Citrix Systems
Annual Report 2018

Plain-text annual report

2018 Annual Report Notice of 2019 Annual Meeting of Shareholders and Proxy Statement Annual Report 2018 Citrix Systems, Inc. FINANCIAL HIGHLIGHTS All financial data has been adjusted to reflect continuing operations. Year ended December 31 (In thousands, except per share data) 2018 2017 2016 Revenues: Subscription Product and license Support and services Total net revenues Cost of net revenues Gross margin Operating expenses 455,276 314,735 245,606 734,495 766,777 810,975 1,784,132 1,743,174 1,679,499 2,973,903 2,824,686 2,736,080 433,803 439,646 404,889 2,540,100 2,385,040 2,331,191 1,862,140 1,814,043 1,771,027 Income from continuing operations 677,960 570,997 560,164 Other expense, net (48,505) (20,651) (32,394) Income from continuing operations before income taxes 629,455 550,346 527,770 Income tax expense 53,788 528,361 57,915 Income from continuing operations 575,667 21,985 469,855 (Loss) income from discontinued operations, net of income tax - (42,704) 66,257 Net income (loss) 575,667 (20,719) 536,112 Net income per share from continuing operations (Loss) income per share from discontinued operations Net earnings (loss) per share—diluted 3.94 - 3.94 0.14 (0.27) (0.13) 2.99 0.42 3.41 Weighted average shares outstanding—diluted 145,934 155,503 157,084 In 2018, Citrix revenue grew by 5% Revenue (millions) SaaS Revenue (millions) Operating Cash Flow (from continuing operations in millions) Subscription Bookings Mix $2,974 $274 $1,035 42% $2,825 $2,736 $176 $135 $964 $947 28% 14% 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 To Our Stakeholders: Annual Report 2018 Citrix Systems, Inc. How do we begin to address the world’s most pressing conundrums? While the global economy has experienced the fastest pace of technology innovation and adoption in history, society continues to struggle with such obstacles as inequality, anemic productivity growth, climate change, and economic uncertainty. A chief culprit: complexity. Businesses, governments, and individuals are now faced with a multitude of technology choices and channels that are difficult to navigate and complex to manage. Nowhere is the impact of complexity more severe than in the modern workplace, where productivity growth continues to decline, a talent crisis continues to rise, and employees are increasingly frustrated and disengaged at work. Technology has too often further fueled this complexity, adding layers that only widen the gap of opportunity for workers and outpace people’s abilities to develop new skills. Despite record-level investment in new devices, applications, and clouds, productivity growth in the United States has remained below 2 percent for the 32nd straight quarter—the longest stretch of stagnant economic performance since World War II. Most companies are challenged to find the talent and skills needed to address the productivity gap and advance their growth objectives. The complex array of technology in use in the workplace is increasing employee frustration, with Gallup reporting that 67 percent of U.S. employees are disengaged at work. It is our shared responsibility as business and community leaders to acknowledge these challenges and work together to provide a better tomorrow for the next generation. That’s why at Citrix, our mission is to power a better way to work. We provide solutions that directly empower employees of all generations, genders, races, and economic levels to do their best work and help organizations in every industry— from the largest financial and manufacturing firms to leading healthcare and government service providers—to break the cycle of productivity decline, embrace new work models to overcome the growing talent gap, and reduce the complexity that affects workers around the world. We want to enable opportunity. It’s simple, but profoundly meaningful. We have an opportunity to positively impact the livelihood of people around the world. Our technology has the ability to amplify the wake created by technology, progress, and growth beyond specific geographical hubs, enabling new work models and extending the reach of economic benefit to a much broader “Today, I believe we have the best product portfolio and most focus we’ve ever had.” David J. Henshall President and CEO Annual Report 2018 Citrix Systems, Inc. TOTAL 2018 REVENUE IN BILLIONS $2.97 SUBSCRIPTION REVENUE INCREASED BY 45% COMBINED DEFERRED AND UNBILLED REVENUE1 INCREASED BY 12% SUBSCRIPTION PORTION OF TOTAL PRODUCT BOOKINGS 42% population. From urban Detroit to rural Wyoming to developing countries around the globe, our solutions can empower workforces, making it possible for anyone to do their best work from anywhere, at any time, on any device. For our customers: This flexibility has empowered our customers to accrue new skills and improve employee engagement and productivity by embracing new distributed digital work models. Such flexible work approaches, including the ability of employees to work remotely, have been shown to decrease attrition, sick days, the amount of time employees take off, and the amount companies spend on rent per employee. The value of such an engaged workforce has been proven to drive higher profits, higher revenues, and greater customer satisfaction. Our solutions address real business challenges, including the rising talent and skills gap, as well as employee engagement and productivity, all of which directly impact top and bottom line results. For the environment: Working remotely reduces carbon emissions from fewer autos commuting to and from work. According to the U.S. Environmental Protection Agency, transportation is the second largest source of greenhouse gas emissions in the United States, and corporate offices are part of the fourth largest contributor. Today in the United States, the effect telecommuting has on lowering greenhouse gas emissions is equivalent to planting 91 million trees. Working remotely could reduce greenhouse gas emissions by 54 million tons every year if people telecommuted for just half of the workweek. Our solutions can help meaningfully reduce the lasting, harmful impact our carbon footprints have on the environment. For our future: It’s abundantly clear that empowerment is central to gender, race, and economic equality. Our solutions enable mobility and flexibility. They allow employers to tap into potential pools of employees who might not otherwise have the ability to participate in the workforce, contribute financially, and achieve their greatest potential. Whether Citrix Workspace allows a single parent who needs flexibility to work remotely; enables rising gig workers intent on working on their own terms, location, and hours; or provides economic empowerment to underemployed workers in remote or politically unstable regions, we want to enable and encourage the tenets of diversity and inclusion that are widely understood to improve business outcomes and could, over time, contribute to a more peaceful, equitable, and just world for current and future generations. At Citrix, we care deeply about diversity, inclusion, and belonging. We understand and whole-heartedly believe that diverse teams drive better decisions that result in better long-term business performance. In addition to the numerous meaningful programs and practices driving this strategy, we are no longer asking candidates, anywhere around the world, to provide their current compensation. Rather, we are focusing on the appropriate pay for the open role. We also are committed to studying our global pay equity and taking action to remedy as needed. It’s a reflection of our culture and our ongoing commitment to better understand and make thoughtful, data-driven decisions. 1. Unbilled revenue primarily represents contractually committed future billings under our subscription agreements that have not been invoiced and, accordingly, are not recorded in accounts receivable and deferred revenue within our consolidated financial statements. Annual Report 2018 Citrix Systems, Inc. Around the world, Citrix is making an impact. In 2018, Citrix and our employees partnered with hundreds of nonprofits and schools. Specifically, our employees drove initiatives focused on K–12 STEM education, nurtured future coders, mentored underserved communities, supported families in need, and decreased their carbon footprint. These efforts were then propelled by leadership support, corporate grants, and employee ambassadors. Our employees across the globe are making a difference in ways that are most meaningful to them, supporting the communities and people where they live and work. Business Transformation In 2019, we will celebrate Citrix’s 30th anniversary. It’s a major milestone and an opportunity to reflect on the solid, sustainable performance Citrix has delivered over decades. Throughout peaks and troughs of economic cycles and massive disruption across the technology landscape, Citrix has grown revenue nearly every year. Over the last few years, we have been on a journey to transition more of our business toward a subscription-based model. This serves as a bridge from the traditional way of selling software in the form of license and maintenance to a more predictable, recurring revenue stream. Within our subscription business, we are intentionally shifting more of the mix toward SaaS. Today, we are focused on transforming our business to a cloud-first, ratable revenue recognition model. The secular tailwinds of more applications and more workloads moving to the cloud and the increasing preference of customers to “rent” rather than “buy” software supports this multi-year subscription model transition. As we progress through this transition, the more predictable revenue stream that results from this business transformation reflects our ongoing effort to continue to deliver long- term sustainable growth. The mechanics of this business transformation, as seen in 2018, have the impact of muting current period reported revenue. This in turn affects operating margin and earnings as more of the value of the booking is recognized in future periods, as reflected in the growth of future committed revenue—or deferred and unbilled revenue. We are pleased with the revenue growth we have been able to deliver and that we expect to continue into 2019, despite the revenue headwind created by the subscription transition. Business Performance 2018 was a great year for Citrix. Most importantly, we accelerated our subscription model transition. We ended the full year of 2018 with subscriptions accounting for more than 42 percent of total product bookings, up from 28 percent in the same period for the prior year. Deferred and unbilled revenue, or future committed revenue, grew 12 percent year over year to $2.2 billion. For the full year, subscription revenue grew 45 percent year over year. SaaS, the most important component of our subscription transition, accounted for 60 percent of Annual Report 2018 Citrix Systems, Inc. subscription revenue and 9 percent of total revenue. Cash flow from operations increased 7 percent year over year to $1.04 billion. Overall revenue growth in 2018 was driven by Workspace, which delivered the best bookings growth since 2012, with product and subscription bookings up in the low teens year over year. We expect Workspace to continue to lead our growth as we progress through 2019. Our Workspace business is benefitting from our ability to support customers with the flexibility and commensurate complexity of hybrid multi-cloud environments. Our vision of a more “general purpose” Workspace, which over time should allow us to more broadly address a larger install base opportunity, is resonating with customers. The security and analytics that our Workspace platform can provide is compelling for both our traditional base of knowledge workers using our virtualization solutions and a broader base of lighter users, which represents white-space opportunity for our Workspace platform. Networking continues to be a cyclical industry with some secular trends worth noting. Today, a large majority of Networking revenue is derived from hardware. Generally, the value of a hardware revenue stream, which tends to be nonlinear, is quite different from that of a higher margin revenue stream generated by subscription software and services. At its core, Citrix is a software company—and increasingly a subscription-based recurring revenue software company. Our Networking strategy is to focus investments in the fast-growing subscription software business. The future of networking is software, and we are working to position Citrix as the long-term beneficiary of this secular shift. Long-Term Strategy The success we experienced in 2018 was the direct result of a number of initiatives we executed last year, all of which align with our longer-term strategy of: • Accelerating to the cloud: From product development and innovation to sales, marketing, and backend supporting functions and infrastructure, we as an organization are making the transition to the cloud a priority. • Unifying our portfolio: We have unified our product roadmap and have simplified our messaging and naming conventions to help us up-level conversations with our customers to the C-suite. We will continue to pivot our selling motion toward emphasizing the strategic value in our solutions rather than selling point products. • Expanding into new areas: In our Workspace business, we are moving from organizing work to guiding and automating work. In Networking, we are expanding our analytics capabilities to address the challenges inherent in complex hybrid multi-cloud environments. We executed a few technology acquisitions—one for intelligent, consolidated access to workspace activities and integrations with business-critical applications, and another for real-time intelligent internet traffic management. These Annual Report 2018 Citrix Systems, Inc. acquisitions have accelerated our product roadmap and demonstrate our commitment to make thoughtful and strategic investments in innovation. Capital Allocation We ended 2018 with approximately $1.8 billion in cash and investments. We completed our $2 billion share repurchase commitment that was announced in November 2017. In addition, we have commenced paying a quarterly dividend of $0.35 per share, which returned an additional $47 million to shareholders in 2018 and $46 million to shareholders through the first quarter of 2019. Looking ahead, we expect to continue to return capital to shareholders in the form of share repurchases and dividends. To the degree that we are able to identify strategic acquisitions that we believe will drive long-term shareholder value, we will continue to execute thoughtful, disciplined M&A. Today, I believe we have the best product portfolio and most focus we’ve ever had. We are solving real, complex customer challenges and can be part of the solution to many of our collective global challenges. We are focusing on customer experience and customer success in a holistic way to drive better outcomes for our current and potential customers, for Citrix, for our shareholders, and for the world. On behalf of the Board and our employees, thank you for your continued interest and support and for your confidence in our company and our vision. Sincerely, David J. Henshall President and CEO Annual Report 2018 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. 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, investors are cautioned that statements contained in this Annual Report for the year ended December 31, 2018, and in the documents incorporated by reference into this Annual Report, which are not strictly historical statements, including, without limitation, statements concerning our strategy and operational and growth initiatives, our transition to a cloud-first, subscription-based business model, product development and offerings of solutions and services, market positioning, our ability to penetrate larger or new customer or install bases with certain of our offerings, our expectations regarding any future dividends, repurchases or other means of return of capital to our shareholders, our future execution on M&A opportunities, financial information and results of operations for future periods, competition, seasonal factors, international operations and expansion, and other statements regarding management’s plans, business initiatives, objectives, expectations regarding future performance or needs of our business constitute forward- looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “goal,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential” and similar expressions intended to identify forward-looking statements. The forward-looking statements in this Annual Report and in the documents incorporated by reference into this Annual Report or presented elsewhere by our management from time to time are not guarantees of future performance. Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by the forward-looking statements, including, without limitation: risks associated with the success and growth of the company’s 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, political and social economic environment on our business, 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, and the risks associated with our ability to manage past, present and future cyber security incidents; changes in Citrix’s pricing and licensing models, promotional programs and product mix, all of which may impact Citrix’s revenue recognition; our ability to expand our customer base and attract more users within our customer base; the introduction of new products by competitors or the entry of new competitors into the markets for Citrix’s products or services; the concentration of customers in Citrix’s networking business; Citrix’s ability to innovate and develop 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 Citrix’s business; failure to execute Citrix’s sales and marketing plans; failure to successfully partner with key distributors, resellers, system integrators, service providers and strategic partners and Citrix’s reliance on the success of those partners for the marketing and distribution of the company’s products; Citrix’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 Citrix’s 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 Citrix’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 effect of recent accounting pronouncements on revenue and expense recognition; the ability of Citrix to make suitable acquisitions on favorable terms in the future; risks associated with Citrix’s completed and future 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; failure to comply Annual Report 2018 Citrix Systems, Inc. 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 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 Citrix’s products and services; risks related to servicing our debt; unanticipated changes in tax rates, non-renewal of tax credits or exposure to additional tax liabilities; and 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, 2018, or in the documents incorporated by reference into the Annual Report on Form 10-K for the year ended December 31, 2018 and any subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K. 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. ©2019 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. Annual Report 2018 Citrix Systems, Inc. Total Return to Shareholders (Includes Reinvestment of Dividends1) ANNUAL RETURN PERCENTAGE Company Name/Index Citrix Systems, Inc. S&P 500 Index Nasdaq Index Peer Group INDEXED RETURNS Company Name/Index Citrix Systems, Inc. S&P 500 Index Nasdaq Index Peer Group Dec 14 0.87 13.69 14.75 15.02 Dec 15 18.57 1.38 6.96 13.32 Years ending Dec 16 Dec 17 Dec 18 18.06 11.96 8.87 8.97 24.25 21.83 29.64 39.85 16.83 -4.38 -2.84 11.28 Years ending Base Period Dec 13 100 100 100 100 Dec 14 100.87 113.69 114.75 115.02 Dec 15 119.60 115.26 122.74 130.34 Dec 16 141.20 129.05 133.62 142.03 Dec 17 175.44 157.22 173.22 198.63 Dec 18 204.97 150.33 168.30 221.05 Peer Group consists of companies with an SIC code of 7372. COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURN2 $250 $200 $150 $100 $50 $0 2013 2014 2015 2016 2017 2018 Citrix Systems, Inc. S&P 500 Index Nasdaq Index Peer Group Prepared by S&P Global Market Intelligence. 1. For purposes of this graph, the reinvestment of Citrix’s $0.35 per share cash dividend paid on December 21, 2018 was calculated using the closing price on Nasdaq on December 31, 2018. 2. In January 2017, we completed the separation of our GoTo business and its subsequent merger with LogMeIn, Inc. For the purpose of this graph, the distribution of LogMeIn common stock to our shareholders in connection with such separation and merger is treated as a non-taxable cash dividend of $18.59 (equal to the opening price of LogMeIn common stock 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. Notice of 2019 Annual Meeting of Shareholders and Proxy Statement P r o x y Dear Fellow Shareholder, April 25, 2019 On behalf of Citrix, thank you for your continued investment. We value your support, which is essential to the success of our efforts to deliver long-term value and positively impact the livelihood of people around the world. I would like to direct you to my CEO Letter, which can be found in this year’s Annual Report available at investors.citrix.com/financials/annual-reports. In my letter, I discuss our mission to power a better way to work, while delivering solutions that enable workforce mobility and flexibility, making it possible for anyone to do their best work anywhere, any time, on any device. I also summarize our 2018 results – a year of strong financial performance and acceleration of our subscription model transition. Further, I discuss our long-term strategy of accelerating to the cloud, unifying our portfolio and expanding into new areas. At Citrix, we take corporate responsibility seriously and work together to provide a better tomorrow for the next generation, by building a diverse and inclusive culture, operating more responsibly as we work toward a more sustainable world, and conducting our business in an ethical, transparent and accountable way, which generates value for all our stakeholders. We hope that you can attend our annual meeting. Even if you plan to attend, we encourage you to vote your shares in advance of the meeting. Very truly yours, DAVID J. HENSHALL Chief Executive Officer, President and Director Table of Contents Proxy Highlights Part 1 Corporate Governance Corporate Governance Cycle Independence of Members of Our Board Board Leadership Structure Executive Sessions of Independent Directors Executive Succession Considerations Governing Director Nominations Policy Governing Director Attendance at Annual Meetings of Shareholders Code of Ethics Risk Oversight Compensation-Related Risk Assessment Corporate Responsibility Policy Governing Shareholder Communications with our Board Part 2 Board of Directors Our Directors Meetings and Meeting Attendance Our Board Committees Director Compensation Part 3 Executive Management Our Leadership Team Part 4 Executive Compensation Compensation Discussion and Analysis Purpose of Compensation Discussion and Analysis 2018 Highlights Shareholder Engagement Objectives and Elements of Our Executive Compensation Programs How Executive Pay Decisions Are Made Components of Compensation Individual Executive Compensation Decisions President and Chief Executive Officer Compensation Other Named Executive Officers Cash Compensation – Base Salary and Variable Cash Compensation Other Named Executive Officers Equity – Long-term Incentive Compensation Other Compensation Policies and Information Summary of Executive Compensation Grants of Plan-Based Awards Outstanding Equity Awards Stock Vested Nonqualified Deferred Compensation Potential Payments upon Termination or Change in Control Report of the Compensation Committee of the Board of Directors Compensation Committee Interlocks and Insider Participation Pay Ratio Disclosure Related Party Transactions Policies and Procedures and Transactions with Related Persons Security Ownership of Certain Beneficial Owners and Management Cooperation Agreement with Elliott Section 16(a) Beneficial Ownership Reporting Compliance Tax Deductibility of Executive Compensation Securities Authorized for Issuance under Equity Compensation Plans Equity Compensation Plans Part 5 Audit Committee Matters Report of the Audit Committee Fees Paid to Ernst & Young Audit Partner Rotation Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor Part 6 Proposals to be Voted on at the Meeting Proposal 1: Election of Director Nominees Proposal 2: Amendment to Amended and Restated 2014 Equity Incentive Plan Proposal 3: Ratification of Appointment of Independent Registered Public Accounting Firm Proposal 4: Advisory Vote to Approve the Compensation of Our Named Executive Officers Part 7 Additional Information Other Matters Shareholder Proposals Expenses and Solicitation Delivery of Documents to Shareholders Sharing an Address Note Regarding Forward-Looking Statements P r o x y 3 9 9 9 9 10 10 10 12 13 13 14 15 17 18 18 24 24 27 30 30 33 33 33 33 34 35 37 41 51 51 52 53 54 56 58 60 62 63 64 68 69 69 70 71 72 73 73 74 74 75 75 76 76 76 77 77 78 87 88 89 89 89 89 89 90 CITRIX SYSTEMS, INC. | 2019 PROXY STATEMENT CITRIX SYSTEMS, INC. 851 West Cypress Creek Road Fort Lauderdale, Florida 33309 P r o x y NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS To Be Held at 5:00 p.m. Eastern Time on Tuesday, June 4, 2019 To the Shareholders of Citrix Systems, Inc.: The 2019 Annual Meeting of Shareholders of Citrix Systems, Inc., a Delaware corporation, will be held on Tuesday, June 4, 2019, at 5:00 p.m. Eastern time, at our offices at 851 West Cypress Creek Road, Fort Lauderdale, Florida 33309, United States for the following purposes: 1. 2. 3. 4. 5. to elect ten members to the Board of Directors, each to serve for a one-year term and until his or her successor has been duly elected and qualified or until his or her earlier death, resignation or removal; to approve an amendment to our Amended and Restated 2014 Equity Incentive Plan; to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2019; to hold an advisory vote on the compensation of our Named Executive Officers; and to transact such other business as may properly come before the 2019 Annual Meeting or any adjournments or postponements thereof. The proposal for the election of directors relates solely to the election of ten directors nominated by our Board of Directors and does not include any other matters relating to the election of directors, including, without limitation, the election of directors nominated by any shareholder. Only shareholders of record at the close of business on April 9, 2019 are entitled to notice of and to vote at the 2019 Annual Meeting and at any adjournment or postponement thereof. All shareholders are cordially invited to attend the 2019 Annual Meeting in person. To ensure your representation at the 2019 Annual Meeting, we urge you to vote via the Internet at www.proxyvote.com or by telephone by following the instructions on the Notice of Internet Availability of Proxy Materials you received in the mail and which instructions are also provided on that website, or, if you have requested a proxy card by mail, by signing, voting and returning your proxy card to Vote Processing, c/o Broadridge Financial Solutions, 51 Mercedes Way, Edgewood, New York 11717. For specific instructions on how to vote your shares, please review the instructions for each of these voting options as detailed in your Notice of Internet Availability and in this Proxy Statement. If you attend the 2019 Annual Meeting, you may vote in person even if you have previously returned your proxy card or have voted via the Internet or by telephone. In addition to their availability at www.proxyvote.com, this Proxy Statement and our Annual Report to Shareholders are available for viewing, printing and downloading at investors.citrix.com/financials/annual-reports. By Order of the Board of Directors, ANTONIO G. GOMES Executive Vice President, General Counsel and Secretary Fort Lauderdale, Florida April 25, 2019 WHETHER OR NOT YOU PLAN TO ATTEND THE 2019 ANNUAL MEETING, PLEASE PROMPTLY COMPLETE YOUR PROXY AS INDICATED ABOVE IN ORDER TO ENSURE REPRESENTATION OF YOUR SHARES. PLEASE REVIEW THE INSTRUCTIONS FOR EACH OF YOUR VOTING OPTIONS DESCRIBED IN THIS PROXY STATEMENT AND THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS YOU RECEIVED IN THE MAIL. CITRIX SYSTEMS, INC. 851 West Cypress Creek Road Fort Lauderdale, Florida 33309 PROXY STATEMENT For the 2019 Annual Meeting of Shareholders To Be Held on June 4, 2019 April 25, 2019 P r o x y This Proxy Statement is being furnished in connection with the solicitation of proxies by the Board of Directors of Citrix Systems, Inc., a Delaware corporation, for use at the 2019 Annual Meeting of Shareholders to be held on Tuesday, June 4, 2019 at 5:00 p.m. Eastern time, at our offices at 851 West Cypress Creek Road, Fort Lauderdale, Florida 33309, United States, or at any adjournments or postponements thereof. An Annual Report to Shareholders, containing financial statements for the year ended December 31, 2018, and this Proxy Statement are being made available to all shareholders entitled to vote at the 2019 Annual Meeting. The Notice of Internet Availability was mailed, and this Proxy Statement and the form of proxy were first made available, to shareholders on or about April 25, 2019. The purposes of the 2019 Annual Meeting are to: ‰ ‰ ‰ ‰ ‰ elect ten directors for one-year terms; approve an amendment to our Amended and Restated 2014 Equity Incentive Plan; ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2019; hold an advisory vote to approve the compensation of our Named Executive Officers; and to transact such other business as may properly come before the 2019 Annual Meeting or any adjournments or postponements thereof. Only shareholders of record at the close of business on April 9, 2019, which we refer to as the record date, will be entitled to receive notice of and to vote at the 2019 Annual Meeting. As of that date, 132,101,238 shares of our common stock, $0.001 par value per share, were issued and outstanding. Shareholders are entitled to one vote per share on any proposal presented at the 2019 Annual Meeting. If you are a shareholder of record, you may vote via the Internet at www.proxyvote.com or by telephone at 1-800-690-6903 by following the instructions on the Notice of Internet Availability of Proxy Materials or physical proxy card you received in the mail and which are also provided on that website; or, if you have requested a proxy card by mail, by signing, voting and returning your proxy card. If you are a shareholder who holds shares through a brokerage firm, bank, trust or other similar organization (that is, in “street name”), please refer to the instructions from the broker or organization holding your shares Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. Proxies may be revoked by: ‰ ‰ ‰ ‰ filing with our Secretary, before the taking of the vote at the 2019 Annual Meeting, a written notice of revocation bearing a later date than the proxy; properly casting a new vote via the Internet or by telephone at any time before the closure of the Internet or telephone voting facilities; duly completing a later-dated proxy relating to the same shares and delivering it to our Secretary before the taking of the vote at the 2019 Annual Meeting; or attending the 2019 Annual Meeting and voting in person (although attendance at the 2019 Annual Meeting will not in and of itself constitute a revocation of a proxy). Any written notice of revocation or subsequent proxy should be sent so as to be delivered to our principal executive offices at Citrix Systems, Inc., 851 West Cypress Creek Road, Fort Lauderdale, Florida 33309, Attention: Secretary, before the taking of the vote at the 2019 Annual Meeting. 2019 Proxy Statement 1 The representation in person or by proxy of at least a majority of the outstanding shares of our common stock entitled to vote at the 2019 Annual Meeting is necessary to constitute a quorum for the transaction of business. Abstentions and broker non-votes (discussed below) will be counted as present or represented for purposes of determining the presence or absence of a quorum for the 2019 Annual Meeting. When a quorum is present at any meeting of shareholders, the holders of a majority of the stock present or represented and voting on a matter shall decide any matter to be voted upon by the shareholders at such meeting, except when a different vote is required by express provision of law, our amended and restated certificate of incorporation (as currently in effect, our “Certificate of Incorporation”) or our amended and restated bylaws (as currently in effect, our “Bylaws”). For Proposal 1 (the election of ten directors), each nominee shall be elected as a director if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election. Any director who fails to receive the required number of votes for his or her re-election is required to submit his or her resignation to the Board of Directors. Our Nominating and Corporate Governance Committee (excluding any director nominee who failed to receive the required number of votes) will promptly consider any such director’s resignation and make a recommendation to the Board of Directors as to whether such resignation should be accepted. The Board of Directors is required to act on the Nominating and Corporate Governance Committee’s recommendation within 90 days of the certification of the shareholder vote for the 2019 Annual Meeting. For each of Proposal 2 (approval of an amendment to our Amended and Restated 2014 Equity Incentive Plan), Proposal 3 (the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2019), and Proposal 4 (the advisory vote to approve the compensation of our Named Executive Officers), an affirmative vote of a majority of the stock present, in person or represented by proxy, and voting on such matter is required for approval. Broadridge Financial Solutions will tabulate the votes at the 2019 Annual Meeting. The vote on each matter submitted to shareholders will be tabulated separately. Broker non-votes are shares held by a nominee (such as a bank or brokerage firm) which, although counted for purposes of determining a quorum, are not voted on a particular matter because voting instructions have not been received from the nominees’ clients (who are the beneficial owners of such shares). Under national securities exchange rules, nominees who hold shares of common stock in street name for, and have transmitted our proxy solicitation materials to, their customers but do not receive voting instructions from such customers, are not permitted to vote such customers’ shares on non-routine matters. Proposal 3 is considered a routine matter under such rules and nominees therefore have discretionary voting power as to Proposal 3. For non-routine matters, these broker non-votes shall not be counted as votes cast and therefore will have no effect on Proposals 1, 2 and 4. Similarly, abstentions are not counted as votes cast and thus will have no effect on any proposal. The persons named as attorneys-in-fact in the proxies, David J. Henshall and Antonio G. Gomes, were selected by the Board of Directors and are officers of Citrix. All properly executed proxies submitted in time to be counted at the 2019 Annual Meeting will be voted by such persons at the 2019 Annual Meeting. Where a choice has been specified on the proxy with respect to the foregoing matters, the shares represented by the proxy will be voted in accordance with the specifications. If no such specifications are indicated, such proxies will be voted FOR Proposal 1 (the election of each of the director nominees), FOR Proposal 2 (approval of an amendment to our Amended and Restated 2014 Equity Incentive Plan), FOR Proposal 3 (the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2019), and FOR Proposal 4 (the advisory vote to approve the compensation of our Named Executive Officers). Aside from the proposals included in this Proxy Statement, our Board of Directors knows of no other matters to be presented at the 2019 Annual Meeting. If any other matter should be presented at the 2019 Annual Meeting upon which a vote may properly be taken, shares represented by all proxies received by the Board of Directors will be voted with respect to such matter in accordance with the judgment of the persons named as attorneys-in-fact in the proxies. No dissenters’ rights are available under the General Corporation Law of the State of Delaware, our Certificate of Incorporation or our Bylaws to any shareholder with respect to any of the matters proposed to be voted on at the 2019 Annual Meeting. Unless otherwise indicated, references in this Proxy Statement to “Citrix,” the “company,” “we” and “us” refer to Citrix Systems, Inc., a Delaware corporation and its consolidated subsidiaries. 2 Proxy Highlights P r o x y This summary should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018 and the entire Proxy Statement. 2019 Annual Meeting of Shareholders Date and Time: June 4, 2019, 5:00 p.m. Eastern time Location: Our offices at 851 West Cypress Creek Road, Fort Lauderdale, Florida 33309 Record Date: April 9, 2019 Date of First Distribution of Proxy Materials: April 25, 2019 Accelerating to the Cloud Citrix is powering a better way to work with unified workspace, networking, and analytics solutions that help organizations unlock innovation, engage customers, and boost productivity, without sacrificing security. With Citrix, users get a seamless work experience and IT has a unified platform to secure, manage, and monitor diverse technologies in complex cloud environments. As the world embraces cloud solutions, we continue to accelerate our transformation, focusing on three strategic priorities. First, we are accelerating our transition to a subscription-based business model with all our solutions offered as cloud services, giving organizations flexibility in how they work. Second, we are unifying our portfolio to simplify user and IT experience. Finally, we are prioritizing innovation, organically and through acquisitions, to meet the evolving needs of our customers and position Citrix for long-term sustainable growth. We believe execution of our strategic priorities will continue to drive results for our stakeholders. Exiting 2018, progress in our business transformation to a cloud-based subscription business was reflected in: ‰ Bookings: More than 42% of total product bookings were subscription-based in 2018, up from 28% in 2017 ‰ Deferred and unbilled revenue: Deferred and unbilled revenue, or future committed revenue, grew 12% year-over- year to $2.2 billion1 ‰ Reported revenue: Subscription revenue grew 45% year-over-year ‰ Mix within total subscription revenue: Software as a Service (SaaS) revenue accounted for 60% of total subscription revenue and 9% of total revenue in 2018 1 Unbilled revenue primarily represents contractually committed future billings under our subscription agreements that have not been invoiced and, accordingly, are not recorded in accounts receivable and deferred revenue within our consolidated financial statements. 2019 Proxy Statement 3 2018 Highlights: • Announced additional $750 million accelerated share repurchase • Acquired internet traffic management company to optimize application performance in hybrid multi-cloud environments • Appointed Moira A. Kilcoyne to the Board of Directors • Paid first quarterly cash dividend of $0.35 per share • Completed plan to return $2 billion of capital to shareholders by the end of 2018 • Appointed Thomas E. Hogan to the Board of Directors February 2018 June 2018 December 2018 2018 Highlights May 2018 November 2018 January 2019 • Articulated 2022 goals, including revenue growth of at least 6% • Announced intention to pay first quarterly cash dividend in the fourth quarter of 2018 • Acquired micro application platform to accelerate intelligent workspace roadmap • Reported strong revenue and cash flow growth while exceeding subscription model transition expectations As illustrated in the graph below, our total shareholder return (assuming reinvestment of dividends)(1), or TSR, over the five- year period ended on December 31, 2018 was approximately 105%. $250 $200 $150 $100 $50 $0 2013 2014 2015 2016 2017 2018 Citrix Systems, Inc. S&P 500 Index Nasdaq Index (2) (1) For purposes of this graph, the reinvestment of Citrix’s $0.35 per share cash dividend paid on December 21, 2018 was calculated using the closing price on Nasdaq on December 31, 2018. In January 2017, we completed the separation of our GoTo business and its subsequent merger with LogMeIn, Inc. For the purpose of this graph, the distribution of LogMeIn common stock to our shareholders in connection with such separation and merger 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. 4 P r o x y Executive Compensation Highlights Concept Implementation Link executive target compensation directly with company performance ‰ To provide direct alignment with returns to shareholders and incentives to drive long-term success, target compensation(1) for our Named Executive Officers was(2): ‰ 56.5%, on average, performance-based(3) ‰ 89.9%, on average, at risk(4) Payout opportunity levels for our executive variable cash compensation plan should motivate performance that meets or exceeds our financial plan objectives while mitigating undue exposure to under- performance of these objectives ‰ In 2018, each executive officer’s variable cash compensation plan award was based 100% on the achievement of objective financial operating targets consistent with our corporate operating plan ‰ Based on 2018 company performance, variable cash compensation plan awards for 2018 paid 170.9% of the target amount ‰ Over the past ten years, our variable cash compensation plan awards have paid out between 58.8% and 170.9% and paid above 100% only half of the time Our executives should be incentivized to achieve financial goals that are directly tied to our multi-year business strategy and a driver of value creation for our shareholders ‰ At least 50% of annual equity awards to executive officers are awarded as performance-based restricted stock units; and for 2018, these annual awards vest based on subscription bookings as a percentage of total product and subscription bookings, which we believe is an indicator of the success of our business transformation Our compensation program should be tailored to the specific challenges facing the company and the company’s strategic initiatives at any given time ‰ Each year, our variable cash compensation plan and performance-based equity awards granted to executive officers are designed to fit our strategic and operational initiatives and reflect feedback we receive from our shareholders (1) Includes 2018 base salary and target variable cash compensation, both in effect at the end of 2018, and the grant date fair value of equity compensation granted in 2018. Does not include the performance-based awards granted in August 2017 for retention purposes that are included in the Summary Compensation Table and Grants of Plan-Based Awards Table as described herein. (2) Calculations excludes Mark M. Coyle, our former Interim Chief Financial Officer, who served in such role from July 10, 2017 through February 18, 2018 and Andrew H. Del Matto, our former Executive Vice President and Chief Financial Officer who joined Citrix on February 19, 2018 and, as announced on April 24, 2019, Mr. Del Matto’s employment with our company will end on April 26, 2019. (3) Performance-based compensation includes target variable cash compensation and performance-based restricted stock units granted in 2018. (4) At risk compensation includes target variable cash compensation and equity compensation granted in 2018. See Individual Executive Compensation Decisions beginning on page 51 for further details regarding our Named Executive Officers’ compensation. 2019 Proxy Statement 5 Governance Highlights The following summary of our governance policies and facts highlights our commitment to governance practices that protect shareholder rights: ✓ Proxy access ✓ Annual elections of all directors ✓ Long-standing commitment to corporate responsibility ✓ Stock ownership guidelines for executive officers and directors ✓ Majority voting for director elections ✓ Policies prohibiting hedging, short selling and pledging of our common stock ✓ Lead independent director ✓ Commitment to evolving and diversifying our Board of ✓ Active shareholder engagement ✓ Annual Board self-assessment process ✓ Executive compensation recovery policy Shareholder Engagement Directors ✓ Independent directors regularly meet without management present ✓ Board oversight of risk management ✓ Annual say-on-pay vote Our Board of Directors welcomes and values the views and insights of our shareholders and conducts an annual outreach effort to connect with our larger shareholders in order to ensure open lines of communication. Further, our executives regularly engage with shareholders to better understand their perspective on a wide range of strategy, business and governance issues. In 2019, we reached out to our largest shareholders and proxy advisory firms to understand their perspectives and discuss our governance and executive compensation policies with a goal to use feedback received from shareholders and proxy advisory firms to inform our governance and executive compensation decisions for 2019. As a result, we held meetings in early 2019 with institutional shareholders representing over 32% of Citrix’s outstanding common stock. We also met with proxy advisory firms during the same period. These shareholder meetings covered a wide range of topics, including: our subscription model transition and strategy; corporate governance practices such as board composition; our diversity and inclusion programs; cybersecurity and data privacy; succession planning and shareholder views regarding pay ratio disclosure; and other matters of shareholder interest. Peter J. Sacripanti, the Chairperson of our Compensation Committee and a member of our Nominating and Corporate Governance Committee, and David J. Henshall, our President and Chief Executive Officer, participated in each meeting along with other senior executives of the company. Members of the leadership team, the Chairperson of our Compensation Committee, and other members of our Board of Directors who participate in shareholder engagement meetings regularly discuss shareholder feedback with relevant Board committees and the full Board of Directors. In general, feedback from our shareholders regarding our compensation programs and corporate governance practices has been positive. The Board of Directors carefully considers the feedback from shareholders and has implemented their feedback into our executive compensation and corporate governance practices, including: ‰ ‰ ‰ increasing our focus on our diversity and inclusion initiatives, including diversity of our Board of Directors; implementing an operational performance metric for our 2018 and 2019 performance-based equity awards to align with our strategic initiatives; and increasing our focus on Corporate Social Responsibility (CSR) programs and initiatives with oversight by the Nominating and Corporate Governance Committee. We believe it is important to continue to engage with our shareholders on a regular basis to understand their perspectives and to give them a voice in shaping our governance and executive compensation policies and practices. 6 Our Board of Directors The following table provides summary information about each director nominee and the standing committees on which they currently serve. Each director will be elected for a one-year term. P r o x y Name Experience Robert M. Calderoni Chairman Former Executive Chariman, Citrix Former Chairman & CEO, Ariba Nanci E. Caldwell Independent Jesse A. Cohn Independent Former EVP & CMO, PeopleSoft Partner, Elliott Management Robert D. Daleo Independent Retired Vice Chairman, EVP & CFO, Thomson Reuters Murray J. Demo Independent EVP & CFO, Rubrik Ajei S. Gopal Independent CEO, ANSYS David J. Henshall President & CEO Former EVP, CFO & COO, Citrix Thomas E. Hogan Independent Chairman & CEO, Kony Moira A. Kilcoyne Independent Founder, MAK Management Consulting Retired Managing Director/Chief Information Officer, Morgan Stanley Peter J. Sacripanti Independent Chairman Emeritus and Partner, McDermott Will & Emery Chair Member Committee Memberships Other Public Company Boards Audit Nominating & Corporate Governance Compensation 3 4 1 0 0 1 1 0 1 1 2019 Proxy Statement 7 Director Independence 2 8 Independent Directors Non-independent Directors Tenure 1 7 2 <5 years 5–9 years 10–15 years Age 2 5 3 35-50 years old 51-59 years old 60-69 years old Voting Matters The proposals to be considered at the 2019 Annual Meeting are as follows: Board recommendation See page number for more detail PROPOSAL 1 Election of Directors FOR each Nominee PROPOSAL 2 PROPOSAL 3 PROPOSAL 4 Amendment to Amended and Restated 2014 Equity Incentive Plan Ratification of Appointment of Independent Registered Public Accounting Firm for 2019 Advisory Vote to Approve the Compensation of our Named Executive Officers (Say-on-Pay) FOR FOR FOR 77 78 87 88 8 Part 1 Corporate Governance P r o x y Corporate Governance Cycle Our annual corporate governance cycle is shown below: • We review input we’ve received through our shareholder outreach and communicate that input to the Board. • We review key regulatory updates. • The Board begins its self- assessment and evaluation focused on structure, process and culture. • During the fall and winter, we reach out to and speak with our largest shareholders about our governance and com- pensation practices and solicit input on topics that are important to them. Winter Spring Fall Summer • The Board discusses its evaluation results and reviews Board and Committee composition planning. • • • We publish our annual communications to our shareholders, including our annual report and proxy statement. We hold our annual shareholders meeting. We review governance best practices and our key corporate governance policies and procedures considering shareholder feedback received during the year. Independence of Members of Our Board Our Board of Directors has determined that eight of our directors (Ms. Caldwell, Mr. Cohn, Mr. Daleo, Mr. Demo, Dr. Gopal, Mr. Hogan, Ms. Kilcoyne, and Mr. Sacripanti) are independent within the meaning of the director independence standards of The Nasdaq Stock Market LLC, or Nasdaq, and the Securities and Exchange Commission, or the SEC, including Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended. Furthermore, our Board of Directors has determined that each member of each of our regular standing committees of the Board of Directors is independent within the meaning of Nasdaq’s and the SEC’s director independence standards. In making this determination, our Board of Directors solicited information from each of our directors regarding whether such director, or any member of his or her immediate family, had a direct or indirect material interest in any transactions involving Citrix, was involved in a debt relationship with Citrix or received personal benefits outside the scope of such person’s normal compensation. The Board of Directors determined that each of Mr. Calderoni, who served as our Executive Chairman through December 31, 2018 and currently serves as our Chairman but no longer as an employee of the company, and Mr. Henshall, who is currently serving as our President and Chief Executive Officer, is not independent within these definitions. Our Board of Directors considered the responses of our directors, and independently considered the commercial agreements, acquisitions, and other material transactions entered into by Citrix during 2018. Board Leadership Structure Our Corporate Governance Guidelines provide our Board of Directors with flexibility to select the appropriate leadership structure based on the specific needs of our business and the best interests of our shareholders. Our Corporate Governance Guidelines set forth our general policy that the positions of Chairperson of the Board of Directors and Chief Executive Officer will be held by different persons. In certain circumstances, however, our Board of Directors may determine that it is in our best interests for the same person to hold the positions of Chairperson and Chief Executive Officer, or, in the case of Mr. Calderoni’s appointment as Executive Chairman in July 2015, for the position of Chairperson to also be an executive role. In such event, the Board of Directors will appoint an independent member of our Board of Directors as the Lead Independent Director, who is currently Nanci E. Caldwell. While Mr. Calderoni ceased to 2019 Proxy Statement 9 be Executive Chairman on January 1, 2019, he continues as meeting each year is focused on human capital, including Chairman in a non-employee capacity and Ms. Caldwell formal reviews of executive talent, organizational structure continues in the position of Lead Independent Director. Our and succession planning for the role of Chief Executive general policy is that the position of Chairperson or Lead Officer and other senior executive roles. In these sessions, Independent Director, as the case may be, will be held by an among other things, our Board of Directors reviews the independent member of our Board of Directors. The assumptions, processes and strategy for various succession Chairperson or Lead Independent Director, as the case may events and reviews potential internal and external successor be, will preside at executive sessions of the independent candidates. The Board of Directors’ goal is to have a long- directors and will have such further responsibilities as the full term and continuing program for effective executive Board of Directors may designate from time to time. development and succession and to be prepared for both Executive Sessions of Independent Directors Executive sessions of the independent directors are held at least four times a year following regularly scheduled short-term unexpected loss of a key leader and permanent transitions. Considerations Governing Director Nominations in-person meetings of our Board of Directors. Executive Director Qualifications sessions do not include Messrs. Calderoni and Henshall, and the Lead Independent Director of our Board of Directors, Ms. Caldwell, is responsible for chairing the executive sessions. Executive Succession Executive succession is regularly reviewed and discussed by our Board of Directors in Board meetings and in executive sessions of the Board of Directors. At least one Board The Nominating and Corporate Governance Committee of our Board of Directors is responsible for reviewing with the Board of Directors from time to time the appropriate qualities, skills and characteristics desired of members of the Board of Directors in the context of the needs of the business and in light of the current make-up of our Board of Directors. This assessment includes consideration of the following minimum qualifications that the Nominating and Corporate Governance Committee believes must be met by all directors: Highest ethical character Reputation consistent with our image Commitment to enhancing shareholder value, and representing the long-term interests of our shareholders as a whole Ability to exercise sound business judgment based on an objective perspective Substantial business or professional experience in areas that are relevant to our business Bachelor’s degree from a qualified institution 10 The Nominating and Corporate Governance Committee also The Nominating and Corporate Governance Committee may consider numerous other qualities, skills and gathers information about the candidates through interviews, characteristics when evaluating director nominees, such as: detailed questionnaires, comprehensive background checks P r o x y ‰ an understanding of and experience in software, hardware or services, technology, accounting, governance, finance and/or marketing; ‰ leadership experience with public companies or other major complex organizations; ‰ experience on another public company board; and ‰ the specific needs of our Board of Directors and the committees of our Board of Directors at that time. Our Board of Directors believes that a diverse membership with varying perspectives and breadth of experience is an important attribute of a well-functioning board and will enhance the quality of the Board of Director’s deliberations and decisions. As a result, the Nominating and Corporate Governance Committee will consider the diversity of background and experience of a director nominee (such as diversity of knowledge, skills, experience and expertise) as well as diversity of personal characteristics (such as diversity or any other means that the Nominating and Corporate Governance Committee deems to be helpful in the evaluation process. The Nominating and Corporate Governance Committee then meets as a group to discuss and evaluate the qualities and skills of each candidate, both on an individual basis and taking into account the overall composition and needs of our Board of Directors. Based on the results of the evaluation process, the Nominating and Corporate Governance Committee recommends candidates for the Board of Director’s approval as director nominees for election to our Board of Directors. The Nominating and Corporate Governance Committee also recommends candidates to the Board of Directors for appointment to the committees of the Board of Directors. The Chairman of the Board of Directors assists the Nominating and Corporate Governance Committee with Board composition and evolution planning, including review of committee memberships. Board Evaluation Program of gender, race, ethnicity, culture, thought and geography) Our Board of Directors undertakes an evaluation process among its members in the overall context of the composition each year. In early 2019, our Board of Directors, with the of the Board of Directors. The Nominating and Corporate assistance of an outside advisor, conducted one-on-one Governance Committee and the Board of Directors discuss interview discussions to assess the Board’s performance and the composition of our Board of Directors, including diversity how to best serve the interests of our shareholders in the of background and experience, as part of the annual Board of future. These one-on-one interview discussions focused on Directors evaluation process. Process for Identifying and Evaluating Director Nominees Our Board of Directors delegates the selection and nomination process to the Nominating and Corporate Governance Committee, with the expectation that other members of the Board of Directors, and of management, will be requested to take part in the process as appropriate. Generally, the Nominating and Corporate Governance Committee identifies candidates for director nominees in consultation with management and the other directors, through the use of search firms or other advisers, through the an assessment of the structure, composition, processes, roles, relationships and culture of our Board of Directors and its committees. The interview discussions also addressed appropriate Board size, committee composition and the functional, business and organizational skills that may be required of future Board members, executive succession, and perspectives on long-term corporate strategy. The results of the evaluation were shared with the Chairman of the Board of Directors and Lead Independent Director, and discussed in executive session with the full Board of Directors present. Procedures for Recommendation of Director Nominees by Shareholders recommendations submitted by shareholders or through The Nominating and Corporate Governance Committee will such other methods as the Nominating and Corporate consider director nominee candidates who are recommended Governance Committee deems to be helpful to identify by our shareholders. Shareholders, in submitting candidates. Once candidates have been identified, the recommendations to the Nominating and Corporate Nominating and Corporate Governance Committee confirms Governance Committee for director nominee candidates, that the candidates meet all of the minimum qualifications for shall follow the procedures described below. director nominees established by the Nominating and Corporate Governance Committee. Generally, the Secretary of the company must receive any such recommendation for nomination not later than the close 2019 Proxy Statement 11 of business on the 120th day, nor earlier than the close of Board of Directors, a candidate will need to comply with the business on the 150th day, prior to the first anniversary of the following minimum procedural requirements: date the Proxy Statement was sent to shareholders in connection with our preceding year’s annual meeting. All recommendations for nomination must comply with the requirements for shareholder nominations set forth in our Bylaws, including that any such recommendation must be in ‰ a candidate must undergo a comprehensive private investigation background check by a qualified firm of our choosing; ‰ a candidate must complete a detailed questionnaire regarding his or her experience, background and writing and include the following: independence; ‰ name and address of the shareholder making the recommendation, as they appear on our books and records, and of such record holder’s beneficial owner; ‰ a candidate must submit to the Board of Directors his or her written consent to serve as director if elected; and ‰ a candidate must submit to our Board of Directors a ‰ number of shares of our capital stock that are owned statement to the effect that (1) if elected, he or she will beneficially and held of record by such shareholder and tender promptly following his or her election an irrevocable such beneficial owner; ‰ name of the individual recommended for consideration as a director nominee; ‰ all other information relating to the recommended candidate that would be required to be disclosed in solicitations of proxies for the election of directors or is resignation effective upon his or her failure to receive the required vote for re-election at the next meeting at which he or she would face re-election, and (2) upon acceptance of his or her resignation by our Board of Directors, in accordance with our Corporate Governance Guidelines, he or she shall resign as a member of the Board of Directors. otherwise required, in each case pursuant to Regulation 14A Once the Nominating and Corporate Governance Committee under the Securities Exchange Act of 1934, as amended, receives the nomination of a candidate and the candidate has including the recommended candidate’s written consent to complied with the minimum procedural requirements above, being named in the Proxy Statement as a nominee and to such candidacy will be evaluated and a recommendation with serving as a director if approved by our Board of Directors respect to such candidate will be delivered to our Board of and elected; and Directors. ‰ a written statement from the shareholder making the recommendation stating why such recommended candidate meets Citrix’s criteria and would be able to fulfill the duties of a director. Nominations must be sent to the attention of our Secretary by one of the two methods listed below: By U.S. mail (including courier or expedited delivery service) to: Citrix Systems, Inc. 851 West Cypress Creek Road Fort Lauderdale, FL 33309 Attn: Secretary of Citrix Systems, Inc. By facsimile to: (954) 337-4607 Attn: Secretary of Citrix Systems, Inc. Our Bylaws also provide that shareholders satisfying certain requirements, including ownership and holding period requirements with respect to our common stock, may nominate directors for potential inclusion in our Proxy Statement. In general, a shareholder, or a group of up to twenty shareholders, owning three percent or more of our outstanding common stock continuously for at least three years may nominate and include in our proxy materials director nominees constituting up to two individuals, or 20% of the Board of Directors, whichever is greater, provided that the shareholder(s) and the nominee(s) satisfy the requirements specified in our Bylaws. See Additional Information — Shareholder Proposals on page 89 for further information. Policy Governing Director Attendance at Annual Meetings of Shareholders Our Secretary will promptly forward any such nominations to All directors are offered the opportunity to attend our annual the Nominating and Corporate Governance Committee. As a meeting of shareholders at our expense. Other than requirement for being considered for nomination to our Mr. Henshall, no members of our Board of Directors attended our annual meeting of shareholders held in June 2018. 12 Code of Ethics We have adopted a “code of ethics,” as defined by regulations promulgated under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, which we The committees of the Board of Directors execute their oversight responsibility for risk management as follows: ‰ The Audit Committee has responsibility for overseeing our internal financial and accounting controls, work performed P r o x y refer to as our Code of Business Conduct and which applies to by our independent registered public accounting firm and all of our directors and employees worldwide, including our our internal audit function and overseeing risks related to principal executive officer, principal financial officer, principal our investments, financing activities, capital allocation accounting officer or controller, or persons performing similar strategies and world-wide insurance programs. As part of functions. A current copy of our Code of Business Conduct is its oversight function, the Audit Committee regularly available in the Corporate Governance section of our website at reviews the policies and processes by which our exposure http://www.citrix.com/about/governance.html. to certain significant areas of risk is assessed and managed. The Audit Committee also regularly discusses A copy of our Code of Business Conduct may also be with management and our independent registered public obtained, free of charge, upon a request directed to: Citrix accounting firm our major financial and controls-related Systems, Inc., 851 West Cypress Creek Road, Fort Lauderdale, risk exposures and steps that management has taken to Florida 33309, Attention: Investor Relations. We intend to monitor and control such exposures. In addition, we have, disclose any amendment to or waiver of a provision of our under the supervision of the Audit Committee, established Code of Business Conduct, to the extent required by rules and procedures available to all employees for the anonymous regulations, that applies to our principal executive officer, and confidential submission of complaints relating to any principal financial officer, principal accounting officer or matter to encourage employees to report questionable controller, or persons performing similar functions, by activities directly to our Audit Committee. posting such information on our website, available at http://www.citrix.com/about/governance.html. For more corporate governance information, you are invited to access the Corporate Governance section of our website available at http://www.citrix.com/about/governance.html. Risk Oversight We view risk appraisal and oversight as being a primary component of our governance and management framework. To that end, our Board of Directors plays an active role in ‰ The Compensation Committee is responsible for ensuring that our compensation practices are consistent with our overall philosophy and drive the intended outcomes, overseeing risks related to our cash and equity-based compensation programs and practices, and evaluating whether our compensation plans encourage participants to take excessive risks that are reasonably likely to have a material adverse effect on Citrix. For a detailed discussion of our efforts to manage compensation-related risks, see Compensation-Related Risk Assessment below. reviewing Citrix’s corporate strategy and priorities on an ‰ The Nominating and Corporate Governance Committee is ongoing basis, and also encourages management to promote responsible for overseeing risks related to the composition a culture that actively manages risks as a part of our and structure of our Board of Directors and its committees, corporate strategy and day-to-day business operations. our corporate governance and certain areas of regulatory compliance. In this regard, the Nominating and Corporate Our Board of Directors is involved in risk oversight through its Governance Committee conducts an annual evaluation of direct decision-making authority with respect to significant the Board of Directors and its committees, plans for Board matters as well as the oversight of management by the Board member and executive officer succession, reviews of Directors and its committees. Among other areas, the transactions between Citrix and our officers, directors, Board of Directors is directly involved in overseeing risks affiliates of officers and directors, or other related parties related to our overall corporate strategy, including product, for conflicts of interest, and annually reviews our most go-to-market and sales strategy, executive officer succession, cybersecurity, business continuity, crisis significant compliance policies and compliance training program. The Nominating and Corporate Governance preparedness and competitive and reputational risks. Committee also periodically reviews reputational, intellectual property and litigation-related risks with management. 