount and issuance costs . . . . . . . . . . . . . . . . . . . . .
$1,437,483
(51,159)
$1,437,500
(89,344)
Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,386,324
$1,348,156
Equity component
Temporary Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $
79,495
Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
162,869
83,374
Total equity (including temporary equity) . . . . . . . . . . . . . . . . . . . . .
$ 162,869
$ 162,869
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table includes total interest expense recognized related to the Convertible Notes (in
thousands):
Year Ended December 31,
2017
2016
2015
Contractual interest expense . . . . . . . . . . . . . . . . . . .
$ 7,187
$ 7,187
$ 7,188
Amortization of debt issuance costs . . . . . . . . . . . . . .
Amortization of debt discount . . . . . . . . . . . . . . . . . .
3,959
34,018
3,863
33,014
3,974
32,039
$45,164
$44,064
$43,201
See Note 6 to the Company’s consolidated financial statements for fair value disclosures related to the
Company’s Convertible Notes.
Convertible Note Hedge and Warrant Transactions
In connection with the pricing of the Convertible Notes, the Company entered into convertible note
hedge transactions relating to approximately 16.0 million shares of common stock (the “Bond Hedges”),
with JPMorgan Chase Bank, National Association, London Branch; Goldman, Sachs & Co.; Bank of
America, N.A.; and Royal Bank of Canada (the “Option Counterparties”) and also entered into separate
warrant transactions (the “Initial Warrant Transactions”) with each of the Option Counterparties relating
to approximately 16.0 million shares of common stock. As a result of the Spin-off, the number of shares of
the Company’s common stock covered by the Bond Hedges and Warrant Transactions was adjusted to
approximately 20.0 million shares.
The Bond Hedges are generally expected to reduce the potential dilution upon conversion of the
Convertible Notes and/or offset any payments in cash, shares of common stock or a combination of cash
and shares of common stock, at the Company’s election, that the Company is required to make in excess of
the principal amount of the Convertible Notes upon conversion of any Convertible Notes, as the case may
be, in the event that the market price per share of common stock, as measured under the terms of the Bond
Hedges, is greater than the strike price of the Bond Hedges, which initially corresponds to the conversion
price of the Convertible Notes and is subject to anti-dilution adjustments substantially similar to those
applicable to the conversion rate of the Convertible Notes. The Warrant Transactions will separately have a
dilutive effect to the extent that the market value per share of common stock, as measured under the terms
of the Warrant Transactions, exceeds the applicable strike price of the warrants issued pursuant to the
Warrant Transactions (the “Warrants”). The initial strike price of the Warrants was $120.00 per share.
Subsequent to the Spin-off, the strike price of the Warrants was adjusted to a weighted-average strike price
of $95.25 as of February 1, 2017. The Warrants will expire in ratable portions on a series of expiration
dates commencing after the maturity of the Convertible Notes. The Bond Hedges and Warrants are not
marked to market as the value of the Bond Hedges and Warrants were initially recorded in stockholders’
equity and continue to be classified within stockholders’ equity. As of December 31, 2017, no warrants have
been exercised.
Aside from the initial payment of a premium to the Option Counterparties under the Bond Hedges,
which amount is partially offset by the receipt of a premium under the Warrant Transactions, the Company
is not required to make any cash payments to the Option Counterparties under the Bond Hedges and will
not receive any proceeds if the Warrants are exercised.
14. DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives Designated as Hedging Instruments
As of December 31, 2017, the Company’s derivative assets and liabilities primarily 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
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 twelve 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 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 equity.
The total cumulative unrealized gain on cash flow derivative instruments was $2.2 million at
December 31, 2017, and is included in Accumulated other comprehensive loss in the accompanying
consolidated balance sheets. The total cumulative unrealized loss on cash flow derivative instruments was
$3.1 million at December 31, 2016, and is included in Accumulated other comprehensive loss in the
accompanying consolidated balance sheets. See Note 16 for more information related to comprehensive
income. The net unrealized gain as of December 31, 2017 is expected to be recognized in income over the
next 12 months at the same time the hedged items are recognized in income.
Derivatives not Designated as Hedging Instruments
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
exchange rates when remeasuring the Company’s balance sheet, it utilizes foreign exchange forward
contracts to hedge its exposure to this potential volatility.
These contracts 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.
Fair Values of Derivative Instruments
Derivatives Designated as Hedging
Instruments
Foreign currency forward contracts
. .
Derivatives Not Designated
as Hedging Instruments
Foreign currency forward contracts
. .
Asset Derivatives
Liability Derivatives
(In thousands)
December 31, 2017
December 31, 2016
December 31, 2017
December 31, 2016
Balance
Sheet
Location
Prepaid
expenses
and other
current
assets
Fair
Value
$2,481
Balance
Sheet
Location
Prepaid
expenses
and other
current
assets
Fair Value
$460
Balance
Sheet
Location
Accrued
expenses
and other
current
liabilities
Fair
Value
$110
Balance
Sheet
Location
Accrued
expenses
and other
current
liabilities
Fair
Value
$3,816
Asset Derivatives
Liability Derivatives
(In thousands)
December 31, 2017
December 31, 2016
December 31, 2017
December 31, 2016
Balance
Sheet
Location
Prepaid
expenses
and other
current
assets
Fair
Value
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Prepaid
expenses
and other
current
assets
$17
$2,046
Accrued
expenses
and other
current
liabilities
$704
Accrued
expenses
and other
current
liabilities
$619
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Effect of Derivative Instruments on Financial Performance
For the Year ended December 31,
(In thousands)
Amount of Gain (Loss)
Recognized in Other
Comprehensive Income (Loss)
(Effective Portion)
Location of Gain (Loss)
Reclassified from Accumulated
Other Comprehensive Loss into
Income (Effective Portion)
2017
2016
Amount of Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive Loss
(Effective Portion)
2017
2016
Derivatives in Cash Flow
Hedging Relationships
Foreign currency forward
contracts . . . . . . . . . . . . . .