2019 Proxy Statement 13 We maintain a risk management program to identify, scope, and assess those payouts as a percentage of non-GAAP communicate and manage risks across Citrix. As part of this earnings per share, non-GAAP corporate operating income program, our Internal Audit team, acting with executive and other variables to ensure that our framework sponsorship, facilitates a cross-functional engagement appropriately balances pay versus return to shareholders. process that assesses and prioritizes risks that we face and monitors certain of our risk management initiatives. The Audit Committee receives a report concerning our risk management efforts on a regular basis. In addition to the risk oversight work of the committees as described above, the full Board of Directors oversees cybersecurity risks, which includes key aspects of corporate security, product security, and the security of our cloud operations. As part of these efforts, the Board of Directors receives periodic in-person updates concerning management’s efforts to address cybersecurity risks. Further, our Board of Directors formed a Cybersecurity Committee of the Board to oversee management’s investigation of and response to the cyber incident we disclosed on our website on March 8, 2019. The work of the Cybersecurity Committee is supported by external forensic experts, legal counsel and strategic communications advisors. Compensation-Related Risk Assessment We believe that our executive officer and employee compensation plans are appropriately structured so as not to incent excessive risk taking that would be reasonably likely to ‰ All of our executive and corporate variable cash compensation plans are capped at 200% of payout awards so as to prevent award payments in excess of specific returns to the business and our shareholders, even if we dramatically exceed our performance or financial targets. ‰ Assuming achievement of a threshold level of performance, payouts under our performance-based plans if target performance metrics are not achieved result in compensation at levels below full target payout, rather than an “all-or-nothing” approach, which could engender excessive risk taking. ‰ We implemented a performance-based restricted stock unit program for 2018, which awards our executive officers with restricted stock units based on subscription bookings as a percentage of total product and subscription bookings, which we believe is an indicator of the success of our business transformation and a driver of value creation for our shareholders. This program has been capped at 200% of target awards to prevent excessive compensation even if we dramatically outperform our goals. ‰ Our base salary component of compensation does not encourage risk taking because it is a fixed amount. have a material adverse effect on our business. In particular, ‰ No opportunities for non-qualified deferrals of the Compensation Committee considered the following compensation were offered to our executive officers in aspects of our compensation plans and policies when 2018 and none will be offered in 2019. evaluating these areas. ‰ Our Board of Directors annually approves a corporate operating plan with goals that it believes are appropriate and reasonable in light of past performance and current market opportunities. Our corporate operating plan is the ‰ The Compensation Committee, or in the case of our President and Chief Executive Officer, the entire Board of Directors, determines achievement levels under our variable cash compensation plan and performance-vesting restricted stock unit awards after reviewing the company’s basis for the performance targets in our annual variable performance. cash compensation plans. ‰ For our variable cash compensation plans, awards are based on the achievement of at least two objective performance measures, thus diversifying the risk associated with any single indicator of performance. ‰ For our variable cash compensation plans, we select performance measures that we believe are less susceptible to manipulation (for example, non-GAAP corporate operating margin) than other performance measures that we could select (for example, non-GAAP earnings per share). ‰ We model amounts payable under proposed variable cash compensation plan structures against various scenarios ‰ Our executive stock ownership policy requires executives to hold significant levels of stock, which aligns an appropriate portion of their personal wealth to our long- term performance. ‰ Our executive officers are subject to a formal executive compensation recovery policy, or “clawback” policy, which allows us to recoup from our executive officers excess proceeds from certain incentive compensation received by such executive due to a material restatement of Citrix’s financial results due to an executive officer engaging in an act of embezzlement, fraud, willful misconduct or breach of fiduciary duty. 14 P r o x y Corporate Responsibility At Citrix, we are committed to improving the lives of our employees, customers, partners, shareholders, and the communities in which we live and work. We believe that a and retention trends, and workforce composition to identify focus areas and improvement opportunities; ‰ Executive and Employee Training: Offering a number of inclusion, diversity and unconscious bias programs for strong focus on corporate responsibility and conducting our senior leaders and employees including an Inclusion business in an ethical, transparent and accountable way Architects Program to drive engagement and culture generates value for all our stakeholders. change and developing a diversity, inclusion and belonging toolkit to assist people in mitigating bias and behaving Our approach to corporate responsibility encompasses the more inclusively; and following initiatives: Diversity, Inclusion and Belonging, Corporate Citizenship, Sustainability, Supply Chain Oversight and Trust. Diversity, Inclusion and Belonging. At Citrix, diversity, inclusion and belonging is about leveraging the innovative power of human difference. We believe that including different backgrounds, beliefs, perspectives and capabilities in our workforce fuels innovation and creates value for our employees, customers, partners and shareholders. We have incorporated diversity, inclusion and belonging into our policies and practices, education and events, and executive and community programs, which include: ‰ Executive Oversight Committee: Provides guidance, ‰ External Website: Highlighting our diversity and inclusion and oversight committee mission statement, metrics, programs and achievements in a dedicated section on Citrix.com, for customers, partners, shareholders and potential employees. We have been publicly recognized for our commitment to inclusion and diversity initiatives. Most recently, in 2017, 2018 and 2019, Citrix was designated as one of the “Best Places to Work for LGBTQ Equality” by the Human Rights Campaign Foundation and received a score of 100 percent on the foundation’s Corporate Equality Index survey. sponsorship, and thought leadership for company-wide To ensure that our President and Chief Executive Officer drives diversity, inclusion and belonging initiatives; a diverse and inclusive culture, as part of our President and ‰ Diversity, Inclusion and Belonging Team: Team focused on diversity, inclusion and belonging strategy development, initiative execution and measurement of outcomes that support our values and culture; ‰ Attracting Talent: A number of programs and initiatives enhance the diversity and inclusion experience for Chief Executive Officer’s annual evaluation, he is evaluated on, among other things, his leadership of the business, which includes driving a diverse and inclusive culture. Board diversity is also a top priority at Citrix. We believe that a diverse membership with varying perspectives and breadth of experience is an important attribute of a well-functioning Board candidates and employees, including: attending National of Directors and will enhance the quality of the Board of Society of Black Engineers, Fairygodboss Women in Sales, Director’s deliberations and decisions. As a result, the and Grace Hopper conferences for employee development Nominating and Corporate Governance Committee of our Board and talent attraction; ‰ Employee Resource Groups: 16 employee-run chapters around the globe that address career development, mentoring, advocacy, and networking for groups such as women, LGBTQ, Latino, veterans and black professionals; of Directors considers the diversity of background and experience of a director nominee inclusive of diversity of knowledge, skills, experience and expertise, as well as, diversity of personal characteristics, such as diversity of gender, race, ethnicity, culture, thought and geography among its members in the overall context of the composition of the Board of Directors ‰ Community Programs: Supporting and sponsoring as documented in our Corporate Governance Guidelines and our diversity-focused scholarships, as well as programs Nominating and Corporate Governance Committee Charter. The designed to support women and veterans in pursuit of a Nominating and Corporate Governance Committee and the technology career, including partnering with Girls Who Board of Directors discuss the composition of our Board of Code by sponsoring attendees for the Girls Who Code Directors, including diversity of background and experience, as Summer Immersion Program and supporting a Girls Who part of the annual Board of Directors evaluation process. In Code summer internship program at Citrix; 2018, we added two new directors to the Board of Directors, ‰ Metrics: Leveraging industry benchmarks and third-party data to better analyze our workforce representation, hiring Mr. Hogan and Ms. Kilcoyne, as part of the continuing evolution and diversification of our Board of Directors. 2019 Proxy Statement 15 Corporate Citizenship. We strive to be a good corporate transparency and promote greater accountability in our own citizen and support the communities in which we live and operations and with our suppliers. Citrix outsources product work. We are proud of our robust corporate giving manufacturing and recycling to suppliers and vendors that program. We are even more proud of our generous follow the highest environmental standards in the industry, employees, and we support their generosity through our such as ISO 14001. Further, we require our suppliers to adopt charitable match program and our “day of impact” worldwide a policy of responsible sourcing. We also prohibit our suppliers from profiting from the sale of tantalum, tin, tungsten, and gold (also known as “conflict minerals”) that funds conflict in the Democratic Republic of the Congo (DRC) and adjoining countries, and we require that our suppliers source such minerals from socially responsible suppliers. Additionally, we participate in organizations focused on conducting operations in a socially and environmentally responsible manner, including organizations that support social, environmental and ethical responsibility in the electronics industry supply chain. Trust. In 2018, we prepared for the arrival of the General Data Protection Regulation. In an effort to enhance our transparency, in 2018 we launched the Citrix Trust Center (https://www.citrix.com/about/trust-center/); a place where our customers and partners can go to learn more about Citrix’s privacy and security programs. For more information about corporate responsibility efforts, please refer to our website at https://www.citrix.com/about/. volunteer program. During 2018, together, we: ‰ served 1,245 charities in 40 countries through volunteer work and donations by our employees; ‰ contributed $1,909,989, up 8% from last year, in total community investment, including employee donations, which were matched by Citrix; and ‰ contributed 37,609 volunteer hours, up 24% from last year, to charities that serve low income communities with a focus on education programs, environmental stewardship, health services, and disaster relief. Sustainability. We build sustainability-enabling products and services. Our technology gives people the opportunity to work and share information from anywhere on any device. Using our technology, our customers become less reliant on equipment, paper and commuter time. For example, Citrix technology helps customers achieve their sustainability goals, including: ‰ minimize the number of physical servers they have, drastically reducing energy consumption; ‰ broaden client device options to include more low power alternatives such as thin clients and tablets; ‰ safely and securely store unlimited files in the cloud, reducing paper, printing and postage needs; and ‰ provide remote access to applications, programs, data, and collaboration tools, to reduce environmental cost associated with commuting, office space usage and team travel. While our biggest opportunity to impact the sustainability of our communities is through our products and services, we are also investing in best practices to reduce our energy footprint. For example, we have programs designed to reduce our carbon footprint and have invested in sustainable design features and green operations in many of our offices. Supply Chain Oversight. We are committed to advancing supply chain responsibility and strive to enhance 16 Policy Governing Shareholder Communications with our Board By U.S. mail (including courier or expedited delivery service) to: Our Board of Directors provides to every security holder the ability to communicate with the Board of Directors as a whole and with individual directors on the Board of Directors through an established process for security holder Citrix Systems, Inc. 851 West Cypress Creek Road Fort Lauderdale, FL 33309 Attn: Secretary of Citrix Systems, Inc. P r o x y By facsimile to: (954) 337-4607 Attn: Secretary of Citrix Systems, Inc. We will forward any such security holder communication to the Chairperson of the Board of Directors, as a representative of the Board of Directors, or to the director to whom the communication is addressed, on a periodic basis. We will forward such communications by certified U.S. mail to an address specified by each director and the Chairperson of the Board of Directors for such purposes or by secure electronic transmission. communication as follows: ‰ For communications directed to our Board of Directors as a whole, security holders may send such communications to the attention of the Chairperson of the Board of Directors by one of the two methods listed below: By U.S. mail (including courier or expedited delivery service) to: Citrix Systems, Inc. 851 West Cypress Creek Road Fort Lauderdale, FL 33309 Attn: Chairperson of the Board of Directors, c/o Secretary By facsimile to: (954) 337-4607 Attn: Chairperson of the Board of Directors, c/o Secretary ‰ For security holder communications directed to an individual director in his or her capacity as a member of our Board of Directors, security holders may send such communications to the attention of the individual director by one of the two methods listed below: 2019 Proxy Statement 17 Part 2 Board of Directors Our Directors The following table sets forth our current directors, who are being nominated for re-election at the 2019 Annual Meeting. All ten directors are nominated for re-election to one-year terms at the 2019 Annual Meeting. The biographical description below for each director nominee includes the specific experience, qualifications, attributes and skills that led to the conclusion by our Board of Directors that such person should serve as a director of Citrix. Name Robert M. Calderoni Nanci E. Caldwell Jesse A. Cohn Robert D. Daleo Murray J. Demo Ajei S. Gopal David J. Henshall Thomas E. Hogan Moira A. Kilcoyne Peter J. Sacripanti Position(s) with Citrix Chairman of the Board of Directors Lead Independent Director Director Director Director Director Director, President and Chief Executive Officer Director Director Director Director Nominees Robert M. Calderoni Chairman, Citrix Systems, Inc., former Executive Chairman of Citrix Systems, Inc.; former Interim Chief Executive Officer and President, Citrix Systems, Inc.; former Chairman and Chief Executive Officer of Ariba, Inc., Sunnyvale, CA (Cloud applications and business network company) Age: 59 Director Since: June 2014 Chairman Since: July 2015 Other Boards: Since 2003, Mr. Calderoni has served on the Board of Directors of Juniper Networks, Inc., a publicly-traded networking company; since 2007, he has served on the Board of Directors of KLA-Tencor, a publicly-traded semiconductor equipment company; and since January 2017, he has served on the Board of Directors, and is currently Chairman, of LogMeIn, Inc., a publicly-traded remote access and remote software company. Key Director Qualifications: Mr. Calderoni served as Chairman and Chief Executive Officer of Ariba, Inc., a cloud applications and business network company, from October 2001 until it was acquired by SAP, a publicly-traded software and IT services company, in October 2012, and then continued as Chief Executive Officer of Ariba following the acquisition until January 2014. Mr. Calderoni also served as a member of the global managing board at SAP AG between November 2012 and January 2014 and as President SAP Cloud at SAP AG from June 2013 to January 2014. Mr. Calderoni has also held senior finance roles at Apple and IBM and served as Chief Financial Officer of Avery Dennison Corporation, a publicly-traded packaging and labelling 18 solutions company. From October 2015 to January 2016, Mr. Calderoni served as the Interim Chief Executive Officer and President of Citrix. Mr. Calderoni served as Executive Chairman of Citrix from July 2015 through December 2018. Mr. Calderoni currently serves as Chairman of the Board of Citrix. The Board believes Mr. Calderoni’s qualifications to sit on our Board of Directors include his extensive leadership and business development experience as the leader of a publicly-traded software-as-a-service company and his deep financial, accounting, corporate finance and operations expertise, including business transition situations, gleaned through his experience in managing large-scale global enterprises. P r o x y Nanci E. Caldwell Lead Independent Director, Citrix Systems, Inc.; former Executive Vice President and Chief Marketing Officer, PeopleSoft, Inc., Pleasanton, California (Human resources management software company) Age: 61 Director Since: July 2008 Committees: Compensation, Nominating and Corporate Governance (Chair) Other Boards: Since December 2015, Ms. Caldwell has served on the Board of Directors of Equinix, Inc., a publicly-traded IT data center company, as well as the Board of Directors of Canadian Imperial Bank of Commerce, a publicly-traded financial institution. Since November 2016, Ms. Caldwell has served on the Board of Directors of Donnelley Financial Solutions, Inc., a publicly-traded financial communications and data services company, and since February 2017, Ms. Caldwell has served on the Board of Directors of Talend SA, a publicly-traded data integration company. Key Director Qualifications: Since 2005, Ms. Caldwell has served as a member of a number of Boards of both public and private technology companies, including Deltek, Inc., a publicly-traded enterprise management software company from 2005 to 2012; Network General, now NetScout Inc., a publicly-traded provider of integrated network performance management solutions from 2005 to 2007; and Hyperion Solutions Corporation, a publicly-traded provider of performance management software acquired by Oracle in 2007, from 2006 to 2007. From April 2001 until it was acquired by Oracle in December 2004, Ms. Caldwell served as Executive Vice President and Chief Marketing Officer for PeopleSoft, Inc., a publicly-traded human resource management software company. In addition, from June 2009 to December 2014, Ms. Caldwell served as a member of the Board of Tibco Software Inc., a publicly-traded business integration and process management software company. The Board believes Ms. Caldwell’s qualifications to sit on our Board of Directors include her extensive experience with technology and software companies, including in the areas of sales and marketing, as well as her executive leadership and management expertise with publicly-traded companies. Jesse A. Cohn Partner and Head of U.S. Equity Activism, Elliott Management Corporation, New York, NY (Hedge fund manager) Age: 38 Director Since: July 2015 Committees: Nominating and Corporate Governance Other Boards: Since March 2019, Mr. Cohn has served on the Board of Directors of eBay Inc., a publicly-traded e-commerce company. Key Director Qualifications: Mr. Cohn is a partner and head of U.S. equity activism at Elliott Management Corporation, a $32 billion investment firm. Mr. Cohn joined Elliott in 2004 and manages both public and private investments for the firm. Mr. Cohn also serves on the Board of Directors of several private companies. Mr. Cohn initially joined the Board in connection 2019 Proxy Statement 19 with our entry into a cooperation agreement with affiliates of Mr. Cohn’s employer, Elliott Management. The Board believes Mr. Cohn’s qualifications to sit on our Board of Directors include the breadth of his knowledge of technology/software companies, including his service on the boards of directors of MSC Software, E2Open, SonicWall, Quest Software and Ark Continuity. Robert D. Daleo Retired Vice Chairman, Thomson Reuters, New York, NY (Integrated information solutions provider) Age: 69 Director Since: May 2013 Committees: Audit (Chair) Key Director Qualifications: Prior to his retirement in December 2012, Mr. Daleo served as Vice Chairman of Thomson Reuters, a publicly-traded global provider of integrated information solutions to business and professional customers. Mr. Daleo previously served as Executive Vice President and Chief Financial Officer of Thomson Reuters or its predecessors from 1998 through 2011, and was a member of The Thomson Corporation Board from 2001 to April 2008. Prior to joining The Thomson Corporation, he held various financial and operational leadership positions with The McGraw-Hill Companies, Inc., a publicly- traded content and analytics provider, and Automatic Data Processing, Inc., a publicly-traded provider of business outsourcing solutions. The Board believes Mr. Daleo’s qualifications to sit on our Board of Directors include his experience in managing a large-scale global enterprise, extensive financial accounting, corporate finance, operations and business development expertise through his experience as Chief Financial Officer of a large multinational company, as well as his prior board-level experience with Thomson Reuters and Equifax Inc. Murray J. Demo Executive Vice President and Chief Financial Officer, Rubrik, Inc., Palo Alto, CA (Cloud data management company) Age: 57 Director Since: February 2005 Committees: Audit Key Director Qualifications: Mr. Demo currently serves as Executive Vice President and Chief Financial Officer of Rubrik, Inc., a privately-held cloud data management company. From October 2015 to January 2018, Mr. Demo served as Chief Financial Officer of Atlassian Corporation, a publicly-traded enterprise software company. Previously, Mr. Demo served as Executive Vice President and Chief Financial Officer of Dolby Laboratories, a publicly-traded global leader in entertainment technologies, from May 2009 until June 2012. Mr. Demo has also served as Executive Vice President and Chief Financial Officer of LiveOps, a privately-held virtual call center company, and as Executive Vice President and Chief Financial Officer of Postini, Inc., a security software company, which was acquired by Google in September 2007. Mr. Demo also held various executive-level finance roles at Adobe Systems, including Executive Vice President and Chief Financial Officer. Mr. Demo previously served on the Board of Xoom Corporation, a formerly publicly-traded global online money transfer provider that was acquired by PayPal in November 2015, from May 2012 to November 2015; and from December 2011 to December 2015, Mr. Demo served on the Board of Directors of Atlassian Corporation. The Board believes Mr. Demo’s qualifications to sit on our Board of Directors include his extensive experience with finance and accounting matters for global organizations in the technology industry, including the experience that he has gained in his roles as Chief Financial Officer of publicly-traded companies. 20 Ajei S. Gopal President and Chief Executive Officer, ANSYS, Inc., Canonsburg, PA (Engineering simulation software provider) Age: 57 Director Since: September 2017 Committees: Compensation P r o x y Other Boards: Since February 2011, Dr. Gopal has served on the Board of Directors of ANSYS, Inc., a publicly-traded provider of engineering simulation software. Key Director Qualifications: Since January 2017, Dr. Gopal has served as President and Chief Executive Officer of ANSYS, Inc., a publicly-traded provider of engineering simulation software. Dr. Gopal served as President and Chief Operating Officer of ANSYS from August 2016 through December 2016. Prior to joining ANSYS, Dr. Gopal served as an Operating Partner at Silver Lake Partners, a technology investment equity firm, from April 2013 to August 2016, including a secondment to serve as Interim President and Chief Operating Officer of Symantec Corporation from April 2016 to August 2016. Dr. Gopal has also served as Senior Vice President at Hewlett-Packard Company, a publicly-traded hardware, software and IT services company, from May 2011 to April 2013. Dr. Gopal has also served as Executive Vice President at CA Technologies, a publicly-traded business software company, from July 2006 to May 2011 and as Executive Vice President and Chief Technology Officer at Symantec Corporation, a publicly-traded cybersecurity software and services organization, from September 2004 to July 2006. The Board believes Dr. Gopal’s qualifications to sit on our Board of Directors include his experience in global operations, business growth strategies and investment discipline, as well as product development and innovation in large software and technology companies. David J. Henshall President and Chief Executive Officer, Citrix Systems, Inc. Age: 50 Director Since: July 2017 Other Boards: Since January 2017, Mr. Henshall has served on the Board of Directors of LogMeIn, Inc., a publicly-traded remote access and remote software company. Key Director Qualifications: Mr. Henshall has served as our President and Chief Executive Officer and as a member of our Board of Directors since July 2017. Mr. Henshall served as our Executive Vice President and Chief Financial Officer beginning in September 2011 and as our Chief Operating Officer beginning in February 2014. Mr. Henshall was appointed Acting Chief Executive Officer and President from October 2013 to February 2014. From January 2006 to September 2011, Mr. Henshall served as our Senior Vice President and Chief Financial Officer, and from April 2003 to January 2006, he served as our Vice President and Chief Financial Officer. The Board believes Mr. Henshall’s qualifications to sit on our Board of Directors include his decades of experience in the software industry, including his 16 years as an executive at Citrix, and his deep understanding of our historical and current business strategies, objectives, markets and products. 2019 Proxy Statement 21 Thomas E. Hogan Chairman and Chief Executive Officer, Kony, Inc., Austin, TX (digital strategy company) Age: 59 Director Since: December 2018 Committees: Audit Key Director Qualifications: Since 2014, Mr. Hogan has served as Chief Executive Officer of Kony, Inc., a privately-held digital strategy company. He was appointed Chairman of the Board of Kony, Inc. in 2017. Prior to joining Kony, Mr. Hogan served as Senior Vice President of Software at Hewlett Packard, a publicly-traded hardware, software and IT services company, from January 2006 to November 2009 and as Executive Vice President of Sales, Marketing, and Strategy from November 2009 to March 2011. Mr. Hogan has also served as President and Chief Executive Officer of Vignette, a publicly-traded enterprise content management company, from 2002 to 2006 and as Senior Vice President of Global Sales and Operations at Siebel Software, a customer relationship management application software company from January 1999 to January 2001. Mr. Hogan began his career at IBM in January 1982, where he held a variety of executive positions. The Board believes Mr. Hogan’s qualifications to sit on our Board of Directors include his decades of executive and operational experience with technology and software companies. Moira A. Kilcoyne Founder MAK Management Consulting, New York, NY (private strategic management consulting company) and Retired Managing Director/Chief Information Officer, Morgan Stanley, New York, NY (American multinational investment bank and financial services company) Age: 57 Director Since: June 2018 Committees: Audit Other Boards: Since December 2016, Ms. Kilcoyne has served on the Board of Directors Quilter plc, a publicly-traded advice, investments and wealth management provider. Key Director Qualifications: Ms. Kilcoyne held various senior management roles at Morgan Stanley between 1989 and 2016, including most recently serving as Global Co-Chief Information Officer and Managing Director and Co-Head of Global Technology and Data from 2013 until 2016, and as the Chief Information Officer of Brokerage Venture, Wealth and Investment Management and as a Managing Director from 2010 until 2013. During 2007, Ms. Kilcoyne served as Managing Director and Head of Corporate Systems at Merrill Lynch before returning to Morgan Stanley. Ms. Kilcoyne began her career at IBM, where she served in multiple technical roles before moving on to Morgan Stanley. The Board believes Ms. Kilcoyne’s qualifications to sit on our Board of Directors include her extensive global technology and operations experience, especially related to the financial industry. 22 Peter J. Sacripanti Chairman Emeritus and Partner, McDermott Will & Emery, New York, NY (International law firm) Age: 63 Director Since: December 2015 Committees: Compensation (Chair), Nominating and Corporate Governance P r o x y Other Boards: Since January 2017, Mr. Sacripanti has served on the Board of Directors of LogMeIn, Inc., a publicly-traded remote access and remote software company. Key Director Qualifications: Since 1996, Mr. Sacripanti has served as a Partner at McDermott Will & Emery, an international law firm with 2,000 full-time employees in North America, Europe and Asia. In this position, he represents and defends major corporations and industry groups, including Fortune 500 companies. From 2009 to 2016, Mr. Sacripanti served as co-chairman of the firm’s Executive Committee. The Board believes Mr. Sacripanti’s qualifications to sit on our Board of Directors include his management of an international business organization and his years of experience representing large corporations on a variety of legal matters. 2019 Proxy Statement 23 Meetings and Meeting Attendance Our Board of Directors met twelve times during the year of our Board of Directors and the total number of meetings of ended December 31, 2018. Each of the directors attended at all committees of our Board of Directors on which he or she least 75% of the aggregate of the total number of meetings served during fiscal 2018. Our Board Committees Our Board of Directors has standing Audit, Compensation, has been approved by the Board of Directors. Each and Nominating and Corporate Governance Committees. committee reviews the appropriateness of its charter at least Each of the Audit, Compensation, and Nominating and annually. The table below provides current membership for Corporate Governance Committees has a written charter that each standing Board committee. Name Audit Compensation Nominating and Corporate Governance Robert M. Calderoni Nanci E. Caldwell Jesse A. Cohn Robert D. Daleo Murray J. Demo Ajei S. Gopal David J. Henshall Thomas E. Hogan Moira A. Kilcoyne Peter J. Sacripanti ‹ Chair ‹ Member ‹ ‹ ‹ ‹ ‹ ‹ ‹ ‹ ‹ ‹ From time to time, our Board of Directors may form Directors, a current copy of which is available in the committees in addition to our standing committees. Corporate Governance section of our website at Audit Committee http://www.citrix.com/about/governance.html. As described more fully in its charter, the Audit Committee Our Board of Directors has determined that each member oversees our accounting and financial reporting processes, of the Audit Committee meets the independence internal controls and audit functions. In fulfilling its role, the requirements promulgated by Nasdaq and the SEC, including Audit Committee: Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended. In addition, our Board of Directors has determined that each member of the Audit Committee is ‰ reviews the financial reports and related disclosure provided by us to the SEC, our shareholders or the general public; financially literate and that Messrs. Daleo and Demo each ‰ reviews our internal financial and accounting controls; qualify as an “audit committee financial expert” under the rules of the SEC. The Audit Committee met eight times during the year ended December 31, 2018. The Audit Committee operates under a written charter adopted by our Board of ‰ oversees the appointment, compensation, retention and work performed by any independent registered public accounting firms we engage; 24 ‰ oversees procedures designed to improve the quality and reliability of the disclosure of our financial condition and results of operations; ‰ oversees our internal audit function; ‰ serves as the Qualified Legal Compliance Committee of Citrix in accordance with Section 307 of the Sarbanes- Directors, a current copy of which is available in the Corporate Governance section of our website at http://www.citrix.com/about/governance.html. P r o x y As described more fully in its charter, the Compensation Committee is responsible for determining and making recommendations with respect to all forms of compensation Oxley Act of 2002, and the related rules and regulations to be granted to our executive officers and preparing an promulgated by the SEC; ‰ recommends, establishes and monitors procedures designed to facilitate (1) the receipt, retention and treatment of complaints relating to accounting, internal accounting controls or auditing matters, and (2) the receipt of confidential, anonymous submissions by employees of concerns regarding questionable accounting or auditing matters; ‰ engages advisers as necessary; and annual report on executive compensation for inclusion in the Proxy Statement for our annual meeting of shareholders in accordance with applicable rules and regulations. In fulfilling its role, the Compensation Committee also: ‰ reviews and makes recommendations to our management on company-wide compensation programs and practices; ‰ approves the salary, variable cash compensation, equity- based and other compensation arrangements of our ‰ determines the funding from us that is necessary or executive officers reporting directly to our President and appropriate to carry out the Audit Committee’s duties. Chief Executive Officer; In June 2018, the Finance Committee was merged into the Audit Committee. As a result, the Audit Committee also advises the Board of Directors on matters relating to our investment policies, financing activities and worldwide insurance programs. Finance Committee Prior to merging the Finance Committee into the Audit Committee in June 2018, our Board of Directors had determined that each member of the Finance Committee met the independence requirements promulgated by Nasdaq. The members of the Finance Committee also served on the Audit Committee. The Finance Committee met two times during the year ended December 31, 2018. The Finance Committee operated under a written charter adopted by our Board of Directors. ‰ recommends, subject to approval by the entire Board of Directors, the salary, variable cash compensation, equity- based and other compensation arrangements of our President and Chief Executive Officer; ‰ selects a peer group to conduct a competitive analysis of the compensation paid to our executive officers and considers the composition of such peer group on an annual basis; ‰ appoints, retains, compensates, terminates and oversees the work of any independent experts, consultants and other advisers, reviews and approves the fees and retention terms for such experts, consultants and other advisers and considers at least annually the independence of such consultants; ‰ considers the independence of and potential conflicts of interests with compensation consultants, legal counsel or other advisers, including based on factors required to be Compensation Committee considered by the SEC or Nasdaq; Our Board of Directors has determined that each of the ‰ evaluates director compensation and recommends to the members of the Compensation Committee is independent as full Board of Directors appropriate levels of director defined by the Nasdaq rules. In addition, each member of the compensation; Compensation Committee is an “outside director” as defined in Section 162(m) of the Internal Revenue Code of 1986, and is a “non-employee” director as defined under Section 16 of the Securities Exchange Act of 1934, as amended. The ‰ establishes policies and procedures for the grant of equity- based awards and periodically reviews our equity award grant policy; Compensation Committee met seven times during the year ‰ recommends, subject to approval by the entire Board of ended December 31, 2018. The Compensation Committee Directors, any equity-based plans and any material operates under a written charter adopted by our Board of amendments to those plans; 2019 Proxy Statement 25 ‰ evaluates whether our compensation plans encourage participants to take excessive risks that are reasonably likely to have a material adverse effect on Citrix; As described more fully in its charter, the Nominating and Corporate Governance Committee: ‰ reviews and makes recommendations to our Board of ‰ evaluates our compensation philosophy and reviews actual Directors regarding the Board’s composition and structure; compensation for consistency with our compensation philosophy; ‰ reviews and recommends for inclusion in our annual Proxy Statement the Compensation Discussion and Analysis section; and ‰ establishes criteria for membership on the Board of Directors and evaluates corporate policies relating to the recruitment of members of the Board of Directors; ‰ recommends to our Board of Directors the nominees for election or re-election as directors at our annual meeting ‰ reviews and evaluates, on a periodic basis, our stock of shareholders; ownership guidelines for directors and executive officers and recommends any modifications to such guidelines to the Board of Directors for its approval. ‰ reviews policies and procedures with respect to transactions between Citrix and our officers, directors, affiliates of officers and directors, or other related parties; The Compensation Committee has the authority to engage its own outside advisers, including experts in particular areas of compensation, as it determines appropriate, apart from counsel or advisers hired by management. In December 2016, the Compensation Committee retained Frederic W. Cook & Co., Inc., which we refer to as FW Cook, as its independent compensation consultant to assist the committee in evaluating the compensation of our executive officers and directors and has continued to work with FW Cook during 2017 and 2018. Our Corporate Governance Guidelines and the charter of the Compensation Committee provide that any independent compensation consultant, such as FW Cook, engaged by the Compensation Committee works for the Compensation Committee, not our management, with respect to executive officer and director compensation matters. Please read the Compensation Discussion and Analysis included in this Proxy Statement for additional information on the role of, and amounts paid to, FW Cook in the compensation review process for 2018. Nominating and Corporate Governance Committee Our Board of Directors has determined that each member of the Nominating and Corporate Governance Committee and ‰ establishes, implements and monitors policies and processes regarding principles of corporate governance in order to assist the Board of Directors in complying with its fiduciary duties to us and our shareholders. As described above in the section entitled Procedures for Recommendation of Director Nominees by Shareholders, the Nominating and Corporate Governance Committee will consider nominees recommended by shareholders. Cybersecurity Committee On March 22, 2019, our Board of Directors formed a Cybersecurity Committee to oversee management’s investigation of and response to the cyber incident we disclosed on our website on March 8, 2019. The Cybersecurity Committee consists of Ms. Kilcoyne (Chair) and Messrs. Daleo and Calderoni, each of whom served on the Cybersecurity Committee since its formation. The Cybersecurity Committee was formed in 2019 and, as a result, did not meet during 2018. In fulfilling its role, the Cybersecurity Committee: ‰ oversees management’s investigation of and response to the cyber incident we disclosed on our website on March 8, 2019, including the investigation and remediation of any vulnerabilities identified as part of management’s investigation; and meets the independence requirements promulgated by ‰ oversees management’s work to implement policies, Nasdaq. The Nominating and Corporate Governance Committee met five times during the year ended procedures, IT systems and other technical measures to improve the quality of, reliability of and security of the December 31, 2018. The Nominating and Corporate company’s systems and networks. Governance Committee operates under a written charter adopted by our Board of Directors, a current copy of which is The Cybersecurity Committee is supported by external forensic available at the Corporate Governance section of our website experts, legal counsel, and strategic communications advisors at http://www.citrix.com/about/governance.html. and may engage other advisors as necessary to fulfil its role. 26 P r o x y Director Compensation 2018 Non-employee Director Cash Compensation It is our policy that our employee directors do not receive cash or equity compensation for their service as members of our Board of Directors. committee chair and were not entitled to the non-chair membership retainer for the committee(s) he or she chairs). In addition, non-employee directors are reimbursed for their reasonable out-of-pocket expenses incurred in attending meetings of our Board of Directors or any of its committees that are conducted in person. In December 2018, after review The Compensation Committee, with assistance from its and discussion of updated benchmarking of our independent compensation consultant, FW Cook, oversees non-employee director cash compensation program by the director compensation and reviews the appropriateness of Compensation Committee’s independent compensation our non-employee directors’ compensation on a regular consultant, our Compensation Committee approved, effective basis. Most recently, in October 2018, FW Cook prepared a January 1, 2019, an increase in the annual retainer to be paid comprehensive benchmarking of our non-employee director to the Lead Independent Director from $35,000 to $40,000, a cash compensation program against the compensation decrease in the annual retainer to be paid to the chairperson programs offered by our peer companies and reviewed this of the Compensation Committee from $40,000 to $32,500, benchmarking in detail with the Compensation Committee. and an increase in the annual retainer to be paid to the Under our non-employee director cash compensation program, non-employee members of our Board of Directors receive retainer fees, which are paid in cash in semi-annual installments (pro-rated if a director joins mid-year). Each non-employee director was entitled to receive the retainers detailed in the tables below (provided that committee chairpersons were only entitled to receive a retainer as chairperson of each of the Audit Committee from $40,000 to $42,500 and the Nominating and Corporate Governance Committee from $20,000 to $25,000. The Compensation Committee also approved an annual retainer of $100,000 to be paid to the Chairman of the Board commencing January 1, 2019, in addition to the Annual Board Member Retainer. The following table summarizes our 2018 non-employee director cash compensation program: Board Retainers Compensation Element Annual Board Member Retainer Annual Cash Compensation $60,000(1) Annual Retainer for Lead Independent Director $35,000 (in addition to Annual Board Member Retainer)(2) Committee Retainers Committee Audit Committee Compensation Committee Finance Committee Annual Cash Compensation Chair Member Annual: $40,000(3) Annual: $17,500 Annual: $40,000(4) Annual: $15,000 None None Nominating and Corporate Governance Committee Annual: $20,000(5) Annual: $10,000 (1) Annual retainer of $100,000 (in addition to Annual Board Member Retainer) for our non-employee Chairman of the Board of Directors is effective January 1, 2019. (2) Annual retainer for the Lead Independent Director was increased to $40,000, effective January 1, 2019. (3) Annual retainer for the chairperson of the Audit Committee was increased to $42,500, effective January 1, 2019. (4) Annual retainer for the chairperson of the Compensation Committee was decreased to $32,500, effective January 1, 2019. (5) Annual retainer for the chairperson of the Nominating and Corporate Governance Committee was increased to $25,000, effective January 1, 2019. 2019 Proxy Statement 27 In connection with ad hoc committees that may be formed from time to time, committee fees, if any, are determined by Outside Directors’ Deferred Compensation Program for Non-Employee Directors the Board of Directors upon the recommendation of the Compensation Committee with advice from its independent compensation consultant. Non-employee Director Equity-based Compensation Equity Awards to our Non-employee Directors We offer our non-employee directors an outside directors’ deferred compensation program to defer restricted stock units awarded to them under the Amended and Restated 2014 Plan and cash compensation. In advance of payment of cash compensation or a restricted stock unit award and in compliance with the program’s requirements, a non-employee director may elect to defer the receipt of all of his or her cash compensation and/or restricted stock units until ninety days The Compensation Committee, with assistance from its after such director’s separation from service from us or upon a independent compensation consultant, reviews the change in control. Deferred cash compensation is converted appropriateness of equity awards granted to our into a number of deferred stock units on the date that the cash non-employee directors under the company’s Amended and compensation would otherwise be paid and upon the vesting of Restated 2014 Equity Incentive Plan, which we refer to as the deferred awards of restricted stock units, any amounts that Amended and Restated 2014 Plan, on a regular basis. In would otherwise have been paid in shares of common stock are October 2018, FW Cook prepared a comprehensive converted to deferred stock units on a one-to-one basis. In each benchmarking of our non-employee director equity awards case, the deferred stock units are credited to the director’s against the equity awards offered by our peer companies and deferred account. reviewed this benchmarking in detail with the Compensation Committee. No changes to our non-employee director equity- Matching Gifts Program based compensation program for 2018 were made as a result Our non-employee directors are eligible to participate in the of this review. For 2018, each non-employee director was eligible to receive an annual grant on the first business day of the month following our annual shareholders meeting consisting of company’s charitable matching gifts program pursuant to which we match donations made to qualifying tax-exempt 501(c)(3) charitable and non-governmental organizations on a one-for-one basis. We match up to $15,000 USD per year for executives and non-employee directors under this restricted stock units valued at $250,000 that vest in equal program. monthly installments over a one-year period, which we refer to as an annual vesting period. Prior to March 2018, each newly Director Stock Ownership Guidelines elected non-employee director was entitled to receive restricted stock units valued at $500,000 upon his or her initial election to our Board of Directors, which vest in accordance with our standard three-year vesting schedule. The number of restricted stock units issued is calculated based on the closing price per share as reported by Nasdaq of our common stock on the date of grant. In March 2018, upon further benchmarking by the Compensation Committee’s independent compensation consultant, and the Compensation Committee’s recommendation, the Board of Directors approved that, beginning in March 2018, rather than an initial restricted stock unit award valued at $500,000 that vests over three years, newly appointed directors (i.e., directors appointed prior to the annual shareholders meeting) would be entitled to a pro-rated annual grant upon election to the Board of Directors. Such grant will be an award valued at $250,000 and pro-rated based on the director’s date of appointment and the current annual vesting period. Such pro-rated grant will vest monthly over the remaining portion of the current annual vesting period. To further align the interests of members of our Board of Directors with our shareholders, our Board of Directors adopted stock ownership guidelines for our non-employee directors. Pursuant to these guidelines, each non-employee director is required to own shares of our common stock (which includes vested but deferred restricted stock units) equal in value to at least five times the Board member annual cash retainer. New directors are expected to meet the standards set forth in the guidelines within five years after the date of his or her election to our Board of Directors. Shares owned by directors are valued at the current market value. Director Compensation Limits The Amended and Restated 2014 Plan, which was approved by our shareholders at our 2017 Annual Meeting of Shareholders, provides for a limitation of $795,000 with respect to the value of the annual equity compensation grant that may be awarded to any non-employee director and a limitation of $500,000 with respect to the value of any annual cash compensation that may be paid to any non-employee director. 28 The following table sets forth a summary of the compensation earned by, or paid to, our non-employee directors in 2018: P r o x y Name Nanci E. Caldwell Jesse A. Cohn Robert D. Daleo Murray J. Demo Ajei S. Gopal Thomas E. Hogan(8) Moira A. Kilcoyne(9) Peter J. Sacripanti Graham V. Smith(10) Godfrey R. Sullivan(11) DIRECTOR COMPENSATION TABLE FOR FISCAL YEAR 2018(1) Fees Earned or Paid in Cash ($) Stock Awards ($) (2)(3)(4) All Other Compensation (5) 125,904 70,000(6) 100,000(7) 77,500 75,000 4,671 44,058 100,158 32,260 51,123 249,938 249,938 249,938 249,938 249,938 — 249,938 249,938 — — 26,721 23,296 28,054 491 3,186 — 491 4,734 — — Total ($) 402,563 343,234 377,992 327,929 328,124 4,671 294,487 354,830 32,260 51,123 (1) Mr. Calderoni served as Executive Chairman during 2018 and during such time, he received compensation pursuant to his Amended and Restated Employment Agreement. The term of Mr. Calderoni’s Amended and Restated Employment Agreement expired on December 31, 2018; however, Citrix will continue to provide Mr. Calderoni with health insurance coverage until age 65. Mr. Calderoni is not a Named Executive Officer in this year’s Proxy Statement, and he did not receive any additional compensation for his services as a director during 2018. Mr. Calderoni participated in the company’s charitable matching gift program and under such program the company made a $15,000 matching charitable donation. (2) These amounts represent the aggregate grant date fair value of the stock awards in the year in which the grant was made. The assumptions we used for calculating the grant date fair value are set forth in Note 8 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on February 15, 2019. These amounts do not represent the actual amounts paid to or realized by our directors for these awards during fiscal year 2018. (3) Consists solely of restricted stock units. Each continuing non-employee director is entitled to an annual grant consisting of a number of restricted stock units equaling $250,000 in value vesting in equal monthly installments over a 12 month period. Pursuant to our outside directors’ deferred compensation program for non-employee directors, each of Messrs. Cohn, Daleo, and Gopal elected to defer his 2018 annual restricted stock unit award. Please see the discussion above under the heading Outside Directors’ Deferred Compensation Program for Non-Employee Directors for additional details on our deferral program. (4) As of December 31, 2018, our non-employee directors held the following number of unvested restricted stock units: Ms. Caldwell, 1,369.74 restricted stock units; Mr. Cohn, 1,369.74 restricted stock units; Mr. Daleo, 1,369.74 restricted stock units; Mr. Demo, 1,369.74 restricted stock units; Dr. Gopal, 5,722.81 restricted stock units; Ms. Kilcoyne, 1,369.74 restricted stock units; and Mr. Sacripanti, 1,369.74 restricted stock units. (5) Reflects the value of restricted stock units issued as a result of the dividend paid on December 21, 2018 ($11,721 for Ms. Caldwell; $8,296 for Mr. Cohn; $13,054 for Mr. Daleo; $491 for Mr. Demo; $3,186 for Mr. Gopal; $491 for Ms. Kilcoyne; and $4,734 for Mr. Sacripanti) and the company’s 2018 matching charitable donations made under our matching charitable gift program that is available to our employees, executives and directors ($15,000 for Ms. Caldwell; $15,000 for Mr. Cohn; and $15,000 for Mr. Daleo). (6) Pursuant to our outside directors’ deferred compensation program for non-employee directors, Mr. Cohn elected to defer his cash fees in 2018. Mr. Cohn received 674 deferred stock units based on fees of $70,000 foregone, with no matching or premium given in calculating the number of stock units awarded. (7) Pursuant to our outside directors’ deferred compensation program for non-employee directors, Mr. Daleo elected to defer his cash fees in 2018. Mr. Daleo received 963 deferred stock units based on fees of $100,000 foregone, with no matching or premium given in calculating the number of stock units awarded. (8) Mr. Hogan was elected to the Board on December 10, 2018, and his fees were pro-rated for his service from December 10, 2018 through December 31, 2018. He did not receive an equity grant in 2018. In connection with his appointment, on January 2, 2019, Mr. Hogan received a pro-rated annual grant of restricted stock units valued at $140,334. (9) Ms. Kilcoyne was elected to the Board on June 6, 2018, and her fees were pro-rated for her service from June 6, 2018 through December 31, 2018. In connection with her appointment, Ms. Kilcoyne received a grant of a number of restricted stock units valued at $250,000. (10) Mr. Smith did not stand for re-election at our 2018 Annual Meeting and, thus, his service on the Board of Directors ended on June 6, 2018. His fees were prorated for his service from January 1, 2018 through June 6, 2018. He did not receive an annual equity grant in 2018. (11) Mr. Sullivan did not stand for re-election at our 2018 Annual Meeting and, thus, his service on the Board of Directors ended on June 6, 2018. His fees were prorated for his service from January 1, 2018 through June 6, 2018. He did not receive an annual equity grant in 2018. 2019 Proxy Statement 29 Part 3 Executive Management Our Leadership Team The following table sets forth our executive officers and the positions currently held by each such person with Citrix. The biographical descriptions below outline the relevant experience, qualifications, attributes and skills of each executive officer. Name Position David J. Henshall President, Chief Executive Officer and Director Jessica Soisson Mark J. Ferrer Interim Chief Financial Officer, Vice President, Corporate Controller and Chief Accounting Officer Executive Vice President and Chief Revenue Officer Antonio G. Gomes Executive Vice President, General Counsel and Secretary Paul J. Hough Executive Vice President and Chief Product Officer Donna N. Kimmel Executive Vice President and Chief People Officer Timothy A. Minahan Executive Vice President, Business Strategy and Chief Marketing Officer Jeroen M. van Rotterdam Executive Vice President of Engineering David J. Henshall Age: 50 Mr. Henshall has served as our President and Chief Executive Officer and as a member of our Board of Directors since July 2017. Mr. Henshall served as our Executive Vice President and Chief Financial Officer from September 2011 until July 2017 and as our Chief Operating Officer from February 2014 until July 2017. Mr. Henshall was appointed Acting Chief Executive Officer and President from October 2013 to February 2014. From January 2006 to September 2011, Mr. Henshall served as our Senior Vice President and Chief Financial Officer, and from April 2003 to January 2006, he served as our Vice President and Chief Financial Officer. Jessica Soisson Age: 45 Ms. Soisson has served as our Vice President, Corporate Controller since April 2016, as our Chief Accounting Officer since February 2017 and as our Interim Chief Financial Officer since April 2019. Previously, Ms. Soisson served as our Group Director of Worldwide Revenue Operations from July 2010 to April 2016. From May 2005 to July 2010, Ms. Soisson served as our Corporate Controller, Corporate Accounting. 30 Mark J. Ferrer Age: 59 Mr. Ferrer has served as our Executive Vice President and Chief Revenue Officer since October 2017. Prior to joining Citrix, Mr. Ferrer served as Chief Operating Officer and Executive Vice President of Global Customer Operations of SAP from August 2011 to September 2017, where he led the go-to market and customer engagement initiatives for one of the largest sales forces in the P r o x y technology industry. Antonio G. Gomes Age: 53 Mr. Gomes has served as our Executive Vice President, General Counsel, Secretary and Chief Legal Compliance Officer since April 2015. Mr. Gomes served as our Vice President and Deputy General Counsel, Secretary and Chief Legal Compliance Officer from February 2008 to March 2015. Prior to joining Citrix, Mr. Gomes was a Partner in the corporate practice of Goodwin Procter LLP, an international law firm, from February 2005 to January 2008. Paul J. Hough Age: 54 Mr. Hough has served as our Executive Vice President and Chief Product Officer since October 2016. Prior to joining Citrix, Mr. Hough served as Corporate Vice President, Developer Division at Microsoft from September 2012 to August 2015. Prior to that, Mr. Hough served in a variety of roles in the Microsoft Office Division driving vision and execution for the program management of Office suite culminating with the introduction of Office365. Mr. Hough holds 11 patents. Donna N. Kimmel Age: 56 Ms. Kimmel has served as our Executive Vice President and Chief People Officer since November 2015. Prior to joining Citrix, Ms. Kimmel served as Senior Vice President, Human Resources at GTECH and IGT from February 2014 to November 2015. Prior to that, Ms. Kimmel served as Senior Vice President and Chief Human Resources Officer of Sensata Technologies, a private-to-public spinoff from Texas Instruments from April 2006 to December 2012. 2019 Proxy Statement 31 Timothy A. Minahan Age: 49 Mr. Minahan has served as our Executive Vice President, Business Strategy and Chief Marketing Officer since July 2017. Mr. Minahan served as our Senior Vice President and Chief Marketing Officer from November 2015 to July 2017. Prior to joining Citrix, Mr. Minahan served as Senior Vice President and Chief Marketing Officer of SAP from June 2013 to July 2015, where he led their effort to transition to the cloud. Jeroen M. van Rotterdam Age: 54 Mr. van Rotterdam has served as Executive Vice President of Engineering since September 2016. Prior to joining Citrix, Mr. van Rotterdam served as Chief Technology Officer, Vice President and Distinguished Engineer for DELL EMC’s Enterprise Content Division from July 2007 to September 2016. Mr. van Rotterdam is the (co)author of 50+ patents in various stages with the US Patent Office. Our executive officers are appointed by the Board of Directors on an annual basis and serve until their successors have been duly qualified and appointed. 32 Part 4 Executive Compensation P r o x y Compensation Discussion and Analysis Purpose of Compensation Discussion and Analysis This Compensation Discussion and Analysis provides comprehensive information about the 2018 compensation for the following executive officers (who we refer to as our Named Executive Officers): ‰ David J. Henshall, President and Chief Executive Officer 2018 Highlights Accelerating to the Cloud Citrix is powering a better way to work with unified workspace, networking, and analytics solutions that help organizations unlock innovation, engage customers, and boost productivity, without sacrificing security. With Citrix, users get a seamless work experience and IT has a unified platform to secure, manage, and monitor diverse technologies in complex cloud environments. ‰ Andrew H. Del Matto, former Executive Vice President and As the world embraces cloud solutions, we continue to Chief Financial Officer, who joined Citrix effective accelerate our transformation, focusing on three strategic February 19, 2018. As announced on April 24, 2019, Mr. Del priorities. First, we are accelerating our transition to a Matto’s employment with Citrix will end on April 26, 2019. Jessica Soisson has been appointed Interim Chief Financial Officer, effective as of April 24, 2019. ‰ Mark M. Coyle, former Interim Chief Financial Officer. Mr. Coyle’s role as Interim Chief Financial Officer ended February 18, 2018. ‰ Antonio G. Gomes, Executive Vice President, General Counsel and Secretary ‰ Paul J. Hough, Executive Vice President and Chief Product Officer ‰ Donna N. Kimmel, Executive Vice President and Chief People Officer subscription-based business model with all our solutions offered as cloud services, giving organizations flexibility in how they work. Second, we are unifying our portfolio to simplify user and IT experience. Finally, we are prioritizing innovation, organically and through acquisitions, to meet the evolving needs of our customers and position Citrix for long- term sustainable growth. We believe execution of our strategic priorities will continue to drive results for our stakeholders. Exiting 2018, progress in our business transformation to a cloud-based subscription business was reflected in: ‰ Bookings: More than 42% of total product bookings were subscription-based in 2018, up from 28% in 2017 NAVIGATING THE COMPENSATION DISCUSSION AND ANALYSIS ‰ Deferred and unbilled revenue: Deferred and unbilled revenue, or future committed revenue, grew 12% year- 2018 Highlights Objectives and Elements of Our Executive Compensation Programs How Executive Pay Decisions are Made Components of Compensation Individual Executive Compensation Decisions Other Compensation Policies and Information over-year to $2.2 billion2 ‰ Reported revenue: Subscription revenue grew 45% year-over-year ‰ Mix within total subscription revenue: Software as a Service (SaaS) revenue accounted for 60% of total subscription revenue and 9% of total revenue in 2018 Page 33 35 37 41 51 54 2 Unbilled revenue primarily represents contractually committed future billings under our subscription agreements that have not been invoiced and, accordingly, are not recorded in accounts receivable and deferred revenue within our consolidated financial statements. 2019 Proxy Statement 33 • Announced additional $750 million accelerated share repurchase • Acquired internet traffic management company to optimize application performance in hybrid multi-cloud environments • Appointed Moira A. Kilcoyne to the Board of Directors • Paid first quarterly cash dividend of $0.35 per share • Completed plan to return $2 billion of capital to shareholders by the end of 2018 • Appointed Thomas E. Hogan to the Board of Directors February 2018 June 2018 December 2018 2018 Highlights May 2018 November 2018 January 2019 • Articulated 2022 goals, including revenue growth of at least 6% • Announced intention to pay first quarterly cash dividend in the fourth quarter of 2018 • Acquired micro application platform to accelerate intelligent workspace roadmap • Reported strong revenue and cash flow growth while exceeding subscription model transition expectations As illustrated in the graph below, our total shareholder return, (assuming reinvestment of dividends)(1) or TSR, over the five- year period ended on December 31, 2018 was approximately 105%. $250 $200 $150 $100 $50 $0 2013 2014 2015 2016 2017 2018 Citrix Systems, Inc. S&P 500 Index Nasdaq Index (1) (2) For purposes of this graph, the reinvestment of Citrix’s $0.35 per share cash dividend paid on December 21, 2018 was calculated using the closing price on Nasdaq on December 31, 2018. In January 2017, we completed the separation of our GoTo business and its subsequent merger with LogMeIn, Inc. For the purpose of this graph, the distribution of LogMeIn common stock to our shareholders in connection with such separation and merger 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. Shareholder Engagement Our Board of Directors welcomes and values the views and insights of our shareholders and conducts an annual outreach effort to connect with our larger shareholders in order to ensure open lines of communication. Further, our executives regularly engage with shareholders to better understand their perspective on a wide range of strategy, business and governance issues. In 2019, we reached out to our largest shareholders and proxy advisory firms to understand their perspectives and discuss our governance and executive compensation policies with a goal to use feedback received from such shareholders and proxy advisory firms to inform our governance and executive compensation decisions for 2019. As a result, we held meetings in early 2019 with institutional shareholders representing over 32% of Citrix’s outstanding common stock. We also met with proxy advisory firms during the same 34 period. These shareholder meetings covered a wide range of perspectives and to give them a voice in shaping our topics, including: our subscription model transition and governance and executive compensation policies and strategy, corporate governance practices such as board practices. P r o x y composition; our diversity and inclusion programs; cybersecurity and data privacy; succession planning and shareholder views regarding pay ratio disclosure and other matters of shareholder interest. Peter J. Sacripanti, the Chairperson of our Compensation Committee and a member of our Nominating and Corporate Governance Committee, and David J. Henshall, our President and Chief Executive Officer, participated in each meeting along with other senior executives of the company. Objectives and Elements of Our Executive Compensation Programs The compensation that we offer our executive officers is designed to reflect our principles of integrity, fairness and transparency – concepts that have continually underscored the design and delivery of compensation opportunities at Citrix. We believe our compensation programs should emphasize sustainable corporate growth through a Members of the leadership team, the Chairperson of our pay-for-performance orientation and a commitment to both Compensation Committee, and other members of our Board operational and organizational effectiveness. We also believe of Directors who participate in shareholder engagement that lavish perquisites, excessive severance and bonuses meetings regularly discuss shareholder feedback with unrelated to performance are inconsistent with our executive relevant Board committees and the full Board of Directors. In compensation principles. Furthermore, while the general, feedback from our shareholders regarding our establishment of variable cash compensation targets for our compensation programs and corporate governance practices executive officers necessarily involves judgment, the actual has been positive. The Board of Directors carefully considers payouts against those targets are based on pre-determined, the feedback from shareholders and has implemented their objective financial criteria reflective of our corporate feedback into our executive compensation and corporate operating plan. governance practices, including: ‰ ‰ ‰ increasing our focus on our diversity and inclusion initiatives, including diversity on our Board of Directors; implementing an operational performance metric for our 2018 and 2019 performance-based equity awards to align with our strategic initiatives; and increasing our focus on Corporate Social Responsibility (CSR) programs and initiatives with oversight by the Nominating and Corporate Governance Committee. For more than a decade, the objectives of our executive compensation programs have been to: ‰ provide competitive compensation that attracts, retains and engages high-performing talent; and ‰ align the long-term interests of executive officers with those of our shareholders by linking a significant portion of total cash and equity compensation to company performance and value creation. We believe it is important to continue to engage with our shareholders on a regular basis to understand their These objectives hold true today and guided us through the compensation decisions we made in 2018 as we accelerated our transformation to a cloud-based subscription business. 2019 Proxy Statement 35 Concept Implementation Link executive target compensation directly with company performance ‰ To provide direct alignment with returns to shareholders and incentives to drive long-term success, target compensation(1) for our Named Executive Officers was:(2) ‰ 56.5%, on average, performance-based(3) ‰ 89.9%, on average, at risk(4) Payout opportunity levels for our executive variable cash compensation plan should motivate performance that meets or exceeds our financial plan objectives while mitigating undue exposure to under- performance of these objectives ‰ In 2018, each executive officer’s variable cash compensation plan award was based 100% on the achievement of objective financial operating targets consistent with our corporate operating plan ‰ Based on 2018 company performance, variable cash compensation plan awards for 2018 paid 170.9% of the target amount ‰ Over the past ten years, our variable cash compensation plan awards have paid out between 58.8% and 170.9% and paid above 100% only half of the time Our executives should be incentivized to achieve financial goals that are directly tied to our multi-year business strategy and a driver of value creation for our shareholders ‰ At least 50% of annual equity awards to executive officers are awarded as performance-based restricted stock units; and for 2018, these annual awards vest based on subscription bookings as a percentage of total product and subscription bookings, which we believe is an indicator of the success of our business transformation Our compensation program should be tailored to the specific challenges facing the company and the company’s strategic initiatives at any given time ‰ Each year, our variable cash compensation plan and performance-based equity awards granted to executive officers are designed to fit our strategic and operational initiatives and reflect feedback we receive from our shareholders (1) Includes 2018 base salary and target variable cash compensation, both in effect at the end of 2018, and the grant date fair value of equity compensation granted in 2018. Does not include the performance-based awards granted in August 2017 for retention purposes that are included in the Summary Compensation Table and Grants of Plan-Based Awards Table as described herein. (2) Calculations excludes Mark M. Coyle, our former Interim Chief Financial Officer, who served in such role from July 10, 2017 through February 18, 2018 and Andrew H. Del Matto, our former Executive Vice President and Chief Financial Officer who joined Citrix on February 19, 2018 and, as announced on April 24, 2019, Mr. Del Matto’s employment with our company will end on April 26, 2019. (3) Performance-based compensation includes target variable cash compensation and performance-based restricted stock units granted in 2018. (4) At risk compensation includes target variable cash compensation and equity compensation granted in 2018. 36 Further, we engage in the following practices to ensure our executive compensation program achieves our objectives and is aligned with shareholders’ interests. P r o x y What We Do What We Don’t Do • Benchmark compensation practices of peers aligned with Citrix’s business and those with whom we regularly compete for executive, managerial and technical talent • Use equity awards for long-term incentive and retention • Design compensation programs to align at least 50% of Named Executive Officer’s annual target compensation with company performance • No discretion applied to measuring performance under our variable cash compensation plans or performance-based awards, and no bonuses or awards to make-up for forfeited awards • No re-pricing of stock options • No guaranteed bonuses • No hedging, short selling or pledging of equity awards • Conduct annual executive officer evaluations and self-evaluation process • No single-trigger or modified single-trigger change in control agreements • Provide for compensation clawbacks pursuant to an executive compensation recovery policy • Require significant share ownership by executive officers • No excessive perquisites The elements of compensation that we use to accomplish our assist with its oversight of executive compensation. In objectives include: ‰ base salary; ‰ variable cash compensation; ‰ equity-based long-term incentives; and ‰ benefits. addition, our legal, finance and human resources departments support the Compensation Committee in its work and act in accordance with the direction given to them to administer our compensation programs. During early 2018, the Compensation Committee held meetings with management, our human resources department and representatives of FW Cook to: As discussed further below, our equity-based long-term incentives currently include performance-based restricted ‰ review our compensation objectives; stock units and time-based restricted stock units, which we ‰ evaluate and develop our executive compensation peer refer to as PRSUs and TRSUs, respectively. group; How Executive Pay Decisions Are Made Compensation Process and Criteria EvaluationProcess The compensation packages for our executive officers are reviewed by our Compensation Committee and include an analysis of all elements of compensation separately and in the aggregate. In 2018, the Compensation Committee continued its engagement of FW Cook as its independent consultant to ‰ review the actual and target compensation of our executive officers and compensation packages for new executive officers for consistency with our objectives; ‰ analyze trends in executive compensation; ‰ assess our variable cash compensation structure, as well as the plan components and mechanics, to ensure an appropriate correlation between pay and performance with resulting compensation opportunities that balance returns to the business and our shareholders (this included, among 2019 Proxy Statement 37 other things, modeling amounts payable under proposed compensation targets for our executive officers in 2018, the plan structures against various scenarios); Compensation Committee considered many factors, including: ‰ assess our equity-based awards programs against our objectives of executive engagement, retention and alignment with shareholder interests; ‰ benchmark our executive cash compensation and equity- based awards programs; ‰ review recommendations for 2018 target direct compensation for appropriateness relative to our compensation objectives; and ‰ review retention incentive levels for our executive officers ‰ the performance and experience of each individual; ‰ the scope and strategic impact of the executive officer’s role; ‰ our past business and financial performance and future expectations; ‰ our long-term goals and strategies; ‰ difficulty in, and the cost of, replacing high performing leaders with in-demand skills; to support our strategic and operational initiatives. ‰ past compensation levels of each individual and of our At several meetings throughout the first quarter of 2018, the Compensation Committee reviewed proposed compensation programs and packages for our executive officers for 2018, executive officers as a group; ‰ relative levels of compensation among our executive officers; which were prepared by management working in conjunction ‰ the amount of each compensation component in the with our human resources department and FW Cook and context of the executive officer’s total target evaluated by our finance department for alignment with our compensation and other benefits; corporate operating plan. In February 2018, the Compensation Committee approved the proposed 2018 executive variable cash compensation plan, which we refer to as the variable cash compensation plan. In March 2018, the Compensation Committee approved individual compensation packages for our executive officers. In each case, the determinations of the Compensation Committee were reviewed with our full Board of Directors. Our Board of Directors approved the 2018 compensation of our President and Chief Executive Officer, upon the recommendation of the Compensation Committee. In evaluating our 2018 executive compensation program in the first quarter of 2018, the Compensation Committee considered several factors as discussed elsewhere in the Compensation Discussion and Analysis section of this Proxy Statement, including the shareholder advisory (“say-on-pay”) vote on our named executive officer compensation for 2016, which was approved by over 86% of the votes cast at our Annual Meeting of Shareholders held in June 2017, which was the most recent shareholder advisory vote on executive compensation available to the Compensation Committee at the time. EvaluationCriteria In determining the amount and mix of the target compensation elements, the Compensation Committee relies ‰ the retention levels, and holding power for each of our executive officers based on outstanding equity awards and recommended equity awards; ‰ ‰ for each executive officer, other than our President and Chief Executive Officer, the evaluation and recommendation of our President and Chief Executive Officer; for our President and Chief Executive Officer, the evaluation of our Board of Directors, a self-evaluation by our President and Chief Executive Officer and feedback from his direct reports; and ‰ the competitiveness of the compensation packages relative to the selected benchmarks as highlighted by the independent compensation consultant’s analysis. PresidentandChiefExecutiveOfficerEvaluation As discussed above, one of the factors the Compensation Committee considers when determining compensation targets for our President and Chief Executive Officer is the performance evaluation of our President and Chief Executive Officer. Our President and Chief Executive Officer completes a self-evaluation, and our Board of Directors and each of our President and Chief Executive Officer’s direct reports provides written feedback assessing our President and Chief Executive Officer’s contributions to our company. To align with our transition to a cloud-based subscription business upon its judgment regarding the scope and strategic impact of and the importance of fostering an innovative, collaborative each individual executive officer’s role. In setting final and inclusive culture, we refined the focus areas when 38 addressing our President and Chief Executive Officer’s to benchmark all components of compensation for all performance for 2017 to include the following: executive officer positions, including base salary, total target ‰ drives and ensures financial results; ‰ establishes near-term and long-term strategy with cash (base salary plus target variable cash compensation) and equity-based long-term incentive awards. The Compensation Committee also instructed FW Cook to review the public employee engagement that drives the needs of customers, disclosure by our peer companies concerning their executive P r o x y partners and shareholders; ‰ leads and inspires the organization, ensures Citrix employees live our core values, and drives a diverse and inclusive culture; ‰ builds effective external stakeholder relationships; and ‰ drives a collaborative relationship with our Board of Directors. The Compensation Committee considered our President and Chief Executive Officer’s evaluation results for 2017 in a holistic manner, in addition to other factors, including those listed under the section titled Evaluation Criteria, when setting our President and Chief Executive Officer’s amount and mix of target compensation for 2018. Role of the Independent Compensation Consultant Our Compensation Committee regularly reviews its executive compensation consulting needs and periodically invites compensation consulting firms to discuss these executive compensation needs with the Compensation Committee. This process enables the Compensation Committee to re-evaluate its compensation consultant and take a fresh look at our compensation practices and policies. Beginning in October 2016, the Compensation Committee invited five consulting firms to present to the Compensation Committee. The Compensation Committee evaluated the consulting firms on consulting competency, technical competency, industry knowledge, independence and fee structure, among other compensation practices and to review our internal compensation model and guidelines and compare them to our peer companies and to our actual compensation practices. During the first quarter of 2018, FW Cook attended meetings of the Compensation Committee, both with and without members of management present, and interacted with members of our human resources department with respect to its assessment of the compensation packages of our executive officers. Once FW Cook, working in conjunction with our human resources department, completed its preliminary analysis of our executive officer compensation, their analysis was presented to the Compensation Committee, which was discussed at the Compensation Committee’s March 2018 meeting. Similarly, the Compensation Committee provided FW Cook with instructions regarding compensation packages for new and promoted executive officers in 2018, as well as retention and incentive programs to support our strategic and operational initiatives. FW Cook was instructed to benchmark the relevant compensation components for these items and also advise the Compensation Committee on market practices in similar circumstances. FW Cook attended meetings of the Compensation Committee, with executive sessions being held at most meetings, and interacted with members of our human resources, legal and finance departments with respect to certain of these matters. Independence of Compensation Consultant things. As a result of this review, our Compensation In connection with FW Cook’s continued appointment in Committee appointed FW Cook in December 2016 as its 2018, the Compensation Committee evaluated FW Cook’s independent compensation consultant. independence and considered our policy on independence of the Compensation Committee’s consultant and other During 2018, FW Cook reported directly to the Compensation advisers, which is contained in our Corporate Governance Committee for purposes of advising the Committee on executive compensation matters. The Compensation Committee provided FW Cook with preliminary instructions regarding the goals of our compensation program and the parameters of the competitive review of executive officer total direct compensation packages to be conducted by FW Guidelines and the Compensation Committee’s charter. The Compensation Committee also considered the six independence factors as required by Nasdaq and the SEC, which are specified in the following table. After analyzing each of these factors indicated in the following table and our policy on independence relative to FW Cook’s engagement, Cook. FW Cook was instructed to review and provide guidance the Compensation Committee concluded that FW Cook is on our peer group development. FW Cook was then instructed independent. 2019 Proxy Statement 39 Independence Factor Information Considered Other services provided to Citrix by FW Cook None. Citrix fees received by FW Cook, as a percentage of FW Cook’s total revenue Modest and represents less than 0.5% of FW Cook’s total revenue. FW Cook’s policies and procedures that are designed to prevent conflicts of interest FW Cook maintains a number of internal mechanisms and policies designed to prevent conflicts of interest. Business or personal relationships between the Compensation Committee’s individual compensation adviser and members of the Compensation Committee Citrix stock owned by the Compensation Committee’s individual compensation adviser Business or personal relationships between the Compensation Committee’s individual compensation adviser, or FW Cook, with a Citrix executive officer The Compensation Committee’s individual compensation adviser has no direct business or personal relationships with any member of the Compensation Committee. FW Cook has provided consulting services to two companies that are affiliated with members of the Compensation Committee. The Compensation Committee’s individual compensation adviser does not directly own any Citrix stock, and the practice is prohibited under FW Cook’s policies. The Compensation Committee’s individual compensation adviser serves as an advisor to a Compensation Committee for a company where one of our executive officers sits on the Board. FW Cook has advised our Compensation Committee that it does not believe that this relationship presents a conflict. Our Use of Benchmarks and Peer Group Analysis Each year, we conduct a competitive analysis of the compensation paid to our executive officers and review the compensation practices of our peer group. As in prior years, compete. Based on this assessment, in the fourth quarter of 2017, our Compensation Committee approved the composition of our peer group for 2018 as set forth in the table below, which reflected no changes from our peer group for 2017. Our peer group includes: the analysis for 2018 measured our compensation ‰ U.S. publicly-traded companies that represent an opportunities for executive officers against information from appropriate range from a size and scope perspective; the following sources: ‰ innovative companies that operate in virtualization, cloud, ‰ independent, commercially available surveys on executive software-as-a-service and networking markets; and compensation within the software industry, tailored to reflect our relative market capitalization and revenue, including the Radford Global Technology Survey and the Radford Global Sales Survey; and ‰ companies with whom we compete for talent. We believe that our peer group continues to be aligned with our strategic vision and positions us to attract, retain and ‰ benchmark analysis prepared by FW Cook using engage high performing leaders. Moreover, our peer group, commercially available survey data and information from with its inclusion of a full array of companies with whom we publicly filed reports from a group of peer technology compete for talent, maintains Citrix’s position at companies, or the peer group, specifically identified by the approximately the group median across revenue and other Compensation Committee. key financial metrics we view as important in selecting a peer group. The table below lists the companies in our 2018 peer Each year, we evaluate the composition of our peer group and group indicating the peers with whom we regularly compete adjust the composition of our peer group for factors such as for executive, managerial and technical talent. We believe recent acquisitions of peer companies, new markets that we that our 2018 peer group is composed of innovative, have entered or changes in the technology market landscape. software-focused businesses operating on a global scale, like In 2017, with assistance from our independent compensation Citrix, and are the companies with whom we look to align our consultant, we again focused on developing a peer group to executive compensation practices. address the dynamics in the markets for talent in which we 40 Peer Group Comparison Revenues ($ in millions)(1) Net Income (loss) ($ in millions)(1) Approx. No. of Employees(1) Software-Focused Global Business Compete for Talent P r o x y 9,030.0 2,714.4 2,056.6 4,235.0 2,138.0 2,161.4 5,964.0 4,647.5 5,911.0 2,273.1 2,920.5 10,480.0 2,608.8 4,834.0 3,121.1 8,974.0 2,973.9 2,590.8 21,357 298.4 (566.9) 476.0 345.8 453.7 1,211.0 566.9 76.0 (147.9) 258.8 127.5 26.7 1,138.0 432.5 2,442.0 575.7 7,519 8,800 11,300 7,500 4,409 8,900 9,283 10,300 5,348 11,870 29,000 8,154 11,800 13,245 24,200 8,200 Trademarks are property of their respective owners. (1) Fiscal year end data presented in the table is for fiscal year ending in 2018, other than VMWare whose fiscal year end data is for its fiscal year ended on February 1, 2019. We use peer group benchmarks as one of several factors that Components of Compensation inform our judgment of appropriate compensation parameters for base salary, variable cash compensation and equity-based, long-term incentives. Our executive Commitment to Performance-Based Cash and Equity Compensation compensation decisions are made on a case-by-case basis, Our key executive compensation guiding principle continues and benchmarks are just one consideration within our holistic to be closely aligning the compensation of our executive approach to executive compensation. Based on a regular officers with the creation of long-term value for our review of our peer group, in October 2018 for 2019 compensation, our Compensation Committee after shareholders by tying a significant portion of total target direct compensation opportunity to our performance. The consultation with FW Cook determined to remove Adobe following pie charts show the 2018 total target direct Systems, Inc. and salesforce.com, inc., due to their large size compensation mix for our President and Chief Executive relative to Citrix, and to replace them with Dropbox, Inc. and Officer, Mr. Henshall, and the average total target direct Workday, Inc., which are industry- and size-appropriate. compensation mix for our other Named Executive Officers, other than Mr. Coyle, our former Interim Chief Financial 2019 Proxy Statement 41 Officer, who served as Interim Chief Financial Officer through 93% at risk as shown below. Also as shown below, February 18, 2018 and who was not included in the executive approximately 56% of the total target direct compensation of officer annual compensation planning process during 2018, our other Named Executive Officers, on average, was and Mr. Del Matto, our former Executive Vice President and performance-based and 89% was at risk. We consider Chief Financial Officer, who joined Citrix on February 19, 2018 compensation to be “at risk” if vesting is subject to and who’s employment with Citrix will end on April 26, 2019. achievement of performance targets or the value received is For 2018, our President and Chief Executive Officer’s total dependent on our stock price. target direct compensation was 59% performance-based and CEO Other NEOs Compensation Mix(1) 7% Base Salary 10% Variable Cash Compensation 11% Base Salary 10% Variable Cash Compensation 34% TRSUs 93% At-Risk Compensation 49% PRSUs 33% TRSUs 46% PRSUs 89% At-Risk Compensation 59% Performance-Based Compensation 56% Performance-Based Compensation (1) Total target direct compensation includes: (a) 2018 base salary in effect at the end of fiscal year 2018, (b) target 2018 annual variable cash compensation award in effect at the end of fiscal year 2018, and (c) grant date fair value of TRSUs and PRSUs granted during fiscal year 2018. Does not include the performance-based awards granted in August 2017 for retention purposes that are included in the Summary Compensation Table and Grants of Plan-Based Awards Table as described herein. Base Salary Salary levels for our executive officers are based on several factors, including individual performance and experience, the scope of the role and competitive ranges informed by compensation data reported for similar roles at companies in our peer group. In 2018, based on the objectives of our executive compensation program, our evaluation criteria for individual performance, Citrix’s overall performance and other factors described above, the base salaries of our Named Executive Officers were increased, effective April 1, 2018, unless otherwise indicated below. David J. Henshall President and Chief Executive Officer Andrew H. Del Matto(1) Former Executive Vice President and Chief Financial Officer Mark M. Coyle(2) Former Interim Chief Financial Officer Antonio G. Gomes Executive Vice President, General Counsel and Secretary Paul J. Hough(3) Executive Vice President and Chief Product Officer Donna N. Kimmel Executive Vice President and Chief People Officer 2017 Base Salary ($) 2018 Base Salary ($) Increase/ Decrease (%) 1,000,000 1,000,000 — 550,000 — — 520,000 410,000 (21.2) 470,000 500,000 430,000 450,000 435,000 450,000 6.4 4.7 3.4 (1) Mr. Del Matto joined Citrix effective February 19, 2018. As announced on April 24, 2019, Mr. Del Matto’s employment with Citrix will end on April 26, 2019. (2) Mr. Coyle’s salary was increased to $400,000 for 2017 and was further increased to $520,000 upon his appointment as Interim Chief Financial Officer on July 10, 2017, and he received such base salary through the end of February 2018 at which time his salary was restored to $400,000. Effective April 1, 2018, Mr. Coyle’s salary was increased to $410,000 and Mr. Coyle received such base salary through the end of 2018. 42 (3) Mr. Hough’s salary was increased from $365,000 to $430,000 effective July 1, 2017. Mr. Hough’s salary was increased from $430,000 to $450,000 effective April 1, 2018 and Mr. Hough received such base salary through the end of 2018. Variable Cash Compensation targets that focus our executive officers on the key metrics Our Compensation Committee oversees our variable cash compensation plan, with administrative tasks delegated to the leadership team. We believe that, for an annual cash compensation plan to be effective, it should be easy to understand. Accordingly, we use a limited number of financial underlying our strategic plan and align performance pay strictly with financial results. Over the past ten years, our variable cash compensation plan has paid between 58.8% and 170.9% and has paid above 100% five times, as shown below: P r o x y Achievement of Variable Cash Compensation 160.9% 170.9% 130.4% 103.6% 97.7% 92.1% 89.4% 58.8% 118.4% 80.7% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 As discussed below, we tailor our variable cash compensation Total Target Cash Compensation plan to our strategic and business objectives and our results vary based on achievement of those objectives. The Compensation Committee and our Board of Directors retain the discretion to decrease or increase payout of our variable cash compensation plan to account for extraordinary circumstances and to balance the interests of the plan participants with the interests of our shareholders. Over the ten years summarized in the graph above, we did not apply discretion to increase or decrease plan payouts, and no bonuses or awards were granted to make-up for forfeited awards. For 2018, our compensation evaluation processes during our annual cycle and in connection with any promotions or executive hires during the year resulted in target awards for our Named Executive Officers under our variable cash compensation plan that ranged from 75% to 150% of base salary, based on the factors discussed above. 2019 Proxy Statement 43 Our Named Executive Officer compensation packages had the following target cash compensation in 2018, expressed both as a percentage of base salary in dollars. The base salaries and target variable cash percentage of our Named Executive Officers included in the table below reflect the increased base salaries and any increases in variable cash percentage, effective April 1, 2018, unless otherwise indicated below: Name David J. Henshall(1) President and Chief Executive Officer Andrew H. Del Matto Former Executive Vice President and Chief Financial Officer Mark M. Coyle(2) Former Interim Chief Financial Officer Antonio G. Gomes(3) Executive Vice President, General Counsel and Secretary Paul J. Hough Executive Vice President and Chief Product Officer Donna N. Kimmel Executive Vice President and Chief People Officer Target Variable Cash As a % of Base Salary Target Variable Cash Amount ($) Base Salary ($) Total ($) 1,000,000 150% 1,500,000 2,500,000 550,000 90% 495,000 1,045,000 410,000 75% 307,500 717,500 500,000 90% 450,000 950,000 450,000 90% 405,000 855,000 450,000 75% 337,500 787,500 (1) Mr. Henshall’s variable cash compensation target was increased from 125% to 150% effective April 1, 2018. As a result, his total target variable cash compensation for 2018 was $1,438,356. (2) Mr. Coyle served as Interim Chief Financial Officer through February 18, 2018, and his base salary was adjusted from $400,000 to $520,000 and his variable cash compensation target increased from 50% to 90% of his base salary through the end of February 2018. For the period commencing on March 1, 2018 through March 31, 2018, Mr. Coyle’s base salary was restored to $400,000 and his variable cash compensation target decreased from 90% to 50%. Effective April 1, 2018, Mr. Coyle’s base salary was increased to $410,000 and his variable cash compensation target was increased from 50% to 75%. As a result, his total target variable cash compensation for 2018 was $324,314. (3) Mr. Gomes’ variable cash compensation target was increased from 75% to 90% effective April 1, 2018. As a result, his total target variable cash compensation for 2018 was $425,959. 2018 Variable Cash Compensation Plan reflected in our 2018 executive variable cash compensation For 2018, each executive officer’s variable cash compensation plan award was based 100% on the achievement of financial targets established by the Compensation Committee. For 2018, as discussed below, our Compensation Committee determined to align achievement with product and subscription bookings (excluding transition and trade-up bookings) and non-GAAP corporate operating margin. To ensure the integrity of our operating plan, and to safeguard shareholder value, the payout levels under our variable cash compensation plan are designed to motivate performance that meets or exceeds our financial plan objectives while mitigating undue exposure for under- performance of these objectives. Our program is designed to provide appropriately tailored incentives to our executive officers aligned to our strategy while driving our financial performance to benefit our shareholders when we are successful. For example, during 2018, we focused heavily on new growth to drive long-term value creation. This is plan, as further described below, by applying a 70% weighting to product and subscription bookings (excluding transition and trade-up bookings) to drive new growth, and with profitability reflected by a 30% weighting on non-GAAP corporate operating margin. Transitions and trade-up bookings are bookings for current customers that transition to Citrix cloud-based deployments. The Compensation Committee determined to exclude transition and trade-up bookings to focus on new customer growth. We rigorously test our plan design to ensure that the structure and possible outcomes do not create incentives for our executive officers to take unnecessary and excessive risks that would impact our long-term value. Specifically, we model potential award payouts generated by various performance attainment levels against corporate goals for product and subscription bookings and non-GAAP corporate operating margin. The financial targets established were consistent with our 2018 corporate operating plan, which was approved by our 44 P r o x y Board of Directors. Our variable cash compensation plan bookings. We continued to weigh non-GAAP corporate weighted the financial components as follows: operating margin for the remaining 30%, as we did in 2017. ‰ ‰ 70% for achieving product and subscription bookings (excluding transition and trade-up bookings) of $1.181 billion, as further detailed below; and 30% for achieving a non-GAAP corporate operating margin target of 30.2%. For 2018, we concentrated on product and subscription bookings as a metric with a 70% weighting in order to emphasize new product and subscription bookings growth consistent with our strategic plan to accelerate new Our variable cash compensation plan provided for a premium in the event of overachievement of targets, capped at 200% of the target payout amount, and a reduction in the event of underachievement of targets, depending on actual results. The following chart shows the maximum performance amounts that would have resulted in a payout of 200% of the target amount, the performance amounts that would have resulted in a payout of 100% of the target amount and the minimum performance requirements that needed to be met before any award could be earned. Minimum Performance (33% payout) Target Performance (100% payout) Maximum Performance (200% payout) Product and Subscription Bookings (excluding transition and trade-up bookings) $1.136 billion $1.181 billion $1.277 billion Non-GAAP Corporate Operating Margin % 27.9% 30.2% 32.9% The 2018 non-GAAP corporate operating margin target of 30.2% represents a decrease of 190 basis points from the ‰ Other companies going through similar business transitions to a subscription-based business face operating margin target of 32.1% in our 2017 variable cash the same and even greater near-term challenges in compensation plan and the maximum non-GAAP corporate maintaining operating margin targets. operating margin threshold of 32.9% represents a decrease of 80 basis points from the 33.7% maximum threshold set for fiscal year 2017. When determining the non-GAAP corporate operating margin target for 2018 as compared to 2017, the Compensation Committee considered the following: ‰ Our corporate operating plan for 2018, reflects the challenges of maintaining operating margin while ‰ The view that, while the targets were decreased, such targets required a higher level of performance rigor than was the case under our 2017 variable cash compensation plan as a result of our transition to a subscription-based business. When actual performance falls between the threshold and transitioning to a cloud-based subscription the target performance levels or between the target and business. maximum performance levels, payouts are calculated using a O Operating margin targets were projected to decrease as a result of anticipated investments for the delivery of cloud solutions and customer success that would support our transition to a subscription-based business consistent with our business transition strategy; and graduated slope to provide for the fair distribution of operating profit for overachievement and appropriate compensation reductions for underachievement, as applicable. Further, no incentive is payable under our variable cash compensation plan unless over 92% in the case of the operating margin or 96% in the case of the product and subscription bookings target, is achieved, and at such O More revenue is recognized upfront for threshold level an executive officer receives only 33% of his perpetual licenses than for subscriptions. As a or her target variable cash compensation allocated to such result, as seen in 2018, business transition has component. This payout structure recognizes that, in a the effect of muting current period reported business of this scale, while overachievement merits a revenue, as more of the value of the greater reward, any underachievement should be penalized. subscription booking is recognized as revenue in future periods. While this shift is reflected in Consistent with the way we calculate and publicly report our growth of future committed revenue — or, financial results, the financial targets and attainment levels deferred and unbilled revenue — it has a near- for corporate operating margin are adjusted to exclude term impact on operating margin. certain GAAP measurements in accordance with Citrix’s past practices, including amortization of intangible assets 2019 Proxy Statement 45 primarily related to business combinations, non-cash charges Determination of Awards associated with the expensing of equity-based compensation, non-cash charges related to amortization of debt discount, accruals related to patent litigation, charges related to restructuring programs, changes related to separation activities, the tax effects related to these items and any other items adjusted from our GAAP results in Citrix’s reported earnings as approved by our Audit Committee. In addition, references in this discussion to the non-GAAP corporate operating margin used for purposes of calculating variable cash compensation refer to our non-GAAP corporate operating margin prior to adjusting for the impact of the expense of our employee success sharing plan (a cash-based profit sharing plan in which our executive officers do not participate). Early in the first quarter of 2019, our finance team reviewed and approved the calculations of financial target attainment levels, which were based on and consistent with, our publicly reported financial results for 2018, and the 2018 award amounts payable to executive officers that were generated by members of our human resources department in accordance with the terms of our variable cash compensation plan. At meetings held in January 2019, our Compensation Committee approved (or, in the case of our President and Chief Executive Officer, recommended to the Board of Directors for approval) the payouts under our 2018 executive variable cash compensation plan, including approval of the award calculations shown in the table below. As in the past, we did not adjust the resulting payouts under our variable cash compensation plan for 2018. Goal Actual Attainment (Pre-Weighting) Weighting Payout Weighted Payout (amounts are approximate due to rounding) Product and Subscription Bookings (excluding transition and trade-up bookings) $1.181 billion $1.226 billion 103.74% Non-GAAP Corporate Operating Margin % 30.2% 32.6% 107.99% Total Weighted Payout % 163.29% 188.77% 70% 114.30% 30% 56.64% 170.94% The table below summarizes the payments approved by our compared to each executive officer’s target award for 2018. Compensation Committee (or, in the case of our President Each Named Executive Officer listed below received 170.94% and Chief Executive Officer, approved by the Board of of his or her target award for 2018, except as noted below in Directors) under our variable cash compensation plan the notes to the table. David J. Henshall(2) President and Chief Executive Officer Andrew H. Del Matto(3) Former Executive Vice President and Chief Financial Officer Mark M. Coyle(4) Former Interim Chief Financial Officer Antonio G. Gomes(5) Executive Vice President, General Counsel and Secretary Paul J. Hough Executive Vice President and Chief Product Officer Donna N. Kimmel Executive Vice President and Chief People Officer Target Variable Cash Compensation Award ($)(1) Actual Variable Cash Compensation Award Paid ($) Percentage of Target Awards Paid (%) 1,438,356 2,458,726 170.94 428,548 732,560 170.94 324,314 554,382 170.94 425,959 728,134 170.94 400,562 684,720 170.94 334,726 572,181 170.94 (1) All target variable cash compensation awards are pro-rated to reflect changes in compensation during 2018, and are based on the actual base salary paid to the Named Executive Officer in 2018. (2) Mr. Henshall’s target variable cash was increased from 125% to 150% effective April 1, 2018. (3) Mr. Del Matto’s target variable cash compensation and his actual variable cash compensation award are pro-rated to reflect less than a full year of service given that Mr. Del Matto did not join Citrix as Executive Vice President and Chief Financial Officer until February 19, 2018. (4) Mr. Coyle served as Interim Chief Financial Officer through February 18, 2018, and his base salary was adjusted from $400,000 to $520,000 and his variable cash compensation target increased from 50% to 90% of his base salary through February 2018. For the period commencing on March 1, 2018 through March 31, 2018, Mr. Coyle’s base salary was restored to $400,000 and his variable cash compensation target decreased from 90% to 50%. Effective April 1, 2018, Mr. Coyle’s base salary was increased to $410,000 and his variable cash compensation target was increased from 50% to 75%. As a result, his total target variable cash compensation for 2018 was $324,314. (5) Mr. Gomes’ target variable cash was increased from 75% to 90% effective April 1, 2018. 46 P r o x y Equity-Based Long-term Incentives value of vested and unvested equity-based awards held by The purpose of our equity-based long-term incentives is to attract, retain and engage high performing leaders, further align employee and shareholder interests, and continue to closely link executive compensation with company performance. Our equity-based long-term incentive program is an essential component of the total compensation package offered to our executive officers, reflecting the importance that we place on motivating and rewarding superior results with long-term and performance-based incentives. Approach to Equity-Based Awards Since 2012, our annual equity grant program has consisted entirely of restricted stock units, except restricted stock awards granted to our former Executive Chairman in 2015 the executive officers relative to each other and to our employees as a whole, previous grants of equity-based awards to our executive officers, our overhang of equity- based awards and targeted burn rates for equity-based awards and the vesting schedules of previously granted equity-based awards, as well as the various other factors described above. In addition, our Compensation Committee considers the market competitive value for an executive officer’s role, the relative level of impact the executive officer has or is expected to have on company performance, and the current and prospective performance of the executive officer in his or her role. For the equity grant levels for promotion and new-hire awards, the Compensation Committee also considers market practices for such awards and the difficulty in recruiting high performing leaders with in-demand skills. (who is now our Chairman of the Board of Directors) and our While our Compensation Committee is aware of the former President and Chief Executive Officer in 2016. Our accounting costs of equity-based awards, that is only one of portfolio of equity awards granted to executive officers on an several factors in determining individual equity-based annual basis has been a mix of just two equity elements, half awards. of which have been tied to long-term performance. Specifically, from 2012 to 2018, our equity-based long-term incentive program was targeted to consist of at least 50% performance-based restricted stock units tied to achievement of total shareholder return metrics. Beginning in 2018, based on a review of our equity compensation program and feedback from our shareholders over the past two years, and with the assistance and guidance of its independent compensation consultant, our Compensation Committee implemented an operating metric for our 2018 performance- based restricted stock units to incentivize our executives to achieve a financial goal that is directly tied to our multi-year business transition that is described further below. The exclusive use of restricted stock units granted to our executive officers furthers our goals of reducing dilution, burn rate and overhang by reducing the number of shares of our common stock subject to equity-based awards while continuing to provide incentive for our high performers to Adjustments to Outstanding Equity Awards in Connection with our Quarterly Dividend In connection with our payment of a cash dividend on December 21, 2018, we adjusted the number of our outstanding restricted stock units to provide each holder thereof with additional restricted stock units reflecting the value of such dividend. These additional restricted stock units are subject to the same conditions regarding vesting and settlement as the underlying restricted stock units to which they relate. The value of these additional restricted stock units is reflected in the “All Other Compensation” column of the Summary Compensation Table, and the number of such additional restricted stock units is reflected in the Outstanding Equity Awards at Fiscal Year End 2018 Table. Upon the final vesting date, any fractional unit will be rounded up to a whole share. Restricted Stock Unit Awards remain with us and continue to perform at a high level. Also, Pursuant to the Amended and Restated 2014 Plan, we may the inclusion of performance-based restricted stock units grant executive officers various types of awards, including based on the achievement of an operational metric that is market performance-based restricted stock units, directly tied to our multi-year business transition is designed performance-based restricted stock units, and time-based to drive success of our transition and be a driver of value restricted stock units. Once vested, each restricted stock unit creation for our shareholders. represents the right to receive one share of our common stock. Equity-Based Award Grant Levels 2018Performance-BasedAwards When establishing equity grant levels for our executive When designing the 2018 performance-based awards to be officers, our Compensation Committee considers the existing granted to our executive officers in March 2018, our 2019 Proxy Statement 47 Compensation Committee considered the following performance-based restricted stock units tied to this objectives: ‰ providing an incentive that has clear performance measures and aligned reward; operational metric to further incentivize our executives to achieve this financial goal that is directly tied to the multi- year business transition strategy, which we reviewed with our shareholders in October 2017 and January 2018. The ‰ directly aligning performance-based awards to our multi- acceleration of our new business mix significantly towards year business transition strategy to a cloud-based ratable subscriptions (that is, subscription bookings as a subscription business; and ‰ responding to shareholder feedback. To achieve the objectives described above, our Compensation Committee tied vesting of the 2018 performance-based restricted stock units awarded in March 2018 to subscription bookings as a percentage of total product and subscription bookings (excluding transition and trade-up bookings) measured from January 1, 2020 to December 31, 2020. Our Compensation Committee determined to award percentage of total product and subscription bookings) is expected to be a key indicator of the success of our business transition over the three-year performance period and a driver of value creation for our shareholders. The payout curve for the portion of these performance-based awards that may be earned based on achievement of subscription bookings as a percentage of total product and subscription bookings is as follows (utilizing straight-line interpolation between percentages): Subscription Bookings as a Percentage of Total Product and Subscription Bookings(1) Percentage of Target Award Vested Threshold (50% of Target) Target Maximum (150% of Target) None 100% 200% (1) Disclosing subscription bookings as a percentage of total product and subscription bookings (excluding transition and trade-up bookings) targets for future periods would cause competitive harm without adding meaningfully to the understanding of our business. This internal metric is primarily used to assess our transition to a cloud-based subscription business and excludes transitions and trade-up bookings, which is a different metric than what we publicly disclose. Further, disclosing such metrics would reveal specifics regarding our transition to a cloud-based subscription business that a competitor may use against us. However, like performance targets for all metrics, the Compensation Committee set performance goals at definitive, rigorous and objective levels so as to require significant effort and achievement by our executive team. Specifically, the Compensation Committee set the payout curve for these performance-based awards to provide a maximum payout for subscription bookings as a percentage of product bookings that would exceed our internal operating plan. The company intends to disclose such metrics at the end of the performance period once performance has been determined. No restricted stock units will vest if subscription bookings as underlying these awards cliff vest after a three-year period a percentage of total product and subscription bookings is based on the performance of Citrix during the last year of less than the threshold. For this purpose, “subscription such performance period. bookings as a percentage of total product and subscription bookings” is Citrix’s total term, cloud (SaaS), hybrid-cloud and Our executive officers received performance-based Citrix Service Provider product subscription bookings or any restricted stock units having this performance metric in other product bookings from subscription offerings, including March 2018 as part of our annual grant cycle. subscription renewals, expansions, extensions, upgrades, updates, initial and add-on or multiple year terms of any of the foregoing, but excluding transition and trade-up bookings, over Citrix’s total product and subscription bookings, excluding transition and trade-up bookings, in each case excluding ShareFile SMB bookings, measured as of the last fiscal year of the performance period (fiscal year 2020). These performance-based awards are intended to ensure that a meaningful share of our executives’ equity compensation is contingent upon a successful transition to a cloud-based subscription business. The restricted stock units RetentionPerformance-BasedAwardsGrantedin2017 withPerformanceMetricsEstablishedin2018 As discussed in our proxy statement for our 2018 Annual Meeting, in August 2017, Mr. Henshall was awarded performance-based restricted stock units in connection with his promotion to President and Chief Executive Officer, and certain of our other executive officers were awarded retention performance-based restricted stock units to promote retention of our leadership team and drive the achievement of company operational goals during our business transition. In determining the level of performance-based awards for 48 P r o x y Mr. Henshall, with the assistance of its independent The Compensation Committee approved the awards effective compensation consultant, the Compensation Committee as of August 1, 2017; however, the threshold, target and reviewed the value of Mr. Henshall’s current outstanding maximums for the relevant performance metrics were not equity awards and market compensation data for Chief established until the first quarter of 2018 in connection with Executive Officers and, especially, internally promoted Chief the approval of a multi-year operating plan by our Board of Executive Officers. To closely align performance metrics with Directors. The grant date fair value of these performance- company strategy during our business transition, one-half of based restricted stock units was not determined until the these performance-based awards are tied to achievement of performance goals were established in 2018; and, therefore, non-GAAP corporate operating margin and the other half are these awards are included in this year’s Summary tied to achievement of subscription bookings as a percentage Compensation Table and Grants of Plan Based Awards Table of total product and subscription bookings, in each case during below. the last year of the performance period. The Compensation Committee chose subscription bookings as a percentage of The payout curve for the portion of these performance-based total product and subscription bookings and non-GAAP awards that may be earned based on achievement of Citrix corporate operating margin to help focus our executive non-GAAP corporate operating margin is as follows (utilizing officers on our strategy to accelerate our transition to a cloud- straight-line interpolation between percentages): based subscription business, while maintaining profitability. Non-GAAP Corporate Operating Margin(1) Percentage of Target Award Vested Threshold (84% of Target) Target 50% 100% for Mr. Henshall / 150% for Other Executives At or above Maximum (116% of Target) 200% (1) Disclosing non-GAAP corporate operating margin targets for future periods would cause competitive harm without adding meaningfully to the understanding of our business. Like performance targets for all metrics, the Compensation Committee set performance goals at definitive, rigorous and objective levels so as to require significant effort and achievement by our executive team. Specifically, the Compensation Committee set the payout curve for these performance-based awards to provide a maximum payout for non-GAAP corporate operating margin that would exceed our internal operating plan. The company intends to disclose such metrics at the end of the performance period once performance has been determined. No restricted stock units will vest if the non-GAAP corporate related to restructuring programs, charges related to operating margin is less than the threshold. For this purpose, separation activities, the tax effects related to these items “non-GAAP corporate operating margin” is Citrix’s non-GAAP and any other items adjusted from the GAAP results in Citrix’s corporate operating margin measured during the period from reported earnings as approved by our Audit Committee. January 1, 2019 to December 31, 2019, excluding certain GAAP measurements in accordance with Citrix’s past The payout curve for the portion of these performance-based practices, including amortization of intangible assets awards that may be earned based on achievement of primarily related to business combinations, non-cash charges subscription bookings as a percentage of total product and associated with the expensing of equity-based subscription bookings is as follows (utilizing straight-line compensation, non-cash charges related to amortization of interpolation between percentages): debt discount, accruals related to patent litigation, charges Subscription Bookings as a Percentage of Total Product and Subscription Bookings(1) Threshold (56% of Target) Target Percentage of Target Award Vested 50% 100% for Mr. Henshall / 150% for Other Executives At or above Maximum (144% of Target) 200% (1) As discussed above under the heading “2018 Performance Based Awards,” disclosing such metrics would reveal specifics regarding our transition to a cloud-based subscription business that a competitor may use against us. The Compensation Committee set performance goals at definitive, rigorous and objective levels so as to require significant effort and achievement in order to be attained by our executive team. Specifically, the Compensation Committee set the payout curve for these performance-based awards to provide a maximum payout for subscription bookings as a percentage of product bookings that would exceed our internal operating plan. The company intends to disclose such metrics at the end of the performance period once performance has been determined. 2019 Proxy Statement 49 No restricted stock units will vest if subscription bookings as Time-BasedAwards a percentage of total product and subscription bookings is less than the threshold. For this purpose, “subscription bookings as a percentage of total product and subscription bookings” is Citrix’s total term, cloud (SaaS), hybrid-cloud and Citrix Service Provider product subscription bookings or any other product bookings from subscription offerings, including subscription renewals, expansions, extensions, upgrades, updates, initial and add-on or multiple year terms of any of the foregoing, but excluding transition and trade-up bookings, over Citrix’s total product and subscription bookings, excluding transition and trade-up bookings, in each case excluding ShareFile SMB bookings, measured for fiscal year 2019. Our Compensation Committee decided to provide for 150% payout for target achievement of these awards for executive officers, other than our President and Chief Executive Officer who has a 100% payout for target achievement, to create a significant retention mechanism for the company’s key executives during a time of leadership and strategy transition that is aligned with the company’s strategy of accelerating its transformation into a cloud-based subscription business while maintaining a commitment to operational efficiency. In the judgment of the Compensation Committee, the loss of the company’s key executives during such a time, and the impact that such attrition could have on value creation, significantly exceeds the value of the potential payout at target achievement. Consistent with our past practice, in March 2018, we also entered into restricted stock unit agreements with our executive officers, for time-based restricted stock unit awards that were not subject to performance criteria and that vest over three years, with one-third of the units vesting on the first, second and third anniversaries of the date of the award agreement. These restricted stock unit awards represented 50% of the equity grants awarded to our executive officers who participated in our annual equity grant program. Our Compensation Committee also granted time-based restricted stock units to Mr. Del Matto as his new-hire equity award, with one-third of the units in each case vesting on the first, second and third anniversaries of the date of the award agreement. Vesting of these time-based restricted stock units is subject to the continued employment of the executive officer with Citrix through the applicable vesting date. The equity-based awards indicated in the table below reflect an equity portfolio mix with respect to our annual equity award grants that is 50% performance-based and 50% time- based restricted stock units. Mr. Del Matto also received a new hire time-based restricted stock unit award upon joining Citrix on February 19, 2018. His new-hire award is reflected in the table below. For further details regarding these equity awards, see Individual Executive Compensation Decisions beginning on page 51. The following table summarizes our 2018 equity-based awards to our Named Executive Officers: David J. Henshall President and Chief Executive Officer Andrew H. Del Matto Former Executive Vice President and Chief Financial Officer Mark M. Coyle Former Interim Chief Financial Officer Antonio G. Gomes Executive Vice President, General Counsel and Secretary Paul J. Hough Executive Vice President and Chief Product Officer Donna N. Kimmel Executive Vice President and Chief People Officer Target Performance- Based Restricted Stock Unit Awards (#) Time-Based Restricted Stock Unit Awards (#) 55,555 11,111 6,944 15,278 15,278 13,889 55,556 60,665(1) 6,945 15,278 15,278 13,889 (1) Reflects Mr. Del Matto’s new-hire time-based equity award (49,554) and his annual time-based equity award (11,111). 