$5,288
$(875)
Operating expenses
$758
$(1,763)
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 Recognized in Income on
Derivative
Amount of Loss
Recognized in Income on Derivative
2017
2016
Foreign currency forward contracts . . . . . . . Other income (expense), net
$(6,804)
$(1,030)
Outstanding Foreign Currency Forward Contracts
As of December 31, 2017, the Company had the following net notional foreign currency forward
contracts outstanding (in thousands):
Foreign Currency
Australian dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazilian Real . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
British pounds sterling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canadian dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chinese renminbi
Danish krone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hong Kong dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indian rupees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japanese yen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Singapore dollars
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swiss francs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency
Denomination
AUD 14,400
BRL 5,700
GBP 8,800
CAD 2,850
CNY 69,200
DKK 5,347
EUR 13,500
HKD 8,100
INR 38,900
JPY 1,508,800
SGD 13,900
CHF 15,650
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net income per share (in thousands,
except per share information):
Year Ended December 31,
2017
2016
2015
Numerator:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from discontinued operations, net of income taxes
. . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 21,985
(42,704)
$469,855
66,257
$ (20,719) $536,112
$215,133
104,228
$319,361
Denominator:
Denominator for basic earnings per share – weighted-average shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of dilutive employee stock awards . . . . . . . . . . . . . . . . . . . . .
Effect of dilutive Convertible Notes . . . . . . . . . . . . . . . . . . . . . . . .
Denominator for diluted earnings per share – weighted-average shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
150,779
2,493
2,231
155,134
1,950
—
158,874
1,488
—
155,503
157,084
160,362
Basic (loss) earnings per share:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
. . .
(Loss) income from discontinued operations, net of income taxes
Basic net (loss) earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted (loss) earnings per share:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
. . .
(Loss) income from discontinued operations, net of income taxes
Diluted net (loss) earnings per share: . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
0.15
(0.28)
(0.13) $
$
0.14
(0.27)
(0.13) $
Anti-dilutive weighted-average shares from stock awards . . . . . . . . . . .
215
3.03
0.43
3.46
2.99
0.42
3.41
322
$
$
$
$
1.35
0.66
2.01
1.34
0.65
1.99
2,151
The weighted-average number of shares outstanding used in the computation of basic and diluted
earnings per share does not include common stock issuable upon the exercise of the Company’s warrants.
The effects of these potentially issuable shares were not included in the calculation of diluted earnings per
share because the effect would have been anti-dilutive.
The Company uses the treasury stock method for calculating any potential dilutive effect of the
conversion spread on its Convertible Notes on diluted earnings per share, if applicable, as upon conversion,
the Company will pay cash up to the aggregate principal amount of the Convertible Notes to be converted
and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares
of common stock, at the Company’s election, in respect of the remainder, if any, of the Company’s
conversion obligation in excess of the aggregate principal amount of the Convertible Notes being
converted. The conversion spread will have a dilutive impact on diluted earnings per share when the average
market price of the Company’s common shares for a given period exceeds the conversion price. Prior to the
separation of the GoTo Business on January 31, 2017, the conversion price was $90.00 per share. As a result
of the Spin-off, the conversion rate for the Convertible Notes was re-set as of the opening of business on
February 1, 2017 to 13.9061 shares of the Company’s common stock per $1,000 principal amount of
Convertible Notes, which corresponds to a conversion price of $71.91 per share of common stock. Similar
adjustments were made to the conversion rates for the Convertible Note Hedge and Warrant Transactions
as of the opening of business on February 1, 2017. For the year ended December 31, 2017, the average
market price of the Company’s common stock exceeded the new conversion price, therefore, the dilutive
effect of the Convertible Notes was included in the denominator of diluted earnings per share. For the years
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ended December 31, 2016 and 2015, the Convertible Notes have been excluded from the computation of
diluted earnings per share as the effect would be anti-dilutive since the conversion price of the Convertible
Notes exceeded the average market price of the Company’s common stock. In addition, the Company uses
the treasury stock method for calculating any potential dilutive effect related to the warrants. See Note 13 to
the Company’s consolidated financial statements for detailed information on the Convertible Notes
offering.
16. COMPREHENSIVE INCOME
The changes in Accumulated other comprehensive loss by component, net of tax, are as follows:
Unrealized
loss on
available-for-
sale securities
Unrealized
(loss) gain on
derivative
instruments
Other
comprehensive
loss on pension
liability
Foreign
currency
Total
(In thousands)
Balance at December 31, 2016 . . . . . . . . . . . . . $(16,346)
$(3,108)
$(3,130)
$(6,120)
$(28,704)
Other comprehensive income (loss) before
reclassifications
. . . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated other
comprehensive loss . . . . . . . . . . . . . . . . .
Net current period other comprehensive (loss)
income . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
Distribution of the GoTo Business
. . . . . . . . .