50 Benefits Our executive officers participate in our broad-based employee benefit plans on the same terms as eligible, non-executive employees, subject to any legal limits on the concert with the leadership team and our Board of Directors, our President and Chief Executive Officer formulates current and long-term strategic plans and objectives and is our chief spokesperson to our employees, customers, partners and P r o x y amounts that may be contributed or paid by executive officers shareholders. under these plans. We offer a stock purchase plan, under which our employees may purchase shares of our common stock at a 15% discount from the fair market value of our common stock on the first or last business day of the purchase period, whichever is lower (determined by reference to the closing price of our common stock on each such date). Further, we offer a 401(k) plan that includes a Roth feature. The 401(k) allows our employees to invest in a wide array of funds and provides for matching contributions by our company. We also maintain insurance and other benefit plans for our employees. Our executive officers receive higher life, accidental death and dismemberment and disability insurance benefits than other employees, which reflects industry standards and their relative base salary levels. Our executive officers also receive reimbursement for annual health physicals, are eligible for relocation assistance upon joining our company and have access to financial counseling and tax services benefits. Our executive officers are eligible to participate in our charitable matching gifts program pursuant to which we match donations made to qualifying tax-exempt 501(c)(3) charitable and non-governmental organizations on a one-for-one basis. We match up to 15,000 USD per year for executives under this program. During 2018, we did not offer any non-qualified deferred compensation plans or supplemental retirement Based on a recommendation of the Compensation Committee, our Board of Directors determines compensation for our President and Chief Executive Officer using the same factors it uses for other executive officers, placing less emphasis on base salary and, instead, driving greater performance-based alignment through equity-based long-term and variable cash compensation. In assessing the compensation paid to our President and Chief Executive Officer, the Compensation Committee relies on the advice of its independent compensation consultant, information from selected benchmarks and its judgment with respect to the factors described above and specific factors described below. Mr. Henshall’s employment agreement provides for a minimum base salary of $1,000,000, which is subject to annual review and may be increased but not decreased. In addition, Mr. Henshall is entitled to participate in our executive variable cash compensation program at an annual target variable cash compensation payment of 125% of his base salary and a maximum variable cash compensation payment of 200% of his base salary, with the actual amount to be determined in the discretion of the Compensation Committee based on Citrix’s performance and the individual performance of Mr. Henshall. plans to our executive officers. During 2018, we provided In March 2018, as part of our annual compensation review relocation benefits to our former Executive Vice President and process, our Board of Directors met in executive session to Chief Financial Officer as described below. For more review Mr. Henshall’s annual compensation, including the information, please refer to the Summary Compensation Table minimum compensation provided for by his employment and the Nonqualified Deferred Compensation Table below. We agreement, and to assess his performance for 2017. Our have always limited the perquisites that are generally made Board of Directors considered Mr. Henshall’s performance available to our executive officers. Individual Executive Compensation Decisions Next, we discuss how we apply the policies and practices described above and the resulting compensation paid or awarded to each of our Named Executive Officers for the year ended December 31, 2018 as set forth in the Summary Compensation Table and the Grants of Plan-Based Awards Table. President and Chief Executive Officer Compensation ChiefExecutiveOfficerCompensation and the demands on, and responsibilities of, a leader of a global organization of the scale and complexity of Citrix, especially given that our company is going through a significant transition. Further, our Compensation Committee, with assistance from its independent compensation consultant, conducted a comprehensive review of compensation for chief executive officers at our peer companies. As a result of that review, our Board of Directors approved a 2018 direct target compensation package for Mr. Henshall that was approximately 59% performance-based. Target Our President and Chief Executive Officer is responsible for direct compensation includes base salary, target variable overseeing all of our corporate functions, product strategy cash compensation and the grant date fair value of time- and development, go-to-market activities and the attainment based restricted stock units and performance-based of our strategic, operational and financial goals. Working in restricted stock units. This percentage of performance-based 2019 Proxy Statement 51 target direct compensation was consistent with the average FormerInterimChiefFinancialOfficer pay mix for chief executive officers in our peer group. Our Board of Directors maintained Mr. Henshall’s base salary of $1,000,000 for 2018 (as a result, Mr. Henshall received base salary compensation of $1,000,000 in 2018). Also, effective April 1, 2018, the Board increased Mr. Henshall’s target variable cash compensation from 125% of his base salary to 150% of his base salary, which resulted in actual variable cash compensation for 2018 of $2,458,726. In addition, Mr. Henshall was granted 55,556 time-based restricted stock units and 55,555 performance-based restricted stock units, which vest based on subscription bookings as a percentage of total product and subscription bookings as discussed above. Our Board of Directors approved Mr. Henshall’s 2018 compensation package, including his equity awards, upon the recommendation of the Compensation Committee. Other Named Executive Officers Cash Compensation – Base Salary and Variable Cash Compensation FormerExecutiveVicePresidentandChiefFinancial Officer In July 2017, our Board of Directors appointed Mr. Coyle, our Senior Vice President of Finance at the time, as Interim Chief Financial Officer. In connection with his appointment as Interim Chief Financial Officer, the Compensation Committee approved an increase in Mr. Coyle’s annual base salary from $400,000 to $520,000. Mr. Coyle served as Interim Chief Financial Officer through February 18, 2018 and his annual base salary returned to $400,000 on March 1, 2018. Effective April 1, 2018, Mr. Coyle’s annual base salary was increased from $400,000 to $410,000. As a result, Mr. Coyle received base salary compensation of $427,500 in 2018. Our Compensation Committee also approved an increase in his target annual variable cash compensation opportunity from 50% to 90% of his annual base salary during the period of time he served as Interim Chief Financial Officer. In February 2018, his target annual variable cash compensation opportunity returned to 50% of his base salary and effective April 1, 2018, it was increased to 75% of his base salary. For 2018, Mr. Coyle was awarded variable cash compensation of $554,382 in accordance with our 2018 executive variable cash compensation plan. ExecutiveVicePresident,GeneralCounselandSecretary Mr. Del Matto joined Citrix on February 19, 2018. As As our Executive Vice President, General Counsel and announced on April 24, 2019, Mr. Del Matto’s employment Secretary, Mr. Gomes is responsible for overseeing our global with Citrix will end on April 26, 2019. As former Chief legal team. Financial Officer, Mr. Del Matto was responsible for all of our financial and capital management strategies, budgeting and Effective April 1, 2018, Mr. Gomes’ annual base salary was planning, financial accounting, tax and treasury, and investor increased from $470,000 to $500,000. As a result, Mr. Gomes relations, as well as our information technology function. received base salary compensation of $492,500 in 2018. Effective April 1, 2018, our Compensation Committee also Mr. Del Matto’s initial annual base salary was set at $550,000, approved an increase in Mr. Gomes’ target variable cash and he received base salary compensation of $478,704 in compensation opportunity from 75% to 90% of his base 2018. Mr. Del Matto’s 2018 target variable cash compensation salary. For 2018, Mr. Gomes was awarded variable cash award as a percentage of base salary was set at 90% of his compensation of $728,134 in accordance with our 2018 base salary. For 2018, Mr. Del Matto was awarded variable executive variable cash compensation plan. cash compensation of $732,560 in accordance with our 2018 executive variable cash compensation plan. In connection with joining our company, we provided assistance to Mr. Del Matto with respect to the costs of his relocation from the State of California to our corporate headquarters in Florida in the amount of $325,000. This assistance included the reimbursement of certain related moving expenses associated with his relocation. This assistance was not subject to a gross-up. ExecutiveVicePresidentandChiefProductOfficer As Executive Vice President and Chief Product Officer, Mr. Hough is responsible for providing direction for the current and future technology direction, including our mergers and acquisition strategy, and delivery alignment, innovation and growth across the product portfolio. Effective April 1, 2018, Mr. Hough’s annual base salary was increased from $430,000 to $450,000. As a result, Mr. Hough received base salary compensation of $445,000 in 2018. Mr. Hough’s target variable cash compensation award as a 52 percentage of base salary was set at 90% of his base salary. Effective April 1, 2018, Ms. Kimmel’s annual base salary was For 2018, Mr. Hough was awarded variable cash increased from $435,000 to $450,000. As a result, compensation of $684,720, in accordance with our 2018 Ms. Kimmel received base salary compensation of $446,250 P r o x y executive variable cash compensation plan. In July 2017, the in 2018. Ms. Kimmel’s 2018 target variable cash Compensation Committee approved a $15,000 per month compensation award as a percentage of base salary was set stipend for up to three years to cover Mr. Hough’s housing, at 75% of her base salary. For 2018, Ms. Kimmel was awarded commuting and other related costs. For 2018, Mr. Hough variable cash compensation of $572,181 in accordance with received a monthly stipend totaling $180,000. our 2018 executive variable cash compensation plan. ExecutiveVicePresidentandChiefPeopleOfficer As Executive Vice President and Chief People Officer, Other Named Executive Officers Equity – Long-term Incentive Compensation Ms. Kimmel is responsible for all aspects of identifying, In March 2018, certain of our Named Executive Officers were fostering and developing top talent as well as overseeing awarded grants of performance-based restricted stock units organizational strategies for Citrix. at the following target award levels. Attainment levels will be determined within 60 days of the end of the performance period (i.e., within 60 days of December 31, 2020): Name and Principal Position Andrew H. Del Matto Former Executive Vice President and Chief Financial Officer Mark M. Coyle Former Interim Chief Financial Officer Antonio G. Gomes Executive Vice President, General Counsel and Secretary Paul J. Hough Executive Vice President and Chief Product Officer Donna N. Kimmel Executive Vice President and Chief People Officer Target Performance- Based Restricted Stock Unit Awards 11,111 6,944 15,278 15,278 13,889 In March 2018, certain of our Named Executive Officers were awarded time-based restricted stock units as part of our annual equity grant program, which vest in three equal annual installments, as follows: Name and Principal Position Andrew H. Del Matto(1) Former Executive Vice President and Chief Financial Officer Mark M. Coyle Former Interim Chief Financial Officer Antonio G. Gomes Executive Vice President, General Counsel and Secretary Paul J. Hough Executive Vice President and Chief Product Officer Donna N. Kimmel Executive Vice President and Chief People Officer Time- Based Restricted Stock Unit Awards 60,665 6,945 15,278 15,278 13,889 (1) Upon joining Citrix on February 19, 2018, Mr. Del Matto was granted a new-hire equity award with a value of $5,000,000, consisting of 49,554 time-based restricted stock units that vest over three years, with one-third of the units vesting on the first, second and third anniversaries of the date of the award agreement. Mr. Del Matto was also granted an annual grant of 11,111 time-based restricted stock unit awards granted on March 29, 2018. 2019 Proxy Statement 53 Other Compensation Policies and Information Executive Agreements Executive Stock Ownership Guidelines In January 2017, we entered into executive agreements with To align the interests of our executive officers with the certain members of our senior leadership team, including interests of our shareholders, our Board of Directors has Mr. Coyle, Mr. Gomes and Ms. Kimmel, that extended certain established stock ownership guidelines for our executive severance benefits under their existing incentive agreements, officers. Under our current guidelines, our executive officers which expired in accordance with their terms on January 25, are expected to own shares of our common stock equal in 2017. The executive agreements also superseded the value to a multiple of base salary as indicated in the table executive’s existing change in control agreements by below. consolidating the benefits under those agreements into a single agreement with Citrix. We subsequently entered into an executive agreement with Mr. Hough in September 2017 Position Stock Ownership Value (Multiple of Base Salary) when he was hired as Senior Vice President and Chief Product President and Chief Executive Officer, and Mr. Del Matto in February 2018 when he was hired as Executive Vice President and Chief Financial Officer of Citrix. The Compensation Committee believes that it is in the best interests of our shareholders to extend these benefits to our executives to reinforce and encourage retention and focus of shareholder value creation without distraction. Mr. Henshall has an individual employment Officer Other Executive Officers who report to the President and Chief Executive Officer 6 times 4 times To comply with these guidelines, each executive officer is required to retain an amount equal to one-third (1/3) of the agreement with Citrix that provides for similar benefits in the net shares (those shares remaining after shares are deducted event of the termination of his employment under certain circumstances. See Potential Payments upon Termination or Change in Control beginning on page 64 for further information. Equity Award Grant Policy or withheld to cover any exercise price or tax obligations arising in connection with the exercise, vesting or payment of an equity award) received as a result of the exercise, vesting or payment of any equity-based award granted to the executive officer by the company unless such executive officer holds the applicable guideline value of shares. Each of our executive officers is expected to hold such shares for so In 2007, the Compensation Committee adopted the Citrix long as he or she is one of our executive officers. Failure to Equity Award Grant Policy, or the Awards Policy. The Awards satisfy the stock ownership guidelines when required to do so Policy enhances our controls with respect to grants of equity will result in suspension of an executive officer’s ability to sell awards by establishing procedures for approving and shares of our common stock until the requisite ownership pre-determining the dates on which awards will be made. levels are reached. Our executive officers may accumulate Pursuant to the Awards Policy, unless a different date is set shares of our common stock through stock option exercises, by our Board of Directors or the Compensation Committee, settlement of restricted stock units or other awards and open annual grants of full-value awards are made on the last market purchases made in compliance with applicable business day in March on or prior to March 30th. Beginning in securities laws, our policies or any other equity plans we may 2019, annual grants will be made on or about April 1 or the adopt from time to time. Shares of our common stock first trading day thereafter. The Awards Policy also beneficially owned (unless the executive officer disclaims establishes fixed grant dates for new hire and performance beneficial ownership of the shares) and vested restricted grants. An employee’s eligibility to receive an award as of a stock (including vested but deferred restricted stock units) particular, fixed grant date is subject to the time of the month count towards the satisfaction of the stock ownership in which the employee’s employment begins or promotion is guidelines. Given the nature and expected duration of his role, effective or, if later, the date on which all documentation our Board of Directors determined that Mr. Calderoni, as our necessary for the approval of the grant is obtained. A copy of then Executive Chairman, would be subject to our director our Awards Policy is available on the Corporate Governance ownership guidelines and not our executive stock ownership section of our website at http://www.citrix.com/about/ guidelines. Shares owned by executive officers are valued at governance.html under Governance Documents. the current market value. 54 P r o x y Policy Concerning Hedging And Pledging Transactions (that is, upon the termination of the executive officer’s employment without cause or for good reason following a Certain transactions in Citrix securities (such as buying or selling puts, calls or other derivative securities of Citrix securities, or any derivative securities that provide the economic equivalent of ownership of any Citrix securities or change in control). Policy Regarding Recovery of Executive Compensation an opportunity, direct or indirect, to profit from any change in Citrix executive officers are subject to a formal executive the value of Citrix securities, or engaging in any other hedging compensation recovery policy, or “clawback” policy, which transactions with respect to Citrix securities) create a allows Citrix to recoup from its executive officers excess heightened compliance risk or could create the appearance of proceeds from certain incentive compensation received by misalignment between management and shareholders. As a such executive due to a material restatement of Citrix’s result, our insider trading policy prohibits our executive financial results due to an executive officer engaging in an act officers and directors from engaging in hedging transactions, of embezzlement, fraud, willful misconduct or breach of such as short sales and/or other derivative transactions, fiduciary duty. Excess compensation includes any cash or purchasing Citrix securities on margin, holding Citrix equity-based compensation if the payment, grant or vesting securities in an account that is, or is linked to, a margin of such compensation is predicated on the achievement of account, and pledging Citrix securities as collateral for a loan. financial performance goals or financial metrics (excluding Policy Regarding Change In Control Arrangements It is our policy that we will not enter into any agreements with our executive officers that provide the executive officer with payments following a change in control unless such agreements provide for a double-trigger termination event any incentive-based compensation based on total shareholder return or any similar stock price-based metric). The Compensation Committee intends to periodically review this policy and, as appropriate, conform it to any applicable final rules adopted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. 2019 Proxy Statement 55 Summary of Executive Compensation The following table sets forth certain information with respect to compensation for the years ended December 31, 2018, 2017 and 2016 earned by or paid to our President and Chief Executive Officer, former Executive Vice President and Chief Financial Officer, former Interim Chief Financial Officer, and our three other most highly-compensated executive officers, collectively referred to as our Named Executive Officers, as determined in accordance with applicable SEC rules. SUMMARY COMPENSATION TABLE FOR THE 2018, 2017 AND 2016 FISCAL YEARS Stock Awards ($)(1)(2) Non-Equity Incentive Plan Compensation ($) All Other Compensation ($) Salary ($)* Total ($) 1,000,000 860,834 717,500 15,648,049 8,637,185 4,103,145 2,458,726 791,081 1,166,525 151,327(3) 19,258,102 10,321,289 6,003,260 32,189 16,090 478,704 6,974,974 732,560(5) 383,270(6) 8,569,508 427,500 454,597 3,265,557(8) 1,805,883 492,500 4,865,259 554,382 263,735 728,134 35,037(9) 5,000 4,282,476 2,529,215 73,062(11) 6,158,955 Year 2018 2017 2016 2018 2018 2017 2018 2018 445,000 4,865,259 684,720 237,050(13) 6,232,029 2018 2017 446,250 432,500 5,195,521 4,020,226 572,181 262,018 62,193(15) 6,276,145 4,727,844 13,100 Name and Principal Position David J. Henshall President and Chief Executive Officer Andrew H. Del Matto(4) Former Executive Vice President and Chief Financial Officer Mark M. Coyle(7) Former Interim Chief Financial Officer Antonio G. Gomes(10) Executive Vice President, General Counsel and Secretary Paul J. Hough(12) Executive Vice President and Chief Product Officer Donna N. Kimmel(14) Executive Vice President and Chief People Officer * Each year, our salary levels are determined during our first fiscal quarter and become effective April 1, except in connection with promotions and new hires. The amounts represented in this table reflect salary actually paid during the fiscal year. (1) These amounts represent the aggregate grant date fair value of restricted stock unit awards in the year in which the grant was made. The assumptions we used for calculating the grant date fair value are set forth in Note 8 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on February 15, 2019. These amounts do not represent the actual amounts paid to or realized by the executive officer for these awards during fiscal years 2018, 2017 or 2016. The value as of the grant date for restricted stock unit awards is recognized over the number of days of service required for the grant to become vested. In the case of performance-based restricted stock units, the fair value is reported for the probable outcome, which for this purpose is estimated using the company’s financial projections as of the grant date. The fair value of awards at the maximum level of achievement for performance-based restricted stock units included in this table for 2018 which include the performance-based restricted stock units granted in August 2017 as previously described is as follows: Mr. Henshall, $20,984,904; Mr. Del Matto, $2,887,748; Mr. Coyle, $3,997,873; Mr. Gomes, $6,894,921; Mr. Hough, $6,894,921; and Ms. Kimmel, $7,813,245. Includes performance-based restricted stock units awarded to each Named Executive Officer (other than Mr. Del Matto who joined Citrix in February 2018) in August 2017 having performance-based vesting based on non-GAAP corporate operating margin and subscription bookings as a percentage of total product bookings as discussed under the section titled “Retention Performance- Based Awards Granted in 2017 with Performance Metrics Established in 2018.” Includes restricted stock units issued as a result of the dividend paid on December 21, 2018 ($106,867), the value of company- covered financial services available to each executive officer ($6,970), 401(k) matching contributions made by our company ($8,250), the value of a company-covered physical examination available to each executive officer ($5,000), and premiums for split-dollar life insurance and disability policies ($19,240), and charitable donations made under the Company’s matching gift program ($5,000). (3) (2) (4) Mr. Del Matto joined Citrix in February 2018. As announced on April 24, 2019, Mr. Del Matto’s employment with Citrix will end on April 26, 2019. (5) Mr. Del Matto’s non-equity incentive award was pro-rated to reflect less than one year of service as Executive Vice President and (6) Chief Financial Officer in 2018. Includes restricted stock units issued as a result of the dividend paid on December 21, 2018 ($25,122), reimbursement of relocation expenses ($325,000), the value of company-covered financial services available to each executive officer ($8,066), 401(k) matching contributions made by our company ($4,813), the value of a company-covered physical examination available to each executive officer ($5,000), and premiums for split-dollar life insurance and disability policies ($10,269), and charitable donations made under the Company’s matching gift program ($5,000). 56 P r o x y (7) Mr. Coyle was not a Named Executive Officer for the fiscal year ended December 31, 2016. (8) Includes incremental fair value of $622,125 as a result of a modification to the performance-based restricted stock unit award granted March 30, 2017. Includes restricted stock units issued as a result of the dividend paid on December 21, 2018 ($16,000), the value of company- covered financial services available to each executive officer ($6,970), the value of a company-covered physical examination available to each executive officer ($5,000), and premiums for split-dollar life insurance and disability policies ($7,067). (9) (10) Mr. Gomes was not a Named Executive Officer for the fiscal years ended December 31, 2016 and 2017. (11) Includes restricted stock units issued as a result of the dividend paid on December 21, 2018 ($29,177), the value of company- covered financial services available to each executive officer ($8,066), 401(k) matching contributions made by our company ($8,250), the value of a company-covered physical examination available to each executive officer ($5,000), and premiums for split-dollar life insurance and disability policies ($7,569), and charitable donations made under the Company’s matching gift program ($15,000). (12) Mr. Hough was not a Named Executive Officer for the fiscal years ended December 31, 2016 and 2017. (13) Includes restricted stock units issued as a result of the dividend paid on December 21, 2018 ($27,480), a $15,000 per month stipend to cover commuter expenses in 2018 ($180,000), 401(k) matching contributions made by our company ($8,250), the value of a company-covered physical examination available to each executive officer ($5,000), and premiums for split-dollar life insurance and disability policies ($4,310), and charitable donations made under the Company’s matching gift program ($12,010). (14) Ms. Kimmel was not a Named Executive Officer for the fiscal year ended December 31, 2016. (15) Includes restricted stock units issued as a result of the dividend paid on December 21, 2018 ($33,130), the value of company- covered financial services available to each executive officer ($8,066), 401(k) matching contributions made by our company ($8,250), the value of a company-covered physical examination available to each executive officer ($5,000), and premiums for split-dollar life insurance and disability policies ($7,747). 2019 Proxy Statement 57 Grants of Plan-Based Awards The following table sets forth certain information with respect to grants of plan-based awards for the year ended December 31, 2018 to the Named Executive Officers. Grants of equity awards to each Named Executive Officer were made pursuant to our Amended and Restated 2014 Plan. There can be no assurance that the Grant Date Fair Value of the Stock Awards listed below will ever be realized. GRANTS OF PLAN-BASED AWARDS TABLE FOR THE 2018 FISCAL YEAR Name David J. Henshall Comp. Comm. Action Date 7/7/17(4) 7/7/17(4) 3/7/18 3/7/18 3/7/18 Grant Date 8/1/17 8/1/17 3/29/18 3/29/18 — Andrew H. Del Matto 3/1/18 11/30/17 Mark M. Coyle Antonio G. Gomes Paul J. Hough Donna N. Kimmel 3/29/18 3/29/18 — 8/1/17 8/1/17 3/29/18 3/29/18 — 8/1/17 8/1/17 3/29/18 3/29/18 — 8/1/17 8/1/17 3/29/18 3/29/18 — 8/1/17 8/1/17 3/29/18 3/29/18 — 3/7/18 3/7/18 3/7/18 7/7/17(4) 7/7/17(4) 3/7/18 3/7/18 3/7/18 7/7/17(4) 7/7/17(4) 3/7/18 3/7/18 3/7/18 7/7/17(4) 7/7/17(4) 3/7/18 3/7/18 3/7/18 7/7/17(4) 7/7/17(4) 3/7/18 3/7/18 3/7/18 Estimated Future Payouts Under Non-Equity Incentive Plan Awards Threshold ($) Target ($)(1) Maximum ($) — — — — — — — — — — — — 495,000 1,500,000 3,000,000 — — — — — — — — — 163,350 495,000 990,000 — — — — — — — — — — — — 101,475 307,500 615,000 — — — — — — — — — — — — 148,500 450,000 900,000 — — — — — — — — — — — — 133,650 405,000 810,000 — — — — — — — — — — — — 111,375 337,500 675,000 Estimated Future Payouts Under Equity Incentive Plan Awards Target (#)(*)(2) Threshold (#) Maximum (#) All Other Stock Awards Number Of Shares Of Stock Units (#) Grant Date Fair Value of Stock Awards ($)(3) 7,762 7,762 15,524(5) 31,048 15,524(6) 31,048 — 1,449,321 — 1,823,760 — 0 — — — 0 — 1,884 1,884 — 0 — 2,512 2,512 — 0 — 2,512 2,512 — 0 — — — 55,556 5,155,597 55,555(7) 111,110 — 7,219,372 — — — — — — — — 49,554 4,499,999 11,111 1,031,101 11,111(7) 22,222 — 1,443,874 — 3,768(8) 3,768(9) — 7,536 7,536 — — — — — 6,945 6,944(7) 13,888 — — 5,024(8) 10,048 5,024(9) 10,048 — — — — — 525,561 571,003 644,496 902,373 — 700,748 761,337 — — 15,278 1,417,798 15,278(7) 30,556 — 1,985,376 — — 5,024(8) 10,048 5,024(9) 10,048 — — — — 700,748 761,337 — — 15,278 1,417,798 15,278(7) 30,556 — 1,985,376 — — — — 3,611 3,611 7,222(8) 14,444 7,222(9) 14,444 — 1,007,325 — 1,094,422 — 0 — — — 13,889 1,288,899 13,889(7) 27,778 — 1,804,876 — — — — * This table includes performance-based restricted stock units issued in August 2017 to the following Named Executive Officers because the performance targets for these restricted stock units were established in early 2018 at a time where, for purposes of FASB ASC Topic 718, there is a grant date fair value for such awards for financial reporting purposes: Mr. Henshall, 31,048 units; Mr. Coyle, 7,536 units; Mr. Gomes, 10,048 units; Mr. Hough, 10,048 units; and Ms. Kimmel, 14,444 units. (1) Reflects target variable cash compensation awards in effect at December 31, 2018. On January 22, 2019, the Compensation Committee determined that the reported product and subscription bookings (excluding transition and trade-up bookings) target was 163.29% attained and the non-GAAP corporate operating margin target was 188.77% attained, resulting in a payout of 170.94% and in the following variable cash compensation awards: Mr. Henshall received $2,458,726; Mr. Del Matto received $732,560; Mr. Coyle received $554,382; Mr. Gomes received $728,134; Mr. Hough received $684,720; and Ms. Kimmel received $572,181. See the column labelled “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table included in this Proxy Statement. Mr. Henshall’s variable cash compensation award was pro-rated to reflect the increase in variable cash compensation effective April 1, 2018 through December 31, 2018. Mr. Del Matto’s variable cash compensation was pro-rated 58 P r o x y based on the date he began service as Executive Vice President and Chief Financial Officer. Mr. Gomes’ variable cash compensation award was pro-rated to reflect the increase in base salary and the increase in variable cash compensation effective April 1, 2018 through December 31, 2018. Mr. Coyle’s variable cash compensation award was pro-rated to reflect his base salary and variable cash compensation effective January 1, 2018 through February 18, 2018, the restoration of his base salary and variable cash compensation effective February 19, 2018 through March 31, 2018 when he ceased to serve as Interim Chief Financial Officer and the subsequent increase in his base salary and variable cash compensation effective April 1, 2018 through December 31, 2018. The variable cash compensation award of each of Mr. Hough and Ms. Kimmel was pro-rated to reflect the increase in base salary effective April 1, 2018 through December 31, 2018. (2) The “Estimated Future Payouts Under Equity Incentive Plan Awards” columns represent the minimum, target, and maximum number of restricted stock units that may vest pursuant to the applicable performance-based restricted stock unit agreements. (3) The grant date fair value of awards in this column reflects the fair value of such awards, excluding estimated forfeitures. The assumptions we used for calculating the grant date fair value are set forth in Note 8 to the financial statements filed with our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which was filed with the SEC on February 15, 2019. In the case of performance-based restricted stock units, the fair value is reported for the probable outcome after the three-year performance period, which for this purpose is based on the company’s financial projections as of the grant date. (4) Targets for the August 1, 2017 performance-based restricted stock awards were set by the Compensation Committee on March 29, 2018. (5) The number of restricted stock units vested as a percentage of the target award shall be determined based on the company’s non-GAAP corporate operating margin at the end of the performance period ending on December 31, 2019. At target these awards result in 100% vesting. (6) The number of restricted stock units vested as a percentage of the target award shall be determined based on subscription bookings as a percentage of product bookings at the end of the performance period ending on December 31, 2019. At target these awards result in 100% vesting. (7) The number of restricted stock units vested as a percentage of the target award shall be determined based on subscription bookings as a percentage of product bookings for the last fiscal year of the performance period ending on December 31, 2020. (8) The number of restricted stock units vested as a percentage of the target award shall be determined based on the company’s non-GAAP corporate operating margin at the end of the performance period ending on December 31, 2019. At target these awards result in 150% vesting. (9) The number of restricted stock units vested as a percentage of the target award shall be determined based on subscription bookings as a percentage of product bookings at the end of the performance period ending on December 31, 2019. At target these awards result in 150% vesting. 2019 Proxy Statement 59 Outstanding Equity Awards The following table sets forth certain information with respect to the outstanding equity awards at December 31, 2018 for each of the Named Executive Officers. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END 2018 TABLE Stock Awards Number of Shares or Units of Stock That Have Not Vested (#)(1) Market Value of Shares or Units of Stock That Have Not Vested ($)(2) Equity Incentive Plan Awards; Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(1) Equity Incentive Plan Awards; Market or Payout Value of Unearned or Other Rights That Have Not Vested ($)(2) 11,562.023(3) 19,400.155(4) 20,769.897(5) 55,748.979(6) 1,184,645 1,987,740 2,128,084 5,712,040 Name David J. Henshall Andrew H. Del Matto Mark M. Coyle 49,726.131(12) 11,149.595(13) 5,094,939 1,142,388 2,534.774(3) 4,180.471(4) 6,969.124(6) 259,713 428,331 714,056 Antonio G. Gomes 4,056.040(3) 3,244.230(12) 7,358.472(4) 15,331.070(6) 415,582 332,404 753,949 1,570,821 Paul J. Hough 14,604.555(15) 7,358.472(4) 15,331.070(6) 1,496,383 753,949 1,570,821 Donna N. Kimmel 4,056.040(16) 4,056.040(3) 10,034.736(4) 13,937.245(6) 415,582 415,582 1,028,159 1,428,010 52,379.000(7) 29,100.734(8) 15,577.924(9) 15,577.924(10) 55,747.976(11) 5,366,752 2,981,661 1,596,114 1,596,114 5,711,938 11,149.595(13) 1,142,388 11,486.000(7) 6,271.710(14) 3,781.089(9) 3,781.089(10) 6,968.121(11) 18,379.000(7) 11,038.210(8) 5,041.451(9) 5,041.451(10) 15,331.070(11) 11,038.210(8) 5,041.451(9) 5,041.451(10) 15,331.070(11) 18,379.000(7) 15,052.104(8) 7,247.086(9) 7,247.086(10) 13,937.245(11) 1,176,856 642,599 387,410 387,410 713,954 1,883,112 1,130,975 516,547 516,547 1,570,821 1,130,975 516,547 516,547 1,570,821 1,883,112 1,542,239 742,536 742,536 1,428,010 (1) Includes restricted stock units issued as a result of the dividend paid on December 21, 2018. The shares reported in this table are reported on a post-adjusted basis as of December 31, 2018. Upon final vesting, any fractional unit will be rounded to a whole share. 60 P r o x y (2) Based on a per share price of $102.46, which was the closing price per share of our common stock on the last business day of the 2018 fiscal year (December 31, 2018). Values have been rounded to the nearest whole dollar. (3) Restricted stock units that vest in three annual installments, with 33.4% having vested on March 30, 2017, 33.3% having vested on March 30, 2018, and 33.3% having vested on March 30, 2019. (4) Restricted stock units that vest in three annual installments, with 33.4% having vested on March 30, 2018, 33.3% having vested on March 30, 2019, and 33.3% vesting on March 30, 2020. (5) Restricted stock units that vest in three annual installments, with 33.4% having vested on August 1, 2018, 33.3% vesting on August 1, 2019, and 33.3% vesting on August 1, 2020. (6) Restricted stock units that vest in three annual installments, with 33.4% having vested on March 29, 2019, 33.3% vesting on March 29, 2020, and 33.3% vesting on March 29, 2021. (7) Represents the actual number of restricted stock units that vested on March 30, 2019 based on our compounded annual total shareholder return over a three-year performance period. On April 8, 2019, it was determined that 150.50% payout was achieved. (8) Represents the target number of restricted stock units that will vest on December 31, 2019 if the company’s relative total shareholder return percentile compared to the selected custom index companies is the 61st percentile. (9) Represents target number of restricted stock units that will vest on December 31, 2019 based on the company’s subscription bookings as a percentage of total product and subscription bookings. (10) Represents target number of restricted stock units that will vest on December 31, 2019 based on the company’s 2019 non-GAAP corporate operating margin. (11) Represents the target number of restricted stock units that will vest on December 31, 2020 based on the company’s subscription bookings as a percentage of total product and subscription bookings. (12) Restricted stock units that vest in three annual installments, with 33.4% having vested on October 3, 2017, 33.3% having vested on October 3, 2018, and 33.3% vesting on October 3, 2019. Mr. Del Matto will forfeit 23,228.629 of these restricted stock units, which includes subsequent adjustments related to our quarterly dividends, upon his departure from our company on April 26, 2019. (13) Mr. Del Matto will forfeit all of these restricted stock units upon his departure from our company on April 26, 2019. (14) Represents the target number of restricted stock units that will vest on December 31, 2019 if the company’s relative total shareholder return percentile compared to the Nasdaq composite index companies as of January 2, 2019 is the 61st percentile. (15) Restricted stock units that vest in three annual installments, with 33.4% having vested on November 1, 2017, 33.3% having vested on November 1, 2018, and 33.3% vesting on November 1, 2019. (16) Restricted stock units that vest in three annual installments, with 33.4% having vested on January 4, 2017, 33.3% having vested on January 4, 2018, and 33.3% having vested on January 4, 2019. 2019 Proxy Statement 61 Stock Vested The following table sets forth certain information regarding restricted stock unit vesting, during the year ended December 31, 2018 under our equity incentive plans for our Named Executive Officers. STOCK VESTED TABLE FOR THE 2018 FISCAL YEAR Name David J. Henshall Andrew H. Del Matto Mark M. Coyle Antonio G. Gomes Paul J. Hough Donna N. Kimmel Stock Awards Number of Shares Acquired on Vesting (#) Value Realized on Vesting ($)(1) 108,978 10,223,473 — 15,194 29,305 28,286 27,556 — 1,444,050 2,843,437 2,824,405 2,618,734 (1) Based on the closing price per share of our common stock on the date upon which the restricted stock units vested or, if the vesting date is not a trading day, based on the closing price on the last trading day immediately preceding the vesting date. 62 Nonqualified Deferred Compensation The following table sets forth certain information regarding conclusion of a three-year period ending December 31, 2011, non-tax qualified compensation deferred during the year subject to employment of the executive officer by us ended December 31, 2018, under our equity incentive plans throughout the three-year period. The number of shares of for our Named Executive Officers. The deferred common stock issuable upon settlement of the LTIP compensation consists of shares of our common stock that restricted stock units was determined by comparing the will be issued with respect to vested restricted stock units performance of our common stock to the performance of the under a long-term incentive program, or LTIP, that we specified market indices over the same three-year period. instituted in 2009. Although the LTIP stock units have vested, the units will not be settled in shares of our common stock until the earliest of The LTIP’s design and structure were intended to, and six months and one day following termination of the ultimately did, reward executive officers for generating both executive officer’s employment for any reason other than relative and absolute shareholder returns. The number of cause, the executive officer’s death, or the effective date of a vested restricted stock units was determined after the change in control of our company. P r o x y NONQUALIFIED DEFERRED COMPENSATION TABLE FOR THE 2018 FISCAL YEAR Executive Contributions in Last FY ($) Registrant Contributions in Last FY ($) Aggregate Earnings in Last FY ($) Aggregate Withdrawals/ Distributions ($) Aggregate Balance at Last FYE ($) — — — — — — — — — — — — — — — — — — — 4,941,435(1) — — — — — — — — — — Name David J. Henshall Andrew H. Del Matto Mark M. Coyle Antonio G. Gomes Paul J. Hough Donna N. Kimmel (1) Based on a per share price of $102.46, which was the closing price per share of our common stock on December 31, 2018, the last business day of the 2018 fiscal year, and reflects the balance of restricted stock units currently outstanding that were issued under the LTIP that vested on December 31, 2011, net of any underlying shares that were withheld to satisfy minimum tax withholding obligations that arose upon vesting. The number of restricted stock units on a net basis for each of the Named Executive Officers is as follows: Mr. Henshall, 48,227.945 units which includes additional restricted stock units received as a result of adjustments made to outstanding equity awards in connection with our quarterly cash dividend paid in December 2018. None of Messrs. Del Matto, Coyle, Gomes, Hough, or Ms. Kimmel participated in the LTIP program. The grant date fair value of the LTIP awards was included in the “Stock Awards” column of the Summary Compensation Table for 2009. 2019 Proxy Statement 63 Potential Payments upon Termination or Change in Control We have change in control and severance arrangements with Mr. Henshall will be entitled to severance pay and benefits as our Named Executive Officers that provide severance and follows: other benefits to our Named Executive Officers in the event of the termination of their employment under certain circumstances. Set forth below is a summary of these arrangements. President and Chief Executive Officer In July 2017, we entered into an employment agreement with ‰ ‰ ‰ salary continuation in an amount equal to two times the sum of (a) Mr. Henshall’s base salary and (b) his target variable cash compensation; continued health insurance coverage for 18 months; and acceleration of unvested equity awards with time-based vesting then scheduled to vest over 24 months. Mr. Henshall in connection with his appointment as our In such event, his performance-based equity awards will President and Chief Executive Officer. The employment remain outstanding and may be earned on a pro-rata basis at agreement has a term of three years, with one-year the end of the relevant performance period based on actual extensions thereafter unless written notice of non-renewal is performance. given by either party not less than 180 days prior to the end of the then current term. The definitions of “cause”, “good reason” and “change in control” included in Mr. Henshall’s employment agreement are Mr. Henshall’s employment agreement provides for a substantially the same as the definitions included in the minimum base salary of $1,000,000, which is subject to executive agreements for the other Named Executive Officers annual review and may be increased but not decreased. In described below, except that it will be considered a substantial addition, Mr. Henshall is entitled to participate in our reduction in Mr. Henshall’s duties or responsibilities for executive variable cash compensation program at an annual purposes of the definition of “good reason” if he is not target variable cash compensation payment of 125% of his nominated for re-election to the Board or, in the event of a base salary and a maximum variable cash compensation change in control, if he is no longer serving as President and payment of 200% of his base salary, with the actual amount Chief Executive Officer for the ultimate parent of the resulting to be determined in the discretion of the Compensation company or such parent is not a publicly-traded company. Committee based on Citrix’s performance and the individual performance of Mr. Henshall. In the event Mr. Henshall’s employment is terminated without cause or if he resigns his position for good reason in the In connection with his appointment as our President and 18-month period following a change in control, he will be Chief Executive Officer, Mr. Henshall received an equity grant entitled to receive: consisting of (1) $2,500,000 of time-based restricted stock units that vest in three annual installments and (2) $2,500,000 of performance-based restricted stock units, half of which may be earned based on Citrix’s performance against a non-GAAP corporate operating margin percentage target and half of which may be earned based on Citrix’s ‰ ‰ ‰ a lump sum payment equal to 300% of the sum of (a) his annual base salary and (b) his target variable cash compensation; continued health insurance coverage for 18 months; and accelerated vesting of all unvested equity awards with performance against a subscription bookings as a percentage time-based vesting. of total product and subscription bookings target for the fiscal year ending on December 31, 2019. Mr. Henshall became eligible to receive annual equity awards with a minimum target value of $8,000,000 beginning in 2018. Mr. Henshall also is entitled to participate in all of our employee benefit plans and programs that are generally available to our senior executive employees. Upon a termination of Mr. Henshall’s employment without cause or for good reason before a change in control, Mr. Henshall’s currently outstanding equity awards with performance-based vesting provide that they will be deemed earned at the time of a change in control based on maximum achievement of 200%, subject to time-based vesting over the remaining measurement period, with full vesting if Mr. Henshall is terminated without cause or resigns for good reason following a change in control. Upon Mr. Henshall’s death or disability, all unvested equity awards with time-based vesting held by Mr. Henshall will 64 immediately vest, and any equity awards with performance- February 2018 when he was hired as Executive Vice President based vesting will remain outstanding and may be earned on and Chief Financial Officer of Citrix. a pro-rata basis at the end of the relevant performance period based on actual performance. Mr. Henshall (or his The executive agreements have a term of three years and estate, if applicable) also will be entitled to receive his target automatically renew for one-year periods, unless written variable cash compensation on a pro-rata basis for such year. notice of non-renewal is given by either party at least 180 For purposes of his employment agreement, “disability” days prior to the end of the term. In the event of a change in means that he is unable to perform the essential functions of control, the term will be automatically extended until 12 his then existing position or positions under the agreement months after the change in control. (or is expected, based on a reasonable degree of medical certainty, to be unable to perform such functions) with or Under the executive agreements, if an executive’s without reasonable accommodation for a period of 180 days (which need not be consecutive) in any 12-month period. employment is terminated by Citrix without cause or by the executive for good reason, in either case before a change in P r o x y All severance payments and benefits under Mr. Henshall’s employment agreement are subject to the execution of a separation and release agreement by Mr. Henshall containing, among other provisions, a general release of claims in favor of Citrix. In the event that any payments made to Mr. Henshall in connection with a change in control or termination would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, the payments to Mr. Henshall would be reduced to the maximum amount that can be paid without the imposition of an excise tax under Section 4999 of the Internal Revenue Code of 1986, but only if such reduction provides a higher benefit on an after-tax basis to Mr. Henshall. The employment agreement does not provide for any tax gross-up payments. The employment agreement superseded Mr. Henshall’s previously existing executive agreement with Citrix. Other Named Executive Officers In January 2017, we entered into executive agreements with certain members of our senior leadership team, including Mr. Coyle, Mr. Gomes, and Ms. Kimmel. The executive agreements extended certain severance benefits to our executive officers under their existing incentive agreements with the company, which were scheduled to expire in accordance with their terms on January 25, 2017, and require the executive to comply with additional provisions protective of the company and shareholder interests to be eligible to receive the severance benefits. The executive agreements also superseded the executives’ existing change in control agreements by consolidating the benefits under those agreements into a single agreement with the company. We subsequently entered into an executive agreement with Mr. Hough in September 2017 when he was hired as Senior Vice President and Chief Product Officer, and Mr. Del Matto in control, he or she will be entitled to receive: ‰ ‰ ‰ ‰ a lump sum payment equal to the sum of his or her then- current annual base salary plus the higher of (a) a designated percentage of his or her then-current annual base salary (90% for each of Mr. Del Matto and Mr. Hough, 75% for each of Mr. Gomes and Ms. Kimmel, and 50% for Mr. Coyle) or (b) the amount of variable cash compensation paid to him or her for the fiscal year prior to termination; continued health insurance coverage for 12 months; accelerated vesting of the unvested portion of his or her equity awards with time-based vesting that would have vested within the 12-month period following his or her date of termination; and 12 months of executive-level outplacement services. In addition, the executive agreements provide for certain benefits in the event that the executive’s employment is terminated following a change in control of Citrix. In the event that an executive’s employment is terminated without “cause” or if he or she resigns his or her position for “good reason”, in either case, within the 12-month period following a “change in control”, he or she will be entitled to receive: ‰ ‰ ‰ ‰ a lump sum payment equal to 150% of the sum of (a) his or her annual base salary and (b) his or her variable cash compensation target for the then-current fiscal year; continued health insurance coverage for 18 months; accelerated vesting of the unvested portion of any equity awards; and 18 months of executive-level outplacement services. The company’s currently outstanding equity awards with performance-based vesting provide that they will be deemed earned at the time of a change in control based on maximum achievement of 200%, subject to time-based vesting over the remaining measurement period, with full vesting if the 2019 Proxy Statement 65 executive is terminated without cause or resigns for good Termination of the executive officer’s employment by the reason following the change in control as described above. executive officer for “good reason” includes a termination of Under the executive agreements, a “change in control” would include any of the following events: ‰ ‰ ‰ ‰ ‰ any “person,” as defined in the Securities Exchange Act of 1934, as amended, acquires 30% or more of our voting securities; the consummation of a consolidation, merger or sale or other disposition of all or substantially all of our assets in which our shareholders would beneficially own less than 50% of the voting securities of the resulting entity or its ultimate parent after such transaction; our incumbent directors cease to constitute a majority of our Board of Directors; any other acquisition of the business of Citrix in which a majority of our Board of Directors votes in favor of a decision that a change in control has occurred; or our shareholders approve a plan or proposal for our liquidation or dissolution. the executive officer’s employment as a result of: ‰ ‰ ‰ ‰ ‰ ‰ a substantial reduction, not consented to by the executive officer, in the nature or scope of the executive officer’s responsibilities, authorities, powers, functions or duties; a reduction in the executive officer’s annual base salary or target variable cash compensation; failure to provide the executive with any payments, rights and other entitlements under the applicable agreement, including upon a change in control; following a change in control, a material breach by Citrix of any agreements, plans, policies and practices relating to the executive’s employment with Citrix; the relocation of our offices at which the executive officer is principally employed by more than 35 miles; or Citrix’s issuance to the executive of a notice of non-renewal of the agreement (as applicable). Termination of the executive officer’s employment by Citrix for “cause” includes a termination of the executive officer’s employment as a result of: ‰ an indictment for the commission of any felony or a In addition, it will be considered a substantial reduction in Mr. Gomes’ duties or responsibilities for purposes of the definition of “good reason” if, in the event of a change in control, he is no longer serving as General Counsel for the ultimate parent of the resulting company or such parent is misdemeanor involving deceit, material dishonesty or not a publicly-traded company. fraud, or any willful conduct that would reasonably be expected to result in material injury or reputational harm The severance payments and benefits described above are to Citrix if the executive were retained in his or her subject to the execution of a separation and release position; agreement containing, among other provisions, a general ‰ willful disclosure of material trade secrets or other material confidential information related to our business; ‰ willful and continued failure substantially to perform the executive’s duties with Citrix, other than any such failure resulting from the executive’s incapacity due to physical or mental illness (subject to notice and a period for the executive officer to cure such failure); release of claims in favor of Citrix. In the event that any payments made in connection with a change in control or termination would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, the payments to our executive officers would be reduced to the maximum amount that can be paid without the imposition of an excise tax under Section 4999 of the ‰ willful and knowing participation in releasing false or Internal Revenue Code of 1986, but only if such reduction materially misleading financial statements or submission provides a higher benefit on an after-tax basis to our of a false certification to the Securities and Exchange executive officers. The executive agreements do not provide Commission; or any “gross-up” payments in connection with a change in ‰ failure to cooperate with a bona fide internal investigation by regulatory or law enforcement authorities. control. 66 P r o x y With respect to the performance-based equity awards Potential Payments granted to these Named Executive Officers, the award agreements provide that if the executive officer’s employment with our company terminates as a result of the executive’s death, disability (defined under our long-term disability plan) or retirement (defined as termination of employment after attainment of age 65 and provided that the executive officer has at least four years of service with our company), the executive officer will remain eligible to earn such performance-based awards on a pro-rata basis at the end of the performance period based on our achievement of the applicable performance metrics. As of December 31, 2018, none of our Named Executive Officers were eligible for retirement under our policy. In addition, our Compensation Committee adopted a policy applicable to these Named Executive Officers providing for the acceleration of vesting of outstanding time-based restricted stock units upon death or disability. Each of our executive officers is also subject to the terms of a non-solicitation, non-compete and confidentiality and employee non-disclosure agreement with us. The non-solicitation and non-compete obligations, where enforceable, survive the termination of the executive officer’s employment for a period of one year. The following table shows potential payments and benefits that would have been provided to each of Messrs. Henshall, Del Matto, Coyle, Hough and Gomes and Ms. Kimmel upon the occurrence of a change in control and/or certain termination triggering events, assuming such change in control and/or termination event occurred on December 31, 2018. The amounts shown in this table do not include payments and benefits to the extent they have been earned prior to the termination of employment or are provided on a non-discriminatory basis to employees upon termination of employment. These include: ‰ ‰ ‰ accrued salary and vacation pay; distribution of plan balances under our 401(k) plan and the non-qualified deferred compensation plan (see Nonqualified Deferred Compensation on page 63 for the balances of each Named Executive Officer); and life insurance proceeds in the event of death. The closing market price of our common stock on December 31, 2018 was $102.46 per share. 2019 Proxy Statement 67 Benefit David J. Henshall Severance Unvested Equity Awards Benefits Continuation Outplacement Services Total Andrew H. Del Matto Severance Unvested Equity Awards Benefits Continuation Outplacement Services Total Mark M. Coyle Severance Unvested Equity Awards Benefits Continuation Outplacement Services Total Antonio G. Gomes Severance Unvested Equity Awards Benefits Continuation Outplacement Services Total Paul J. Hough Severance Unvested Equity Awards Benefits Continuation Outplacement Services Total Donna N. Kimmel Severance Unvested Equity Awards Benefits Continuation Outplacement Services Total Involuntary Not for Cause Termination / Good Reason Termination ($) Involuntary Not for Cause Termination / Good Reason Termination Following Change in Control ($)(1) 4,500,000 18,175,277(2) 22,434 — 22,697,711 1,045,000 2,083,319 22,538 21,250 3,172,107 673,735 712,507 7,891 21,250 1,415,383 875,000 1,649,913 23,662 21,250 2,569,825 855,000 2,398,179 22,538 21,250 3,296,967 787,500 1,822,558 7,226 21,250 2,638,534 6,750,000 41,891,591 22,434 — 48,664,025 1,567,500 8,522,315 33,888 21,250 10,144,953 1,076,250 7,223,532 11,837 21,250 8,332,869 1,425,000 13,036,805 35,574 21,250 14,518,629 1,282,500 11,291,194 33,888 21,250 12,628,832 1,181,250 14,692,047 10,839 21,250 15,905,386 Death or Disability ($)(2) 1,250,000(3) 20,077,344 — — 21,327,344 — 6,618,301 — — 6,618,301 — 3,051,976 — — 3,051,976 — 6,423,730 — — 6,423,730 — 6,028,951 — — 6,028,951 — 7,271,586 — — 7,271,586 (1) The value of any performance-based awards included in this column was calculated using maximum achievement of 200%. (2) The value of any performance-based awards was calculated using the target award level. For each performance-based award for which the performance period is not complete as of termination, the number of shares earned will be calculated based on actual performance during the performance period and pro-rated for the number of months that elapsed in the performance period prior to such termination. (3) Mr. Henshall (or his estate, if applicable) would be entitled to receive his target variable cash compensation on a pro-rata basis for such year. Report of the Compensation Committee of the Board of Directors This report is submitted by the Compensation Committee of Directors that the Compensation Discussion and Analysis be the Board of Directors. The Compensation Committee has included in this Proxy Statement. reviewed the Compensation Discussion and Analysis included in this Proxy Statement and discussed it with management. No portion of this Compensation Committee Report shall be Based on its review of the Compensation Discussion and deemed to be incorporated by reference into any filing under Analysis and its discussions with management, the the Securities Act of 1933, as amended, or the Securities Compensation Committee has recommended to the Board of Exchange Act of 1934, as amended, through any general 68 statement incorporating by reference in its entirety the Proxy Respectfully submitted by the Compensation Committee, Statement in which this report appears, except to the extent that Citrix specifically incorporates this report or a portion of it by reference. In addition, this report shall not be deemed filed under either the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. Nanci E. Caldwell Ajei S. Gopal Peter J. Sacripanti Compensation Committee Interlocks and Insider Participation P r o x y From January through December 2018, Ms. Caldwell and of Directors performing equivalent functions or, in the Dr. Gopal served as members of the Compensation absence of any such committee, the entire Board of Committee. Messrs. Smith and Sullivan, who departed the Directors) of another entity, one of whose executive officers Board of Directors at the 2018 Annual Meeting, also served served on our Compensation Committee; (2) a director of on the Compensation Committee until that time, and another entity, one of whose executive officers served on our Mr. Sacripanti joined the Compensation Committee in June Compensation Committee; or (3) a member of the 2018 upon their departure. No member of our Compensation compensation committee (or other committee of the board Committee was an employee or former employee of our of directors performing equivalent functions or, in the company or any of our subsidiaries. During the past year, absence of any such committee, the entire Board of none of our executive officers served as: (1) a member of the Directors) of another entity, one of whose executive officers compensation committee (or other committee of the Board served as a director on our Board of Directors. Pay Ratio Disclosure Pay Ratio Disclosure We strive to provide competitive benefits and compensation the ratio of the total compensation paid to the median programs that meet the diverse needs of our employees. Our employee as compared to the total compensation paid to compensation and benefits philosophy and the overall Citrix’s CEO. We describe our methodology and the resulting structure of our compensation and benefit programs are CEO pay ratio below. broadly similar across the organization to encourage and reward all employees who contribute to our success. We strive The SEC rules for identifying the median paid employee and to ensure that the pay of every Citrix employee reflects the calculating the pay ratio based on that employee’s annual level of their job responsibilities and is competitive with our total compensation allow companies to adopt a variety of peer group. Our team is global, with over half our workforce methodologies, to apply certain exclusions, and to make located outside of the United States, and we believe it is reasonable estimates and assumptions that reflect their important to be consistent in how employees are rewarded. employee populations and compensation practices. As a We have differences in our programs to meet competitive result, the pay ratio reported by other companies may not be needs and comply with local customs and laws, and strive to comparable to our Chief Executive Officer pay ratio, as other provide offerings that reflect local market practices. companies have offices in different countries, have different Compensation rates are benchmarked and set to be market- employee populations and compensation practices and may competitive in the country in which the jobs are performed. utilize different methodologies, exclusions, estimates and assumptions in calculating their CEO pay ratios. Each part of our compensation program encourages and rewards both individual performance and the company’s Pay Ratio Methodology results and can include base salary, variable cash compensation, commissions, equity awards and other benefits. Under the rules adopted pursuant to the Dodd-Frank Act of 2010, Citrix is required to calculate and disclose the total compensation paid to its median paid employee, as well as Median Employee Determination We first determined our “median employee” during 2017 for purposes of determining our CEO pay ratio as disclosed in our 2017 Proxy Statement. The applicable SEC rules require us to identify a “median employee” only once every three years, as long as there have been no material changes in our employee 2019 Proxy Statement 69 population or employee compensation arrangements that we purposes of this calculation, we converted all local currency reasonably believe would result in a significant change to our to USD based on the average exchange rates over the twelve CEO pay ratio disclosure. Because there have been no months ended December 31, 2017. material changes in our employee population or employee compensation arrangements that we believe would Using this methodology, we determined that the median significantly impact the Company’s CEO pay ratio disclosure, employee was a full-time salaried employee located in the we are using the same “median employee” for our 2018 CEO United States who was awarded variable cash compensation pay ratio that we used for our 2017 CEO pay ratio, although and equity awards during 2017. Similarly, for 2018, the we have updated the calculation of the total compensation median employee was awarded variable cash compensation earned by that employee for 2018. and equity awards during 2018. The methodology and the material assumptions and estimates that we used to identify our “median employee” during 2017 were as described below. We determined that as of December 31, 2017, we had approximately 7,500 employees at Citrix. We used this employee population to determine the median employee. Under the relevant rules, we are required to identify the median employee using a “consistently applied compensation measure” (“CACM”). We chose a CACM that closely approximates the annual total direct compensation of our employees. Specifically, we identified the median employee using all elements of cash compensation. We excluded the value of benefits that were not paid in cash and equity. We did not adjust the compensation paid to part-time employees to calculate what they would have been paid on a full-time basis. We, however, annualized the compensation of all permanent full-time employees who were hired in 2017 but did not work for Citrix for the full year. We did not make any cost-of-living adjustments in identifying the median employee. For Calculating the Total Annual Compensation of the Median Employee and the Pay Ratio for 2018 Using the 2017 median employee, we calculated that employee’s total annual compensation in the same manner we calculate our President and Chief Executive Officer’s total annual compensation in the 2018 Summary Compensation Table on page 56. We determined that the median employee’s 2018 annual total compensation was $170,433. Our President and Chief Executive Officer’s annual total compensation as reported in the 2018 Summary Compensation Table was $19,253,101. As a result, the ratio of the annual total compensation of our Chief Executive Officer and President, to the annual total compensation of the median employee was 113 to 1. Neither the Compensation Committee nor Citrix management used this pay ratio measure in making compensation decisions. Given the differences in calculation methodology, our pay ratio should not be used as a basis for comparison across companies. Related Party Transactions Policies and Procedures and Transactions with Related Persons In accordance with its charter, the Nominating and Corporate transaction with an unaffiliated third-party. The Nominating Governance Committee reviews, approves and ratifies any and Corporate Governance Committee also considers its related person transaction. The term “related person fiduciary duties, our obligations under applicable securities transaction” refers to any transaction required to be law, including disclosure obligations and director disclosed in our filings with the SEC pursuant to Item 404 of independence rules, and other applicable law in evaluating Regulation S-K. any related person transaction. The Nominating and Corporate Governance Committee reports its determination In considering any related person transaction, the Nominating regarding any related person transaction to our full Board of and Corporate Governance Committee considers the facts Directors. and circumstances regarding such transaction, including, among other things, the amounts involved, the relationship of Since the beginning of 2018, there were no related person the related person (including those persons identified in the transactions, and there are not currently any proposed instructions to Item 404(a) of Regulation S-K) with our related person transactions, that would require disclosure company and the terms that would be available in a similar under SEC rules. 70 Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information regarding beneficial ownership of our common stock as of February 28, 2019: P r o x y ‰ ‰ ‰ ‰ by each person who is known by Citrix to beneficially own more than 5% of our outstanding shares of common stock; by each of our directors and nominees; by each of our Named Executive Officers; and by all of our directors and executive officers as a group. Name of Beneficial Owner The Vanguard Group(3) 100 Vanguard Boulevard Malvern, PA 19355 FMR LLC(4) 245 Summer Street Boston, MA 02210 BlackRock, Inc.(5) 55 East 52nd Street New York, NY 10055 Elliott Associates, L.P.(6) 40 West 57th Street New York, NY 10019 David J. Henshall(7) Antonio G. Gomes(8) Robert M. Calderoni(9) Donna N. Kimmel(10) Paul J. Hough(11) Mark M. Coyle(12) Andrew Del Matto(13) Murray J. Demo (14) Peter J. Sacripanti(15) Moira A. Kilcoyne(16) Nanci E. Caldwell(17) Thomas E. Hogan(18) Robert D. Daleo(19) Jesse A. Cohn(20) Ajei S. Gopal(21) Shares Beneficially Owned(1) Percentage of Shares Beneficially Owned(2) 14,351,992 10.92% 10,064,194 7.65% 9,565,070 7.28% 6,591,000 266,854 102,602 75,105 65,813 24,161 33,249 20,304 10,039 4,933 1,760 1,760 767 181 — — 5.01% * * * * * * * * * * * * * * * * All executive officers, directors and nominees as a group (19 persons)(22) 706,331 Represents less than 1% of the outstanding common stock. * (1) Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to shares. Unless otherwise indicated below, to our knowledge, all persons listed in the table have sole voting and dispositive power with respect to their shares of common stock, except to the extent authority is shared by spouses under applicable law. Pursuant to the rules of the SEC, the number of shares of common stock deemed outstanding includes shares issuable upon settlement of restricted stock units held by the respective person or group that will vest within 60 days of February 28, 2019 and pursuant to options held by the respective person or group that are currently exercisable or may be exercised within 60 days of February 28, 2019. Pursuant to our outside directors’ deferred compensation program for non-employee directors, our non-employee directors may elect to defer their annual equity awards and cash fees and as a result, this table reflects no beneficial ownership for certain non-employee directors who have elected deferral. Please see the discussion above under the heading Outside Directors’ Deferred Compensation Program for Non-Employee Directors for additional details on our deferral program. (2) Applicable percentage of ownership is based upon 131,472,973 shares of common stock outstanding as of February 28, 2019. (3) With respect to information relating to The Vanguard Group, we have relied solely on information supplied by such entity on a Schedule 13G/A filed with the SEC on February 11, 2019. Per the Schedule 13G/A, Vanguard held sole voting power over 162,361 shares, shared voting power over 27,532 shares, sole dispositive power over 14,164,824 shares, and shared dispositive power over 187,168 shares. (4) With respect to information relating to FMR LLC, we have relied solely on information supplied by such entity on a Schedule 13G/A filed with the SEC on February 13, 2019. Per the Schedule 13G/A, FMR held sole voting power over 443,707 shares and sole dispositive power over 10,064,194 shares. 