13,400
(3,285)
6,046
2,768
5,529
(273)
(758)
—
(1,031)
(3,558)
—
5,288
—
2,768
—
4,498
13,400
Balance at December 31, 2017 . . . . . . . . . . . . . $ (2,946)
$(6,666)
$ 2,158
$(3,352)
$(10,806)
Income tax expense or benefit allocated to each component of other comprehensive income (loss) is
not material.
Reclassifications out of Accumulated other comprehensive loss are as follows:
Details about accumulated
other comprehensive loss components
Amount reclassified from Accumulated
other comprehensive loss, net of tax
Affected line item in the
Consolidated Statements of Income
For the Twelve Months Ended December 31, 2017
(In thousands)
Unrealized net losses on available-for-sale
securities
. . . . . . . . . . . . . . . . . . . . . .
Unrealized net gains on cash flow hedges . .
$ (273)
(758)
$(1,031)
Other income (expense), net
Operating expenses*
* Operating expenses amounts allocated to Research and development, Sales, marketing and services,
and General and administrative are not individually significant.
17. RESTRUCTURING
The Company has implemented multiple restructuring plans to reduce its cost structure, align resources
with its product strategy and improve efficiency, which has resulted in workforce reductions and the
consolidation of certain leased facilities.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2017, 2016 and 2015, restructuring charges from continuing
operations were comprised of the following (in thousands):
Year Ended December 31,
2017
2016
2015
Employee severance and related costs . . . . . . . . . . . . . . . . . .
$62,844
$41,054
$74,879
Consolidation of leased facilities . . . . . . . . . . . . . . . . . . . . .
9,718
28,857
22,100
Reversal of previous charges . . . . . . . . . . . . . . . . . . . . . . . .
(187)
(2,510)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(286)
1,968
Total Restructuring charges
. . . . . . . . . . . . . . . . . . . . . . . .
$72,375
$67,401
$98,661
During the year ended December 31, 2017, the Company incurred costs of $53.7 million related to
initiatives intended to accelerate the transformation to a cloud-based subscription business, increase
strategic focus, and improve operational efficiency. The Company currently expects to record in the
aggregate approximately $60.0 million to $100.0 million in pre-tax restructuring charges associated with this
program. The Company currently anticipates completing the remainder of the activities related to this
program during fiscal year 2018.
During the year ended December 31, 2017, the Company incurred costs of $8.1 million related to
operational initiatives designed to improve infrastructure scalability and cost saving efficiencies. The charges
primarily related to employee severance. Activities related to this program were substantially completed as
of the fourth quarter of 2017.
During the years ended December 31, 2017, 2016 and 2015, the Company incurred costs of
$1.9 million, $44.5 million and $29.4 million primarily related to its announced plan in November 2015 to
simplify the Company’s enterprise go-to-market motion and roles while improving coverage, reflect changes
in the Company’s product focus, and balance resources with demand across the Company’s marketing,
general and administration areas. The charges are primarily related to employee severance, outplacement,
professional service fees, and facility closing costs. The majority of the activities related to this program
were substantially completed as of the end of the first quarter of 2016. As of December 31, 2017, total
charges related to this program incurred since inception were $75.8 million.
During the years ended December 31, 2017, 2016 and 2015, the Company recorded charges of
$8.7 million, $24.0 million and $67.5 million related to its announced plan in January 2015 to increase
strategic focus and operational efficiency. The charges primarily related to the severance and other costs
directly related to the reduction of the Company’s workforce and consolidation of leased facilities. The
majority of the activities related to this program were substantially completed by the end of 2015. As of
December 31, 2017, total charges related to this program incurred since inception were $100.2 million.
Restructuring accruals
The activity in the Company’s restructuring accruals from continuing operations for the year ended
December 31, 2017 is summarized as follows (in thousands):
Balance at January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 38,059
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
72,375
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(55,151)
Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 55,283
Total
As of December 31, 2017, the $55.3 million in outstanding restructuring accruals primarily relate to
future payments for leased facilities.
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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. RECENT ACCOUNTING PRONOUNCEMENTS
In January 2017, the Financial Accounting Standards Board issued an accounting standard update on
the accounting for business combinations by clarifying the definition of a business with the objective of
adding guidance to assist entities with evaluating whether transactions should be accounted for as
acquisitions or disposals of assets or businesses. The new guidance is effective for annual and interim
periods beginning after December 15, 2017. The Company does not expect the adoption of this standard to
have a material impact on its consolidated financial position or results of operations.
In October 2016, the Financial Accounting Standards Board issued an accounting standard update on
the accounting for income taxes, which requires entities to recognize the income tax consequences of an
intra-entity transfer of an asset other than inventory when the transaction occurs as opposed to deferring
tax consequences and amortizing them into future periods. This update is effective for annual and interim
periods beginning after December 15, 2017, with early adoption permitted. A modified retrospective
approach with a cumulative-effect adjustment directly to retained earnings at the beginning of the period of
adoption is required. The Company does not expect the adoption of this standard to have a material impact
on its consolidated financial position or results of operations.
In March 2016, the Financial Accounting Standards Board issued an accounting standard update on
the accounting for stock-based compensation. The guidance requires the recognition of the income tax
effects of awards in the income statement when the awards vest or are settled, thus eliminating additional
paid in capital pools. The guidance also allows for the employer to repurchase more of an employee’s shares
for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a
policy election to account for forfeitures as they occur rather than on an estimated basis. The Company
adopted this standard effective January 1, 2017. The impact of the adoption on the consolidated financial
statements was as follows:
•
•
•
Income tax accounting — The Company adopted the guidance related to the recognition of excess
tax benefits and deficiencies as income tax expense or benefit in the Company’s condensed
consolidated statements of income on a prospective basis. The Company adopted on a modified
retrospective basis the recognition of previously unrecognized excess tax benefits and recorded the
cumulative effect of the change as a $0.4 million increase to Retained earnings with a
corresponding adjustment to Deferred tax assets, net as of January 1, 2017.