2019 Proxy Statement 71 (5) With respect to information relating to BlackRock, Inc., we have relied solely on information supplied by such entity on a Schedule 13G/A filed with the SEC on February 4, 2019. Per the Schedule 13G/A, BlackRock held sole voting power over 8,347,687 shares and sole dispositive power over 9,565,070 shares. (6) With respect to information relating to Elliott Associates, L.P., or Elliott, we have relied solely on information supplied by such entity on a Schedule 13D/A filed with the SEC on November 30, 2018. In that Schedule 13D/A, Elliott, Elliott International, L.P., or Elliott International, and Elliott International Capital Advisors Inc., or EICA, and collectively with Elliott and Elliott International, the Elliott Reporting Entities, Elliott reported sole voting power and sole dispositive power with regard to 2,109,120 shares, including stock call options exercisable into 160,000 shares, and Elliott International and EICA reported shared voting power and shared dispositive power with regard to 4,481,880 shares, including stock call options exercisable into 340,000 shares. In addition, Elliott, through The Liverpool Limited Partnership, a Bermuda limited partnership and a wholly-owned subsidiary of Elliott, or Liverpool, and Elliott International reported entering into notional principal amount derivative agreements, or the Derivative Agreements, in the form of cash settled swaps with respect to 855,321 and 1,817,571 shares, respectively. The Derivative Agreements provide Elliott and Elliott International with economic results that are comparable to the economic results of ownership but do not provide them with the power to vote or direct the voting or dispose of or direct the disposition of the shares that are referenced in the Derivative Agreements. In the Schedule 13D/A, the Elliott Reporting Entities disclaimed beneficial ownership of the shares referenced in the Derivative Agreements. Includes 92,364 shares of common stock issuable upon settlement of restricted stock units that will vest within 60 days of February 28, 2019. Includes 31,270 shares of common stock issuable upon settlement of restricted stock units that will vest within 60 days of February 28, 2019. (7) (8) (9) Mr. Calderoni currently holds 17,036 vested restricted stock units pursuant to our outside directors’ deferred compensation program for non-employee directors. (10) Includes 32,146 shares of common stock issuable upon settlement of restricted stock units that will vest within 60 days of February 28, 2019. (11) Includes 8,820 shares of common stock issuable upon settlement of restricted stock units that will vest within 60 days of February 28, 2019. (12) Includes 18,458 shares of common stock issuable upon settlement of restricted stock units that will vest within 60 days of February 28, 2019. (13) Includes 20,304 shares of common stock issuable upon settlement of restricted stock units that will vest within 60 days of February 28, 2019. Pursuant to a letter agreement entered into between the company and Mr. Del Matto, subject to certain requirements, including signing a separation and release agreement with the company, 10,038 time-based restricted stock units previously granted to Mr. Del Matto will immediately accelerate and become nonforfeitable as of such date of termination. (14) Includes 392 shares of common stock issuable upon settlement of restricted stock units that will vest within 60 days of February 28, 2019. (15) Includes 392 shares of common stock issuable upon settlement of restricted stock units that will vest within 60 days of February 28, 2019. In addition, Mr. Sacripanti currently holds 11,826 vested deferred restricted stock units pursuant to our outside directors’ deferred compensation program for non-employee directors. (16) Includes 392 shares of common stock issuable upon settlement of restricted stock units that will vest within 60 days of February 28, 2019. (17) Includes 392 shares of common stock issuable upon settlement of restricted stock units that will vest within 60 days of February 28, 2019. In addition, Ms. Caldwell currently holds 31,303 vested deferred restricted stock units pursuant to our outside directors’ deferred compensation program for non-employee directors. (18) Includes 404 shares of common stock issuable upon settlement of restricted stock units that will vest within 60 days of February 28, 2019. (19) In addition, Mr. Daleo currently holds 35,897.575 vested deferred restricted stock units pursuant to our outside directors’ deferred compensation program for non-employee directors. (20) Mr. Cohn currently holds 22,489.668 deferred vested restricted stock units pursuant to our outside directors’ deferred compensation program for non-employee directors. (21) Mr. Gopal currently holds 3,549.285 deferred vested restricted stock units pursuant to our outside directors’ deferred compensation program for non-employee directors. (22) Includes 262,325 shares of common stock issuable upon settlement of restricted stock units that will vest within 60 days of February 28, 2019. Cooperation Agreement with Elliott In July 2015, we entered into a cooperation agreement with Elliott in favor of the directors nominated by our Board and in affiliates of Elliott Management, or Elliott, a significant accordance with management’s recommendations with investor in our company. Pursuant to this agreement, we respect to any other proposals (other than those relating to agreed to the initial appointment of Jesse A. Cohn, Elliott’s extraordinary transactions) at any annual meeting of Citrix Partner and head of U.S. equity activism, to our Board of shareholders at which Mr. Cohn (or another Elliott designee) Directors (we have no continuing obligation to appoint has been nominated by our Board of Directors for election as Mr. Cohn as a director pursuant to this agreement), and Elliott a director. Also, Elliott agreed to certain standstill restrictions agreed to vote all shares of Citrix common stock owned by that will continue until our Board fails to re-nominate 72 Mr. Cohn as a director for election at an annual meeting or the tender offer, merger, business combination, recapitalization, date that Mr. Cohn resigns as a director. These standstill restructuring, liquidation, dissolution or other similar restrictions include not engaging in any solicitation of proxies transaction involving Citrix; seeking, alone or in concert with or consents with respect to the election or removal of others, representation on our Board of Directors or the directors; forming or joining a “group” with respect to our removal of any member of our Board of Directors; or making common stock and other voting securities of Citrix; any shareholder proposal. These standstill restrictions beneficially owning more than 9.9% of the voting power of, or terminate automatically upon certain events, including in the economic exposure to, our common stock; making or event of certain extraordinary transactions involving our participating in any extraordinary transaction, including company. P r o x y Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as ‰ one Form 4 filed by each of Andrew H. Del Matto, Mark J. amended, requires our executive officers and directors, and Ferrer, Antonio G. Gomes, David J. Henshall, Paul J. Hough, persons who own more than ten percent of a registered class Donna N. Kimmel, Timothy A. Minchen, Jessica Soisson and of our equity securities, to file reports of ownership and Jeroen van Rotterdam to report one transaction for each of changes in ownership with the SEC and the Nasdaq Stock Messrs. Del Matto and Ferrer, three transactions for each Market. Our officers and directors and greater than ten of Messrs. Hough and van Rotterdam, four transactions for percent beneficial owners are required by SEC regulations to each of Messrs. Henshall, and Minahan and Ms. Kimmel, and furnish us with copies of all Section 16(a) forms they file. To five transactions for each of Mr. Gomes and Ms. Soisson our knowledge, based solely on our review of the copies of related to annual equity awards on March 29, 2018. The such reports furnished to us and written representations due date for these nine Form 4 filings was April 2, 2018, from our executive officers and directors that no other and they were filed on April 3, 2018; and reports were required during the fiscal year ended December 31, 2018, all Section 16(a) filing requirements applicable to our executive officers, directors and greater than ten percent beneficial owners were satisfied on a timely basis, with the exception of the following: ‰ one Form 4 filed by Jeroen van Rotterdam on April 6, 2018 to report one transaction related to Mr. van Rotterdam’s sale of stock under a 10b5-1 plan on April 2, 2018. The due date for this Form 4 filing was April 4, 2018, and it was filed on April 6, 2018. Tax Deductibility of Executive Compensation Section 162(m) of the Internal Revenue Code of 1986 Despite the Compensation Committee’s efforts to structure generally places a $1 million limit on the amount of certain performance-based awards in a manner intended to compensation a company can deduct in any one year for be exempt from Section 162(m) and therefore not subject to certain executive officers. While the Compensation its deduction limits, because of ambiguities and uncertainties Committee considers tax deductibility as one factor in as to the application and interpretation of Section 162(m) and determining executive compensation, the Compensation the regulations issued thereunder, including the uncertain Committee also looks at other factors in making its decisions, scope of the transition relief under the legislation repealing as noted above, and retains the flexibility to award the performance-based compensation exemption from the compensation that it determines to be consistent with the deduction limit, no assurance can be given that compensation goals of our executive compensation program even if the intended to satisfy the requirements for exemption from awards are not deductible by us for tax purposes. The Section 162(m) in fact will. Further, the Compensation exemption from Section 162(m)’s deduction limit for Committee reserves the right to modify compensation that performance-based compensation has been repealed, was initially intended to be exempt from Section 162(m) if it effective for taxable years beginning after December 31, determines that such modifications are consistent with our 2017, such that compensation paid to our Named Executive business needs. The Compensation Committee believes that Officers and certain other individuals in excess of $1 million shareholder interests are best served if its discretion and will not be deductible unless it qualifies for the limited flexibility in awarding compensation is not restricted, even transition relief applicable to certain arrangements in place as though some compensation awards may result of November 2, 2017. in non-deductible compensation expenses. 2019 Proxy Statement 73 Securities Authorized for Issuance under Equity Compensation Plans The following table provides information as of December 31, 2018, with respect to the securities authorized for issuance to our employees and directors under our equity compensation plans, consisting of: ‰ Amended and Restated 2005 Equity Incentive Plan (which we refer to as the 2005 Stock Plan); ‰ Amended and Restated 2014 Plan; and ‰ 2015 Employee Stock Purchase Plan. EQUITY COMPENSATION PLAN INFORMATION TABLE (A) Number of securities to be issued upon exercise of outstanding options, warrants and rights 5,902,557 — 5,902,557 (B) Weighted- average exercise price of outstanding options, warrants and rights $— $— $— (C) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A)) 29,213,762 — 29,213,762 Plan category Equity compensation plans approved by security holders(1) Equity compensation plans not approved by security holders Total (1) Includes securities issuable upon rights that were granted pursuant to our 2005 Stock Plan. No additional awards will be granted under this plan. Also includes securities issuable upon rights that have been issued pursuant to the Amended and Restated 2014 Plan, which is currently available for future grants. Also includes securities remaining available for future issuance under our 2015 Employee Stock Purchase Plan. Equity Compensation Plans We are currently granting stock-based awards from our Amended and Restated 2014 Plan and our 2015 Employee Stock Purchase Plan, which are overseen by the Compensation Committee of our Board of Directors. 74 Part 5 Audit Committee Matters P r o x y Report of the Audit Committee The Audit Committee oversees the accounting and financial reporting processes of Citrix and the audits of the consolidated financial statements of Citrix on behalf of the Board of Directors. In fulfilling its oversight responsibilities, the Audit Committee reviewed with management the audited consolidated financial statements in Citrix’s Annual Report on Form 10-K for the year ended December 31, 2018, and discussed with management the quality, not just the acceptability, of the accounting principles, the reasonableness of significant estimates and judgments, critical accounting policies and accounting estimates resulting from the application of these policies, and the substance and clarity of disclosures in the financial statements, and reviewed Citrix’s disclosure controls and procedures and internal control over financial reporting. The Board of Directors has determined that each member of the Audit Committee meets the independence requirements promulgated by Nasdaq and the SEC, including Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended. Messrs. Daleo and Demo each qualify as an “audit committee financial expert” under the rules of the SEC. The Audit Committee has reviewed Citrix’s audited consolidated financial statements at December 31, 2018 and 2017 and for each of the years in the three-year period ended December 31, 2018 and has discussed them with both management and Ernst & Young. The Audit Committee also discussed with Ernst & Young the overall scope and plan for their annual audit for 2018. The Audit Committee met The Audit Committee reviewed and discussed with Ernst & Young the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board, or PCAOB. In addition, the Audit Committee has reviewed the services provided by Ernst & Young and discussed with Ernst & Young its independence from management and Citrix, including the matters in the written disclosures and letter from independent accountants required by PCAOB Rule 3526 and considered the compatibility of non-audit services with the registered public accountants’ independence. Based on the Audit Committee’s review of the financial statements and the reviews and discussions referred to above, it concluded that it would be reasonable to recommend, and on that basis did recommend, to the Board of Directors that the audited consolidated financial statements be included in Citrix’s Annual Report on Form 10-K for the year ended December 31, 2018. No portion of this Audit Committee Report shall be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, through any general statement incorporating by reference in its entirety the Proxy Statement in which this report appears, except to the extent that Citrix specifically incorporates this report or a portion of it by reference. In addition, this report shall not be deemed filed under either the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. separately with Ernst & Young in its capacity as Citrix’s Respectfully submitted by the Audit Committee, independent registered public accountants, with and without management present, to discuss the results of Ernst & Young’s procedures, its evaluations of Citrix’s internal control over financial reporting, and the overall quality of its financial reporting, as applicable. Robert D. Daleo Murray J. Demo Thomas E. Hogan Moira A. Kilcoyne 2019 Proxy Statement 75 Fees Paid to Ernst & Young The following table shows the aggregate fees for Audit-Related Fees professional services rendered to us by Ernst & Young during the fiscal years ended December 31, 2018 and December 31, 2017. Audit Fees Audit-Related Fees Tax Fees All Other Fees Total Audit Fees Audit-Related Fees for 2018 and 2017 consist of fees for services for the annual audits of employee benefit plans. Audit-Related Fees for 2017 also include fees for 2018 2017 professional services rendered for potential business $5,886,726 $6,058,999 combinations and internal control reviews. $ 48,500 $ 570,147 $3,688,054 $2,905,176 $ 2,500 2,500 $9,625,780 $9,536,822 Tax Fees Tax Fees consist of fees for professional services rendered for assistance with federal, state, local and international tax compliance and consulting. Tax compliance fees were $854,514 for 2018 and $898,348 for 2017. Tax Fees also Audit fees consist of fees for professional services associated include fees of $2,833,540 for 2018 and $2,006,828 for 2017 with the annual consolidated financial statements audit, review of the interim financial statements included in our for services rendered for tax examination assistance, tax research and tax planning services in the countries in which quarterly reports on Form 10-Q, and services in connection we do business. with international statutory audits, regulatory filings, and accounting consultations. Audit Fees for both years also include fees for professional services rendered for the audit of the effectiveness of internal control over financial reporting as promulgated by Section 404 of the Sarbanes- Oxley Act. Audit Partner Rotation Other Fees Other Fees for 2018 and 2017 consist of fees for publications and on-line subscriptions and materials. In accordance with SEC rules and Ernst & Young policies, of our lead audit partner pursuant to this rotation policy audit partners are subject to rotation requirements to limit involves meetings among the Chair of the Audit Committee, the number of consecutive years an individual partner may our Chief Financial Officer and the candidate for the role, as provide service to Citrix. For lead and concurring audit well as discussion by the full Audit Committee and with other partners, the maximum number of consecutive years of members of management. service in that capacity is five years. The process for selection Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor The Audit Committee has implemented procedures under our exceeding the pre-approved monetary limits require specific Audit Committee Pre-Approval Policy for Audit and Non-Audit approval by the Audit Committee. All of the audit-related, tax Services, which we refer to as the Pre-Approval Policy, to and all other services provided to us by Ernst & Young in 2018 ensure that all audit and permitted non-audit services to be and 2017 were approved by the Audit Committee by means provided to Citrix have been pre-approved by the Audit of specific pre-approvals or pursuant to the procedures Committee. Specifically, the Audit Committee pre-approves contained in the Pre-Approval Policy. All non-audit services the use of our independent registered public accounting firm provided in 2018 and 2017 were reviewed with the Audit for specific audit and non-audit services, within approved Committee, which concluded that the provision of such monetary limits. If a proposed service has not been services by Ernst & Young was compatible with the pre-approved pursuant to the Pre-Approval Policy, then it maintenance of that firm’s independence in the conduct of its must be specifically pre-approved by the Audit Committee auditing functions. For additional information concerning the before the service may be provided by our independent Audit Committee and its activities with Ernst & Young, see registered public accounting firm. Any pre-approved services Our Board Committees beginning on page 24. 76 Part 6 Proposals to be Voted on at the Meeting P r o x y Proposal 1 Election of Director Nominees Our Board of Directors currently consists of ten members. 2019 Annual Meeting. The Board of Directors knows of no Directors elected at this meeting will serve a term of one reason why any of the nominees would be unable or unwilling year. The table below sets forth the nominees for directors at to serve, but if any nominee should for any reason be unable the 2019 Annual Meeting. or unwilling to serve, the proxies will be voted for the election of such other person for the office of director as the Board of The Board of Directors, upon the recommendation of the Directors may recommend in the place of such nominee. Nominating and Corporate Governance Committee, has Unless otherwise instructed, the proxy holders will vote the nominated the Board members, listed in the chart below, for proxies received by them for the nominees named below. re-election and has recommended that each be elected to the Board of Directors, each to hold office until the annual This proposal for the election of directors relates solely to the meeting of shareholders to be held in the year 2020 and until election of ten directors nominated by our Board of Directors his or her successor has been duly elected and qualified or and does not include any other matters relating to the until his or her earlier death, resignation or removal. All of the election of directors, including, without limitation, the nominees are current directors whose terms expire at the election of directors nominated by any of our shareholders. Recommendation of the Board THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE FOLLOWING NOMINEES: Nominee’s or Director’s Name Director Since Position(s) with Citrix Robert M. Calderoni Nanci E. Caldwell Jesse A. Cohn Robert D. Daleo Murray J. Demo Ajei S. Gopal David J. Henshall Thomas E. Hogan Moira A. Kilcoyne Peter J. Sacripanti 2014 2008 2015 2013 2005 2017 2017 2018 2018 2015 Chairman Lead Independent Director Director Director Director Director President, Chief Executive Officer and Director Director Director Director 2019 Proxy Statement 77 Proposal 2 Amendment to Amended and Restated 2014 Equity Incentive Plan On March 11, 2019, our Board of Directors, upon the The Amended and Restated 2014 Plan (prior to the recommendation of the Compensation Committee, approved effectiveness of the Plan Amendment) currently employs a the Second Amendment to the Amended and Restated 2014 fungible share formula under which shares of our common Plan (which we refer to herein as the Plan Amendment), stock underlying “full-value” awards (i.e., awards other than subject to shareholder approval, to: stock options and stock appreciation rights) are counted ‰ ‰ decrease the total number of shares authorized for issuance under the Amended and Restated 2014 Plan by 2,600,000 shares, from 46,000,000 to 43,400,000 shares; and against the Plan’s share limit as 2.75 shares for every one share of common stock underlying the award. The Plan Amendment would remove the 2.75 fungible share formula. Accordingly, so-called full-value awards granted under our Plan on or after the effective date of the Plan Amendment remove the fungible share formula so that, going would be counted against the Plan’s share limit as one share forward, each share underlying awards granted under for every one share underlying the award. Because the 2.75 the Amended and Restated 2014 Plan will reduce the formula was in place with respect to awards made prior to share reserve by one share and all shares underlying the Plan Amendment, any forfeitures, cancellations or other forfeited, cancelled or terminated awards that are terminations of a full-value award that was granted prior to granted on or after the effective date of the Plan the Plan Amendment will return back to the Plan’s share Amendment will be returned to the share reserve in the reserve pool as 2.75 shares for every one share underlying same manner. the relevant award to reflect the formula used at the time References to the Amended and Restated 2014 Plan, or to such award was granted. the Plan, in the remainder of this discussion refer to the In addition to the removal of the fungible share formula, the Amended and Restated 2014 Plan as if this Proposal 2 is Plan Amendment also decreases the maximum number of approved by our shareholders, unless otherwise specified or shares authorized for issuance under the Plan by 2,600,000 the context otherwise references the Amended and Restated shares, from 46,000,000 to 43,400,000 shares. 2014 Plan prior to it being amended. The Plan Amendment will only become effective if and when approved by Our Board of Directors believes that the Plan Amendment will shareholders. give Citrix greater flexibility to structure future incentives and BackgroundofProposal We operate in a challenging and competitive environment and our success depends, to a great extent, on our ability to attract, retain and effectively motivate the most qualified employees, officers and non-employee directors. Our Compensation Committee and Board of Directors believe we must continue to offer a competitive equity compensation program in order to meet those objectives and, as such, our equity compensation program constitutes a significant part of our overall compensation philosophy at Citrix. Each year, we seek to grant equity-based compensation to a significant percentage of our employee population and, in recent years, have increased that percentage in order to be competitive with our peers and industry practice. Ensuring that our equity compensation program is appropriately tailored requires better attract, retain, motivate and reward key employees and non-employee directors. If our shareholders do not approve this proposal, the current share limits under, and other terms and conditions of, the Amended and Restated 2014 Plan as currently in place will continue in effect. As of April 2, 2019, under the Amended and Restated 2014 Plan (the only plan from which we grant equity), there were: ‰ ‰ 5,640,416 total shares remaining available for grant of full-value awards (after giving effect to this Proposal 2, including decreasing the total number of shares authorized for issuance); and 6,564,390 unvested full-value awards outstanding and no options, stock appreciation rights or other awards outstanding. continuous reevaluation and careful management of our With this amendment, we are not requesting that Amended and Restated 2014 Plan. shareholders authorize any additional shares for the Plan. 78 P r o x y RationaleforPlanAmendment As we have discussed previously in the Compensation Discussion and Analysis section of this Proxy Statement, we believe that stock-based incentive awards play an important role in our success by motivating and enabling our employees, officers and non-employee directors, upon whose judgment, initiative and efforts we largely depend for the successful conduct of our business, to acquire a proprietary interest in Citrix. Further, we believe that continuing to available share reserve). Requesting additional shares would dilute our current shareholders. Removing the fungible share formula allows us to make additional grants without such additional dilution. Further, we are reducing the share reserve under the Plan by 2,600,000 shares. Our Compensation Committee heavily weighted potential dilution to existing shareholders when considering the Plan Amendment. motivate and retain such individuals who we expect to make - The Plan Amendment allows us to maintain an important contributions to our business will impact the speed equity compensation program primarily comprised and success of our transition to a cloud-based subscription of full-value awards. Since 2012, our annual equity business. Our Board of Directors anticipates that providing grant program has consisted entirely of full-value these individuals with a direct stake in Citrix will more closely awards, and almost exclusively restricted stock align the interests of such individuals with those of Citrix and units. The use of restricted stock units furthers our our shareholders, thereby encouraging their efforts on our goals of managing burn rate and dilution by reducing behalf and strengthening their desire to remain with us. the number of shares of our common stock subject to equity-based awards (as compared to other types As we anticipated in 2017, when we most recently requested of awards) while continuing to provide incentive for and received shareholder approval for an increase to the our high performers to remain with us and to number of shares available for issuance under the Plan, and perform at a high level and we expect to continue to as a result of a number of factors, including the impact of a grant primarily full-value awards. As a result, the fungible share formula on our grants of restricted stock units fungible share formula is less relevant than in prior and the fact that we have not historically requested outsized periods. increases to the share reserve available under the Plan which would have resulted in significantly greater equity dilution, Citrix will need additional shares for issuance under the Plan in order to continue providing stock-based incentive awards to recruit, hire and retain the talent required to successfully execute our business plan. Consistent with our focus on achieving such operational objectives while also exercising discipline in order to limit or reduce dilution, we are not currently seeking to increase the share reserve available under the Plan. Instead, the Plan Amendment provides for a change to our fungible share formula while also reducing the overall share reserve by 2,600,000 in order to mitigate the dilutive impact of the revision to the fungible share formula. Our Compensation Committee, working with management and our independent compensation advisors, determined that removing the fungible share formula from the Plan and decreasing the shares available under the Plan, without asking for an increase to the share reserve, was in the best interests of Citrix and its shareholders because: - The Plan Amendment provides increased transparency and a truer indication of the number of shares of our common stock remaining under the Amended and Restated 2014 Plan share reserve. To illustrate the end result of the Plan Amendment, we have (prior to giving effect to the Plan Amendment) 8,240,416 total shares remaining available for issuance under the Amended and Restated 2014 Plan as of April 2, 2019. Due to the fungible share counting structure and the 2.75:1 ratio for full-value awards under the Amended and Restated 2014 Plan, we only have 2,996,515 total shares remaining available for the grant of full-value awards as of such date. If this Proposal 2 is approved by our shareholders, we would have 5,640,416 total shares remaining available for grant of full-value awards under the Amended and Restated 2014 Plan as of April 2, 2019, and have a better measure of the shares that we estimate that we will need for future awards. Our Board of - The Plan Amendment will allow us to make grants Directors believes that having more shares available from our share reserve and will not directly for full-value awards will help us achieve our goals increase the dilutive effect on shareholders’ by keeping our incentive compensation program current holdings (unlike a proposal to increase the competitive with those of comparable companies. 2019 Proxy Statement 79 Our Board of Directors approved the Plan Amendment, Other material features of the Plan, as amended by the Plan subject to approval by our shareholders, following the Amendment, include: recommendations of our Compensation Committee and consideration of various sources of information and relevant factors including review and discussion of our historical and anticipated equity grant practices and requirements, the dilutive impact of the alternatives available to address anticipated equity incentive needs, the advice of our independent compensation consultant, and in light of our significant institutional shareholder base, the policy guidelines of major proxy advisory firms. The Board of Directors believes it is in the best interests of Citrix and its shareholders to approve the Plan Amendment and recommends that shareholders vote in favor of this Proposal 2. Our carefully-considered reasoning, as well as a summary of the Amended and Restated 2014 Plan, is provided below. AmendedandRestated2014PlanReflectsContinued FocusonDisciplinedEquityCompensationPractices ‰ ‰ ‰ The maximum number of shares of common stock authorized for issuance under the Plan is 43,400,000 (or 46,000,000 if the Plan Amendment is not approved by shareholders); The award of stock options (both incentive and non-qualified options), stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, performance shares, dividend equivalent rights and cash-based awards is permitted; and Certain amendments to the Plan are subject to approval by our shareholders. The Plan also contains certain limits on the compensation of our non-employee directors. The value of all equity-based awards granted under the Plan to any of our non-employee directors in any calendar year shall not exceed $795,000 (excluding any awards granted in connection with a The Amended and Restated 2014 Plan, as amended by the non-employee director’s initial election to the Board). The Plan Amendment, continues to reflect responsible equity value of all cash compensation, not including the value of compensation practices including the following features: awards under the Plan, paid by the Company to any ‰ ‰ Shares tendered or held back for taxes will not be added back to the reserved pool under the Plan. Upon the exercise of a stock appreciation right, the full number of shares underlying the award will be charged to the reserved pool. Additionally, shares that we reacquire on the open market will not be added to the reserved pool; non-employee director for his or her services as such in any calendar year shall not exceed $500,000. These limits were included in our Plan at the time that it was last approved by our shareholders. The shares of common stock underlying any awards that are forfeited, canceled, reacquired by us prior to vesting, satisfied Stock options and stock appreciation rights may not be without any issuance of stock, expire or are otherwise granted below fair market value and will not be repriced terminated (other than by exercise) under the Plan or the in any manner without shareholder approval; 2005 Equity Incentive Plan are added back to the shares of ‰ No reload grants are permitted; common stock available for issuance under the Plan. Each share underlying awards granted under the Plan prior to the ‰ No “evergreen” provision is included (i.e., no automatic Plan Amendment will be added back to the Plan as 2.75 annual share reserve increase); shares. The following shares will not be added back to the ‰ The number of shares that may be issued in any year to an individual in the form of certain awards is limited; ‰ Awards granted under the Plan are subject to our shares authorized for issuance under the Plan: shares tendered or held back upon exercise of an option or settlement of an award to cover the exercise price or tax withholding, and shares subject to a stock appreciation right executive compensation recovery (or clawback) policy; that are not issued in connection with the stock settlement of ‰ ‰ If the Plan Amendment is approved by shareholders, the Plan will count the number of actual shares underlying an award granted after the effective date of the Plan Amendment for purposes of calculating the remaining share reserve available; and The term of the Plan is fixed and will expire on June 22, 2027. the stock appreciation right upon exercise. In addition, if we repurchase shares on the open market, such shares will not be added back to the Plan. WeManageOurEquityIncentiveProgramThoughtfully We manage our long-term shareholder dilution by limiting the number of equity incentive awards granted annually. The Compensation Committee carefully monitors our annual net 80 burn rate, total dilution, and equity expense in order to likely find acceptable. We anticipate that if the Plan maximize shareholder value by granting only the appropriate Amendment is approved, the number of shares available for number of equity incentive awards that it believes are issuance under the Plan will be sufficient to provide equity necessary to attract, reward, and retain employees, officers, incentives to attract, retain, and motivate employees through P r o x y and non-employee directors. the next 18 to 24 months. The following table shows our historical dilution and burn rate Note Regarding Forecasts and Forward-Looking Statements percentages. As of and for the year-ended December 31 Full Dilution(1) Gross Burn Rate(2) 2018 2017 2016 13.7% 16.4% 11.3% 1.6% 2.1% 2.9% (1) Full Dilution is calculated as (shares available for grant under our equity incentive plans + shares subject to outstanding equity incentive awards)/(common stock outstanding + shares available for grant under our equity incentive plans + shares subject to outstanding equity incentive awards). (2) Gross Burn Rate is calculated as (shares subject to equity incentive awards granted / weighted average common shares outstanding). Our total dilution has been impacted by an active stock repurchase program, which was initiated in July 2000. During the 19-year period ended December 31, 2018, we have repurchased approximately 177 million shares under this program. We believe that our stock repurchase program represents a valuable use of cash that has improved shareholder value. Because dilution increases as total shares outstanding decrease, the effect of our stock repurchase program has been to increase our dilution by more than 116%. Specifically, if we had not repurchased approximately 177 million shares under the program, dilution as of December 31, 2018 would have been 6.3% instead of 13.7%. We do not as a matter of course make public forecasts as to our total shares outstanding and utilization of various equity awards due to the unpredictability of the underlying assumptions and estimates. In particular, the forecasts set forth above in this Proposal 2 include embedded assumptions which are highly dependent on the public trading price of our common stock and other factors, which we do not control and, as a result, upon which we do not as a matter of practice provide forecasts. These forecasts reflect various assumptions regarding our future operations. The inclusion of the forecasts set forth above should not be regarded as an indication that these forecasts will be predictive of actual future outcomes, and the forecasts should not be relied upon as such. BackgroundonourStockCompensation Our comprehensive compensation programs include base salary, variable cash compensation tied to our financial and individual goals, and stock-based compensation. We have a long history of linking employee compensation to our long- term stock performance. For over 25 years, we have been granting equity awards to employees in connection with a focused evaluation of strategic value and in cases of high- level performance. In addition, as of April 2, 2019, assuming approval of the Plan As of April 2, 2019, under all of our equity-based Amendment including the 2,600,000 share reserve reduction, compensation plans (prior to giving effect to the Plan dilution would be 8.4%. Given that our Gross Burn Rate is calculated as a percentage of the weighted average common shares outstanding, our share repurchase program has also impacted our Gross Burn Rate. Specifically, if we had not repurchased approximately 177 million shares under the program, our Gross Burn Rate Amendment), there were 8,240,416 total shares of common stock remaining available for grant of which 2,996,515 may be issued as full-value awards. As of such date, there were 6,564,390 unvested full-value awards outstanding and there were otherwise no options, stock appreciation rights or other awards outstanding under our equity compensation plans. for the year ended December 31, 2018 would have been 1.3% We believe that our focus on pay-for-performance, as well as instead of 2.9%. Our Compensation Committee determined the number of shares available for issuance under the Plan after giving effect to the Plan Amendment, based on projected equity awards to anticipated new hires, projected annual equity awards to existing employees, and an assessment of the magnitude of increase that our employee participation as shareholders, have been key contributing factors in enabling our growth and will continue to be important to our ability to achieve consistent performance in the years ahead. We believe that consistent performance is achieved through the ability to attract, retain and motivate the employee talent critical to attaining long- institutional investors and the firms that advise them would term improved company performance and shareholder 2019 Proxy Statement 81 returns. Therefore, we consider approval of the Plan PlanLimits Amendment vital to our future success. In 2018, we used, and intend to continue using, restricted stock units as our primary means of providing equity compensation to our employees, officers, and non-employee directors. We will continue to evaluate other equity-based compensation vehicles, such as restricted stock and stock appreciation rights, and may return to more widespread option grants in the future, as a means of providing additional equity compensation to our employees, officers, and non-employee directors. SummaryofthePlan The following description of certain features of the Plan is intended to be a summary only. The summary is qualified in its entirety by the full text of the Plan Amendment that is attached as Appendix A to this Proxy Statement and the copies of the Plan and the First Amendment to the Plan which are filed with the SEC as Exhibit 10.1 to Citrix’s Current Report on Form 8-K filed on June 27, 2017 and Exhibit 10.8 to Citrix’s Quarterly Report on Form 10-Q filed on May 4, 2018, respectively. PlanAdministration The maximum number of shares of common stock available for issuance under the Plan (as amended by the Plan Amendment) is 43,400,000. The maximum award of stock options or stock appreciation rights granted to any one individual will not exceed 2,000,000 shares of common stock (subject to adjustment for stock splits and similar events) for any calendar year period. In addition, no more than 46,000,000 shares will be issued in the form of incentive stock options. EffectofAwards For purposes of determining the number of shares of common stock available for issuance under the Plan, subject to approval of the Plan Amendment, the grant of any award granted on or after the effective date of the Plan Amendment will be counted for this purpose as one share for each share of common stock actually subject to the award, except that any forfeitures, cancellations or other terminations (other than by exercise) of a full-value award that was granted prior to the Plan Amendment shall return back to the Plan’s pool as 2.75 shares for every one share to reflect the formula used at the time such award was granted. The Plan is administered by the Compensation Committee. StockOptions The Compensation Committee has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the Plan. The Compensation Committee may delegate to our Chief Executive Officer, Chief Financial Officer or Chief People Officer the authority to grant stock awards to employees who are not subject to the reporting and other provisions of Section 16 of the Exchange Act, subject to certain limitations and guidelines. Eligibility The Plan permits the granting of the following stock options: (1) options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986 and (2) options that do not so qualify. Options granted under the Plan will be non-qualified options if they fail to qualify as incentive options or to the extent these exceed the annual limit on incentive stock options. Incentive stock options may only be granted to our employees. Non-qualified options may be granted to any persons eligible to receive incentive options and to non-employee directors and consultants. The option exercise price of each option will be determined by the Compensation Committee but may not be less than 100% of the fair market Persons eligible to participate in the Plan will be those of our value of the common stock on the date of grant. Fair market full or part-time officers, employees, non-employee directors value for this purpose will be the last reported sale price of and consultants selected from time to time by the the shares of common stock on the NASDAQ Global Select Compensation Committee in its discretion. As of April 2, Market on the date of grant. The exercise price of an option 2019, approximately 8,400 individuals are currently eligible to may not be reduced after the date of the option grant, other participate in the Plan, which includes eight executive than to appropriately reflect changes in our capital structure. officers, 8,392 employees who are not executive officers, and nine non-employee directors. The term of each option will be fixed by the Compensation Committee and may not exceed five years from the date of grant. The Compensation Committee will determine at what 82 P r o x y time or times each option may be exercised. Options may be RestrictedStockUnits made exercisable in installments and the exercisability of options may be accelerated by the Compensation Committee. In general, unless otherwise permitted by the Compensation Committee, no option granted under the Plan is transferable by the optionee other than by will or by the laws of descent and distribution, and options may be exercised during the optionee’s lifetime only by the optionee, or by the optionee’s legal representative or guardian in the case of the optionee’s incapacity. Upon exercise of options, the option exercise price must be paid in full either in cash, by certified or bank check or other instrument acceptable to the Compensation Committee or by delivery (or attestation to the ownership) of shares of common stock that are beneficially owned by the optionee or were purchased in the open market. Subject to applicable law, the exercise price may also be delivered to Citrix by a broker pursuant to irrevocable instructions to the broker from the The Compensation Committee may award restricted stock units to any participants. Restricted stock units are ultimately payable in the form of shares of common stock and may be subject to such conditions and restrictions as the Compensation Committee may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with us through a specified vesting period. In the Compensation Committee’s sole discretion, it may permit a participant to make an advance election to receive a portion of his or her future cash compensation otherwise due in the form of a deferred stock unit award, subject to the participant’s compliance with the procedures established by the Compensation Committee and requirements of Section 409A of the Internal Revenue Code of 1986. UnrestrictedStockAwards optionee. In addition, the Compensation Committee may The Compensation Committee may also grant shares of permit non-qualified options to be exercised using a net common stock which are free from any restrictions under the exercise feature which reduces the number of shares issued Plan. Unrestricted stock may be granted to any participant in to the optionee by the number of shares with a fair market recognition of past services or other valid consideration and value equal to the exercise price. may be issued in lieu of cash compensation due to such To qualify as incentive stock options, options must meet additional federal tax requirements, including a $100,000 PerformanceShareAwards participant. limit on the value of shares subject to incentive options that first become exercisable by a participant in any one calendar year. StockAppreciationRights The Compensation Committee may grant performance awards to any participant which entitle the recipient to receive shares of common stock upon the achievement of certain performance goals and such other conditions as the Compensation Committee shall determine. Except in the case The Compensation Committee may award stock appreciation of a change in control, these awards granted to employees rights subject to such conditions and restrictions as the will have a performance period of at least one year. Compensation Committee may determine. Stock appreciation rights entitle the recipient to shares of common stock equal DividendEquivalentRights to the value of the appreciation in the stock price over the exercise price. The exercise price is the fair market value of the common stock on the date of grant. The maximum term of a stock appreciation right is five years. RestrictedStock The Compensation Committee may grant dividend equivalent rights to participants which entitle the recipient to receive credits for dividends that would be paid if the recipient had held specified shares of common stock. Dividend equivalent rights granted as a component of another award may be paid only if the related award becomes vested and settled. The Compensation Committee may award shares of common Dividend equivalent rights may be settled in cash, shares of stock to participants subject to such conditions and common stock or a combination thereof, in a single restrictions as the Compensation Committee may determine. installment or installments, as specified in the award. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with us through a specified restricted period. 2019 Proxy Statement 83 Cash-BasedAwards The Compensation Committee may grant cash bonuses under the Plan to participants. The cash bonuses may be subject to the achievement of certain performance goals. Acquisition prior to the effective time of an Acquisition shall become fully exercisable as of the effective time of the Acquisition, all other awards with time-based vesting, conditions or restrictions shall become fully vested and nonforfeitable as of the effective time of an Acquisition and all awards with conditions and restrictions relating to the attainment of performance goals will be deemed achieved at 100% of target levels, unless otherwise set forth in In the event of an “Acquisition” (as defined in the Plan), Citrix an award agreement, and become fully vested and and the surviving or acquiring entity, shall, as to outstanding awards (on the same basis or on different bases as the Compensation Committee shall specify), make appropriate provision for the assumption or continuation of such awards or the substitution of such awards on an equitable basis with new awards, with appropriate adjustments as to the number nonforfeitable as of the effective time of an Acquisition. In such cases, such awards shall become exercisable in full prior to the consummation of the Acquisition at such time and on such conditions as the Compensation Committee determines, and if such awards are not exercised prior to the consummation of the Acquisition, they shall terminate at such time as determined by and kind of shares, and if appropriate, the per share exercise the Compensation Committee. prices, as such parties shall agree, the fair market value of which shall not materially differ from the fair market value of In the event of an involuntary termination of services of a the shares of Citrix common stock subject to such awards participant for any reason other than death, disability or Cause immediately preceding the Acquisition. To the extent the (as defined in the Plan) within six months following the parties to such Acquisition do not provide for the assumption, consummation of an Acquisition, any awards of the participant continuation or substitution of awards, the Plan and all assumed or substituted in the Acquisition which are subject to outstanding awards shall terminate, and, except as the vesting conditions, shall accelerate in full, and any awards Compensation Committee may otherwise specify, all options accelerated in such manner with conditions and restrictions and stock appreciation rights shall become exercisable in full relating to the attainment of performance goals will be deemed prior to the consummation of the Acquisition, all other achieved at 100% of target levels. All such accelerated options awards subject to time-based vesting shall become fully or stock appreciation rights of the participant shall be vested and non-forfeitable as of the effective time of the exercisable for a period of one year following termination, but Acquisition and all awards with conditions and restrictions in no event after the expiration date of such award. relating to the attainment of performance goals will, in each case unless otherwise set forth in an award agreement, be In the event of an Acquisition, the vesting of any and all deemed achieved at 100% of target levels and become fully awards held by any participant who is a Non-Employee vested and nonforfeitable as of the effective time of an Director shall accelerate and become exercisable in full prior Acquisition. to the consummation of the Acquisition at such time and on such conditions as the Compensation Committee determines, In addition to or in lieu of the foregoing, with respect to and shall terminate if not exercised prior to the outstanding options or stock appreciation rights, the consummation of the Acquisition. Compensation Committee may, upon written notice to the affected participant, provide that one or more options or stock AdjustmentsforStockDividends,StockSplits,Etc. appreciation rights then outstanding must be exercised, in whole or in part, within a specified number of days of the date of such notice, at the end of which period such options or stock appreciation rights shall terminate, or provide that one or more options or stock appreciation rights then outstanding, in whole or in part, shall be terminated in exchange for a cash payment The Plan requires the Compensation Committee to make appropriate adjustments to the number of shares of common stock that are subject to the Plan, to certain limits in the Plan, and to any outstanding awards to reflect stock dividends, stock splits, extraordinary cash dividends and similar events. equal to the excess of the fair market value for the shares subject to such options or stock appreciation rights over the Clawback exercise price thereof. Awards granted under the Plan are subject to clawback pursuant to our executive compensation recovery policy. The Compensation Committee may provide that all options and stock appreciation rights that are not exercisable immediately 84 P r o x y DisputeResolution NewPlanBenefits The Plan provides that all disputes or claims arising under the All awards to executive officers in future periods are made at Plan shall be resolved by confidential binding arbitration. the discretion of the Compensation Committee and our TaxWithholding Participants in the Plan are responsible for the payment of any federal, state or local taxes that we are required by law to withhold upon the exercise of options or stock appreciation rights or vesting of other awards. Subject to approval by the Compensation Committee, the tax withholding obligations may be satisfied by us withholding shares of common stock to be issued pursuant to the exercise or vesting of the award. Board. Therefore, the benefits and amounts that will be received or allocated under the Plan to such persons are not determinable at this time. TaxAspectsUndertheInternalRevenueCodeof1986 The following is a summary of the principal federal income tax consequences of certain transactions under the Plan. It does not describe all federal tax consequences under the Plan, nor does it describe state or local tax consequences. AmendmentsandTermination IncentiveOptions Our Board of Directors may at any time amend or discontinue the Plan and the Compensation Committee may at any time amend or cancel any outstanding award for the purpose of satisfying changes in the law or for any other lawful purpose. However, no such action may adversely affect any rights under any outstanding award without the holder’s consent. Stock options and stock appreciation rights may not be amended to reduce the exercise price, or otherwise repriced in any manner, without shareholder approval. In addition, to the extent required under the rules of NASDAQ, any amendments that materially change the terms of the Plan will be subject to approval by our shareholders. Amendments shall also be subject to approval by our shareholders if and to the extent determined by the Compensation Committee to be required by the Internal Revenue Code of 1986 to preserve the qualified status of incentive options or to ensure that compensation earned under the Plan qualifies as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986. EffectiveDateofPlan Our Board of Directors adopted the Plan on March 14, 2017, and the Plan became effective when it was approved by our No taxable income is generally realized by the optionee upon the grant or exercise of an incentive option. If shares of common stock issued to an optionee pursuant to the exercise of an incentive option are sold or transferred after two years from the date of grant and after one year from the date of exercise, then (i) upon sale of such shares, any amount realized in excess of the option price (the amount paid for the shares) will be taxed to the optionee as a long-term capital gain, and any loss sustained will be a long-term capital loss, and (ii) we will not be entitled to any deduction for federal income tax purposes. The exercise of an incentive option will give rise to an item of tax preference that may result in alternative minimum tax liability for the optionee. If shares of common stock acquired upon the exercise of an incentive option are disposed of prior to the expiration of the two-year and one-year holding periods described above (a “disqualifying disposition”), generally (i) the optionee will realize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of the shares of common stock at exercise (or, if less, the amount realized on a sale of such shares of common stock) over the option price thereof, and (ii) we will be entitled to deduct such amount. Special rules will apply where all or a shareholders on June 22, 2017. The Plan was amended by the portion of the exercise price of the incentive option is paid by First Amendment to the Plan, adopted by the Board of tendering shares of common stock. Directors on March 7, 2018 to add our Chief People Officer to the list of officers to whom certain authority may be If an incentive option is exercised at a time when it no longer delegated under the Plan. The Plan Amendment to change the qualifies for the tax treatment described above, the option is fungible ratio and decrease the number of shares available treated as a non-qualified option. Generally, an incentive for issuance under the Plan was adopted by our Board of option will not be eligible for the tax treatment described Directors on March 11, 2019 and will become effective on the above if it is exercised more than three months following date it is approved by our shareholders. No other awards may termination of employment (or one year in the case of be granted under the Plan after June 22, 2027 or, in the case termination of employment by reason of disability). In the of any incentive stock options, 10 years from the date of case of termination of employment by reason of death, the adoption by our Board. three-month rule does not apply. 2019 Proxy Statement 85 Non-QualifiedOptions ParachutePayments No income is realized by the optionee at the time the option The vesting of any portion of an option or other award that is is granted. Generally (i) at exercise, ordinary income is accelerated due to the occurrence of a change in control realized by the optionee in an amount equal to the difference (such as a sale event) may cause a portion of the payments between the option price and the fair market value of the with respect to such accelerated awards to be treated as shares of common stock on the date of exercise, and we “parachute payments” as defined in the Internal Revenue receive a tax deduction for the same amount, and (ii) at Code of 1986. Any such parachute payments may not be disposition, appreciation or depreciation after the date of deductible by us, in whole or in part, and may subject the exercise is treated as either short-term or long-term capital recipient to a non-deductible 20% federal excise tax on all or gain or loss depending on how long the shares of common a portion of such payment (in addition to other taxes stock have been held. Special rules will apply where all or a ordinarily payable). portion of the exercise price of the non-qualified option is paid by tendering shares of common stock. Upon exercise, LimitationonDeductions the optionee will also be subject to Social Security and Medicare taxes on the excess of the fair market value over the exercise price of the option. OtherAwards Section 162(m) of the Internal Revenue Code of 1986 generally places a $1 million limit on the amount of compensation a company can deduct in any one year for certain executive officers. Therefore, our deduction for certain awards under the Plan may be limited by We generally will be entitled to a tax deduction in connection Section 162(m). with an award under the Plan in an amount equal to the ordinary income realized by the participant at the time the VoteRequired participant recognizes such income. Participants typically are subject to income tax, Social Security and Medicare taxes and recognize such taxes at the time that an award is exercised, vests or becomes non-forfeitable, unless the award provides for a further deferral. Recommendation of the Board The affirmative vote of at least a majority of shares present in person or represented by proxy at the meeting and entitled to vote on this proposal is required for the approval of the Plan Amendment. THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE SECOND AMENDMENT TO THE CITRIX SYSTEMS, INC. AMENDED AND RESTATED 2014 EQUITY INCENTIVE PLAN, AS AMENDED 86 Proposal 3 Ratification of Appointment of Independent Registered Public Accounting Firm P r o x y The Audit Committee has retained the firm of Ernst & Young its discretion, may select a different independent registered LLP to serve as our independent registered public accounting public accounting firm at any time during the year, if it firm for the fiscal year ending December 31, 2019. Ernst & determines that such a change would be in the best interests Young has served as our independent registered public of Citrix and our shareholders. accounting firm since 1989. The Audit Committee reviewed and discussed the prior performance of Ernst & Young and its We expect that a representative of Ernst & Young will attend selection of Ernst & Young for the fiscal year ending December 31, 2019. As a matter of good corporate our 2019 Annual Meeting, and the representative will have an opportunity to make a statement if he or she so desires. The governance, the Audit Committee has determined to submit representative will also be available to respond to its selection to our shareholders for ratification. Even if the appropriate questions from shareholders. selection of Ernst & Young is ratified, the Audit Committee, in Recommendation of the Board THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG AS CITRIX’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2019. 2019 Proxy Statement 87 Proposal 4 Advisory Vote to Approve the Compensation of Our Named Executive Officers Pursuant to the Dodd-Frank Wall Street Reform and Named Executive Officers in order to drive execution of our Consumer Protection Act of 2010, known as the Dodd-Frank strategic and operational initiatives. Accordingly, we are Act, this proposal, commonly known as a say-on-pay asking our shareholders to vote “FOR” the following proposal, gives our shareholders the opportunity to vote to resolution at our 2019 Annual Meeting: approve or not approve, on an advisory basis, the compensation of our Named Executive Officers. This vote is “RESOLVED, that Citrix’s shareholders approve, on an not intended to address any specific item of compensation or advisory basis, the compensation of Citrix’s Named the compensation of any particular officer, but rather the Executive Officers, as disclosed pursuant to the SEC’s overall compensation of our Named Executive Officers and compensation disclosure rules (which disclosure includes our compensation philosophy, policies and practices. the Compensation Discussion and Analysis, the compensation tables and the narrative disclosures that As discussed under Compensation Discussion and Analysis accompany the compensation tables).” beginning on page 33, we believe that our executive compensation programs emphasize sustainable growth The vote is advisory, and therefore not binding on Citrix, the through a pay-for-performance orientation and a Compensation Committee or our Board of Directors. commitment to both operational and organizational However, our Board of Directors and our Compensation effectiveness. We believe that our compensation programs Committee value the opinions of our shareholders and will for our Named Executive Officers are instrumental in helping take into account the outcome of the vote when considering us achieve our strategic and financial performance and, future compensation decisions for our Named Executive during this transition period for our company, to retain our Officers. Recommendation of the Board THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF, ON AN ADVISORY BASIS, THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT. 88 Part 7 Additional Information P r o x y Other Matters The Board of Directors knows of no other matters to be persons appointed in the accompanying proxy intend to vote brought before the 2019 Annual Meeting. If any other matters the shares represented thereby in accordance with their best are properly brought before the 2019 Annual Meeting, the judgment on such matters, under applicable laws. Shareholder Proposals Proposals of shareholders intended for inclusion in the Proxy year’s annual meeting, then, in order to be timely, a Statement to be furnished to all shareholders entitled to vote shareholder’s notice must be received by our Secretary not at our 2020 Annual Meeting of Shareholders, pursuant to Rule earlier than the close of business on the 90th day prior to 14a-8 promulgated under the Securities Exchange Act of such annual meeting and not later than the close of business 1934, as amended, must be received at our principal on the later of (1) the 60th day prior to such annual meeting executive offices not later than December 27, 2019. All such or (2) the close of business on the 10th day following the day proposals must comply with Rule 14a-8 under the Securities on which we first publicly announce the date of such annual Exchange Act of 1934. meeting. A shareholder’s notice to our Secretary must set forth the information required by our Bylaws with respect to In order to be properly brought before the 2020 Annual such proxy access nomination or proposal. If a shareholder Meeting, a shareholder’s notice of (a) nomination of a director makes a timely notification, discretionary voting authority candidate to be included in our Proxy Statement and proxy with respect to the shareholder’s proposal may be conferred pursuant to Section 1.11 of our Bylaws (a “proxy access upon the persons selected by management to vote the nomination”) or (b) any proposal other than a matter brought proxies under circumstances consistent with the SEC’s proxy pursuant to Rule 14a-8 or a proxy access nomination, must rules. In order to curtail controversy as to the date on which a be received by our Secretary at our principal executive offices notice was received by Citrix, it is suggested that proponents between November 27, 2019 and December 27, 2019. submit their proposals by Certified Mail, Return Receipt However, in the event that an annual meeting is called for a Requested, to our principal executive offices at Citrix date that is more than 30 days before or more than 60 days Systems, Inc., 851 West Cypress Creek Road, Fort Lauderdale, after the first anniversary of the date of the Proxy Statement Florida 33309, Attention: Secretary. furnished to shareholders in connection with the preceding Expenses and Solicitation The cost of solicitation of proxies will be borne by Citrix and, nominees and fiduciaries for their reasonable out-of-pocket in addition to soliciting shareholders by mail and via the costs. Solicitation by our officers and employees may also be Internet through our regular employees, we may request made of some shareholders in person or by mail, telephone, banks, brokers and other custodians, nominees and e-mail or telegraph following the original solicitation. We fiduciaries to solicit their customers who have stock of Citrix have retained MacKenzie Partners, a proxy solicitation firm, to registered in the names of a nominee and, if so, will assist in the solicitation of proxies for a fee not to exceed reimburse such banks, brokers and other custodians, $20,000, plus reimbursement of expenses. Delivery of Documents to Shareholders Sharing an Address If you share an address with any of our other shareholders, Fort Lauderdale, Florida 33309 (telephone: 954-229-5990) your household might receive only one copy of the Proxy (email: investorrelations@citrix.com). We will deliver copies Statement, Annual Report and Notice, as applicable. To of the Proxy Statement, Annual Report and/or Notice request individual copies of any of these materials for each promptly following your written or oral request. To ask that shareholder in your household, please contact Investor only one copy of any of these materials be mailed to your Relations, Citrix Systems, Inc., 851 West Cypress Creek Road, household, please contact your broker. 2019 Proxy Statement 89 Note Regarding Forward-Looking Statements This Proxy Statement contains forward-looking statements which are made pursuant to 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. The forward-looking statements in this Proxy Statement do not constitute guarantees of future performance. Investors are cautioned that statements in this Proxy Statement, which are not strictly historical statements, including, without limitation, statements regarding management’s plans, business initiatives, objectives, expectations regarding future performance or needs of our business, strategies and goals, constitute forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “goal,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential” and similar expressions intended to identify forward-looking statements. The forward-looking statements in this Proxy Statement are not guarantees of future performance. Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by the forward-looking statements, including, without limitation, risks associated with the success and growth of the company’s 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, political and social economic environment on our business, 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, and the risks associated with our ability to manage past, present and future cyber security incidents; the risks associated with managing data security incidents, such as the previously- disclosed data security incident impacting our ShareFile service and the more recent incident impacting our internal corporate network, including investigation, remediation, litigation and other associated matters; changes in Citrix’s pricing and licensing models, promotional programs and product mix, all of which may impact Citrix’s revenue recognition; our ability to expand our customer base and attract more users within our customer base; the introduction of new products by competitors or the entry of new competitors into the markets for Citrix’s products or services; the concentration of customers in Citrix’s networking business; Citrix’s ability to innovate and develop 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 Citrix’s business; failure to execute Citrix’s sales and marketing plans; failure to successfully partner with key distributors, resellers, system integrators, service providers and strategic partners and Citrix’s reliance on the success of those partners for the marketing and distribution of the company’s products; Citrix’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 Citrix’s 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 Citrix’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 effect of recent accounting pronouncements on revenue and expense recognition; the ability of Citrix to make suitable acquisitions on favorable terms in the future; risks associated with Citrix’s completed and future 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; 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 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 Citrix’s products and services; risks related to servicing our debt; unanticipated changes in tax rates, non-renewal of tax credits or exposure to additional tax liabilities; and other risks detailed in Citrix’s filings with the Securities and Exchange Commission. Citrix assumes no obligation to update any forward-looking information contained in this Proxy Statement. Note Regarding References to Citrix Website Information contained on or connected to our website is not should not be considered a part of this proxy statement or incorporated by reference into this proxy statement and any other filing or submission that we make with the SEC. 90 CITRIX SYSTEMS, INC. SECOND AMENDMENT TO AMENDED AND RESTATED 2014 EQUITY INCENTIVE PLAN APPENDIX A P r o x y The Amended and Restated 2014 Equity Incentive Plan, (as amended to date, the “Plan”) is hereby amended by the Board of Directors of Citrix Systems, Inc. (the “Company”), subject to approval of the Company’s shareholders, as follows: 1. To decrease the aggregate number of shares authorized for issuance under the Plan by 2,600,000 shares of common stock, par value $0.001 per share, of the Company, by deleting the first sentence of Section 3(a) of the Plan in its entirety and replacing it as follows: “The maximum number of shares of Stock reserved and available for issuance under the Plan shall be the sum of (i) 43,400,000 shares, plus (ii) the shares of Stock underlying any awards granted under the 2005 Plan that are forfeited, canceled or otherwise terminated (other than by exercise) after the date of the Company’s 2014 annual stockholder meeting, subject to adjustment as provided in this Section 3.” 2. To remove the fungible share counting method under the Plan by deleting Section 3(b) in its entirety and replacing it as follows: “(b) Effect of Awards. With respect to Awards granted prior to the date of the Company’s 2019 annual stockholder meeting, (i) the grant of any full-value Award (i.e., an Award other than an Option or a Stock Appreciation Right) shall be deemed, for purposes of determining the number of shares of Stock available for issuance under Section 3(a), as an Award of 2.75 shares of Stock for each such share of Stock actually subject to the Award, and (ii) the grant of an Option or a Stock Appreciation Right shall be deemed, for purposes of determining the number of shares of Stock available for issuance under Section 3(a), as an Award for one share of Stock for each such share of Stock actually subject to the Award. With respect to Awards granted on or after the date of the Company’s 2019 annual stockholder meeting, the grant of any Award shall be deemed, for purposes of determining the number of shares of Stock available for issuance under Section 3(a), as an Award for one share of Stock for each such share of Stock actually subject to the Award. Any forfeitures, cancellations or other terminations (other than by exercise) of any full-value Award (i.e., an Award other than an Option or a Stock Appreciation Right) that was granted prior to the date of the Company’s 2019 annual stockholder meeting shall be returned to the reserved pool of shares of Stock under the Plan as 2.75 shares of Stock for each such share of Stock actually subject to the Award that is returned to the reserved pool, and any forfeitures, cancellations or other terminations (other than by exercise) of any other type of Award (including any full-value Awards granted on or after the date of the Company’s 2019 annual stockholder meeting) shall be returned to the reserved pool of shares of Stock under the Plan as one share of Stock for each such share of Stock actually subject to the Award that is returned to the reserve pool.” All other terms and conditions of the Plan shall be unchanged and remain in full force and effect. APPROVED BY BOARD OF DIRECTORS: March 11, 2019 APPROVED BY SHAREHOLDERS: , 2019 2019 Proxy Statement 91 Form 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K F o r m 1 0 - 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, 2018 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 The Nasdaq Stock Market LLC (Title of each class) (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 every Interactive Data File required to be submitted 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 such files). Yes No 1  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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 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 $13,765,749,900. As of February 8, 2019 there were 131,725,833 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, 2018. Portions of such definitive proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K. CITRIX SYSTEMS, INC. TABLE OF CONTENTS F o r m 1 0 - K Part I: 3 12 27 27 27 27 28 29 30 48 48 49 49 51 51 51 51 51 51 52 57 Business Item 1 Item 1A. Item 1B. Unresolved Staff Comments Item 2 Risk Factors Properties Part II: Item 3 Item 4 Item 5 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8 Financial Statements and Supplementary Data Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information Part III: Part IV: Item 10 Item 11 Item 12 Item 13 Item 14 Item 15 Item 16 Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions and Director Independence Principal Accounting Fees and Services Exhibits, Financial Statement Schedules Form 10-K Summary 2 PART I This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such actual results to differ materially from those set forth in these forward-looking statements are included in Part I, Item 1A “Risk Factors” beginning on page 12. ITEM 1. BUSINESS Business Overview Citrix Systems, Inc., or Citrix, the Company, we or us, is a Delaware corporation incorporated on April 17, 1989. Citrix aims to power a better way to work by delivering the experience, security, and choice people and organizations need to unlock innovation, engage customers, and be productive - anytime, anywhere. It is our vision to deliver a general purpose digital workspace that empowers all users with unified, secure, and reliable access to all apps and content needed to be productive - anytime, anywhere. We help customers reimagine the future of work by delivering unified digital workspace, networking, and analytics solutions that improve employee experience and productivity, while also simplifying 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 will still be managing legacy infrastructure and on-premises workloads for many years to come. 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 on our journey of cloud transformation as an organization, we are focused on three strategic priorities. First, we are accelerating our move to a subscription-based business model and to offer all of our solutions as cloud services to give organizations flexibility in how they work. Second, we are continuing to unify our portfolio to simplify user and IT experience. Finally, to help meet the expected demands of the future, we are expanding our opportunities with adjacent technologies to help extend value to our customers and meet their needs in the future. In 2018, Citrix made acquisitions in two such areas, acquiring Cedexis for Intelligent Traffic Management to boost the capabilities of our networking solutions, and Sapho to expand Intelligent Workflow capabilities into the Citrix Workspace solutions. In 2018, we retired all of our point product brand names to simplify our positioning and product naming to make our solutions easier to understand, sell and buy. Citrix simplified its solutions naming to three categories: Digital Workspace, Networking, and Analytics. We moved all products to a functional descriptor naming mechanism, such as Citrix Virtual Apps and Desktops, Citrix ADC, Citrix SD-WAN, Citrix Endpoint Management, etc. 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. 3 F o r m 1 0 - K Solutions 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. The Citrix networking portfolio, when implemented with digital workspace, ensures consistency of user experience, enables agile delivery of new and merging application types, and facilitates reliability and performance from any resource location. 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. Our secure digital workspace technologies are available as cloud services and can be managed as hybrid and multi-cloud environments. Our cloud-based services, or Citrix Cloud 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 cloud services are available as an integrated service or as individual services scaled to meet our customers’ business needs. We offer subscription-based and on-premise subscription software and perpetual licenses for our solutions, along with annual subscriptions for software updates and technical support. Perpetual licenses allow our customers to use the version of software initially purchased into perpetuity, while subscription licenses are limited to a specified period of time. Customer Success Services, which include software maintenance subscriptions, give customers the right to upgrade to new software versions if and when any updates are delivered during the subscription term. Perpetual license software 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 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. Digital Workspace (formerly Workspace Services) Application Virtualization and VDI Our Application Virtualization and Virtual Desktop Infrastructure, or 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. • Citrix Virtual Apps and Desktops (formerly XenDesktop) is a fully-integrated, cloud-enabled app and desktop virtualization solution that gives customers the flexibility to remotely deliver desktops and applications - from any cloud, on-premises datacenters or both. Citrix Virtual Apps and Desktops include 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. Citrix Virtual Apps and Desktops 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. With Citrix Virtual Apps and Desktops Advanced and Premium editions - as well as the cloud service - customers also receive Citrix Virtual Apps to manage and mobilize Windows applications. • Citrix Virtual Apps (formerly XenApp) is a widely deployed solution that enables Windows and Linux applications to be remotely delivered to Macs, PCs, thin clients and Android/iOS mobile devices from any cloud, on-premises datacenter or both. Citrix Virtual Apps enable people to work better by running applications in the security of the data center or cloud, and using Citrix HDX technologies to deliver a superior user experience to any device, anywhere. Keeping business applications under the centralized control of IT administrators enhances security and reduces the costs of managing applications on every PC. Exclusively available as a cloud service, on-premises or hybrid solution, it allows customers to choose the deployment option that best aligns with their enterprise cloud strategy. In partnership with Microsoft, Citrix Virtual Apps is designed to embrace and extend Microsoft Remote Desktop technology by providing advanced provisioning, performance, monitoring and management functionality. Our joint solution with Microsoft lowers the cost of delivering and maintaining Windows applications for all users in the enterprise. 4 Citrix Endpoint Management (formerly Enterprise Mobility Management) Increasingly, for many employees, mobile devices are their workspaces. Our Citrix Endpoint Management (formerly 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, secure email, and enterprise-grade mobile apps in one comprehensive solution. • Citrix Endpoint Management 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, Citrix Endpoint Management centralizes the management of mobile devices, traditional desktops, laptops and Internet of Things, or IoT, through a single platform. Citrix Endpoint Management directly integrates with Microsoft EMS/Intune to extend mobility and device management capabilities. 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. • Citrix Content Collaboration (formerly 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. Citrix Content Collaboration 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 Citrix Content Collaboration ensure that data remains in control of the company. With Citrix Content Collaboration 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. For businesses that use multiple storage repositories, Citrix Content Collaboration provides unified access to a wide range of cloud-based and on-premises storage repositories, making it simple and easy for employees to find and access their files and documents. Additionally, Citrix Content Collaboration supports e- signature, feedback and approval workflows that help businesses adopt the mobile, digital office. Citrix Workspace We offer customers the opportunity to acquire a number of Citrix products through a single comprehensive integrated offering, Citrix Workspace, which includes our Citrix Virtual Apps and Desktops, Citrix Endpoint Management, Citrix Content Collaboration, Citrix Analytics and networking 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. • 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 increase employee engagement, productivity, and 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 are available via hardware or software-based solutions and allow organizations to deliver apps and data with the security, reliability, and speed trusted by thousands of customers worldwide. • Citrix ADC (formerly NetScaler ADC) is a software-defined application delivery controller designed to meet the demands of organizations undergoing digital transformation. Citrix ADC enables the adoption of hybrid and multi- cloud application delivery with improved application performance, reliability and security at an optimized price point. Citrix ADC allows customers to obtain detailed application analytics with the value of machine learning. It also optimizes application delivery for cloud native application architectures based on the Kubernetes orchestration platform, and provides service graph analytics for efficient troubleshooting within the microservices environment. Additionally, we extend the platform with best-of-breed web application firewall, or WAF, capabilities 5 F o r m 1 0 - K that protect web applications and sites from both known and unknown attacks, which include application-layer and zero-day threats. • Citrix SD-WAN (formerly NetScaler SD-WAN) increases the security, performance and reliability of applications delivered from the legacy data center, cloud, or SaaS, while delivering additional value for virtualized applications and desktops. The platform combines routing, security, WAN optimization, and path control to simplify implementation and maintenance of the branch network, allowing customers to adopt a hybrid WAN architecture that effectively increases WAN capacity and manageability. Support Citrix offers technical support to minimize business downtime for our customers. Several options are available. • Customer Success Services are offered in support of our perpetual software and our cloud-based services. Customers are given a choice of tiered offerings combining product version upgrades, guidance, enablement, support and proactive monitoring to help customers and partners fully realize their business goals and maximize 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 is offered in support of our Networking products. Customers are given a choice of tiered offerings including technical support, software upgrades, and replacement of malfunctioning appliances. Dedicated account management is available as an add-on to the program. Fees associated with this offering are recognized ratably over the term of the contract. Professional Services We offer a portfolio of professional services to help business partners and customers 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. • Citrix Consulting guides the successful implementation of Citrix technologies and solutions with 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 terms of scope and complexity, requiring consultants with project methodology qualifications and Citrix expertise. Citrix Consulting is also responsible for developing best practices which are disseminated to businesses, partners 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. • Product Training & Certification enables customers and partners to be successful with Citrix and achieve business objectives faster. Authorized Citrix training is available as needed. Traditional or virtual instructor-led training offerings feature Citrix Certified Instructors delivering Citrix-developed courseware in a classroom or remote setting at one of our Citrix Authorized Learning Centers, or CALCs, worldwide. Self-Paced Online offerings 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. Customers We believe that the primary IT buyers involved in decision-making related to our solutions are the following: • 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. 6 • • Server Operations Managers who are responsible for specifying datacenter systems and managing daily operations. 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. Microsoft For almost 30 years, Citrix and Microsoft have maintained a strategic partnership spanning product development, go-to- market initiatives and partner development, enabling our mutual customers’ secure, high-performance delivery of applications, desktops and data to their employees anywhere, anytime on any device. Together, Citrix and Microsoft offer solutions and services that aid and accelerate the transition from on-premises IT infrastructure and practices to emerging hybrid-cloud and multi-cloud delivery models for the full breadth of legacy and modern applications. These solutions and services include the unique ability to deliver Windows 10 desktops hosted within the Microsoft Azure cloud platform, services to deploy apps directly on Azure, Office 365 and Microsoft Teams integrations, and smart tools to simplify the deployment of a new class of integrated workspaces that include legacy Windows apps and a growing array of popular SaaS applications. In 2018, we announced a new collaboration agreement to provide customers a simplified experience by enabling them to purchase and deploy Citrix-powered digital workspaces and networking solutions directly within Microsoft Azure. We also announced a number of new services and capabilities to assist organizations in the planning and execution of their cloud migrations and accelerate adoption. We also created the Citrix and Microsoft Cloud Alliance program to provide our joint partners with the resources, training and enablement needed to ensure our customers’ success. Google We continue to build on our five-year partnership with Google through which we bring digital workspace solutions to enterprise customers who are increasingly looking to public and hybrid clouds to address competitive demands and solve business challenges. Our technology integrations provide cloud delivery of Citrix applications and desktops, power management and Citrix ADC with Google Cloud. In 2018, we announced a new Citrix ADC integration that allows developers to take advantage of Google Cloud Platform cloud computing capabilities alongside Citrix load balancing and traffic management features to manage their workloads in a simple, secure and reliable way. We also continue to optimize Citrix Endpoint Management to support Android and Chrome devices, as well as Citrix Workspace App to enable organizations to provision, manage and deliver apps on Chrome devices. Additional Relationships We have developed our partner ecosystem to enable infrastructure choice for our Citrix Cloud customers. For public cloud choice, we have relationships with Microsoft Azure, Google Cloud, AWS and Oracle. Moreover, in the past year we announced the Citrix Workspace Appliance program to enable a hybrid cloud choice for on-premises solutions. We are also forging partnerships with SaaS providers to deliver cloud access control and intelligent workspaces. In August of 2018, we announced the availability of the Citrix IT Service Management Connector, an offering jointly developed with ServiceNow that reduces the time involved in application and desktop provisioning, and improves the employee experience. Delivering Secure and Cost-Effective Hybrid Cloud Solutions with Hewlett Packard Enterprise, Cisco, Lenovo and FlexxibleIT In delivering choice, we recognize that many enterprise customers have significant investments in on-premises infrastructure that continues to serve their financial investments or have regulatory requirements that require data control and governance. Together with our infrastructure partners like Hewlett Packard Enterprise, or HPE, Cisco, Lenovo and FlexxibleIT, 7 F o r m 1 0 - K we provide a simple and fast way to deploy hybrid cloud app and desktop virtualization that is scalable and secure. With Citrix Cloud Services, companies can quickly and cost-effectively create a centrally managed, enterprise-class virtualized app and desktop environment in a rack-mounted appliance and manage VDI as-a-service in the cloud with simple subscription-based pricing. Compute, network and storage are pre-integrated with a Citrix Cloud connection in an easy to use hyper converged infrastructure, or HCI, appliance, and the offering is tested and certified as Citrix Ready, which showcases verified products that are trusted to enhance Citrix solutions for mobility, virtualization, networking and cloud platforms. We continue to invest in our Global System Integrator partnerships with organizations that have multiple offerings in the market with Citrix Digital Workspace and Citrix Networking solutions, including IBM, DXC, and Fujitsu. In addition, our partners continue to expand their focus on the broad range of our solutions. We also continue to provide an easy way for our customers to locate compatible solutions and our channel partners to evaluate and deploy joint offerings through our Citrix Ready program. Active partners, including Amazon Web Services, Cisco, Google, Microsoft and hundreds of other technology companies, use the Citrix Ready Program to learn about and integrate with Citrix technology across our products for workspace, networking, and analytics with the number of verified products available in the Citrix Ready Marketplace growing over the past year. Research and Development Our innovation engine continues to advance, and our growth in Citrix Cloud Services has also accelerated our innovation and shortened the time to value for end-users. As of December 31, 2018, we held a worldwide portfolio of 2,725 patents and had an additional 1,126 patent applications pending. We focus our research and development efforts on developing new cross-portfolio solutions across our Digital Workspaces, Networking and Analytics solutions and services, while continuing to invest in functional improvements to our core market technologies to expand Citrix differentiation and opportunity within each category. We solicit extensive feedback concerning product development from customers, both directly from and indirectly, through our channel distributors and partners. We believe that our global 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. We incurred research and development expenses of $440.0 million in 2018, $415.8 million in 2017 and $395.4 million in 2016. Sales, Marketing and Services We market and license our solutions through multiple channels worldwide, including selling through resellers, direct and 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, while also adding new transacting partners, building capacity through targeted recruitment, introducing programs to increase partner mindshare, limit channel conflict and increase partner loyalty to us. As we lead with the cloud, we have been cultivating a global base of technology partners within our 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, Citrix Solution Advisors, 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 8 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 an integrated global approach to 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 2018, one distributor, the Arrow Group, accounted for 14%, of our total net revenues. In fiscal year 2017 and 2016, two distributors, Ingram Micro and Arrow, accounted for 13% and 12%, 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, 2018 for information regarding our revenue recognition policy. International revenues (sales outside the United States) accounted for approximately 47.0% of our net revenues for the year ended December 31, 2018, 46.3% of our net revenues for the year ended December 31, 2017 and 46.3% of our net revenues for the year ended December 31, 2016. 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, 2018. Segment Revenue We operate under one reportable segment. For additional information, see Note 12 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2018. Operations For our cloud-based solutions, we use a combination of co-located hosting facilities and increasingly Microsoft Azure and Amazon Web Services as well as other infrastructure-as-a-service providers. For our Networking products, which include Citrix 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 2018, 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 HPE, 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 our products upon receipt of properly finalized orders, at any given time, we have confirmed product license orders that have not shipped and are unfulfilled. We refer to those unfulfilled product license orders at the end of a given period as “product and license backlog.” As of December 31, 2018 and 2017, the amount of 9 F o r m 1 0 - K product and license backlog was not material. 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 2019. 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, 2018. Digital Workspace Our Application Virtualization and VDI solutions are based on a proprietary 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, higher flexibility and better end user experience to enable IT to deliver Windows and Linux apps and desktops for better business outcomes. Citrix also provides a hardened browser integrated into a web/SaaS access control solution. This enables customers to tightly control how web and SaaS applications are consumed by their users and prevents information leakage. Integration between Secure Web Gateway and Secure Browser Service provides customers with a protective layer between the internet and their secure internal network. Citrix Analytics is a user behavior analytics solution focused on the digital workspace. We also differentiate ourselves from other vendors because we are the only one to offer unified management for all components of the digital workspace that uniquely addresses the needs of on-premises, cloud or hybrid deployments. We also face numerous competitors that provide automation of these processes and 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 Citrix Virtual Apps and Desktops 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 unified endpoint management solution line, Citrix Endpoint Management, competes with companies including AirWatch by VMware, MobileIron, BlackBerry and many other competitors. We believe we differentiate ourselves from these competitors by providing a complete solution, with MDM, MAM and superior core mobile productivity applications, including secure mobile email, calendar, browser, and editing along with integration with Microsoft's EMS mobility management platform and Microsoft Intune. With Citrix Endpoint Management, we also provide robust security and mobile productivity applications that have the deepest and most user friendly integration with Microsoft Office 365. 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 to deliver similar integrations. We also see competition from competitors that are combining mobile and desktop technologies. We believe our solution, Citrix Workspace, is one of the best solutions available today that can securely deliver a secure digital workspace - with any Windows, Linux, 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 10 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. In the content collaboration space, our Citrix Content Collaboration solution's direct competition includes Dropbox, Box, Syncplicity, Egnyte, Inc., BlackBerry's Watchdox, Accellion, 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 products. However, we believe Citrix Content Collaboration offers a superior solution for businesses as it is built specifically for the needs of the business. Our solutions are further differentiated through our ability to store data on-premise or in the Cloud, integration into Citrix Workspace, collaboration with external parties at no additional cost, and the ability to create workflows, eSignatures, and custom forms. Integration into Citrix Analytics for a holistic workspace-centric user behavior analysis, and the ability to connect Citrix Content Collaboration to existing storage repositories are additional key differentiators. Networking Our Citrix ADC hardware products compete in traditional data-center-deployed application environments against other established competitors, including F5 Networks, Inc., Dell, Inc., KEMP Technologies, Inc., Fortinet Inc., Radware, A10 Networks, Broadcom, Array Networks, Inc., and AVI Networks, Inc. In addition, with new cloud-integrated and software centric use cases, large cloud providers, such as Amazon Web Services and Microsoft Azure, provide customers with competitive ADC solutions built into their public cloud platforms. The ADC segment also includes a number of emerging start- up and open source software-based companies, such as HA PROXY Technologies, LLC. and NGINX, Inc., which generally focus on developers rather than enterprise customers. We continue to enhance Citrix ADC’s feature capability and invest in go- to-market resources to market Citrix ADC to our existing customer base and new potential customers. Our Citrix SD-WAN product competes against both traditional WAN optimization and infrastructure vendors, such as Riverbed, VMware, Cisco, Silver Peak Systems and Oracle. Additionally, WAN service providers are integrating and reselling SD-WAN products as a part of their service offering from vendors including VMware, Cisco, Riverbed and Versa Networks, Inc. We have partnered with Microsoft to provide SD-WAN capability into Azure as a part of the Azure Virtual WAN. Technology and Intellectual Property Innovation is a core Citrix competency. We have developed many innovations that are important enablers of our continued leadership. Our success is dependent upon our solutions, which are based on intellectual property and core proprietary and open source technologies. These technologies include innovations that optimize the end-to-end user experience in virtual desktop and virtual application environments, enhance networking capabilities and deliver a holistic mobile computing experience. 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 comprised of or incorporating the Citrix name. See our "Research and Development" discussion above and Part I-Item 1A entitled “Risk Factors” included in this Annual Report on Form 10-K for the year ended December 31, 2018. 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, 2018. Employees As of December 31, 2018, we had approximately 8,200 employees. 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. 11 F o r m 1 0 - K 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, 2018, and in the documents incorporated by reference into this Annual Report on Form 10-K for the year ended December 31, 2018, 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 branding and 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 tax matters, liquidity, stock repurchases and dividends, our debt, changes in accounting rules or guidance, changes in domestic and foreign economic conditions, acquisitions, 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, 2018, 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: • we may not be able to effectively or efficiently transition our customers from consuming our solutions and services as on premises solutions to cloud-based solutions; • 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; • we may incur costs at a higher than forecasted rate as we expand our cloud-delivered services thereby decreasing our gross margins; • we may experience unpredictability in revenue as a result of usage fluctuations within our cloud service provider business; • we may not be able to meet customer demand or solution requirements for cloud-delivered services; • we may encounter 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. As we transition our customers from perpetual licenses to subscriptions, we expect an impact on the timing of revenue recognition and a potential reduction of cash flows. Because subscription revenue is typically recognized over time, we may experience a near-term reduction in revenue and revenue growth as more customers move away from perpetual licenses to subscriptions. 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. 12 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: • • • • • rapid technological change; evolving industry standards; fluctuations in customer demand; changing customer business models and increasingly sophisticated customer needs; and frequent new solution 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. As we continue to grow our subscription service offerings, we must continue to innovate and develop new solutions and features to meet changing customer needs. Our failure to respond quickly to technological developments or customers’ increasing technological requirements could lower the demand for any solutions and services and/or make our solutions uncompetitive and obsolete. Moreover, the purchase of our solutions and services is often discretionary and may involve a significant commitment of capital and other resources. We need to continue to develop our skills, tools and capabilities to capitalize on existing and emerging technologies, which will require us to devote significant 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 solution 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 solution 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, 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 Digital Workspace and Networking 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. 13 F o r m 1 0 - K 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: • • • • • • • • • • • • 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 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 Citrix ADC solution. For example, there are an increasing number of alternatives to traditional ADC hardware solutions, enabling our customers to build internal solutions, rely on open source technology or leverage software and cloud-based offerings. In addition, our Networking business generates a substantial portion of its revenues from a limited number of customers with uneven and declining purchasing patterns. As a result, the potential for declining sales within our Networking business may not be offset by gains in other areas of our Networking and other businesses, which could result in our operations and financial condition being adversely affected. Our growth prospects depend on increasing the number of users within our customer base, as well as attracting new customers. We believe that our penetration into our existing customer base is limited and that we have an opportunity to expand the pool of the available users of our solutions. This represents a longer-term opportunity to both expand within our installed base and to attract new customers. There are no guarantees, however, that we will be able to capitalize on this opportunity if we do not innovate and expand the set of potential users, or otherwise attract customer interest and adoption. If we are unable to expand the number of users within our customer base or unable to attract new customers, our revenue would decrease and our results of operations and financial condition would be adversely affected. 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 14 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 have experienced significant changes in our senior management team over the past several years, including the appointments of David J. Henshall as our President and Chief Executive Officer in 2017 and Andrew Del Matto as our Executive Vice President and Chief Financial Officer in 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 competition. Additionally, as IT companies attempt to strengthen or maintain their market positions in the evolving digital 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 Digital Workspace and Networking 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 solution 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 personal data. Thus, maintaining the security of our solutions, computer networks and data storage resources is important as security breaches could result in solution or service vulnerabilities and loss of and/or unauthorized access to confidential information. We aim to engineer 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. We have in the past, and may in the future, discover vulnerabilities in our solutions or underlying technology, which could expose our operations and our customers 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 attack our products, services or infrastructure (including third party cloud service providers -- such as Microsoft Azure and Amazon Web Services and Google Cloud Platform - upon which we rely). 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. Despite our efforts to build secure services, 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. For example, in late 2018, our file sync and sharing service was the target of a “credential stuffing” attack, in which we believe that malicious third-party actors used credentials obtained from breaches unrelated to any Citrix service to attempt to gain access to individual Citrix Content Collaboration customer accounts. To date, we believe the event had limited impact on a small percentage of Citrix Content Collaboration customers; however, these types of attacks have the potential to materially and adversely impact our customers and, as a result, our results of operations and financial condition. 15 F o r m 1 0 - K 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): • • • • • • loss or destruction of customer data; 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; 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 California Consumer Privacy Act, which is set to come into effect in 2020, and the Global Data Protection Regulation, or GDPR. The GDPR is a new European Union-wide legal framework to govern data collection, use and sharing and related consumer privacy rights, which became effective in May 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. 16 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 Digital Workspace solutions on a departmental or enterprise-wide basis. We have a long sales cycle for these departmental or enterprise-wide sales because: • • • • our sales force generally needs to explain and demonstrate the benefits of a large-scale deployment of our solution 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 solution 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 solution. We could implement different licensing models in certain circumstances, 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, 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 17 F o r m 1 0 - K 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 support solutions constitute a large portion of our deferred revenue. We anticipate that sales and renewals of our support 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 support solutions will depend on our customers continuing to perceive value in automatic delivery of our software upgrades and enhancements. Additionally, a decrease in demand for our support solutions could occur as a result of a decrease in demand for our Digital Workspace and Networking solutions. If our customers do not continue to purchase our support solutions, our deferred revenue would decrease significantly and our results of operations and financial condition would be adversely affected. 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, including the potential impact resulting from "Brexit", a US-China trade war or other international trade disputes, 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 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, 2018, we derived 47.0% 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: • • • • • • • • • • • • compliance with foreign regulatory and market requirements; variability of foreign economic, political, labor conditions and global policy uncertainty; 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. We are also monitoring developments related to the decision by the British government to leave the European Union (EU) following a referendum in June 2016 in which voters in the United Kingdom approved an exit from the EU (often referred to as “Brexit”), which could have implications for our business. In March 2017, the United Kingdom began the official process to leave the EU by April 2019. There remains considerable uncertainty around the withdrawal. Failure to obtain parliamentary approval of any negotiated withdrawal agreement would mean that the United Kingdom would leave the European Union on March 29, 2019, potentially with no agreement. Brexit could lead to economic and legal uncertainty, including significant volatility in global stock markets and currency exchange rates, and increasingly divergent laws, regulations and licensing requirements applicable to us as the United Kingdom determines which EU laws to replace or replicate. Any of these effects of Brexit, among others, could adversely affect our operations and financial results. 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. 18 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. 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, credit risk, and adversely impact our go-to-market effectiveness. We also bear the risk that our existing or newer channel partners will fail to comply with US or international anti-corruption or anti-competition laws, in which case we might be fined or otherwise penalized as a result of the agency relationship with such partners. 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. 19 F o r m 1 0 - K 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. We have in the past addressed, and may continue to address, 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 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: • • • • • • • • • • • • • • • 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; potential difficulties securing financing necessary to consummate substantial acquisitions; issuing shares of our stock, which may be dilutive to our stockholders; 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 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 20 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 Google, 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. 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 have sought to protect our intellectual property through offensive litigation, which may be costly and unsuccessful and/or subject us to successful counterclaims or challenges to our intellectual property rights. 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, we could lose market share, 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: • • • 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; 21 F o r m 1 0 - K • • • 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 reliance on the technology of others and, therefore, the requirement to obtain intellectual property licenses from third parties in order for us to commercialize our solutions or services, which licenses we may not be able to obtain or continue to obtain from these third parties on reasonable terms; and 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: • • • • • 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; the creation of solutions by third parties that directly compete with our solutions; and 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. 22 Our business depends on maintaining and protecting the strength of our collection of brands. The Citrix solution and service brands that we have developed have significantly contributed to the success of our business. Maintaining and enhancing the Citrix solution 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 $1.90 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 April 15, 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, as applicable, 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, 2018 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 are 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 fund the required repurchase of the Convertible Notes or 2027 Notes or make cash payments upon conversion of the Convertible Notes, or making such payments could adversely affect our liquidity. As of October 15, 2018, we had received conversion notices from noteholders with respect to $273.0 million in aggregate principal amount of Convertible Notes requesting conversion. In accordance with the terms of the Convertible Notes, in the fourth quarter of 2018 we made cash payments of this aggregate principal amount and delivered 1.3 million newly issued shares of our common stock in respect of the remainder of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being redeemed, in full satisfaction of such converted notes. Commencing on October 15, 2018 until the close of business on the second scheduled trading day immediately preceding the April 15, 2019 maturity date, holders of the Convertible Notes may convert their notes in their discretion. In addition, our ability to repurchase the Convertible Notes or 2027 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 23 F o r m 1 0 - K 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: • 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 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 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 other 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 24 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. The 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. Additionally, the U.S. Treasury Department and other standard-setting bodies will continue to issue guidance and interpret how provisions of the 2017 Tax Act will be administered and applied that may significantly affect our results of operations in the period issued. There can be no assurance that we will continue to return capital to our stockholders through the payment of cash dividends and/or the repurchase of our stock. From time to time, our Board of Directors authorizes the payment of cash dividends or additional share repurchase authority under our ongoing stock repurchase program as part of our capital return to stockholders. The amount and timing of cash dividends and stock repurchases are subject to capital availability and our determination that such cash dividends or stock repurchases are in the best interest of our stockholders and are in compliance with all respective laws and our applicable agreements. Our ability to pay cash dividends or 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. Moreover, 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 continue to pay cash dividends or 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: • • • • actual or anticipated variations in operating and financial results, including the failure to meet key operational metrics; 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. New pronouncements and varying interpretations of existing 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, 25 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. F o r m 1 0 - K 26 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 2018 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, 2018: Americas EMEA APJ Total Square footage 786,857 243,382 636,209 1,666,448 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 solutions and services. 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. 27 F o r m 1 0 - K PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Common Stock and Dividend Policy Our common stock is currently traded on The Nasdaq Global Select Market under the symbol CTXS. As of February 8, 2019, there were 471 holders of record of our common stock. We currently intend to retain any earnings for use in our business, for investment in acquisitions to repurchase shares of our common stock, and to pay future dividends. Historically, we have not paid any cash dividends on our capital stock. However, on October 24, 2018, we announced that our Board of Directors approved a quarterly cash dividend of $0.35 per share which was paid on December 21, 2018 to all shareholders of record as of the close of business on December 7, 2018. Additionally, on January 23, 2019, we announced that our Board of Directors approved a quarterly cash dividend of $0.35 per share. This dividend is payable on March 22, 2019 to all shareholders of record as of the close of business on March 8, 2019. Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of our Board of Directors. Our Board of Directors will continue to review our capital allocation strategy for potential modifications and will determine whether to pay future dividends on a quarterly basis based on our financial performance, business outlook and other considerations. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities Our Board of Directors has authorized an ongoing stock repurchase program, of which $1.7 billion was approved in November 2017 and $750.0 million was approved in October 2018. 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, 2018, approximately $767.9 million was available to repurchase common stock pursuant to the stock repurchase program. All shares repurchased are recorded as treasury stock. A portion of the funds used to repurchase stock over the course of the program was provided by net proceeds from the Convertible Notes and 2027 Notes offerings, as well as proceeds from employee stock awards and the related tax benefit. We are authorized to make purchases of our common stock using general corporate funds through open market purchases, pursuant to a Rule 10b5-1 plan or in privately negotiated transactions. The following table shows the monthly activity related to our stock repurchase program for the quarter ended December 31, 2018. October 1, 2018 through October 31, 2018 November 1, 2018 through November 30, 2018 December 1, 2018 through December 31, 2018 Total Total Number of Shares Purchased (1) Average Price Paid per Share 52,998 1,361,524 2,299,135 3,713,657 $ $ $ $ 110.35 107.84 106.71 107.17 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) — $ 1,297,589 2,247,135 3,544,724 $ $ $ 1,147,896 1,007,896 767,896 767,896 (1) Includes approximately 168,933 shares withheld from restricted stock units that vested in the fourth quarter of 2018 to satisfy minimum tax withholding obligations that arose on the vesting of restricted stock units. (2) Shares withheld from restricted stock units that vested to satisfy minimum tax withholding obligations that arose on the vesting of such awards do not deplete the dollar amount available for purchases under the repurchase program. 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. 28 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. Year Ended December 31, 2018 2017(a) 2016(a) (In thousands, except per share data) 2015(a) 2014(a) Consolidated Statements of Income Data: Net revenues Cost of net revenues(b) Gross margin Operating expenses(c) Income from operations Interest income Interest expense Other (expense) income, 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 income (loss) Diluted earnings (loss) per share: $ 2,973,903 $ 2,824,686 $ 2,736,080 $ 2,646,154 $ 2,563,064 433,803 2,540,100 1,862,140 439,646 2,385,040 1,814,043 404,889 2,331,191 1,771,027 474,040 2,172,114 1,969,322 493,706 2,069,358 1,894,438 677,960 40,030 (80,162) (8,373) 629,455 53,788 575,667 570,997 27,808 (51,609) 3,150 550,346 528,361 21,985 560,164 16,686 (44,949) (4,131) 527,770 57,915 469,855 202,792 11,675 (44,153) (5,730) 164,584 (50,549) 215,133 174,920 9,421 (28,332) (7,694) 148,315 (18,904) 167,219 — (42,704) 66,257 104,228 84,504 $ 575,667 $ (20,719) $ 536,112 $ 319,361 $ 251,723 Income from continuing operations (Loss) income from discontinued operations 3.94 — 0.14 (0.27) Diluted net earnings (loss) per share $ 3.94 $ (0.13) $ 2.99 0.42 3.41 $ 1.34 0.65 1.99 $ 0.98 0.49 1.47 Weighted average shares outstanding - diluted 145,934 155,503 157,084 160,362 171,270 Consolidated Balance Sheet Data(d): Total assets Total equity December 31, 2018 2017 2016 2015 2014 (In thousands) $ 5,136,049 $ 5,820,176 $ 6,390,227 $ 5,467,517 $ 5,512,007 551,519 992,461 2,608,727 1,973,446 2,173,645 (a) (b) (c) The selected financial data for fiscal years ended December 31, 2017, 2016, 2015 and 2014 has been adjusted to be presented on a continuing operations basis. Refer to Note 3 Discontinued Operations in our Consolidated Financial Statements for additional information. Cost of net revenues includes amortization and impairment of product related intangible assets of $47.1 million, $65.7 million, $55.4 million, $127.3 million, and $142.2 million in 2018, 2017, 2016, 2015 and 2014, respectively. Operating expenses includes amortization and impairment of other intangible assets of $15.9 million, $17.2 million, $15.1 million, $97.5 million, and $41.9 million in 2018, 2017, 2016, 2015 and 2014, respectively. Operating expenses also include restructuring charges of $16.7 million, $72.4 million, $67.4 million, $98.7 million and $14.1 million in 2018, 2017, 2016, 2015 and 2014, respectively. (d) 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. 29 F o r m 1 0 - K ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Citrix aims to power a better way to work by delivering the experience, security, and choice people and organizations need to unlock innovation, engage customers, and be productive - anytime, anywhere. We do this by delivering a general purpose digital workspace that empowers all users with unified, secure, and reliable access to all apps and content needed to be productive - anytime, anywhere. We help customers reimagine the future of work by delivering unified digital workspace, networking, and analytics solutions that improve employee experience and productivity, while also simplifying 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. Executive Summary Citrix is powering a better way to work with unified workspace, networking, and analytics solutions that help organizations unlock innovation, engage customers, and boost productivity, without sacrificing security. With Citrix, users get a seamless work experience and IT has a unified platform to secure, manage, and monitor diverse technologies in complex cloud environments. During the year ended December 31, 2018, our transition to the cloud and a subscription-based business model continued to gain momentum, which contributed to our strong financial results. In addition, we have maintained a disciplined approach to spending, while continuing to invest more into demand generation and sales capacity in order to support our growth, business model transition, and cloud infrastructure. We accelerated our innovation in the cloud, with the introduction of new services, features and capabilities in our cloud solutions to build out a comprehensive secure digital workspace. 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, software-as-a-service (SaaS) apps and services. On February 2, 2018, we entered into an Accelerated Share Repurchase, or ASR, transaction with a counterparty to pay an aggregate of $750.0 million in exchange for the immediate delivery of approximately 6.5 million shares of our common stock based on current market prices. The purchase price per share under the ASR was based on the volume-weighted average price of our common stock during the term of the ASR, less a discount. The ASR was entered into pursuant to our existing share repurchase program. Final settlement of the ASR agreement was completed in April 2018, and we received delivery of an additional 1.6 million shares of our common stock. On May 8, 2018, we announced our intention to initiate a quarterly cash dividend beginning in the fourth quarter of 2018, subject to declaration by our Board of Directors, as part of our capital return program. On October 24, 2018, we announced that our Board of Directors declared a $0.35 per share dividend payable December 21, 2018 to all shareholders of record as of the close of business on December 7, 2018. Additionally, on October 24, 2018 we announced that our Board of Directors approved an increase of an additional $750.0 million to our existing share repurchase program. On January 23, 2019, we announced that our Board of Directors declared a $0.35 per share dividend payable March 22, 2019 to all shareholders of record as of the close of business on March 8, 2019. Our Board of Directors will continue to review our capital allocation strategy for potential modifications and will determine whether to repurchase shares of our common stock and/or declare future dividends based on our financial performance, business outlook and other considerations. Reclassifications Beginning in fiscal year 2018, we revised our presentation of revenue to align with our subscription business model transition as follows: (1) subscription revenue, which includes revenue from our cloud services offerings and on-premise subscriptions as well as revenue from our CSP offerings; (2) product and license revenue from perpetual product offerings; and (3) support and services revenue for perpetual product and license offerings. See Note 2 to our consolidated financial statements for more information regarding the reclassifications described above. 30 Summary of Results For the year ended December 31, 2018 compared to the year ended December 31, 2017, we delivered the following financial performance: Subscription revenue increased 44.7% to $455.3 million; • Product and license revenue decreased 4.2% to $734.5 million; • • Support and services revenue increased 2.3% to $1.78 billion; • Gross margin as a percentage of revenue increased 1.0% to 85.4%; • Operating income increased 18.7% to $678.0 million; • Diluted earnings per share increased from $0.14 to $3.94; and • Unbilled revenue increased $258.4 million to $338.5 million. Our Subscription revenue increased primarily due to increased customer adoption of our cloud-based solutions from our Digital Workspace and Networking offerings delivered via the cloud. Our Product and license revenue decreased primarily due to lower sales of our perpetual Digital Workspace solutions and Networking products as customers continued to shift to our cloud-based solutions. The increase in Support and services revenue was primarily due to increased sales of maintenance services across our Digital Workspace perpetual offerings as our customers have shifted to our Customer Success Service offerings. We currently expect total revenue to increase when comparing the first quarter of 2019 to the first quarter of 2018. In addition, when comparing the 2019 fiscal year to the 2018 fiscal year, we currently expect total revenue to increase. The increase in gross margin was primarily due to an increase in sales and due to 2017 including the impairment of certain product related intangible assets. The increase in operating income when comparing 2018 to 2017 was primarily due to a higher gross margin driven by an increase in sales and lower intangible asset amortization, partially offset by an increase in operating expenses. The increase in diluted earnings per share when comparing 2018 to 2017 was primarily due to an increase in operating margin, and a decrease in income tax expense, as well as a decrease in the number of weighted average shares outstanding due to share repurchases. These increases were partially offset by an increase in interest expense related to our 2027 Notes. 2018 Business Combinations Sapho, Inc. On November 13, 2018, we acquired all of the issued and outstanding securities of Sapho, Inc. (“Sapho”), whose technology is intended to advance our development of the intelligent workspace. The acquired technology enables efficient workstyles by creating a unified and customizable notification experience for business applications. The total preliminary cash consideration for this transaction was $182.9 million, net of $3.7 million cash acquired. Transaction costs associated with the acquisition were not significant. Cedexis, Inc. 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 and 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 cash consideration for this transaction was $66.0 million, net of $6.0 million cash acquired. Transaction costs associated with the acquisition were not significant. We have included the effect of the 2018 business combinations in our results of operations prospectively from the date of acquisition. 2017 Business Combination On January 3, 2017, we acquired all of the issued and outstanding securities of Unidesk Corporation (“Unidesk”). 