Forfeitures — The Company elected to account for forfeitures as they occur on a modified
retrospective basis, rather than estimate expected forfeitures and recorded the cumulative effect of
the change as a $5.7 million decrease to Retained earnings as of January 1, 2017 with a
corresponding adjustment to Additional paid-in capital.
Cash flow presentation — The Company elected to adopt the guidance related to the presentation
of excess tax benefits in the condensed consolidated statements of cash flows on a prospective
basis. The presentation requirements for cash flows related to employee taxes paid for withheld
shares had no impact to any of the periods presented on the Company’s condensed consolidated
statements of cash flows since such cash flows have historically been presented as a financing
activity.
In February 2016, the Financial Accounting Standards Board issued an accounting standard update
on the accounting of leases. The new guidance requires that lessees in a leasing arrangement recognize a
right-of-use asset and a lease liability for most leases (other than leases that meet the definition of a
short-term lease). The liability will be equal to the present value of lease payments. The asset will be based
on the liability, subject to adjustment, such as for initial direct costs. The new guidance is effective for
annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The new
standard must be adopted using a modified retrospective transition, and provides for certain practical
expedients. Transition will require application of the new guidance at the beginning of the earliest
comparative period presented. The Company is currently evaluating the potential impact of this standard
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
on its financial position and results of operations; however, it is expected to have a material impact on its
financial position due to the recognition of the right-of-use assets and lease liabilities for operating leases
which are currently not reflected on the balance sheet. We currently do not expect a material impact to the
Company’s results of operations.
In July 2015, the Financial Accounting Standards Board issued an accounting standard update
modifying the accounting for inventory. Under the new guidance, the measurement principle for inventory
will change from lower of cost or market value to lower of cost and net realizable value. The standard
defines net realizable value as the estimated selling price in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation. The standard is applicable to inventory that is
accounted for under the first-in, first-out method and is effective for fiscal years beginning after
December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. The
Company adopted this standard effective January 1, 2017. The adoption of this guidance did not have a
significant impact on the Company’s financial position or results of operations.
In May 2014, the Financial Accounting Standards Board issued an accounting standard update on
revenue recognition. The new guidance creates a single, principle-based model for revenue recognition that
expands and improves disclosures about revenue. The Company adopted the new standard effective
January 1, 2018 using the modified retrospective approach. The Company’s implementation of its
information technology systems, data and processes and internal controls is in progress. Under the new
standard, the Company will recognize term license revenues upfront at time of delivery rather than ratably
over the related contract period. The new standard generally requires an allocation on a relative standalone
selling price basis, which could impact the allocation of transaction price to each performance obligation in
multiple element arrangements. This could impact the timing of revenue recognition depending on when
each performance obligation is typically satisfied. The Company expects revenue recognition related to
license updates and maintenance renewals, cloud offerings and professional services to remain substantially
unchanged. Additionally, under the new standard, the Company will capitalize and amortize certain direct
costs of obtaining a contract, such as commissions and related payroll taxes, over the expected customer life
rather than expensing them as incurred. The Company anticipates the adoption of the standard will result
in an increase to the opening balance of retained earnings in the range of $170.0 to $190.0 million,
primarily related to the cumulative effect of a decrease in deferred revenue in the range of $70.0 to
$80.0 million from the upfront recognition of term licenses and the general requirement to allocate the
transaction price on a relative stand-alone selling price and the cumulative effect of a decrease of $100.0 to
$110.0 million in commission expense. The Company is currently assessing the tax impact from adoption.
19. SUBSEQUENT EVENTS
On February 2, 2018, Citrix entered into an ASR transaction with Goldman Sachs & Co. LLC
(“Dealer”) to pay an aggregate of $750.0 million in exchange for the delivery of approximately 6.5 million
shares of common stock based on current market prices. The purchase price per share under the ASR is
subject to adjustment and is expected to equal the volume-weighted average price of our common stock
during the term of the ASR, less a discount. The exact number of shares repurchased pursuant to the ASR
will be determined based on such purchase price. The ASR transaction is expected to be completed by the
end of April 2018. The ASR was entered into pursuant to Citrix’s existing share repurchase program. After
taking into account the additional $750.0 million shares repurchased pursuant to this ASR, the Company
will have approximately $500.0 million of remaining share repurchase authorization available.
On February 6, 2018, the Company acquired all of the issued and outstanding securities of Cedexis,
Inc. (“Cedexis”) whose solution is a real-time data driven service for dynamically optimizing the flow of
traffic across public clouds, data centers that provides a dynamic and reliable way to route and manage
Internet performance for customers moving towards hybrid and multi-cloud deployments. The total
preliminary cash consideration for this transaction was approximately $66.5 million, net of $6.2 million
cash acquired.
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CITRIX SYSTEMS, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total Year
(In thousands, except per share amounts)
2017
Net revenues
. . . . . . . . . . . . . . . . . . . . . . . . . . . $662,677 $693,227 $690,925 $ 777,857 $2,824,686
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . .
560,219
583,915
584,988
655,918
2,385,040
Income (loss) from continuing operations . . . . . . .
70,325
108,829
126,720
(283,889)
21,985
Loss from discontinued operations, net of tax . . . .
(42,704)
—
—
—
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . .
27,621
108,829
126,720
(283,889)
Basic earnings (loss) per share:
Income (loss) from continuing operations . . . . . .
Loss from discontinued operations
. . . . . . . . . .
Basic net earnings (loss) per share . . . . . . . . . . . . .
Diluted earnings (loss) per share:
Income (loss) from continuing operations . . . . . .
. . . . . . . . . .
Loss from discontinued operations
Diluted net earnings (loss) per share . . . . . . . . . . .
0.46
(0.28)
0.18
0.44
(0.27)
0.17
0.72
—
0.72
0.70
—
0.70
0.84
—
0.84
0.82
—
0.82
(1.93)
—
(1.93)
(1.93)
—
(1.93)
(42,704)
(20,719)
0.15
(0.28)
(0.13)
0.14
(0.27)
(0.13)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total Year
(In thousands, except per share amounts)
2016
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $658,773 $673,987 $668,736 $734,584 $2,736,080
2,331,191
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . .
469,855
Income from continuing operations . . . . . . . . . . .
66,257
Income from discontinued operations, net of tax . .
536,112
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
570,565
111,737
20,164
131,901
558,962
73,254
10,209
83,463
634,868
178,575
21,275
199,850
566,796
106,289
14,609
120,898
Basic earnings per share:
Income from continuing operations . . . . . . . . .
Income from discontinued operations . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . .
Diluted earnings per share:
Income from continuing operations . . . . . . . . .
Income from discontinued operations . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . .
0.47
0.07
0.54
0.47
0.07
0.54
0.69
0.09
0.78
0.68
0.09
0.77
0.72
0.13
0.85
0.71
0.13
0.84
1.15
0.13
1.28
1.13
0.13
1.26
3.03
0.43
3.46
2.99
0.42
3.41
The sum of the quarterly net income per share amounts may differ from the annual earnings per share
amount due to the weighting of common and common equivalent shares outstanding during each of the
respective periods.
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CITRIX SYSTEMS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Beginning
of Period
Charged to
Expense
Charged
to Other
Accounts
(In thousands)
Balance
at End
of Period
Deductions
2017
Deducted from asset accounts:
Allowance for doubtful accounts . . . . . . . . . . . .
Allowance for returns . . . . . . . . . . . . . . . . . . . .
$ 3,889
1,994
Valuation allowance for deferred tax assets . . . . .
14,156
$3,917
—
—
2016
Deducted from asset accounts:
Allowance for doubtful accounts . . . . . . . . . . . .
Allowance for returns . . . . . . . . . . . . . . . . . . . .
Valuation allowance for deferred tax assets . . . . .
$ 6,241
1,438
16,673
$ 954
—
—
2015
Deducted from asset accounts:
Allowance for doubtful accounts . . . . . . . . . . . .
Allowance for returns . . . . . . . . . . . . . . . . . . . .
Valuation allowance for deferred tax assets . . . . .
$ 3,750
2,185
15,167
$5,578
—
—
(1) Charged against revenues.
(2) Uncollectible accounts written off, net of recoveries.
(3) Adjustments from acquisitions.
(4) Credits issued for returns.
$
9(3) $4,395(2) $ 3,420
1,225
76,789
5,659(4)
—
4,890(1)
62,633(5)
$ — $3,306(2) $ 3,889
1,994
2,088(1)
(2,517)(5)
1,532(4)
—
14,156
$ — $3,087(2) $ 6,241
1,438
16,673
4,023(4)
—
3,276(1)
1,506(5)
(5) Related to deferred tax assets on foreign tax credits, net operating loss carryforwards, and depreciation.
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Annual Report 2017 Citrix Systems, Inc.
Information Concerning Non-GAAP Financial Measures Used in This
Annual Report (Unaudited)
GAAP operating margin for the twelve months ended December 31, 2017
was 20.2 percent. Non-GAAP operating margin for the twelve months
ended December 31, 2017 was 31.6 percent. GAAP operating margin for
the twelve months ended December 31, 2016 was 20.5 percent. Non-GAAP
operating margin for the twelve months ended December 31, 2016 was
31.2 percent. Non-GAAP operating margin excludes the effects of stock-
based compensation expense, the amortization of acquired intangible
assets and restructuring charges. Non-GAAP operating margin for fiscal
year 2016 also excludes separation costs.
GAAP diluted earnings per share from continuing operations for the
twelve months ended December 31, 2017 was $0.14 per share. Non-GAAP
diluted earnings per share from continuing operations for the twelve
months ended December 31, 2017 was $4.85 per share. GAAP diluted
earnings per share from continuing operations for the twelve months
ended December 31, 2016 was $2.99 per share. Non-GAAP diluted
earnings per share from continuing operations for the twelve months
ended December 31, 2016 was $4.45 per share. Non-GAAP earnings
per share from continuing operations excludes the effects of stock-
based compensation expense, the amortization of acquired intangible
assets, the amortization of debt discount, restructuring charges, and the
tax effects related to those items. Non-GAAP earnings per share from
continuing operations for fiscal year 2017 also excludes the tax impact
related to the separation of the GoTo business along with charges for
the estimated impact from U.S. tax reform related to the transition tax
and the revaluation of U.S. deferred tax assets and liabilities. Non-GAAP
earnings per share from continuing operations for fiscal year 2017
also reflects the anti-dilutive impact of the company’s convertible
note hedges. Non-GAAP earnings per share for fiscal year 2016 from
continuing operations also excludes separation costs and the tax effect
related to this item.