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 cash acquired. Transaction costs associated with the acquisition were not significant. 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, 31 F o r m 1 0 - K 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, 2018 describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. There have been no material changes to the critical accounting policies, other than updates related to the adoption of the new revenue standard. See Note 2 to our consolidated financial statements for more information related to revenue recognition. Revenue Recognition We generate all of our revenues from contracts with customers. At contract inception, we assess the solutions or services, or bundles of solutions and services, obligated in the contract with a customer to identify each performance obligation within the contract, and then evaluate whether the performance obligations are capable of being distinct and distinct within the context of the contract. Solutions and services that are not both capable of being distinct and distinct within the context of the contract are combined and treated as a single performance obligation in determining the allocation and recognition of revenue. The standalone selling price is the price at which we would sell a promised product or service separately to the customer. For the majority of our software licenses and hardware, CSP and on-premise subscription software licenses, we use the observable price in transactions with multiple performance obligations. For the majority of our support and services, and cloud- hosted subscription offerings, we use the observable price when we sell that support and service and cloud-hosted subscription separately to similar customers. If the standalone selling price for a performance obligation is not directly observable, we estimate it. We estimate the standalone selling price by taking into consideration market conditions, economics of the offering and customers’ behavior. We maximize the use of observable inputs and apply estimation methods consistently in similar circumstances. We allocate the transaction price to each distinct performance obligation on a relative standalone selling price basis. Revenues are recognized when control of the promised products or services are transferred to customers, in an amount that reflects the consideration that we expect to receive in exchange for those products or services. See Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2018 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 hold direct investments in privately-held companies which are accounted for at cost, less impairment plus or minus adjustments resulting from observable price changes in orderly transactions for an identical or a similar investment of the same issuer. 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. We also hold equity interests in certain private equity funds which are accounted for under the net asset value practical expedient. The net asset value of these investments is determined using quarterly capital statements from the funds which are based on our contributions to the funds, allocation of profit and loss and changes in fair value of the underlying fund investments. 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. 32 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. During the year ended December 31, 2018, we recorded an other than temporary impairment of $4.6 million of certain available-for-sale securities, which was included in Other (expense) income, net in the accompanying consolidated statements of income. For our investments in privately-held companies accounted for at cost, less impairment plus or minus adjustments resulting from observable price changes in orderly transactions for an identical or a similar investment of the same issuer, we periodically review for impairment and observable price changes on a quarterly basis, and adjust the carrying value accordingly. 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, 2018 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 the 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 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 33 F o r m 1 0 - K 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 $167.2 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 the purchase price over the fair values of the identifiable assets and liabilities from our acquisitions is recorded as goodwill. At December 31, 2018, we had $1.8 billion in goodwill related to our acquisitions. Our revenues are derived from sales of our Digital Workspace solutions and Networking products, and related support. During 2018, we initiated an effort to streamline and simplify our product branding and packaging, which included naming updates to the portfolio to provide clarity on our offerings and unify our sales motions. The change resulted in the consolidation of our Content Collaboration product group with Workspace Services and renaming the new product group Digital Workspace. As a result, our two reporting units (Enterprise and Service Provider and Content Collaboration) were combined into one, consistent with how management reviews the operating results of the business. In connection with this change, we performed a qualitative goodwill assessment of the reporting units and determined there were no indicators of impairment during the third quarter of 2018. The change in reporting units did not result in a reallocation of goodwill or a change in reportable segments. See Note 12 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2018 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 2018, 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 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 2018 and 2017. 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, 2018, we had $121.9 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, 2018, we determined that an $85.4 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 34 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 or 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, modifying executive compensation deduction limitations, and repealing the deduction for domestic production activities. 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. We completed the accounting for the tax effects of all of the provisions of the 2017 Tax Act within the required measurement period and as a result recorded adjustments to the previous provisional amounts. Adjustments of $26.3 million were recorded during the year ended December 31, 2018, which include a tax benefit of $21.9 million related to the finalization of the one- time transition tax on deemed repatriation of foreign income and a tax benefit of $4.4 million related to the finalization of the remeasurement of the U.S. deferred tax assets and liabilities due to the maximum U.S. federal corporate rate reduction from 35% to 21%. 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 cash, 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 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. In accounting for the settlement of the Convertible Notes upon early conversions, we allocated the fair value of the settlement consideration remitted to the noteholders between the liability and equity components. The portion of the settlement consideration allocated to the extinguishment of the liability component was based on the fair value of that component immediately before extinguishment. A loss was recognized in the consolidated statements of income for the difference between the consideration allocated to the liability component and the sum of the carrying amount of the liability component and any unamortized debt issuance costs. Additionally, upon settlement of the converted principal, we derecognized the related unamortized discount and issuance costs. We allocated the remaining settlement consideration to the reacquisition of the equity component and recognized this amount as a reduction of 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, 2018, which could impact our future performance and financial position. 35 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, 2018 2017 2016 2018 Compared to 2017 2017 Compared to 2016 F o r m 1 0 - K Revenues: Subscription Product and license Support and services Total net revenues Cost of net revenues: Cost of subscription, support and services Cost of product and license revenues Amortization and 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 and impairment of other intangible assets Restructuring Total operating expenses Income from continuing operations Interest income Interest expense Other (expense) income, net Income from continuing operations before income taxes Income tax expense Income from continuing operations (Loss) income from discontinued operations Net income (loss) Revenues 28.1 % (5.4) 3.8 3.2 9.9 1.6 18.5 8.6 2.3 5.2 3.0 (4.5) 14.0 7.4 2.4 1.9 66.7 14.8 $ $ 455,276 734,495 $ 314,735 766,777 245,606 810,975 1,784,132 1,743,174 1,679,499 2,973,903 2,824,686 2,736,080 44.7 % (4.2) 2.3 5.3 6.3 (2.5) (28.4) (1.3) 6.5 5.8 6.8 4.2 (7.8) (76.9) 2.7 18.7 44.0 55.3 266,495 120,249 47,059 433,803 250,602 123,356 65,688 439,646 228,080 121,391 55,418 404,889 2,540,100 2,385,040 2,331,191 439,984 415,801 1,074,234 1,006,112 315,343 302,565 15,854 16,725 17,190 72,375 395,373 976,339 316,838 15,076 67,401 1,862,140 1,814,043 1,771,027 677,960 40,030 (80,162) (8,373) 629,455 53,788 575,667 — 575,667 $ $ 570,997 27,808 (51,609) 3,150 550,346 $ 528,361 21,985 (42,704) (20,719) $ $ $ 560,164 16,686 (44,949) (4,131) 527,770 57,915 469,855 66,257 (365.8) 14.4 (89.8) 2,518.5 (100.0) (176.3) 4.3 812.3 (95.3) (164.5) 536,112 (2,878.4)% (103.9)% Net revenues include Subscription, Product and license and Support and services revenues. Subscription revenue relates to fees which are generally recognized ratably over the contractual term, and primarily consists of fees related to our Digital Workspace and Networking offerings. Our Digital Workspace and Networking subscriptions may be delivered via a cloud service, an on-premise license or in a hybrid cloud service and are inclusive of the related support as applicable. For our hybrid and on-premise subscription offerings, a portion of the revenue is recognized at a point in time. 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. Product and license revenue primarily represents fees related to the perpetual licensing of the following major solutions: • Digital Workspace is primarily comprised of our Application Virtualization solutions which include Citrix Virtual Apps and Desktops, our unified endpoint management solutions, which include Citrix Endpoint Management, Citrix Content Collaboration, and Citrix Workspace; and 36 • Networking products, which primarily include Citrix ADC and Citrix 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. Support and services revenue 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; and • Hardware Maintenance fees for our perpetual Networking products, which include technical support and hardware and software maintenance, are recognized ratably over the contract term; and • • 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. Year Ended December 31, 2018 2017 2016 2018 Compared to 2017 2017 Compared to 2016 (In thousands) $ $ 455,276 $ 314,735 $ 245,606 $ 734,495 1,784,132 766,777 810,975 1,743,174 1,679,499 $ 140,541 (32,282) 40,958 69,129 (44,198) 63,675 2,973,903 $ 2,824,686 $ 2,736,080 $ 149,217 $ 88,606 Revenues: Subscription Product and license Support and services Total net revenues Subscription Subscription revenue increased during 2018 compared to 2017 primarily due to increased customer adoption of our cloud- based solutions from our Digital Workspace offerings of $99.1 million and Networking offerings of $41.4 million delivered via the cloud. Also contributing to the increase is the upfront recognition of on-premise subscription revenue during fiscal year 2018 under the new revenue accounting guidance. Subscription revenue increased during 2017 compared to 2016 primarily due to increased customer adoption of our cloud-based solutions from our Digital Workspace offerings of $61.5 million and from our Networking offerings of $7.6 million. We currently expect our Subscription revenue to increase when comparing the first quarter of 2019 to the first quarter of 2018 as customers continue to shift to our cloud-based solutions. Product and license Product and license revenue decreased during 2018 when compared to 2017 primarily due to lower sales of our perpetual Digital Workspace solutions of $22.8 million and lower sales of our perpetual Networking products of $9.5 million as customers continue to shift to our cloud-based solutions. Product and license revenue decreased during 2017 when compared to 2016 due to lower sales of our perpetual Networking products of $23.3 million and lower sales of our perpetual Digital Workspace solutions of $21.2 million. We currently expect Product and license revenue to decrease when comparing the first quarter of 2019 to the first quarter of 2018 due to our continued transition to a subscription-based business model as customers continue to shift to our cloud-based solutions. Support and services Support and services revenue increased during 2018 compared to 2017 primarily due to increased sales of maintenance revenues from our Customer Success Services offerings. Support and services revenue increased during 2017 compared to 2016 primarily due to increased sales of maintenance revenues from our Customer Success Services offerings of $39.9 million and higher sales of our maintenance revenues for our Networking products of $23.3 million. We currently expect Support and services revenue to increase when comparing the first quarter of 2019 to the first quarter of 2018. Deferred Revenue, Unbilled Revenue and Backlog Deferred revenues are primarily comprised of Support and services revenue from maintenance fees, which include software and hardware maintenance, technical support related to our perpetual offerings and services revenue related to our 37 F o r m 1 0 - K consulting contracts. Deferred revenues also include Subscription revenue from our Digital Workspace and cloud-based subscription offerings. Deferred revenue primarily consists of billings or payments received in advance of revenue recognition and is recognized in our consolidated balance sheets and consolidated statements of income as the revenue recognition criteria are met. Unbilled revenue primarily represents contractually committed future billings under our subscription agreements that have not been invoiced and, accordingly, are not recorded in accounts receivable and deferred revenue within our consolidated financial statements. Deferred revenue and unbilled revenue are influenced by several factors, including 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. The following table presents the amounts of deferred and unbilled revenue (in thousands): Deferred revenue Unbilled revenue December 31, 2018 December 31, 2017 2018 compared to 2017 $ 1,834,572 338,463 $ 1,864,243 80,074 $ (29,671) 258,389 Deferred revenues decreased approximately $29.7 million as of December 31, 2018 compared to December 31, 2017 primarily due to the $99.9 million cumulative effect adjustment from adoption of the new revenue recognition accounting standard, partially offset by an increase of $79.4 million related to increased customer adoption of our cloud-based subscription offerings. Unbilled revenue increased primarily due to an increase in multi-year subscription agreements as a result of an increase in customer adoption of our cloud-based subscription offerings. See Note 2 to our consolidated financial statements for detailed information related to our adoption of the new revenue standard. While it is generally our practice to promptly ship our products upon receipt of properly finalized orders, at any given time, we have confirmed product license orders that have not shipped and are unfulfilled. We refer to those unfulfilled product license orders at the end of a given period as “product and license backlog.” As of December 31, 2018 and 2017, the amount of product and license backlog was not material. We do not believe that backlog, as of any particular date, is a reliable indicator of future performance. International Revenues International revenues (sales outside the United States) accounted for approximately 47.0% of our net revenues for the year ended December 31, 2018 and 46.3% of our net revenues for the years ended December 31, 2017 and 2016, respectively. 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, 2018. Cost of Net Revenues Year Ended December 31, 2018 2017 2016 2018 Compared to 2017 2017 Compared to 2016 Cost of subscription, support and services $ 266,495 $ 250,602 (In thousands) $ 228,080 $ Cost of product and license revenues Amortization and impairment of product related intangible assets 120,249 123,356 121,391 47,059 65,688 55,418 Total cost of net revenues $ 433,803 $ 439,646 $ 404,889 $ 15,893 (3,107) $ 22,522 1,965 (18,629) (5,843) $ 10,270 34,757 Cost of subscription, support and services revenues consists primarily of compensation and other personnel-related costs of providing technical support, consulting and cloud capacity costs, as well as the costs related to providing our offerings delivered via the cloud. Cost of product and license revenues consists primarily of hardware, shipping expense, royalties, product media and duplication, manuals and packaging materials. Also included in Cost of net revenues is amortization and impairment of product related intangible assets. 38 Cost of subscription, support and services revenues increased during 2018 when compared to 2017 primarily due to an increase in sales of our subscription offerings of $17.8 million and professional services of $5.6 million, partially offset by a decrease in costs of providing technical support of $7.4 million, primarily due to reductions in headcount. Cost of subscription, support and services revenues increased during 2017 compared to 2016 primarily due to an increase in sales of our software maintenance of $12.8 million from our Customer Success Services offering, and an increase in sales of our Digital Workspace offerings delivered via the cloud of $7.9 million. We currently expect Cost of subscription, support and services revenues to increase when comparing the first quarter of 2019 to the first quarter of 2018, consistent with the expected increases in Subscription revenue and Support and services revenue as discussed above. Cost of product and license revenues decreased during 2018 when compared to 2017 primarily due to lower overall sales of our perpetual Networking products, which contain hardware components that have a higher cost than our software products. Cost of product and license revenues increased during 2017 when compared to 2016 primarily due to royalties from our Digital Workspace solutions. We currently expect Cost of product and license revenues to decrease when comparing the first quarter of 2019 to the first quarter of 2018. Amortization and impairment of product related intangible assets decreased during 2018 as compared to 2017 primarily due to the impairments of certain acquired intangible assets in 2017. Amortization and 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. Gross Margin Gross margin as a percent of revenue was 85.4% for 2018, 84.4% for 2017 and 85.2% for 2016. Gross margin increased during 2018 as compared to 2017 primarily due to the impairment of certain product related intangible assets in 2017. Gross margin remained consistent when comparing 2017 to 2016. 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. 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 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 Research and development $ 439,984 $ 415,801 (In thousands) $ 395,373 $ 24,183 $ 20,428 Year Ended December 31, 2018 2017 2016 2018 Compared to 2017 2017 Compared to 2016 Research and development expenses consist primarily of personnel related costs, facility and equipment costs and cloud capacity costs directly related to our research and development activities. We expense substantially all development costs included in the research and development of our solutions. Research and development expenses increased during 2018 as compared to 2017 primarily due to an increase in stock- based compensation of $18.8 million and an increase in cloud capacity costs of $9.0 million. 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. 39 F o r m 1 0 - K Sales, Marketing and Services Expenses Year Ended December 31, 2018 2017 2016 2018 Compared to 2017 2017 Compared to 2016 (In thousands) Sales, marketing and services $ 1,074,234 $ 1,006,112 $ 976,339 $ 68,122 $ 29,773 Sales, marketing and services expenses consist 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 pre-demonstration related to cloud capacity costs that are directly related to our sales, marketing and services activities. Sales, marketing and services expenses increased during 2018 compared to 2017 primarily due to an increase in compensation and other employee-related costs of $46.4 million due to an increase in sales headcount from our investment in sales capacity and demand generation, an increase in marketing programs of $24.8 million and an increase stock-based compensation of $17.2 million. These increases were partially offset by a decrease in variable compensation of $31.1 million mostly as a result of accounting for contract acquisition costs under the new revenue accounting guidance, which was adopted on January 1, 2018. See Note 2 to our consolidated financial statements for detailed information related to our adoption of the new revenue standard. 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. General and Administrative Expenses General and administrative $ 315,343 $ 302,565 (In thousands) $ 316,838 $ 12,778 $ (14,273) Year Ended December 31, 2018 2017 2016 2018 Compared to 2017 2017 Compared to 2016 General and administrative expenses consist 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 increased during 2018 compared to 2017 primarily due to an increase in professional fees of $8.7 million and an increase in facilities costs of $3.5 million. 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 a decrease in stock-based compensation of $5.1 million. Amortization and Impairment of Other Intangible Assets Year Ended December 31, 2018 2017 2016 2018 Compared to 2017 2017 Compared to 2016 (In thousands) Amortization and impairment of other intangible assets $ 15,854 $ 17,190 $ 15,076 $ (1,336) $ 2,114 Amortization and impairment of other intangible assets consists of amortization of customer relationships, trade names and covenants not to compete primarily related to our acquisitions. Amortization and impairment of other intangible assets decreased when comparing 2018 to 2017 primarily due to impairments of certain intangible assets related to certain non-core products during 2017. Amortization and impairment of other 40 intangible assets increased when comparing 2017 to 2016 primarily due to impairments of certain intangible assets related to certain non-core products during 2017. As of December 31, 2018, we had unamortized other identified intangible assets with estimable useful lives in the net amount of $23.0 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, 2018. Restructuring Expenses Restructuring Year Ended December 31, 2018 2017 2016 2018 Compared to 2017 2017 Compared to 2016 $ 16,725 $ 72,375 (In thousands) 67,401 $ $ (55,650) $ 4,974 During the years ended December 31, 2018 and 2017, we incurred costs of $2.5 million and $53.7 million, respectively, related to initiatives intended to accelerate the transformation to a cloud-based subscription business, increase strategic focus, and improve operational efficiency. The majority of the activities related to this program were substantially completed by the end of 2018. In connection with our restructuring initiatives, we had previously vacated or consolidated properties and subsequently reassessed our obligations on non-cancelable leases. The fair value estimate of these non-cancelable leases is based on the contractual lease costs over the remaining term, partially offset by estimated future sublease rental income. During the year ended December 31, 2018, we incurred costs of $14.2 million related to the consolidation of leased facilities. During the year ended December 31, 2017, we 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. No costs were incurred during the year ended December 31, 2016. The charges related to employee severance were substantially completed as of the first quarter of 2018; however, we could continue to incur lease losses related to the consolidation of leased facilities during fiscal year 2019. During the years ended December 31, 2017 and 2016, we incurred costs of $1.9 million and $44.5 million, respectively, 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. Total costs incurred during the year ended December 31, 2018 were not material. 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 and 2016, we recorded charges of $8.7 million and $24.0 million, respectively, related to our announced plan in January 2015 to increase strategic focus and operational efficiency. Total costs incurred during the year ended December 31, 2018 were not material. The charges primarily related to the severance and other costs directly related to 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 Note 17 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2018. 2019 Operating Expense Outlook When comparing the first quarter of 2019 to the fourth quarter of 2018, we currently expect operating expenses to increase in absolute dollars with respect to sales, marketing and services expenses due to our continued investment in demand generation, sales capacity in order to support growth and transition and cloud infrastructure. We expect an increase in absolute dollars with respect to research and development expenses as we invest more in innovation capacity, as well as an increase in absolute dollars in general and administrative expenses. Interest income Interest income Year Ended December 31, 2018 2017 2016 2018 Compared to 2017 2017 Compared to 2016 $ 40,030 $ 27,808 (In thousands) 16,686 $ $ 12,222 $ 11,122 41 F o r m 1 0 - K Interest income primarily consists of interest earned on our cash, cash equivalents and investment balances. Interest income increased during 2018 compared to 2017 primarily due to higher yields on investments as a result of an increase in interest rates. 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. See Note 5 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2018 for investment information. Interest Expense Year Ended December 31, 2018 2017 2016 2018 Compared to 2017 2017 Compared to 2016 (In thousands) Interest expense $ (80,162) $ (51,609) $ (44,949) $ (28,553) $ (6,660) Interest expense primarily consists of interest paid on our Convertible Notes, 2027 Notes and credit facility. When comparing 2018 and 2017, the increase is primarily due to borrowings related to our 2027 Notes. When comparing 2017 to 2016, the increase is primarily due to the issuance of our 2027 Notes in 2017. 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, 2018. Other (Expense) Income, net Other (expense) income, net $ (8,373) $ 3,150 (In thousands) $ (4,131) $ (11,523) $ 7,281 Year Ended December 31, 2018 2017 2016 2018 Compared to 2017 2017 Compared to 2016 Other (expense) income, 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 (expense) income, net when comparing 2018 to 2017 is primarily driven by realized losses in our available-for-sale investment portfolio of $6.3 million, mostly due to a decline in fair value considered other-than-temporary and an increase in net losses on remeasurement and settlement of foreign currency transactions of $3.7 million. 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. 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 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, we must recognize the effects of tax law changes in the period in which the new legislation is enacted. We are subject to tax in the U.S. and in multiple foreign tax jurisdictions. Our U.S. liquidity needs are currently satisfied using cash flows generated from our U.S. operations, borrowings, or both. We also utilize a variety of tax planning strategies in an effort to ensure that our worldwide cash is available in locations in which it is needed. Prior to 2017, we did not recognize a deferred tax liability related to undistributed foreign earnings of our subsidiaries because such earnings were considered to be indefinitely reinvested in our foreign operations, or were remitted substantially free of U.S. tax. Under the 2017 Tax Act, all foreign earnings are subject to U.S. taxation. As a result, we expect to repatriate a substantial portion of our foreign earnings over time, to the extent that the foreign earnings are not restricted by local laws or result in significant incremental costs associated with repatriating the foreign earnings. 42 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. During the period ended December 31, 2018, we completed the accounting for the tax effects of all of the provisions of the 2017 Tax Act within the required measurement period and as a result recorded adjustments to the previous provisional amounts. Our effective tax rate was approximately 8.5% for the year ended December 31, 2018 and 96.0% for the year ended December 31, 2017. The decrease in the effective tax rate when comparing the year ended December 31, 2018 to the year ended December 31, 2017 was primarily due to accounting for the estimated tax impact of the 2017 Tax Act and the separation of the GoTo Business. Specifically, results from 2017 include 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 remeasurement of U.S. deferred tax assets and liabilities because of the maximum U.S. federal corporate rate reduction from 35% to 21%. We 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. During the year ended December 31, 2018, we recorded a tax benefit of $21.9 million related to the finalization of the one-time transition tax on deemed repatriation of foreign income and a tax benefit of $4.4 million related to the finalization of the remeasurement of the U.S. deferred tax assets and liabilities due to the maximum U.S. federal corporate rate reduction from 35% to 21%. As of December 31, 2018, our net unrecognized tax benefits totaled approximately $89.9 million compared to $77.8 million as of December 31, 2017. All amounts included in this balance affect the annual effective tax rate. As of the year ended December 31, 2018, we accrued $3.9 million for the payment of interest on uncertain tax positions. We and one or more of our subsidiaries are subject to U.S. federal income taxes in the United States, as well as income taxes of multiple state and foreign jurisdictions. We are not currently under examination by the United States Internal Revenue Service. With few exceptions, we are generally not subject to examination for state and local income tax, or in non-U.S. jurisdictions by tax authorities for years prior to 2015. On July 24, 2018, the U.S. Ninth Circuit Court of Appeals overturned the U.S. Tax Court’s unanimous decision in Altera v. Commissioner, where the Tax Court held the Treasury regulation requiring participants in a qualified cost sharing arrangement share stock-based compensation costs to be invalid. On August 7, 2018, the U.S. Ninth Circuit Court of Appeals, on its own motion, withdrew its July 24, 2018 opinion to allow time for the reconstituted panel to confer. Given the increased uncertainty as to the Ninth Circuit's eventual ruling and the impact it will have on the Internal Revenue Service’s ability to challenge the technical merits of our position, we accrued amounts for this uncertain tax position as of the year ended December 31, 2018. 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. As of December 31, 2018, we had $121.9 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, 2018, we determined that an $85.4 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. 43 F o r m 1 0 - K Liquidity and Capital Resources During 2018, we generated continuing operating cash flows of $1.04 billion. These operating cash flows related primarily to net income from continuing operations of $575.7 million, adjusted for, among other things, non-cash charges, stock-based compensation expense of $203.6 million, depreciation and amortization expenses of $141.9 million and amortization of debt discount and transaction costs of $39.1 million. Also contributing to these cash inflows was a change in operating assets and liabilities of $30.3 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 $69.5 million, accrued expenses and other current liabilities of $37.0 million mostly due to employee-related accruals, and changes in net accounts receivable of $18.7 million driven by an increase in collections from higher bookings. These inflows were partially offset by an outflow in net income taxes of $57.0 million due a decrease in income taxes payable and an increase in prepaid taxes, and changes in other assets of $33.6 million primarily due to an increase in capitalized commissions as a result of the new revenue standard. Our continuing operations investing activities provided $132.2 million of cash consisting primarily of net proceeds from investments of $456.9 million, partially offset by cash paid for acquisitions of $248.9 million and cash paid for the purchase of property and equipment of $69.4 million. Our continuing operations financing activities used cash of $1.66 billion, primarily due to stock repurchases of $1.26 billion, payments on early redemptions of convertible notes of $273.0 million, cash paid for tax withholding on vested stock awards of $71.6 million, and cash dividends paid on common stock of $46.8 million. During 2017, we generated continuing operating cash flows of $964.3 million. These operating cash flows related primarily to 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 net 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 by proceeds from the 2027 Notes of $741.0 million, net of issuance costs. 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 (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 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, 2018 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, 2018, 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 44 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 under the credit agreement 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 our 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, 2018 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). 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 purchased approximately $101.0 million of our common stock from certain purchasers of the Convertible Notes in privately negotiated transactions concurrently with the closing of the offering, and purchased approximately $1.4 billion 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. The last reported sale price of our common stock for at least 20 trading days during the period of 30 consecutive trading days ending on September 30, 2018 was greater than or equal to $93.48 (130% of the conversion price) on each applicable trading day. As a result, each holder of our Convertible Notes had the right to convert any portion of their Convertible Notes (in minimum denominations of $1,000 in principal amount or an integral multiple thereof) during the fourth quarter of 2018. The sales price condition was also met for the quarter ended June 30, 2018. As of October 15, 2018, we received conversion notices from noteholders with respect to $273.0 million in aggregate principal amount of Convertible Notes requesting conversion as a result of the sales price condition having been met. Accordingly, in accordance with the terms of the Convertible Notes, in the fourth quarter of 2018, we made cash payments of this aggregate principal amount and delivered 1.3 million newly issued shares of our common stock in respect of the remainder of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being redeemed, in full satisfaction of such converted notes. We received shares of our common stock under the Bond Hedges that offset the issuance of shares of common stock upon conversion of the Convertible Notes. In addition, on or after October 15, 2018 until the close of business on the second scheduled trading day immediately preceding the April 15, 2019 maturity date, holders of the Convertible Notes have the right to convert their notes at any time, regardless of whether the sales price condition is met. Any conversions with respect to conversion notices received by us on or after October 15, 2018 will settle on the maturity date. As of December 31, 2018, the outstanding balance, net of discount, of $1.16 billion of the Convertible Notes is included current liabilities and the difference between the face value and carrying value of $8.1 million was is included in temporary equity in the accompanying consolidated balance sheets. See Note 13 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2018 for additional details on the Convertible Notes and the related bond hedges and warrant transactions. Historically, significant portions of our cash inflows were generated by our operations. We currently expect this trend to continue in 2019. 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 and service our short term debt obligations (including repayment of the Convertible Notes on the maturity date) 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. 45 Cash, Cash Equivalents and Investments Cash, cash equivalents and investments December 31, 2018 2017 2018 Compared to 2017 $ 1,776,700 (In thousands) $ 2,731,974 $ (955,274) F o r m 1 0 - K The decrease in cash, cash equivalents and investments at December 31, 2018 as compared to December 31, 2017, is primarily due to cash paid for stock repurchases of $1.26 billion, repayments on early conversion of our Convertible Notes of $273.0 million, cash paid for acquisitions, net of cash acquired, of $248.9 million, cash paid for tax withholding on vested stock awards of $71.6 million, purchases of property and equipment of $69.4 million, and cash dividends paid on common stock of $46.8 million. These decreases are partially offset by cash provided by our operating activities of $1.04 billion. As of December 31, 2018, $702.8 million of the $1.78 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, as well as additional foreign withholding 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. Stock Repurchase Program Our Board of Directors authorized an ongoing stock repurchase program, of which $1.7 billion was approved in November 2017 and $750.0 million was approved in October 2018. 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, 2018, approximately $767.9 million 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, 2018. 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 awards 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, 2018, we expended approximately $511.2 million on open market purchases under the stock repurchase program, repurchasing 4,730,542 shares of outstanding common stock at an average price of $108.05. In addition to the repurchases described above, in 2017, 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 represented 80 percent of the shares to be repurchased pursuant to the ASR agreement. The total number of shares of common stock that we repurchased under the ASR agreement was 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 1.4 million shares of our common stock. In February 2018, we entered into an ASR transaction with a counterparty to pay an aggregate of $750.0 million in exchange for the immediate delivery of approximately 6.5 million shares of our common stock based on current market prices. The purchase price per share under the ASR was based on the volume-weighted average price of our common stock during the term of the ASR, less a discount. The ASR was entered into pursuant to our existing share repurchase program. Final settlement of the ASR agreement was completed in April 2018 and we received delivery of an additional 1.6 million additional 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, 2018 for detailed information on our 2027 Notes offering and the transactions related thereto. During the year ended December 31, 2017, we expended approximately $575.0 million on open market purchases, repurchasing 7,384,368 shares of outstanding common stock at an average price of $77.86. 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. 46 Shares for Tax Withholding During the years ended December 31, 2018, 2017, and 2016, we withheld 739,522 shares, 974,501 shares and 830,155 shares, respectively, from equity awards that vested. Amounts withheld to satisfy minimum tax withholding obligations that arose on the vesting of equity awards was $71.6 million for 2018, $80.0 million for 2017 and $66.6 million for 2016. 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, 2018. 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, 2018 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): Operating lease obligations (1) Convertible senior notes (2) Senior Notes due 2027 (3) Purchase obligations(4) Transition tax payable(5) Total contractual obligations(6) $ Total 301,396 1,164,497 750,000 71,888 285,627 $ 2,573,408 $ $ Payments due by period Less than 1 Year 1-3 Years 3-5 Years 57,122 1,164,497 — 46,888 — 1,268,507 $ $ 89,339 — — 25,000 53,540 167,879 $ $ 67,314 — — — 78,500 145,814 More than 5 Years 87,621 $ — 750,000 — 153,587 991,208 $ (1) The amounts in the table above include $64.3 million in exited facility costs related to restructuring activities. (2) During the second quarter of 2014, we completed a private placement of $1.4 billion principal amount of 0.5% Convertible Senior Notes due 2019. The amount above represents the principal balance to be repaid in April 2019. See Note 13 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2018 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 4.5% 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, 2018 for detailed information on the 2027 Notes offering and the transactions related thereto. (4) Purchase obligations represent non-cancelable commitments to purchase inventory ordered before year-end 2018 of approximately $5.3 million and a contingent obligation to purchase inventory of approximately $16.6 million. It also includes minimum purchase commitments for our use of certain cloud services with a third-party provider of $50.0 million. (5) Represents transition tax payable on deemed repatriation of deferred foreign income incurred as a result of the 2017 Tax Act. See Note 11 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2018 for further information. (6) Total contractual obligations do not include agreements where our commitment is variable in nature or where cancellations without payment provisions exist and excludes $89.9 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, 2018 for further information. As of December 31, 2018, 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. 47 F o r m 1 0 - K 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, 2018. 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, 2018. 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, 2018 and 2017, we had in place foreign currency forward sale contracts with a notional amount of $141.9 million and $128.1 million, respectively, and foreign currency forward purchase contracts with a notional amount of $119.5 million and $113.6 million, respectively. At December 31, 2018, these contracts had an aggregate fair value liability of $1.8 million and at December 31, 2017, these contracts had an aggregate fair value asset of $1.7 million. Based on a hypothetical 10% appreciation of the U.S. dollar from December 31, 2018 market rates, the fair value of our foreign currency forward contracts would increase by $2.4 million. Conversely, a hypothetical 10% depreciation of the U.S. dollar from December 31, 2018 market rates would decrease the fair value of our foreign currency forward contracts by $2.4 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, 2018 and 2017 levels, the fair value of the available-for- sale portfolio would decline by approximately $9.2 million and $17.1 million, respectively. If market interest rates were to decrease by 100 basis points from December 31, 2018 and 2017 levels, the fair value of the available-for-sale portfolio would increase by approximately $9.2 million and $17.0 million, respectively. These amounts are determined by considering the impact of the hypothetical interest rate movements on our available-for-sale 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. 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-46 of this Annual Report on Form 10-K for the year ended December 31, 2018. 48 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures As of December 31, 2018, our management, with the participation of our President and Chief Executive Officer and our 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 Chief Financial Officer concluded that, as of December 31, 2018, 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 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, 2018, 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, 2018. 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, 2018, 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, 2018 has been audited by Ernst & Young LLP, an independent registered certified public accounting firm, as stated in their report which appears below. 49 F o r m 1 0 - K Report of Independent Registered Certified Public Accounting Firm The Stockholders and Board of Directors 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, 2018, 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, 2018, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 15, 2019 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 15, 2019 50 ITEM 9B. OTHER INFORMATION Our policy governing transactions in Citrix 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 Exchange Act. We have been advised that David Henshall, our President and Chief Executive Officer, and Drew Del Matto, our Executive Vice President and Chief Financial Officer, each entered into a new trading plan in the fourth quarter of 2018 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, 2018. 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, 2018. 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, 2018. 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, 2018. 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, 2018. 51 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. F o r m 1 0 - K All other schedules have been omitted as the required information is not applicable or the information is presented in the Consolidated Financial Statements or notes thereto under Item 8 herein. The following consolidated financial statement schedule is included in Item 8: Valuation and Qualifying Accounts 3. List of Exhibits. Exhibit No. 2.1 Description 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)** 2.2 2.3 2.4 2.5 2.6 3.1 3.2 4.1 4.2 4.3 4.4 4.5 4.6 10.1* 10.2* 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 March 12, 2018) 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) 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) 52 10.3* 10.4* 10.5* 10.6* 10.7* 10.8* 10.9* 10.10* 10.11* 10.12* 10.13* 10.14* 10.15* 10.16* 10.17* 10.18* 10.19* 10.20* 10.21* 10.22* 10.23* 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) 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) 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) 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) 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) 53 F o r m 1 0 - K 10.24* 10.25* 10.26* 10.27* 10.28* 10.29* 10.30* 10.31* 10.32* 10.33* 10.34* 10.35* 10.36* 10.37* 10.38* 10.39* 10.40* 10.41* 10.42* 10.43* 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) 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) Restricted Stock Unit Agreement under the Citrix Systems, Inc. 2014 Equity Incentive Plan for Robert M. Calderoni granted February 1, 2017 (Time Based Awards) (incorporated herein by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K filed on February 16, 2018) 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) 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) Letter Agreement, dated November 2, 2017, between Citrix Systems, Inc. and Carlos Sartorius (incorporated herein by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K filed on February 16, 2018) Employment Agreement, dated July 10, 2017, by and between Citrix Systems, Inc. and David J. Henshall (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 10, 2017) 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) 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) Restricted Stock Unit Agreement with David J. Henshall under the Citrix Systems, Inc. 2014 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 Global Restricted Stock Unit Agreement under the Citrix Systems, Inc. 2014 Equity Incentive Plan (Time Based Awards - 2018 Annual Awards) (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 4, 2018) Form of Global Restricted Stock Unit Agreement under the Citrix Systems, Inc. 2014 Equity Incentive Plan (Performance Based Awards - 2018 Annual Awards) (incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 4, 2018) Form of Amendment to Restricted Stock Unit Agreement with David J. Henshall under the Citrix Systems, Inc. 2014 Equity Incentive Plan (Performance Based Awards - August 2017) (incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on May 4, 2018) 54 10.44* 10.45* 10.46* 10.47* 10.48* 10.49* 10.50*† 10.51*† 10.52 10.53 10.54 10.55 10.56 10.57 10.58 10.59 10.60 10.61 10.62 10.63*† 21.1† Form of Amendment to Restricted Stock Unit Agreement with David J. Henshall under the Citrix Systems, Inc. 2014 Equity Incentive Plan (Performance Based Awards - August 2017) (incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on May 4, 2018) Form of Amendment to Restricted Stock Unit Agreement under the Citrix Systems, Inc. 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 May 4, 2018) Form of Amendment to Restricted Stock Unit Agreement under the Citrix Systems, Inc. 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 May 4, 2018) Restricted Stock Unit Agreement with Robert M. Calderoni under the Citrix Systems, Inc. 2014 Equity Incentive Plan (Time Based Award - January 2018) (incorporated herein by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed on May 4, 2018) Amendment to Citrix Systems, Inc. 2014 Amended and Restated Equity Incentive Plan (incorporated herein by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q filed on May 4, 2018) Executive Agreement, dated February 1, 2018 by and between the Company and Andrew Del Matto (incorporated herein by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q filed on May 4, 2018) Form of Amendment to Global Restricted Stock Unit Agreement under the Citrix Systems, Inc. 2014 Equity Incentive Plan (Long Term Incentive) Form of Restricted Stock Unit Agreement under the Citrix Systems, Inc. 2014 Equity Incentive Plan (Long Term Incentive) 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) 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) Master Confirmation between Goldman Sachs & Co. LLC and Citrix Systems, Inc., dated February 2, 2018 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 5, 2018) 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) Amendment to Citrix Systems, Inc. 2015 Employee Stock Purchase Plan, dated December 10, 2018 List of Subsidiaries 55 F o r m 1 0 - K 23.1† 24.1 31.1† 31.2† 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 32.1†† 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 * ** † †† (P) 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 supplemental copies of any of the omitted schedules (or similar attachments) upon request by the SEC. Filed herewith. Furnished herewith. This exhibit has been paper filed and is not subject to the hyperlinking requirements of Item 601 of Regulation S- K. 56 (b) Exhibits. The Company hereby files as part of this Annual Report on Form 10-K for the year ended December 31, 2018, 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, 2018 the consolidated financial statement schedule listed in Item 15(a)(2) above, which is attached hereto. ITEM 16. FORM 10-K SUMMARY None. 57 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 15th day of February, 2019. SIGNATURES CITRIX SYSTEMS, INC. By: /s/ DAVID J. HENSHALL David J. Henshall President and Chief Executive Officer F o r m 1 0 - K 58 POWER OF ATTORNEY AND SIGNATURES We, the undersigned officers and directors of Citrix Systems, Inc., hereby severally constitute and appoint David J. Henshall and Andrew Del Matto, 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 15th day of February, 2019. Signature Title(s) /S/ DAVID J. HENSHALL David J. Henshall /S/ ANDREW DEL MATTO Andrew Del Matto /S/ JESSICA SOISSON Jessica Soisson President, Chief Executive Officer and Director (Principal Executive Officer) Executive Vice President and Chief Financial Officer (Principal Financial Officer) Vice President, Chief Accounting Officer and Corporate Controller (Principal Accounting Officer) /S/ ROBERT M. CALDERONI 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 Director Ajei S. Gopal /S/ THOMAS E. HOGAN Director Thomas E. Hogan /S/ MOIRA A. KILCOYNE Director Moira A. Kilcoyne /S/ PETER J. SACRIPANTI Director Peter J. Sacripanti 59 F o r m 1 0 - K List of Financial Statements and Financial Statement Schedule CITRIX SYSTEMS, INC. The following consolidated financial statements of Citrix Systems, Inc. are included in Item 8: Report of Independent Registered Certified Public Accounting Firm Consolidated Balance Sheets — December 31, 2018 and 2017 Consolidated Statements of Income — Years ended December 31, 2018, 2017 and 2016 Consolidated Statements of Comprehensive Income — Years ended December 31, 2018, 2017 and 2016 Consolidated Statements of Equity — Years ended December 31, 2018, 2017 and 2016 Consolidated Statements of Cash Flows — Years ended December 31, 2018, 2017 and 2016 Notes to Consolidated Financial Statements The following consolidated financial statement schedule of Citrix Systems, Inc. is included in Item 15(a): Schedule II Valuation and Qualifying Accounts F-2 F-3 F-4 F-5 F-6 F-7 F-8 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. F-1 Report of Independent Registered Certified Public Accounting Firm The Stockholders and Board of Directors 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, 2018 and 2017, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2018, 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 present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, 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, 2018, 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 15, 2019 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 15, 2019 F-2 F o r m 1 0 - K CITRIX SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS Current assets: Cash and cash equivalents Short-term investments, available-for-sale Assets Accounts receivable, net of allowances of $4,530 and $4,645 at December 31, 2018 and 2017, respectively Inventories, net Prepaid expenses and other current assets Total current assets Long-term investments, available-for-sale Property and equipment, net Goodwill Other intangible assets, net Deferred tax assets, net Other assets 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 Total current liabilities Long-term portion of deferred revenues Long-term debt Long-term income taxes payable Other liabilities 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; 309,761 and 305,751 shares issued and outstanding at December 31, 2018 and 2017, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss December 31, 2018 December 31, 2017 (In thousands, except par value) $ 618,766 $ 1,115,130 $ $ 583,615 688,420 21,905 174,195 632,516 712,535 13,912 147,330 2,086,901 2,621,423 574,319 243,396 984,328 252,932 1,802,670 1,614,494 167,187 136,998 124,578 141,952 152,362 52,685 5,136,049 $ 5,820,176 75,551 $ 290,492 44,409 1,345,243 1,155,445 2,911,140 489,329 741,825 285,627 148,499 8,110 — 310 5,404,500 4,169,019 (8,154) 9,565,675 66,893 277,679 34,033 1,308,474 — 1,687,079 555,769 2,127,474 335,457 121,936 — — 306 4,883,670 3,509,484 (10,806) 8,382,654 Less - common stock in treasury, at cost (178,327 and 162,044 shares at December 31, 2018 and 2017, respectively) Total stockholders' equity Total liabilities, temporary equity and stockholders' equity (9,014,156) (7,390,193) 551,519 992,461 $ 5,136,049 $ 5,820,176 See accompanying notes. F-3 CITRIX SYSTEMS, INC. CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2018 2017 2016 (In thousands, except per share information) $ 455,276 734,495 $ $ 314,735 766,777 Revenues: Subscription Product and license Support and services Total net revenues Cost of net revenues: Cost of subscription, support and services Cost of product and license revenues Amortization and 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 and impairment of other intangible assets Restructuring Total operating expenses Income from continuing operations Interest income Interest expense Other (expense) income, net Income from continuing operations before income taxes Income tax expense Income from continuing operations (Loss) income from discontinued operations, net of income tax expense of $2,900 and $22,737 in 2017 and 2016, respectively Net income (loss) Basic earnings (loss) per share: Income from continuing operations (Loss) income from discontinued operations Basic net earnings (loss) per share Diluted earnings (loss) per share: Income from continuing operations (Loss) income from discontinued operations Diluted net earnings (loss) per share Weighted average shares outstanding: Basic Diluted 1,784,132 2,973,903 266,495 120,249 47,059 433,803 2,540,100 439,984 1,074,234 315,343 15,854 16,725 1,862,140 677,960 40,030 (80,162) (8,373) 629,455 53,788 575,667 — 575,667 4.23 — 4.23 3.94 — 3.94 $ $ $ $ $ $ $ $ $ $ 1,743,174 2,824,686 250,602 123,356 65,688 439,646 2,385,040 415,801 1,006,112 302,565 17,190 72,375 1,814,043 570,997 27,808 (51,609) 3,150 550,346 528,361 21,985 (42,704) 245,606 810,975 1,679,499 2,736,080 228,080 121,391 55,418 404,889 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 66,257 (20,719) $ 536,112 0.15 $ (0.28) (0.13) $ 0.14 $ (0.27) (0.13) $ 3.03 0.43 3.46 2.99 0.42 3.41 136,030 145,934 150,779 155,503 155,134 157,084 See accompanying notes. F-4 CITRIX SYSTEMS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME F o r m 1 0 - K Net income (loss) Other comprehensive income (loss): Available for sale securities: Change in net unrealized (losses) gains Less: reclassification adjustment for net losses (gains) included in net income Net change (net of tax effect) Gain on pension liability Cash flow hedges: Year Ended December 31, 2018 2017 2016 (In thousands) $ 575,667 $ (20,719) $ 536,112 (1,770) (3,285) 996 5,996 4,226 (273) (3,558) (1,204) (208) 1,569 2,768 906 Change in unrealized (losses) gains Less: reclassification adjustment for net losses (gains) included in net income Net change (net of tax effect) (3,842) 6,046 (2,638) 699 (3,143) (758) 5,288 1,763 (875) Other comprehensive income (loss) 2,652 4,498 (177) Comprehensive income (loss) $ 578,319 $ (16,221) $ 535,935 See accompanying notes. F-5 . C N I , S M E T S Y S X I R T I C Y T I U Q E F O S T N E M E T A T S D E T A D I L O S N O C 6 4 4 , 3 7 9 1 , $ ) 0 7 8 9 3 0 , , 6 ( $ ) 6 9 2 , 5 4 1 ( ) 7 2 5 , 8 2 ( $ 5 2 6 , 4 7 4 , 3 $ 9 1 9 , 6 6 5 , 4 $ 9 9 2 $ 3 1 1 , 9 9 2 5 1 0 2 , 1 3 r e b m e c e D t a e c n a l a B l a t o T y t i u q E k c o t S n o m m o C y r u s a e r T n i t n u o m A s e r a h S r e h t O d e t a l u m u c c A e v i s n e h e r p m o C e m o c n i ) s s o l ( d e n i a t e R s g n i n r a E l a n o i t i d d A l a t i p a C n I d i a P k c o t S n o m m o C t n u o m A s e r a h S ) s d n a s u o h t n I ( 8 8 3 ) 1 3 8 , 1 6 4 ( 5 9 4 , 9 7 ) 9 1 7 0 2 ( , 1 6 4 2 9 9 , 4 6 1 ) 0 1 1 , 8 ( 2 6 4 , 3 3 9 1 6 , 3 0 2 ) 3 5 1 , 1 1 5 ( ) 0 0 0 0 5 7 ( , ) 3 9 5 , 1 7 ( ) 9 9 7 6 4 ( , ) 5 8 9 , 2 ( 8 7 7 , 2 3 1 6 5 3 , 1 2 5 6 2 , 7 6 6 , 5 7 5 9 1 5 1 5 5 , 3 1 1 , 2 6 2 3 , 9 1 8 0 3 , 6 6 1 ) 6 5 9 , 4 7 5 ( ) 0 4 0 , 0 8 ( ) 8 4 8 ( 8 9 4 4 , — — — — — ) 6 5 9 4 7 5 ( , ) 0 4 0 , 0 8 ( — — — — — ) 5 7 9 ( ) 4 8 3 , 7 ( ) 0 0 0 , 0 5 7 ( ) 0 0 0 0 0 6 ( , ) 3 3 1 , 7 ( — — — — — — — — — — — — — — — — 8 9 4 4 , — — 0 0 4 , 3 1 — — — — — — — — ) 3 0 3 , 5 ( ) 1 3 2 , 5 7 4 ( — ) 9 1 7 , 0 2 ( — — — 0 1 1 , 2 6 2 3 , 9 1 8 0 3 , 6 6 1 ) 8 4 8 ( ) 0 0 0 , 0 5 1 ( — — 1 9 6 , 5 5 9 4 , 9 7 3 — — — — — — — — — — — 7 4 2 , 1 4 0 8 9 , 5 7 1 5 1 5 7 5 , ) 4 7 5 ( ) 9 8 6 , 8 2 ( ) 8 3 6 , 6 6 ( ) 7 7 1 ( ) 5 9 4 9 7 ( , 2 1 1 , 6 3 5 — — — — — — — ) 9 8 6 , 8 2 ( ) 8 3 6 , 6 6 ( — — — — ) 6 2 4 ( ) 0 3 8 ( — — — — — — — — — ) 7 7 1 ( — — — — — — — — — — ) 4 7 5 ( 4 4 2 , 1 4 0 8 9 , 5 7 1 4 1 5 , 7 5 — — — ) 5 9 4 , 9 7 ( 2 1 1 , 6 3 5 — 3 — 1 — — — — — — — 9 2 7 9 0 0 , 3 — — — — — — 7 2 7 , 8 0 6 , 2 $ ) 7 9 1 , 5 3 1 , 6 ( $ ) 2 5 5 , 6 4 1 ( ) 4 0 7 8 2 ( , $ 7 3 7 , 0 1 0 , 4 $ 8 8 5 , 1 6 7 , 4 $ 3 0 3 $ 1 5 8 , 2 0 3 — — — — — ) 3 5 1 1 1 5 ( , ) 0 0 0 , 0 0 9 ( ) 3 9 5 , 1 7 ( — — — — ) 1 3 7 , 4 ( ) 2 2 5 , 9 ( ) 9 3 7 ( — ) 7 1 2 , 1 4 1 ( ) 1 9 2 , 1 ( — — — — — — — — — — — — — — — — — — — — 2 5 6 , 2 — — — — — — — — ) 9 9 7 , 6 4 ( ) 1 1 1 , 2 ( 8 7 7 , 2 3 1 1 6 1 ) 0 1 1 , 8 ( 2 6 4 , 3 3 9 1 6 , 3 0 2 — 0 0 0 0 5 1 , — — 1 3 2 , 8 3 1 — 7 6 4 , 3 7 6 6 , 5 7 5 — 3 — — — — — — — 1 — — — — ) 3 9 1 0 9 3 , , 7 ( ) 4 4 0 , 2 6 1 ( ) 6 0 8 0 1 ( , 4 8 4 , 9 0 5 , 3 0 7 6 , 3 8 8 , 4 6 0 3 $ ) 6 5 1 4 1 0 , , 9 ( $ ) 7 2 3 , 8 7 1 ( ) 4 5 1 , 8 ( $ 9 1 0 , 9 6 1 , 4 $ 0 0 5 , 4 0 4 , 5 $ 0 1 3 $ 1 6 7 , 9 0 3 . s e t o n g n i y n a p m o c c a e e S 6 - F — 6 8 2 4 1 6 , 2 — — — — — — — — — — 1 6 4 — — — — — 1 9 2 , 1 — — — — 8 5 2 , 2 1 5 7 , 5 0 3 n a l p e s a h c r u p k c o t s e e y o l p m e r e d n u d e u s s i k c o t s n o m m o C t e n , s n a l p k c o t s r e y o l p m e m o r f y c n e i c i f e d x a T s n a l p n o i t a s n e p m o c d e s a b - k c o t s r e d n u d e u s s i s e r a h S e s n e p x e n o i t a s n e p m o c d e s a b - k c o t S g n i d l o h h t i w x a t r o f n i d e n r u t s e r a h s d e t c i r t s e R t e n , s e s a h c r u p e r k c o t S x a t f o t e n , s s o l e v i s n e h e r p m o c r e h t O n o i t a c i f i s s a l c e r y t i u q e y r a r o p m e T 6 1 0 2 , 1 3 r e b m e c e D t a e c n a l a B e m o c n I t e N n a l p e s a h c r u p k c o t s e e y o l p m e r e d n u d e u s s i k c o t s n o m m o C s n a l p n o i t a s n e p m o c d e s a b - k c o t s r e d n u d e u s s i s e r a h S e s n e p x e n o i t a s n e p m o c d e s a b - k c o t S g n i d l o h h t i w x a t r o f n i d e n r u t s e r a h s d e t c i r t s e R x a t f o t e n , e m o c n i e v i s n e h e r p m o c r e h t O t e n , s e s a h c r u p e r k c o t S m a r g o r p e s a h c r u p e r k c o t s d e t a r e l e c c A r e h t O g n i t n u o c c a f o n o i t p o d a m o r f t n e m t s u j d a t c e f f e - e v i t a l u m u C n o i t a s n e p m o c d e s a b - k c o t s n o d r a d n a t s s s e n i s u B o T o G e h t f o s t e s s a t e n e h t f o n o i t u b i r t s i D n a l p e s a h c r u p k c o t s e e y o l p m e r e d n u d e u s s i k c o t s n o m m o C s n a l p n o i t a s n e p m o c d e s a b - k c o t s r e d n u d e u s s i s e r a h S e s n e p x e n o i t a s n e p m o c d e s a b - k c o t S n o i t a c i f i s s a l c e r y t i u q e y r a r o p m e T 7 1 0 2 , 1 3 r e b m e c e D t a e c n a l a B s s o l t e N g n i d l o h h t i w x a t r o f n i d e n r u t s e r a h s d e t c i r t s e R d e r a l c e d s d n e d i v i d h s a C s e g d e h d n a s e t o n e l b i t r e v n o c f o t n e m e l t t e S m a r g o r p e s a h c r u p e r k c o t s d e t a r e l e c c A n o i t a c i f i s s a l c e r y t i u q e y r a r o p m e T t e n , s e s a h c r u p e r k c o t S g n i t n u o c c a f o n o i t p o d a m o r f t n e m t s u j d a t c e f f e - e v i t a l u m u C x a t f o t e n , e m o c n i e v i s n e h e r p m o c r e h t O 8 1 0 2 , 1 3 r e b m e c e D t a e c n a l a B e m o c n i t e N s d r a d n a t s r e h t O F o r m 1 0 - K CITRIX SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Operating Activities Net income (loss) Loss (income) from discontinued operations Adjustments to reconcile net income (loss) 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 Amortization of deferred costs Stock-based compensation expense Deferred income tax (benefit) expense 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 income (loss) 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 provided by (used in) investing activities of continuing operations Net cash used in investing activities of discontinued operations Net cash provided by (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 Common stock cash dividends paid Repayment on convertible debt Transfer of cash to GoTo Business resulting from the separation 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 $0, $120,861 and $57,762, 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 Year Ended December 31, 2018 2017 (In thousands) 2016 $ 575,667 $ (20,719) $ — 62,913 78,983 39,099 38,144 203,619 (13,156) — 7,950 11,872 429,424 18,703 (8,239) (7,855) (33,638) (56,988) 6,804 36,967 69,499 5,001 30,254 1,035,345 — 1,035,345 (466,687) 455,417 468,145 (69,354) (248,929) (3,210) (3,202) 132,180 — 132,180 164 — — — (5,674) — 42,704 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) — (1,261,153) (1,174,957) — (71,593) (46,799) (272,986) — (1,658,041) (5,848) (496,364) 1,115,130 (150,000) (80,040) — — (28,523) (694,367) 8,186 158,174 956,956 618,766 — 618,766 110,808 41,834 $ $ $ 1,115,130 — 1,115,130 61,126 8,764 $ $ $ $ $ 536,112 (66,257) 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) (5,157) 588,438 368,518 956,956 (120,861) 836,095 64,361 7,847 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 aims to power a better way to work by delivering the experience, security, and choice people and organizations need to unlock innovation, engage customers, and be productive - anytime, anywhere. Citrix markets and licenses its solutions through multiple channels worldwide, including selling through resellers, direct and 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. The Company's revenues are derived from sales of its Digital Workspace solutions (formerly Workspace Services and Content Collaboration), Networking products and related Support and services. The Company operates under 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. See Note 12 for more information on the Company's segment. 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. 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. 