The following table shows the non-GAAP financial measures used in this
Annual Report reconciled to the most directly comparable GAAP financial
measures.
GAAP operating margin
20.2%
20.5%
12 Months Ended
Dec. 31, 2017
12 Months Ended
Dec. 31, 2016
Add: stock-based compensation
Add: amortization of product
related intangible assets
Add: amortization of other
intangible assets
Add: separation costs
Add: restructuring charges
5.8
2.4
0.6
-
2.6
5.6
2.0
0.6
0.1
2.4
Non-GAAP operating margin
31.6%
31.2%
GAAP earnings per share from
continuing operations—diluted
Add: stock-based compensation
Add: amortization of product
related intangible assets
Add: amortization of other
intangible assets
Add: amortization of debt discount
Add: separation costs
Add: restructuring charges
Less: tax effects related to
above items
Add: separation-related tax
charges
Add: charges related to U.S. tax
reform
Non-GAAP earnings per share from
continuing operations—diluted
12 Months Ended
Dec. 31, 2017
12 Months Ended
Dec. 31, 2016
$0.14
$2.99
1.08
0.44
0.11
0.22
-
0.47
0.97
0.35
0.09
0.21
0.02
0.43
(0.76)
(0.61)
0.35
2.80
-
-
$4.85
$4.45
12 Months Ended
Dec. 31, 2017
12 Months Ended
Dec. 31, 2016
Number of shares used in diluted
earnings per share calculations:
GAAP weighted average shares
outstanding
Less: effect of convertible note
hedges
Non-GAAP weighted average
shares outstanding
155,503
157,084
(2,231)
-
153,272
157,084
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 2017 Annual Report to the most directly
comparable GAAP financial measure. These measures differ from GAAP
in that they exclude amortization primarily related to acquired intangible
assets and debt discount, stock-based compensation expense, charges
associated with the Company’s restructuring programs, separation
costs, the related tax effect of those items, charges related to the
implementation of U.S. tax reform and separation-related tax charges or
benefits. The Company also reflects the effect of anti-dilutive convertible
note hedges in the number of shares used in non-GAAP diluted earnings
per share. These non-GAAP financial measures are presented on a
continuing operations basis. 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 operating 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 of intangible
assets and stock-based compensation expenses, and the related tax
effects that are primarily related to acquisitions, 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 of intangible assets 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.
• Under GAAP, certain convertible debt instruments that may be
settled in cash on conversion are required to be accounted for as
separate liability (debt) and equity (conversion option) components in
a manner that reflects the issuer’s non-convertible debt borrowing
rate. The difference between the imputed interest expense and the
coupon interest expense, net of the interest amount capitalized,
is excluded from management’s assessment of the company’s
operating performance because management believes that the
exclusion of these charges will better help investors and financial
analysts understand the Company’s operating results and underlying
operational trends.
• The Company has engaged in various restructuring activities over
the past several years that have resulted in costs associated with
reductions in headcount, consolidation of leased facilities and
related costs. Each restructuring activity has been a discrete event
based on a unique set of business objectives or circumstances,
and each has differed from the others in terms of its operational
implementation, business impact and scope. The Company does not
engage in restructuring activities in the ordinary course of business.
While the Company’s operations previously benefited from the
Annual Report 2017 Citrix Systems, Inc.
employees and facilities covered by the various restructuring charges,
these employees and facilities have benefited different parts of
the Company’s business in different ways, and the amount of these
charges has varied significantly from period to period. 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.
• Separation costs represent transaction and transition costs associated
with preparing businesses for independent operations consisting
primarily of financial advisory fees, legal fees, accounting fees, tax
services and information systems infrastructure duplication. These
charges are not anticipated to be ongoing costs; and, thus, are outside
of the normal operations of the Company’s business. As such, the
Company believes that these expenses do not accurately reflect the
underlying performance of continuing operations for the period in
which they are incurred.
• The Company has convertible note hedges in place to offset potential
dilution from the embedded conversion feature in its convertible
notes. For GAAP diluted earnings per share purposes, the Company
cannot reflect the anti-dilutive impact of the convertible note hedges.
The Company believes that reflecting the anti-dilutive impact of the
convertible note hedges in non-GAAP diluted earnings per share
provides investors with useful information in evaluating the financial
performance of the Company on a per share basis.
• Separation-related tax charges or benefits, which may include
reversals of certain state R&D credits due to changes in expectations
of realizability as a result of the separation of a significant business
of the Company. The Company believes that these items do not
accurately reflect the underlying performance of continuing operations
for the period in which they are incurred.
• Tax charges resulting from the enactment of U.S. tax reform. These
charges are not anticipated to be ongoing costs; and, thus, are outside
of the normal operations of the Company’s business. Therefore, the
Company 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.
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 related to newly acquired intangible
assets and debt discount, additional charges related to its restructuring
programs, significant litigation charges or benefits, separation costs,
convertible note hedges, separation-related tax charges or benefits,
tax charges from the enactment of U.S. tax reform, and the related tax
effects from financial measures that it releases. The Company expects to
continue to incur stock-based compensation.
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Annual Report 2017 Citrix Systems, Inc.
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. 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 for the year ended December 31, 2017, and in the documents
incorporated by reference into this Annual Report, that are not historical
facts, including, but not limited to, statements concerning our strategy
and operational and growth initiatives, our transition to a subscription
business model, product development and offerings of solutions and
services, market positioning, distribution and sales channels, our partners
and other strategic or technology relationships, financial information and
results of operations for future periods, competition, seasonal factors,
stock-based compensation, licensing and subscription renewal programs,
international operations and expansion, investment transactions and
valuations of investments and derivative instruments, restructuring
charges, reinvestment or repatriation of foreign earnings, fluctuations
in foreign exchange rates, tax estimates and other matters, stock
repurchases, our debt, changes in accounting rules or guidance, changes
in domestic and foreign economic conditions, delays or reductions
in technology purchases, liquidity, litigation matters and intellectual
property matters 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 could 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: risks
associated with the success and growth of our product lines, including
competition, demand and pricing dynamics and the impact of our
transition to new business models, including a subscription model; the
impact of the global economy, volatility in global stock markets, foreign
exchange rate volatility and uncertainty in the IT spending environment;
the risks associated with maintaining the security of our products,
services, and networks, including securing customer data stored by
our services; changes in our pricing and licensing models, promotional
programs and product mix, all of which may impact our revenue
recognition; increased competition in markets for our virtualization and
networking products and secure data services and the introduction
of new products by competitors or the entry of new competitors into
these markets; changes in our support offerings; the concentration of
customers in our networking business; the company’s ability to develop,
maintain a high level of quality and commercialize new products and
services while growing its established virtualization and networking
products and services; changes in our revenue mix towards products
and services with lower gross margins; seasonal fluctuations in the
company’s business; failure to execute our sales and marketing plans;
failure to successfully partner with key distributors, resellers, system
integrators, service providers and strategic partners and the company’s
reliance on the success of those partners for the marketing and
distribution of the company’s products; the company’s ability to maintain
and expand its business in large enterprise accounts and reliance on large
service provider customers; the size, timing and recognition of revenue
from significant orders; the success of investments in its product groups,
foreign operations and vertical and geographic markets; the recruitment
and retention of qualified employees; transitions in key personnel
and succession risk, including transitions in the company’s executive
leadership; risks in effectively controlling operating expenses; ability
to effectively manage our capital structure and the impact of related
changes on our operating results and financial condition; the impact
of U.S. tax reform, including unanticipated transition taxes, changes
in valuation of tax assets and liabilities, non-renewal of tax credits
or exposure to additional tax liabilities; the effect of new accounting
pronouncements on revenue and expense recognition; our ability to make
suitable acquisitions on favorable terms in the future; risks associated
with our recent restructuring; risks associated with our acquisitions and
divestitures, including failure to further develop and successfully market
the technology and products of acquired companies, failure to achieve or
maintain anticipated revenues and operating performance contributions
from acquisitions, which could dilute earnings, the retention of key
employees from acquired companies, difficulties and delays integrating
personnel, operations, technologies and products, disruption to our
ongoing business and diversion of management’s attention from
our ongoing business, and failure to realize expected benefits or
synergies from divestitures; failure to comply with federal, state and
international regulations; litigation and disputes, including challenges
to our intellectual property rights or allegations of infringement of the
intellectual property rights of others; the inability to further innovate
our technology or enter into new businesses due to the intellectual
property rights of others; the ability to maintain and protect our
collection of brands; charges in the event of a write-off or impairment of
acquired assets, underperforming businesses, investments or licenses;
international market readiness, execution and other risks associated
with the markets for our products and services; risks related to servicing
our debt; risks of political uncertainty and social turmoil, 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, 2017, or in the documents incorporated by reference into the
Annual Report on Form 10-K for the year ended December 31, 2017.
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.
©2018 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.
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Annual Report 2017 Citrix Systems, Inc.Total Return to Shareholders (Includes Reinvestment of Dividends)Years endingCompany Name / IndexDec 13Dec 14Dec 15Dec 16Dec 17Citrix Systems, Inc.-3.610.8718.5718.0624.25S&P 500 Index32.3913.691.3811.9621.83Nasdaq Index40.1214.756.968.8729.64Peer Group29.1014.5012.958.9639.63Years endingCompany Name / IndexBase Period Dec 12Dec 13Dec 14Dec 15Dec 16Dec 17Citrix Systems, Inc.10096.3997.23115.28136.10169.11S&P 500 Index100132.39150.51152.59170.84208.14Nasdaq Index100140.12160.78171.97187.22242.71Peer Group100129.10147.82166.96181.93254.03Peer Group consists of companies with an SIC code of 7372COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURNFor the purpose of this graph, the distribution of LogMeIn common stock to our shareholders in connection with the separation of our GoTo business and subsequent merger with LogMeIn is treated as a non-taxable cash dividend of $18.59 (equal to the opening price of LogMeIn common stock on February 1, 2017 multiplied by .1718 of a share of LogMeIn common stock). Such amount was deemed reinvested in Citrix common stock at the closing price on February 1, 2017 using the daily dividend reinvestment methodology. Other financial data providers may use different methodologies to adjust for the GoTo separation, which may produce different results.INDEXED RETURNSANNUAL RETURN PERCENTAGE201220132014201520162017Nasdaq IndexPeer GroupS&P 500 IndexCitrix Systems, Inc.$250$200$150$100$50$0 INSIDE FRONT
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Annual Report 2017 Citrix Systems, Inc.
Annual Report 2017 Citrix Systems, Inc.
FINANCIAL HIGHLIGHTS
CORPORATE INFORMATION
All financial data has been adjusted to reflect continuing operations.
Year ended December 31
(In thousands, except per share data)
2017
2016
2015
Net revenues
Cost of net revenues
Gross margin
Operating expenses
Income from continuing operations
Other (expense), net
Income from continuing operations before income taxes
Income tax expense (benefit)
Income from continuing operations
(Loss) income from discontinued operations, net of income tax expense
Net (loss) income
Net income per share from continuing operations
(Loss) income per share from discontinued operations
Net (loss) earnings per share—diluted
2,824,686
2,736,080
2,646,154
439,646
404,889
474,040
2,385,040
2,331,191
2,172,114
1,814,043
1,771,027
1,969,322
570,997
(20,651)
550,346
528,361
21,985
(42,704)
(20,719)
0.14
(0.27)
(0.13)
560,164
(32,394)
527,770
57,915
469,855
66,257
536,112
2.99
0.42
3.41
202,792
(38,208)
164,584
(50,549)
215,133
104,228
319,361
1.34
0.65
1.99
Weighted average shares outstanding—diluted
155,503
157,084
160,362
In 2017, Citrix
revenue grew by
3%
Revenue (millions)
Earnings Per Share
Operating Cash Flow (millions)
2017
$2,825
2016
$2,736
2015
$2,646
2017*
$0.14
2016
$2.99
2015
$1.34
2017
$964
2016
$947
2015
$832
* Decrease in earnings per share was primarily due to an increase in tax expense as a result of $429 million (or $2.76 per diluted share) in charges related to the
estimated impact from the enactment of the U.S. Tax Cuts and Jobs Act that was signed on December 22, 2017. The impacts of the U.S. Tax Cuts and Jobs Act may
differ from this estimate, and the estimated charges may accordingly be adjusted over the course of 2018.
Citrix (NASDAQ:CTXS) aims to power a world where people, organizations and things
are securely connected and accessible to make the extraordinary possible. We help
customers reimagine the future of work by providing the most comprehensive secure
digital workspace that unifies the apps, data and services people need to be productive,
and simplifies IT’s ability to adopt and manage complex cloud environments. With
2017 annual revenue of $2.82 billion, Citrix solutions are in use by more than 400,000
organizations including 99 percent of the Fortune 100 and 98 percent of the Fortune
500. Learn more at www.citrix.com.
Major Operational Centers
Alpharetta, GA, USA
Bangalore, India
Cambridge, United Kingdom
Chalfont, United Kingdom
Dublin, Ireland
Ft. Lauderdale, FL, USA
Munich, Germany
Nanjing, China
Raleigh, NC, USA
Santa Clara, CA, USA
Schaffhausen, Switzerland
Sydney, Australia
Tokyo, Japan
STOCKHOLDER INFORMATION
Executives
Board of Directors
David J. Henshall
President and Chief Executive Officer
Bob Calderoni
Executive Chairman, Citrix
For further information about Citrix,
additional copies of this report, Form
10-K, or other financial information
without charge, contact:
Bob Calderoni
Executive Chairman
Andrew Del Matto
Executive Vice President and
Chief Financial Officer
Mark M. Coyle
Senior Vice President, Finance
Mark Ferrer
Executive Vice President and
Chief Revenue Officer
Tony Gomes
Senior Vice President and
General Counsel
PJ Hough
Senior Vice President and
Chief Product Officer
Donna Kimmel
Senior Vice President and
Chief People Officer
Tim Minahan
Senior Vice President, Business Strategy
and Chief Marketing Officer
Jeroen van Rotterdam
Senior Vice President, Engineering
Nanci E. Caldwell
Lead Independent Director, Citrix
Jesse A. Cohn
Partner and Head of U.S. Equity Activism,
Elliott Management
Robert D. Daleo
Retired Vice Chairman,
Thomson Reuters
Murray J. Demo
Executive Vice President and
Chief Financial Officer, Rubrik
Ajei S. Gopal
President and Chief Executive Officer, ANSYS
David J. Henshall
President and Chief Executive Officer, Citrix
Peter J. Sacripanti
Partner, McDermott Will & Emery
Graham V. Smith
Former Executive Vice President and
Chief Financial Officer, Salesforce
Godfrey R. Sullivan
Executive Chairman, Splunk
Investor Relations
Citrix’s stock trades on the NASDAQ Global
Select Market under the ticker symbol
CTXS.
The Citrix Annual Report and Form 10-K
are available electronically at http://
investors.citrix.com/annual-reports
Citrix Systems, Inc.
Attn: Investor Relations
851 West Cypress Creek Road
Fort Lauderdale, FL 33309
United States
Tel: +1 954 267 3000
Tel: +1 800 424 8749
www.citrix.com/investors
Transfer Agent and Registrar
Computershare Trust Company, N.A.
P.O. BOX 505000
Louisville, KY 40233-5000
Tel: +1 877 373 6374
http://www.computershare.com/investor
Independent Registered Certified
Public Accountants
Ernst & Young LLP
5100 Town Center Circle, Suite 500
Boca Raton, FL 33486
Annual Meeting of Shareholders
The Annual Meeting of Shareholders of Citrix
Systems, Inc. will be held on June 6, 2018 at
4:00 p.m., Eastern Time
Citrix Headquarters
851 West Cypress Creek Road
Fort Lauderdale, FL 33309
United States
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