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. Recent Accounting Pronouncements Revenue Recognition In May 2014, the Financial Accounting Standards Board issued an accounting standard update ("ASC 606") on revenue recognition. The new guidance creates a single, principle-based model for revenue recognition that expands and improves disclosures about revenue. On January 1, 2018, the Company adopted the accounting standard update for revenue from contracts with customers on a modified retrospective basis, applying the practical expedient to all contracts that the Company had not completed as of January 1, 2018. The Company elected the modified retrospective method of adoption; and consequently, results for reporting periods beginning after January 1, 2018 are presented under the new revenue standard, while prior period amounts are not adjusted and continue to be reported under the revenue accounting literature in effect during those periods. The Company recorded a net increase to retained earnings of $130.7 million as of January 1, 2018 as a result of the transition, with the impact primarily related to the cumulative effect of a decrease in deferred revenue from the upfront recognition of term licenses and the general requirement to allocate the transaction price on a relative stand-alone selling price of $99.9 million, and an increase in contract assets of $7.3 million, the cumulative effect of a decrease in commission expense of $66.4 million, partially offset by an increase from the cumulative effect of the impact on deferred income taxes of $42.9 million. F-8 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The impact of adoption of ASC 606 to the Company’s consolidated statements of income and balance sheets are as follows: F o r m 1 0 - K Total net revenues Total cost of net revenues Gross profit Total operating expenses Income from operations Net income Basic earnings per share Diluted earnings per share Prepaid expenses and other current assets (1) Other assets (2) Deferred tax assets, net Total assets Other liabilities (3) Current portion of deferred revenues Long-term portion of deferred revenues Total liabilities Stockholders' Equity: Retained earnings Year Ended December 31, 2018 As Reported Balances without adoption of ASC 606 Effect of Change Higher/(Lower) (in thousands, except per share amounts) 2,973,903 433,803 2,540,100 1,862,140 677,960 575,667 4.23 3.94 $ $ $ $ 2,966,848 431,974 2,534,874 1,890,692 644,182 548,430 4.03 3.76 As Reported As of December 31, 2018 Balances without adoption of ASC 606 (in thousands) $ 174,195 124,578 136,998 147,554 52,732 169,064 $ $ $ $ $ 5,136,049 $ 5,069,628 $ 148,499 1,345,243 489,329 135,430 1,413,839 526,763 4,576,420 $ 4,669,381 $ 7,055 1,829 5,226 (28,552) 33,778 27,237 0.20 0.18 Effect of Change Higher/(Lower) 26,641 71,846 (32,066) 66,421 13,069 (68,596) (37,434) (92,961) 4,169,019 $ 4,009,637 $ 159,382 $ $ $ $ $ $ $ $ (1) As reported primarily includes contract acquisition costs of $41.0 million. The balance without adoption of ASC 606 includes contract acquisition costs of $14.2 million. (2) As reported primarily includes contract acquisition costs of $68.2 million. (3) As reported includes deferred tax liabilities of $54.7 million. The balance without adoption of ASC 606 includes deferred tax liabilities of $56.6 million. Adoption of the standard had no impact to cash from or used in operating, financing, or investing activities on the Company’s consolidated cash flows statements. Accounting for Business Combinations 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 Company adopted the standard effective January 1, 2018. The adoption of this standard had no impact on the Company's consolidated financial position, results of operations and cash flows. Accounting for Income Taxes 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 F-9 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS inventory when the transaction occurs as opposed to deferring tax consequences and amortizing them into future periods. 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 adopted the standard effective January 1, 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial position, results of operations and cash flows. Accounting for Investments In January 2016, the Financial Accounting Standards Board issued an accounting standard update for the recognition and measurement of financial assets and liabilities. Under the standard, equity investments that do not have readily determinable fair values and do not qualify for the net asset value practical expedient are eligible for the measurement alternative. For the Company’s equity investments in private equity securities, which do not have readily determinable fair values, the Company has elected the measurement alternative defined as cost, less impairment, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. For certain of the Company’s equity investments in private equity funds, the Company has elected to use the net asset value practical expedient. The guidance of this accounting standard update was adopted effective January 1, 2018. The impact of adopting the accounting standard update was not material to the consolidated financial statements. In February 2018, the Financial Accounting Standards Board issued an accounting standard update that clarified and amended some of the updates made in the January 2016 update to the recognition and measurement of financial assets and liabilities. The Company has elected to early adopt this accounting standard update effective January 1, 2018. The impact of adopting the accounting standard update was not material to the consolidated financial statements. Leases In February 2016, the Financial Accounting Standards Board issued an accounting standard update on the accounting for 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. Under the original guidance, the modified retrospective method of adoption was mandatory, and would have required application of the standard at the beginning of the earliest comparative period presented. However, in July 2018, the Financial Accounting Standards Board issued an update which permits entities to adopt the standard using another transition method. Under this optional transition method, the Company would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted this standard effective January 1, 2019, using the optional transition method. The Company has concluded an assessment of its systems, data and processes related to the implementation of this accounting standard and has substantially completed its information technology system design and solution development. Adoption of the standard is expected to result in the recognition of additional right-of-use assets and lease liabilities for operating leases (net of previously recorded lease losses related to the consolidated leased facilities) in the range of $200.0 million to $250.0 million. The Company does not expect a material impact to its results of operations. Accounting for Cloud Computing Costs In August 2018, the Financial Accounting Standards Board issued an accounting standard update on the accounting for implementation costs incurred by customers in cloud computing arrangements that are service contracts. The new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new guidance is effective for annual reporting periods beginning after December 15, 2019, and interim periods within those fiscal years, and early adoption is permitted. The standard can be adopted either using the prospective or retrospective transition approach. The Company will early adopt this standard on January 1, 2019 and does not expect a material impact from adoption on its consolidated financial position and results of operations. Fair Value Measurements In August 2018, the Financial Accounting Standards Board issued an accounting standard update on fair value measurements. The new guidance modifies the disclosure requirements on fair value measurements by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty, and adding new disclosure requirements. The new guidance is effective for annual reporting periods beginning after December 15, 2019, and interim periods within those fiscal years, and early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows. F-10 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. Beginning in the first quarter of fiscal year 2018, the Company revised its presentation of revenue to align with its transition to a subscription business model as follows: (1) subscription revenue, which includes revenue from the Company's cloud services offerings and on-premise subscriptions as well as revenue from its Citrix Service Provider ("CSP") offerings; (2) product and license revenue from perpetual product and license offerings; and (3) support and services revenue for perpetual product and license offerings. This change in manner of presentation did not affect the Company's total net revenues, total cost of net revenues or gross margin. Conforming changes have been made for all periods presented, as follows (in thousands): F o r m 1 0 - K As Previously Reported Revenues: Software as a service Product and licenses (1) License updates and maintenance (2) Professional services Total net revenues As Previously Reported Revenues: Software as a service Product and licenses (1) License updates and maintenance (2) Professional services $ $ Year Ended December 31, 2017 Amount Reclassified As Reported $ 175,762 $ 857,253 1,659,936 131,735 2,824,686 $ 138,973 (90,476) 83,238 (131,735) — Revenues: Subscription Product and license Support and services (3) $ 314,735 766,777 1,743,174 Total net revenues $ 2,824,686 Year Ended December 31, 2016 Amount Reclassified As Reported $ 134,682 882,898 1,587,271 131,229 110,924 (71,923) 92,228 (131,229) — Revenues: Subscription Product and license Support and services (3) $ 245,606 810,975 1,679,499 Total net revenues $ 2,736,080 Total net revenues $ 2,736,080 $ (1) Product and licenses as previously reported included revenue from CSPs and on-premise subscriptions that are now included in Subscription. Current period presentation only includes revenues from perpetual offerings and hardware. (2) License updates and maintenance as previously reported included revenue from CSPs and on-premise license updates and maintenance that are now included in Subscription. (3) Support and services includes revenues from license updates and maintenance from perpetual offerings as well as professional services. 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 standalone selling price related to revenue recognition, the provision for doubtful accounts receivable, the provision to reduce obsolete or excess inventory to market, the provision for estimated returns, as well as sales allowances, the assumptions used in the valuation of stock-based awards, the assumptions used in the discounted cash flows to mark certain of its investments to market, the valuation of the Company’s goodwill, net realizable value of product related and other intangible assets, the provision for lease losses, the provision for income taxes, valuation allowance for deferred tax assets, uncertain tax positions, and the amortization and depreciation periods for contract acquisition costs, 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. F-11 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cash and Cash Equivalents Cash and cash equivalents at December 31, 2018 and 2017 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 available for sale investments at December 31, 2018 and 2017 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 $3.6 million and $3.4 million as of December 31, 2018 and 2017, 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, 2018, one distributor, the Arrow Group, accounted for 17% of gross accounts receivable. At December 31, 2017, one distributor, the Arrow Group, accounted for 14% of gross accounts receivable. 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, 2018 and 2017. Contract acquisition costs In conjunction with the adoption of the new revenue recognition standard, the Company is required to capitalize certain contract acquisition costs consisting primarily of commissions paid and related payroll taxes when contracts are signed. The asset recognized from capitalized incremental and recoverable acquisition costs is amortized on a basis consistent with the pattern of transfer of the products or services to which the asset relates and is recognized in Prepaid expenses and other current assets and Other assets in the accompanying consolidated balance sheets. The Company’s typical contracts include performance obligations related to product and licenses and support. In these contracts, incremental costs of obtaining a contract are allocated to the performance obligations based on the relative estimated standalone selling prices and then recognized on a basis that is consistent with the transfer of the goods or services to which the asset relates. The commissions paid on annual renewals of support for product and licenses are not commensurate with the initial commission. The costs allocated to product and licenses are expensed at the time of sale, when revenue for the product and functional software licenses is recognized. The costs allocated to customer support for product and licenses are amortized ratably over a period of the greater of the contract term or the average customer life, the expected period of benefit of the asset capitalized. The Company currently estimates an average customer life of two to five years, which it believes is appropriate based on consideration of the historical average customer life and the estimated useful life of the underlying product and F-12 F o r m 1 0 - K CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS license sold as part of the transaction. Amortization of contract acquisition costs related to support are limited to the contractual period of the arrangement as the Company intends to pay a commensurate commission upon renewal of the related support. For contracts that contain multi-year services or subscriptions, the amortization period of the capitalized costs is the expected period of benefit, which is the greater of the contractual term or the expected customer life. The Company elects to apply a practical expedient to expense contract acquisition costs as incurred where the expected period of benefit is one year or less. For the year ended on December 31, 2018, the Company recorded amortization costs of $38.1 million in relation to costs capitalized during the year, which are recorded in Sales, Marketing and Services expense in the accompanying consolidated statements of income. There was no impairment loss in relation to costs capitalized during the year ended on December 31, 2018. 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 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 (expense) income, 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. 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. During 2018 and 2017, the Company retired $13.4 million and $16.9 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. F-13 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property and equipment consist of the following: Buildings Computer equipment Software Equipment and furniture Leasehold improvements Less: accumulated depreciation and amortization Assets under construction Land Total Long-Lived Assets December 31, 2018 2017 (In thousands) $ 76,152 189,333 433,033 78,401 182,848 959,767 (741,587) 8,447 16,769 $ 243,396 $ 76,152 176,140 388,583 73,700 168,656 883,231 (675,892) 28,824 16,769 $ 252,932 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. During 2018, the Company initiated an effort to streamline and simplify its product branding and packaging, which included naming updates to the portfolio to provide clarity on the Company's offerings and unify its sales motions. The change resulted in the Company consolidating its Content Collaboration product group with Workspace Services and renaming the new product group Digital Workspace. As a result, the Company's two reporting units (Enterprise and Service Provider and Content Collaboration) were combined into one, consistent with how management reviews the operating results of the business. In connection with this change, the Company performed a qualitative goodwill assessment of the reporting units and determined there were no indicators of impairment during the third quarter of 2018. The change in reporting units did not result in a reallocation of goodwill or a change in reportable segments. In addition, 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 2018 and 2017. See Note 4 for more information regarding the Company's acquisitions and Note 12 for more information regarding the Company's segments. The following table presents the change in goodwill during 2018 and 2017 (in thousands): Balance at January 1, 2018 Additions Other Balance at December 31, 2018 Balance at January 1, 2017 Additions Other Balance at December 31, 2017 Goodwill $ 1,614,494 $ 188,176 (1) $ — $ 1,802,670 $ 1,585,893 $ 28,601 (2) $ — $1,614,494 (1) Amount relates to preliminary purchase price allocation of goodwill associated with the 2018 business combinations. See Note 4 for more information regarding the Company's acquisitions. (2) Amount relates to the purchase price allocation of goodwill associated with the 2017 business combination. See Note 4 for more information regarding the Company's acquisitions. 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 F-14 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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): F o r m 1 0 - K Product related intangible assets Other Total Product related intangible assets Other Total December 31, 2018 Gross Carrying Amount Accumulated Amortization $ $ 746,152 227,922 974,074 $ $ 601,993 204,894 806,887 December 31, 2017 Gross Carrying Amount Accumulated Amortization $ $ 663,004 222,923 885,927 $ $ 554,934 189,041 743,975 Weighted- Average Life (Years) 6.06 6.40 6.14 Weighted- Average Life (Years) 6.10 6.49 6.20 Amortization and impairment of product related intangible assets, which consists primarily of product-related technologies and patents, was $47.1 million and $65.7 million for the year ended December 31, 2018 and 2017, 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 $15.9 million and $17.2 million for the year ended December 31, 2018 and 2017, respectively, and is classified as a component of Operating expenses in the accompanying consolidated statements of income. 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 Amortization and impairment of product related intangible assets and $2.5 million is included in Amortization and 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. Estimated future amortization expense of intangible assets with finite lives as of December 31, 2018 is as follows (in thousands): Year ending December 31, 2019 2020 2021 2022 2023 Thereafter Total $ $ 50,981 38,482 24,494 22,644 19,292 11,294 167,187 F-15 CITRIX SYSTEMS, INC. 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 2018 and 2017 relating to internal use software was $14.8 million and $41.5 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 $25.9 million, $27.3 million and $37.8 million, during the years ended December 31, 2018, 2017 and 2016, respectively. The Company capitalized costs related to internally developed computer software to be sold as a service related to its Digital Workspace offerings, incurred during the application development stage, of $7.3 million and $15.2 million, during the years ended December 31, 2018 and 2017, 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 $14.4 million, $18.5 million and $16.8 million, during the years ended December 31, 2018, 2017 and 2016, respectively, which are included in Cost of subscription, support and services. 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 $11.2 million and $13.2 million for these pension liabilities at December 31, 2018 and 2017, respectively. Expenses for the programs for 2018, 2017 and 2016 amounted to $1.8 million, $2.6 million and $2.5 million, respectively. Revenue The following is a description of the principal activities from which the Company generates revenue. Subscription Subscription revenues primarily consist of cloud-hosted offerings which provide customers a right to use, or a right to access, one or more of the Company’s cloud-hosted subscription offerings, with routine customer support, as well as revenues from the CSP program and on-premise subscription software licenses. For the Company’s cloud-hosted performance obligations, revenue is generally recognized on a ratable basis over the contract term beginning on the date that the Company's service is made available to the customer, as the Company continuously provides online access to the web-based software that the customer can use at any time. The CSP program provides subscription-based services in which the CSP partners host software services to their end users. Product and license Product and license revenues are primarily derived from perpetual offerings related to the Company’s Digital Workspace solutions and Networking products. For performance obligations related to perpetual software license agreements, the Company determined that its licenses are functional intellectual property that are distinct as the user can benefit from the software on its own as defined under the new revenue standard. Support and services Support and services includes license updates, maintenance and professional services revenues. License updates and F-16 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS maintenance revenues are primarily comprised of software and hardware maintenance, when and if-available updates and technical support. For performance obligations related to license updates and maintenance, revenue is generally recognized on a straight-line basis over the period of service because the Company transfers control evenly by providing a stand-ready service. That is, the Company is continuously working on improving its products and pushing those updates through to the customer, and stands ready to provide software updates on a when and if-available basis. Services revenues are comprised of fees from consulting services primarily related to the implementation of the Company’s products and fees from product training and certification. The Company’s typical performance obligations include the following: F o r m 1 0 - K Performance Obligation Subscription Cloud hosted offerings CSP On-premise subscription software licenses Product and license Software Licenses Hardware Support and services When Performance Obligation is Typically Satisfied Over the contract term, beginning on the date that service is made available to the customer (over time) As the usage occurs (over time) When software activation keys have been made available for download (point in time) When software activation keys have been made available for download (point in time) When control of the product passes to the customer; typically upon shipment (point in time) License updates and maintenance Ratably over the course of the service term (over time) Professional services As the services are provided (over time) Significant Judgments At contract inception, the Company assesses the solutions or services, or bundles of solutions and services, obligated in the contract with a customer to identify each performance obligation within the contract, and then evaluates whether the performance obligations are capable of being distinct and distinct within the context of the contract. Solutions and services that are not both capable of being distinct and distinct within the context of the contract are combined and treated as a single performance obligation in determining the allocation and recognition of revenue. The standalone selling price is the price at which the Company would sell a promised product or service separately to the customer. For the majority of the Company's software licenses and hardware, CSP and on-premise subscription software licenses, the Company uses the observable price in transactions with multiple performance obligations. For the majority of the Company’s support and services, and cloud-hosted subscription offerings, the Company uses the observable price when the Company sells that support and service and cloud-hosted subscription separately to similar customers. If the standalone selling price for a performance obligation is not directly observable, the Company estimates it. The Company estimates standalone selling price by taking into consideration market conditions, economics of the offering and customers’ behavior. The Company maximizes the use of observable inputs and applies estimation methods consistently in similar circumstances. The Company allocates the transaction price to each distinct performance obligation on a relative standalone selling price basis. Revenues are recognized when control of the promised products or services are transferred to customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those products or services. The Company generates all of its revenues from contracts with customers. Sales tax The Company records revenue net of sales tax. F-17 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Timing of revenue recognition Products and services transferred at a point in time Products and services transferred over time Total net revenues Contract balances For the Year Ended December 31, 2018 (In Thousands) $ $ 821,111 2,152,792 2,973,903 The Company's short-term and long-term contract assets were not significant as of December 31, 2018. The Current portion of deferred revenues and the Long-term portion of deferred revenues were $1.25 billion and $512.8 million, respectively, as of January 1, 2018 and $1.35 billion and $489.3 million, respectively, as of December 31, 2018. The difference in the opening and closing balances of the Company’s contract assets and liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. During the year ended December 31, 2018, the Company recognized $1.25 billion of revenue that was included in the deferred revenue balance as of January 1, 2018. The Company performs its obligations under a contract with a customer by transferring solutions and services in exchange for consideration from the customer. Accounts receivable are recorded when the right to consideration becomes unconditional. The timing of the Company’s performance often differs from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. The Company recognizes a contract asset when the Company transfers products or services to a customer and the right to consideration is conditional on something other than the passage of time. The Company recognizes a contract liability when it has received consideration or an amount of consideration is due from the customer and the Company has a future obligation to transfer products or services. The Company had no asset impairment charges related to contract assets as of December 31, 2018. For the Company’s software and hardware products, the timing of payment is typically upfront for its perpetual offerings and the Company’s on-premise subscriptions. Therefore, deferred revenue is created when a contract includes performance obligations such as license updates and maintenance or certain professional services that are satisfied over time. For subscription contracts, the timing of payment is typically in advance of services, and deferred revenue is created as these services are provided over time. A significant portion of the Company’s contracts have an original duration of one year or less; therefore, the Company applies a practical expedient to determine whether a significant financing component exists and does not consider the effects of the time value of money. For multi-year contracts, the Company bills annually. Transaction price allocated to the remaining performance obligations The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period (in thousands): Subscription Support and services Total net revenues Product Concentration <1-3 years 431,527 1,637,387 3-5 years $ 45,790 55,738 2,068,914 $ 101,528 $ $ $ $ 5 years or more 535 2,059 $ Total 477,852 1,695,184 2,594 $ 2,173,036 The Company derives a substantial portion of its revenues from its Digital Workspace solutions, which include its Citrix Virtual Apps and Desktops 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 Digital Workspace 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 F-18 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 F o r m 1 0 - K Cost of subscription, support and services 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 the Company's offerings delivered via the cloud. 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. 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. 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 $99.1 million, $85.6 million and $72.8 million, during the years ended December 31, 2018, 2017 and 2016, respectively. Income Taxes 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 not currently under examination by the United States Internal Revenue Service. With few exceptions, the Company is generally not subject to examination for state and local income tax, or in non-U.S. jurisdictions by tax authorities for years prior to 2015. In the ordinary course of global business, there are transactions for which the ultimate tax outcome is uncertain; thus, judgment is required in determining the worldwide provision for income taxes. The Company provides for income taxes on transactions based on its estimate of the probable liability. The Company adjusts its provision as appropriate for changes that impact its underlying judgments. Changes that impact provision estimates include such items as jurisdictional interpretations on tax filing positions based on the results of tax audits and general tax authority rulings. Due to the evolving nature of tax rules combined with the large number of jurisdictions in which the Company operates, 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. F-19 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 exercise or settlement of stock awards and shares issuable under the employee stock purchase plan (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 and the Company's warrants. During the years ended December 31, 2017 and December 31, 2016, 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. 3. DISCONTINUED OPERATIONS On January 31, 2017, the Company completed the Spin-off and its financial results 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: Net revenues Cost of net revenues Gross margin 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 taxes Income tax expense (Loss) income from discontinued operations, net of income tax 2017 2016 (in thousands) $ 58,215 15,456 42,759 9,108 20,881 7,636 1,176 3,189 40,573 82,563 (39,804) 2,900 (42,704) $ 682,185 154,652 527,533 93,892 209,475 63,270 14,097 3,721 54,084 438,539 88,994 22,737 66,257 $ $ 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 and 2016, the Company incurred $0.5 million and $2.5 million of separation costs in continuing operations, which are included in General and administrative expense in the accompanying consolidated statements of income. 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. F-20 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. ACQUISITIONS 2018 Business Combinations Sapho, Inc. F o r m 1 0 - K On November 13, 2018, the Company acquired all of the issued and outstanding securities of Sapho, Inc. (“Sapho”), whose technology is intended to advance the Company’s development of the intelligent workspace. The acquired technology enables efficient workstyles by creating a unified and customizable notification experience for business applications. The total preliminary cash consideration for this transaction was $182.9 million, net of $3.7 million cash acquired. Transaction costs associated with the acquisition were not significant. Cedexis, Inc. 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 and 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 cash consideration for this transaction was $66.0 million, net of $6.0 million cash acquired. Transaction costs associated with the acquisition were not significant. Purchase Accounting for the 2018 Business Combinations The purchase prices for the companies acquired during the year ended December 31, 2018, which include Sapho and Cedexis (collectively, the "2018 Business Combinations"), were allocated to the respective acquired company's net tangible and intangible assets based on their estimated fair values as of the date of the acquisition. The allocation of the total purchase prices is summarized below (in thousands): Current assets Intangible assets Goodwill Deferred taxes Other assets Assets acquired Current liabilities assumed Assumed debt Other long term liabilities assumed Deferred taxes Net assets acquired Sapho Cedexis Purchase Price Allocation Asset Life Purchase Price Allocation Asset Life 1-6 years Indefinite 5 years Indefinite $ $ 4,671 53,600 144,173 — — 202,444 3,323 — 370 12,094 186,657 $ $ 8,961 27,200 44,003 3,173 69 83,406 5,711 5,674 — — 72,021 Current assets acquired in connection with the 2018 Business Combinations consisted primarily of cash, accounts receivable and other short-term assets. Current liabilities assumed in connection with the 2018 Business Combinations consisted primarily of accounts payable and other accrued expenses. Assumed debt for the Cedexis acquisition consisted primarily of short-term and long-term debt, which was paid in full subsequent to the acquisition date. The Company continues to evaluate certain assets and liabilities related to the Sapho acquisition that may be subject to change through the remainder of the measurement period, which will extend not more than twelve months from the acquisition date. The goodwill related to the 2018 Business Combinations 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. F-21 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Identifiable intangible assets acquired in connection with the 2018 Business Combinations (in thousands) and the weighted-average lives are as follows: Customer relationships Developed technology Tradenames Total Asset Life 5 years 5 years Sapho 1,600 52,000 — 53,600 $ $ Cedexis 2,000 23,800 1,400 27,200 $ $ Asset Life 1 year 5-6 years 1 year The Company has included the effect of the 2018 Business Combinations in its results of operations prospectively from the date of acquisition. The following unaudited pro-forma information combines the consolidated results of the operations of the Company and the 2018 Business Combinations as if the acquisitions had occurred on January 1, 2017, the first day of the Company’s fiscal year 2017 (in thousands): Revenues Income from continuing operations Net income (loss) 2017 Business Combination Twelve Months Ended December 31 2018 2017 $ $ 2,977,155 651,047 550,985 2,838,880 530,470 (56,601) On January 3, 2017, the Company acquired all of the issued and outstanding securities of Unidesk Corporation (“Unidesk”). The Company 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. 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 Agency securities Corporate securities Municipal securities Government securities Total Amortized Cost $ 314,982 612,698 2,500 234,668 $1,164,848 December 31, 2018 Gross Gross Unrealized Unrealized Losses Gains $ $ 333 116 4 91 544 Fair Value $ (2,367) $ 312,948 608,658 2,504 233,824 $ (7,458) $1,157,934 (4,156) — (935) December 31, 2017 Gross Gross Unrealized Unrealized Losses Gains Fair Value $ $ 509 268 2 44 823 $ (2,760) $ 439,064 807,692 3,965 366,123 $ (7,298) $ 1,616,844 (3,020) (2) (1,516) Amortized Cost $ 441,315 810,444 3,965 367,595 $1,623,319 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 and other than temporary impairments, 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, 2018 were approximately 6 months and 2 years, respectively. F-22 F o r m 1 0 - K CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Realized Gains and Losses on Available-for-sale Investments For the years ended December 31, 2018 and 2017, the Company had realized gains on the sales of available-for-sale investments of $0.1 million and $0.8 million, respectively. For the years ended December 31, 2018 and 2017, the Company had realized losses on available-for-sale investments of $1.5 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 (expense) income, net, in the accompanying consolidated statements of income. Unrealized Losses on Available-for-Sale Investments The Company regularly reviews its investments for impairments based on criteria that include the duration of the market decline and the Company’s ability to hold its investment until recovery of its amortized cost basis. During the year ended December 31, 2018, the Company recorded an other than temporary impairment of $4.6 million of certain available-for-sale securities, which was included in Other (expense) income, net in the accompanying consolidated statements of income. The gross unrealized losses on the Company’s available-for-sale investments that are not deemed to be other-than- temporarily impaired were $2.9 million and $7.3 million as of December 31, 2018 and 2017, respectively. Because the Company does not intend to sell any of its investments in an unrealized loss position, other than as noted above, 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 these securities to be other-than-temporarily impaired. Equity Securities without Readily Determinable Fair Values The Company held direct investments in privately-held companies of approximately $13.4 million as of December 31, 2018, which are accounted for at cost, less impairment plus or minus adjustments resulting from observable price changes in orderly transactions for an identical or a similar investment of the same issuer. These investments are included in Other assets in the accompanying consolidated balance sheets. The Company periodically reviews these investments for impairment and observable price changes on a quarterly basis, and adjusts the carrying value accordingly. The Company determined that there were no material adjustments resulting from observable price changes to the Company’s investments in privately-held companies without a readily determinable fair value for the year ended December 31, 2018. The fair value of these investments represents a Level 3 valuation as the assumptions used in valuing these investments are not directly or indirectly observable. See Note 6 for detailed information on fair value measurements. Equity Securities Accounted for at Net Asset Value The Company held equity interests in certain private equity funds of $10.9 million as of December 31, 2018, which are accounted for under the net asset value practical expedient. These investments are included in Other assets in the accompanying consolidated balance sheets. The net asset value of these investments is determined using quarterly capital statements from the funds, which are based on the Company’s contributions to the funds, allocation of profit and loss and changes in fair value of the underlying fund investments. For 2017, the Company’s investments in privately-held companies and private equity funds were previously classified as cost method investments and were $18.6 million as of December 31, 2017. Due to the Company's adoption of the accounting standard update for the recognition and measurement of financial assets and liabilities, effective January 1, 2018, these investments are now accounted for under the new basis of accounting referenced above. See Note 2 for detailed information regarding the Company's recent accounting pronouncements. 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 assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: • • Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and F-23 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • 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. Assets and Liabilities Measured at Fair Value on a Recurring Basis Assets: Cash and cash equivalents: Cash Money market funds Agency securities Corporate securities Government securities Available-for-sale securities: Agency securities Corporate securities Municipal securities Government securities Prepaid expenses and other current assets: Foreign currency derivatives Total assets Accrued expenses and other current liabilities: Foreign currency derivatives Total liabilities As of December 31, 2018 Quoted Prices In Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands) $ $ $ 505,363 88,126 3,296 9,371 12,610 312,948 608,658 2,504 233,824 764 1,777,464 2,543 2,543 $ $ $ $ 505,363 88,126 — — — $ — 3,296 9,371 12,610 — — — — 312,948 607,945 2,504 233,824 — 593,489 $ 764 1,183,262 — — $ 2,543 2,543 $ $ — — — — — — 713 — — — 713 — — F-24 F o r m 1 0 - K CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Assets: Cash and cash equivalents: Cash Money market funds Corporate securities Available-for-sale securities: Agency securities Corporate securities Municipal securities Government securities Prepaid expenses and other current assets: Foreign currency derivatives Total assets Accrued expenses and other current liabilities: Foreign currency derivatives Total liabilities 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) $ $ $ $ 556,520 555,826 2,784 $ 556,520 555,826 — — $ — 2,784 439,064 807,692 3,965 366,123 2,498 2,734,472 814 814 $ $ — — — — 439,064 807,299 3,965 366,123 — 1,112,346 $ 2,498 1,621,733 — — $ 814 814 $ $ — — — — 393 — — — 393 — — 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 2018, certain direct investments in privately-held companies with a combined carrying value of $2.8 million were determined to be impaired and written down to their fair values of $1.9 million, resulting in impairment charges of $0.9 million. During 2017, the Company determined that certain cost method investments with a combined carrying value of $2.6 million were determined to be impaired and have been written down to their fair values of $1.2 million resulting in impairment charges of $1.4 million. The impairment charges are included in Other (expense) income, net in the accompanying consolidated statements of income for the years ended December 31, 2018 and 2017. In determining the fair value of the 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. 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. As of December 31, 2018, 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, 2018, 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 Convertible Senior Notes Fair Value Carrying Value $ $ 717,375 1,648,567 $ $ 741,825 1,155,445 F-25 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS See Note 13 for more information on the 2027 Notes and Convertible Notes. 7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses consist of the following: Accrued compensation and employee benefits Other accrued expenses Total December 31, 2018 2017 (In thousands) $ $ 196,847 93,645 290,492 $ $ 161,049 116,630 277,679 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, 2018, 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. ISOs, NSOs and SARs 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 the 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, 2018, there were 20,837,415 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 14,935,686 shares of common stock. 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 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, 2018, 1,721,924 shares have been issued under the 2015 ESPP. The Company recorded stock-based compensation costs related to its employee stock purchase plan of $9.8 million, $10.0 million and $7.5 million for the years ended December 31, 2018, 2017 and 2016, respectively. F-26 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company used the Black-Scholes model to estimate the fair value of the 2015 ESPP awards with the following weighted-average assumptions: F o r m 1 0 - K Expected volatility factor Risk free interest rate Expected dividend yield Expected life (in years) Year Ended Year Ended Year Ended December 31, 2018 December 31, 2017 December 31, 2016 0.26 - 0.29 1.12% - 2.19% 0% - 1.27% 0.5 0.27 - 0.29 0.60% - 1.12% 0% 0.5 0.27 - 0.41 0.25% - 0.42% 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 historical dividend yield input was zero in prior periods as it has not historically paid cash dividends on its common stock. The current dividend yield has been updated for expected dividend yield payout given the Company started paying a recurring quarterly dividend beginning in December 2018. The expected term is based on the term of the purchase period for grants made under the ESPP. 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. The Company recorded stock-based compensation costs, related deferred tax assets and tax benefits of $203.6 million, $39.7 million and $49.7 million, respectively, in 2018, $165.1 million, $46.1 million and $72.9 million, respectively, in 2017 and $152.7 million, $53.5 million and $64.7 million, respectively, in 2016. The detail of the total stock-based compensation recognized by income statement classification is as follows (in thousands): Income Statement Classifications Cost of subscription, support and services Research and development Sales, marketing and services General and administrative Total Non-vested Stock Units 2018 2017 2016 7,979 $ 66,154 72,406 57,080 $ 4,281 47,291 55,173 58,375 2,179 38,578 48,514 63,468 203,619 $ 165,120 $ 152,739 $ $ 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 F-27 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Certain awards for senior level employees, none of whom were executive officers, were modified in December 2018 to replace the pre-established custom index group used to measure performance and related award payout to companies that are part of the Nasdaq Composite index. As a result, the awards were revalued as of the modification date. The impact of the modification was not material to the 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 a result of the Spin-off whereby the opening stock price related to the awards was updated to reflect the value of the shares of LogMeIn stock distributed to the Company's shareholders. 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. 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: Expected volatility factor Risk free interest rate Expected dividend yield March 2017 Grant (Modified) 0.16 - 0.32 March 2017 Grant 0.27 - 0.32 March 2016 Grant 0.29 - 0.39 January 2016 Grant 0.29 - 0.37 2.67% 0% 1.48% 0% 0.91% 0% 1.10% 0% For the unmodified 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 used a zero dividend yield input for this award as it had not historically paid cash dividends on its common stock as of the grant date of this award. The estimated fair value of each award as of the date of grant was $104.05. For the modified March 2017 grant, all input variables chosen are as of the modification date. The range of expected volatilities utilized was based on the historical volatilities of the Company's common stock and the average of the Nasdaq Composite index 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 1.06 year period, which is commensurate with the awards' remaining performance period at the modification date. The risk free interest rate was based on the implied yield available on U.S. Treasury zero-coupon issues with remaining terms equivalent to the remaining performance period. The F-28 F o r m 1 0 - K CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Company used a zero dividend yield input for this award as dividends are assumed to be reinvested. The estimated incremental fair value of each modified award as of the modification date was $99.54. 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 used a zero dividend yield input for this award as it had not historically paid cash dividends on its common stock as of the grant date of this award. 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. 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. Company Performance Stock Units In March 2018, the Company awarded senior level employees 268,729 non-vested performance stock unit awards granted under the 2014 Plan. The number of non-vested stock units underlying the award will be determined within sixty days following completion of the performance period ending December 31, 2020 and will be based on the achievement of specific corporate financial performance goals related to subscription bookings as a percentage of total product bookings measured during the period from January 1, 2020 to December 31, 2020. As defined in the applicable award agreements, total product bookings includes subscription bookings. 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 target 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. Compensation expense will be recorded through the end of the performance period on December 31, 2020 if it is deemed probable that the performance goals will be met. If the performance goals are not met, no compensation cost will be recognized and any previously recognized compensation cost will be reversed. On August 1, 2017, the Company awarded certain senior level employees 184,322 non-vested performance stock unit awards 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 subscription bookings as a percent of total product bookings measured during the period from January 1, 2019 to December 31, 2019. As defined in the applicable award agreements, total product bookings includes subscription bookings. 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 target 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. The non-GAAP net operating margin and subscription bookings as a percent of total product targets were set in the first quarter of 2018. As a result, such awards were not outstanding for U.S. GAAP until the first quarter of 2018 when the performance goals were determined and subsequently communicated to employees who received these awards. Compensation expense will be recorded through the end of the performance period on December 31, 2019 if it is deemed probable that the performance goals will be met. If the performance goals are not met, no compensation cost will be recognized and any previously recognized compensation cost will be reversed. F-29 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Non Vested Stock Unit Activity for the Year The following table summarizes the Company's non-vested stock unit activity for the year ended December 31, 2018: Non-vested stock units at December 31, 2017 Granted Vested Forfeited Non-vested stock units at December 31, 2018 Number of Shares $ 4,622,546 3,903,225 (2,076,052) (596,218) 5,853,501 Weighted- Average Fair Value at Grant Date 82.83 92.20 71.92 74.07 88.79 For the years ended December 31, 2018, 2017 and 2016, the Company recognized stock-based compensation expense of $193.8 million, $149.8 million and $135.7 million, respectively, related to non-vested stock units. The fair value of the non- vested stock units released in 2018, 2017, and 2016 was $149.3 million, $150.0 million and $163.8 million, respectively. As of December 31, 2018, there was $376.7 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 1.76 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 $13.0 million, $13.7 million and $14.0 million in 2018, 2017 and 2016, respectively. The Company’s matching contributions vest immediately. 9. CAPITAL STOCK Stock Repurchase Programs The Company’s Board of Directors authorized an ongoing stock repurchase program, of which $1.7 billion was approved in November 2017 and $750.0 million was approved in October 2018. 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, 2018, approximately $767.9 million was available to repurchase common stock pursuant to the stock repurchase program. All shares repurchased are recorded as treasury stock. A portion of the funds used to repurchase stock over the course of the program was provided by net proceeds from the Convertible Notes and 2027 Notes offerings, as well as proceeds from employee stock awards 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. In November 2017, the Company purchased $750.0 million of shares of its common stock through the ASR agreement with the ASR counterparty. The Company paid $750.0 million to the ASR counterparty under the ASR agreement and received approximately 7.1 million shares of its common stock from the ASR counterparty, which represented 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 the Company repurchased under the ASR agreement was based on the average of the daily volume-weighted average prices of its common stock during the term of the ASR agreement, less a discount. Final settlement of the ASR agreement was completed in January 2018 and the Company received delivery of an additional 1.4 million shares of its common stock. In February 2018, the Company entered into an ASR transaction with a counterparty to pay an aggregate of $750.0 million in exchange for the immediate delivery of approximately 6.5 million shares of its common stock based on current market prices. The purchase price per share under the ASR was based on the volume-weighted average price of the Company's common stock during the term of the ASR, less a discount. The ASR was entered into pursuant to the Company's existing share repurchase program. Final settlement of the ASR agreement was completed in April 2018 and the Company received delivery of an additional 1.6 million additional shares of its common stock. F-30 F o r m 1 0 - K CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During the year ended December 31, 2018, the Company expended approximately $511.2 million on open market purchases under the stock repurchase program, repurchasing 4,730,542 shares of outstanding common stock at an average price of $108.05 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. 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. Shares for Tax Withholding During the years ended December 31, 2018, 2017 and 2016, the Company withheld 739,522 shares, 974,501 shares and 830,155 shares, respectively, from equity awards that vested. Amounts withheld to satisfy minimum tax withholding obligations that arose on the vesting of equity awards was $71.6 million, $80.0 million and $66.6 million, for 2018, 2017 and 2016, 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, 2018 or 2017. Cash Dividend On October 24, 2018, the Company announced that its Board of Directors approved a quarterly cash dividend of $0.35 per share which was paid on December 21, 2018 to all shareholders of record as of the close of business on December 7, 2018. Subsequent Event On January 23, 2019, the Company announced that its Board of Directors approved a quarterly cash dividend of $0.35 per share. This dividend is payable on March 22, 2019 to all shareholders of record as of the close of business on March 8, 2019. Future dividends will be subject to Board approval. 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, 2018 totaled approximately $73.8 million, of which $14.2 million related to charges for the consolidation of leased facilities related to restructuring activities. 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. Sublease income for the years ended December 31, 2018, 2017 and 2016 was approximately $0.2 million, $0.2 million and $0.2 million, respectively. F-31 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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: Years ending December 31, 2019 2020 2021 2022 2023 Thereafter Total Liabilities for Loss on Lease Obligations Operating Leases Sublease Income (In thousands) $ $ 57,122 49,358 39,981 35,296 32,018 87,621 301,396 $ $ 241 — — — — — 241 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, 2018, the Company's liabilities for loss on lease obligations total approximately $43.4 million, of which approximately $42.3 million relates to one office location. 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, 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 this office location, if the price per square foot assumption were to change by $0.50 or approximately 20%, it would impact the estimate of sublease rentals, which would result in a change of $4.9 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. F-32 F o r m 1 0 - K CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2018. 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, 2019 to be approximately $5.3 million. The Company also has contingent obligations to purchase inventory for the fiscal year ended December 31, 2019 of approximately $16.6 million. The Company does not have any purchase obligations beyond December 31, 2019. Other Purchase Commitments In June 2018, the Company entered into an amended agreement with a third-party provider for the Company's use of certain cloud services through June 2021. Under the amended agreement, the Company is committed to a purchase of $25.0 million in fiscal year 2019 and $25.0 million in fiscal year 2020. 11. INCOME TAXES 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 Company maintains certain strategic management and operational activities in overseas subsidiaries and its 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. 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. During the period ended December 31, 2018, the Company completed the accounting for the tax effects of all of the provisions of the 2017 Tax Act within the required measurement period and as a result recorded adjustments to the previous provisional amounts. Adjustments recorded during the period ended December 31, 2018 include in part a tax benefit of $26.3 million attributable to a tax benefit of $21.9 million related to the finalization of the one-time transition tax on deemed repatriation of foreign income and a tax benefit of $4.4 million related to the finalization of the remeasurement of the U.S. deferred tax assets and liabilities due to the maximum U.S. federal corporate rate reduction from 35% to 21%. F-33 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The United States and foreign components of income before income taxes are as follows: United States Foreign Total 2018 2017 (In thousands) 174,519 454,936 629,455 $ $ 78,897 471,449 550,346 $ $ The components of the provision for income taxes are as follows: Current: Federal Foreign State Total current Deferred: Federal Foreign State Total deferred Total provision 2018 2017 (In thousands) (19,461) $ 70,146 16,259 66,944 1,899 (14,804) (251) (13,156) 53,788 $ 374,602 56,526 3,075 434,203 52,842 (5,468) 46,784 94,158 528,361 $ $ The following table presents the breakdown of net deferred tax assets: 59,344 468,426 527,770 2016 2016 18,832 52,978 7,759 79,569 (7,688) (3,139) (10,827) (21,654) 57,915 $ $ $ $ Deferred tax assets Deferred tax liabilities Total net deferred tax assets December 31, 2018 2017 (In thousands) $ $ 136,998 (15,075) 121,923 $ $ 152,362 (237) 152,125 The significant components of the Company’s deferred tax assets and liabilities consisted of the following: Deferred tax assets: Accruals and reserves Deferred revenue Tax credits Net operating losses Stock based compensation Depreciation and amortization Valuation allowance Total deferred tax assets Deferred tax liabilities: Acquired technology Depreciation and amortization Prepaid expenses Other Total deferred tax liabilities Total net deferred tax assets December 31, 2018 2017 (In thousands) 27,022 62,085 81,720 54,747 30,936 — (85,400) 171,110 (15,681) (5,044) (23,213) (5,249) (49,187) 121,923 $ $ 30,317 65,016 80,772 36,674 21,714 4,939 (76,789) 162,643 (2,882) — (7,414) (222) (10,518) 152,125 $ $ F-34 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2018, the Company determined an $85.4 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, 2018, the Company retained $172.3 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 2019. At December 31, 2018, the Company held $111.3 million of remaining net operating loss carry forwards in foreign jurisdictions that begin to expire in 2022. At December 31, 2018, the Company held $116.6 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 2019. A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows: F o r m 1 0 - K Federal statutory taxes State income taxes, net of federal tax benefit Foreign operations 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 Year Ended December 31, 2017 2018 2016 21.0% 0.7 (5.4) 2.0 (0.7) (3.5) 0.4 (0.1) (5.8) (1.9) 1.8 — 8.5% 35.0% 2.1 (20.0) 2.6 11.8 66.3 8.8 0.3 (7.6) (3.6) 0.3 — 96.0% 35.0% 0.8 (21.6) 3.2 — — — (0.8) (7.9) 0.3 2.2 (0.2) 11.0% 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 2017 Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income provides that an entity may make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years, or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Additionally, the 2017 Tax Act provides for a tax benefit to U.S. taxpayers that sell goods or services to foreign customers under the new Foreign Derived Intangible Income Deduction ("FDII") rules. As of December 31, 2018, the Company concluded to provide for the GILTI tax expense and FDII benefit in the year the tax is incurred and as a result the Company included federal and state GILTI and FDII amounts of $12.8 million expense and $5.4 million benefit, respectively, related to current-year operations only in its estimated annual effective tax rate and has not provided additional GILTI on deferred items. The Company's effective tax rate was approximately 8.5% and 96.0% for the years ended December 31, 2018 and 2017, respectively. The decrease in the effective tax rate when comparing the year ended December 31, 2018 to the year ended December 31, 2017 was primarily due to accounting for the estimated tax impact of the 2017 Tax Act and the separation of the GoTo Business. Specifically, results from 2017 include 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 remeasurement 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. During the year ended December 31, 2018, the Company recorded a tax benefit of $21.9 million related to the finalization of the one-time transition tax on deemed repatriation of foreign income and a tax benefit of $4.4 million related to the finalization of the remeasurement of U.S. deferred tax assets and liabilities because of the maximum U.S. federal corporate rate reduction from 35% to 21%. F-35 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company's effective tax rate was approximately 96.0% and 11.0% for the years 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 remeasurement 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. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2018 and 2017 is as follows (in thousands): Balance at December 31, 2016 Additions based on tax positions related to the current year Additions for tax positions of prior years Reductions related to audit settlements Reductions related to the expiration of statutes of limitations Balance at December 31, 2017 Additions based on tax positions related to the current year Additions for tax positions of prior years Reductions related to the expiration of statutes of limitations Balance at December 31, 2018 $ $ 69,801 9,293 7,656 (137) (8,764) 77,849 10,168 10,325 (8,436) 89,906 As of December 31, 2018, unrecognized tax benefits of $35.4 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, 2018, the Company accrued $3.9 million for the payment of interest. On July 24, 2018, the U.S. Ninth Circuit Court of Appeals overturned the U.S. Tax Court’s unanimous decision in Altera v. Commissioner, where the Tax Court held the Treasury regulation requiring participants in a qualified cost sharing arrangement share stock-based compensation costs to be invalid. On August 7, 2018, the U.S. Ninth Circuit Court of Appeals, on its own motion, withdrew its July 24, 2018 opinion to allow time for the reconstituted panel to confer. Given the increased uncertainty as to the Ninth Circuit's eventual ruling and the impact it will have on the Internal Revenue Service’s ability to challenge the technical merits of the Company's position, the Company accrued amounts for this uncertain tax position as of the year ended December 31, 2018. 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 not currently under examination by the United States Internal Revenue Service. With few exceptions, the Company is generally not subject to examination for state and local income tax, or in non-U.S. jurisdictions by tax authorities for years prior to 2015. The Company's U.S. liquidity needs are currently satisfied using cash flows generated from its U.S. operations, borrowings, or both. The Company also utilizes a variety of tax planning strategies in an effort to ensure that its worldwide cash is available in locations in which it is needed. Prior to 2017, the Company did not recognize a deferred tax liability related to undistributed foreign earnings of its subsidiaries because such earnings were considered to be indefinitely reinvested in its foreign operations, or were remitted substantially free of U.S. tax. Under the 2017 Tax Act, all foreign earnings are subject to U.S. taxation. As a result, the Company expects to repatriate a substantial portion of its foreign earnings over time, to the extent that the foreign earnings are not restricted by local laws or result in significant incremental costs associated with repatriating the foreign earnings. F-36 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. SEGMENT INFORMATION Citrix 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. International revenues (sales outside of the United States) accounted for approximately 47.0%, 46.3% and 46.3% of the Company’s net revenues for the year ended December 31, 2018, 2017, and 2016, respectively. Long-lived assets consist of property and equipment, net, and are shown below. F o r m 1 0 - K Property and equipment, net: United States United Kingdom Other countries Total property and equipment, net December 31, 2018 2017 (In thousands) $ $ 185,091 25,459 32,846 243,396 $ $ 189,465 24,171 39,296 252,932 In fiscal year 2018, one distributor, the Arrow Group, accounted for 14%, of the Company’s total net revenues. 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. 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. During 2018, the Company initiated an effort to streamline and simplify its product branding and packaging, which included naming updates to the portfolio to provide clarity on the Company's offerings and unify its sales motions. The change resulted in the Company consolidating its former Content Collaboration product group and Workspace Services product group and renaming the new product group Digital Workspace. As a result, previously reported revenue by product grouping amounts have been recast to conform to the new presentation. Revenues by product grouping were as follows for the years ended: Net revenues: Digital workspace(1) Networking(2) Professional services(3) Total net revenues 2018 December 31, 2017 (4) (In thousands) 2016 (4) $ $ 2,024,289 $ 1,901,952 $ 1,821,739 817,193 132,421 790,434 132,300 782,875 131,466 2,973,903 $ 2,824,686 $ 2,736,080 (1) Digital Workspace revenues are primarily comprised of sales from the Company’s application virtualization solutions, which include Citrix Virtual Apps and Desktops, the Company's unified endpoint management solutions, which include Citrix Endpoint Management, related license updates and maintenance and support, Citrix Content Collaboration, and cloud offerings. (2) Networking revenues primarily include Citrix ADC and Citrix SD-WAN, related license updates and maintenance and support and cloud offerings. (3) Professional services revenues are primarily comprised of revenues from consulting services and product training and certification services. (4) Prior period amounts have not been adjusted under the modified retrospective method of adoption of the revenue recognition standard. See Note 2 for further information regarding the Company’s adoption of the revenue recognition standard. F-37 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Revenues by Geographic Location The following table presents revenues by geographic location, for the years ended: Net revenues: Americas EMEA APJ Total net revenues 2018 December 31, 2017 (1) (In thousands) 2016 (1) $ $ 1,716,876 956,365 300,662 2,973,903 $ $ 1,644,008 888,072 292,606 2,824,686 $ $ 1,598,896 863,517 273,667 2,736,080 (1) As noted above, prior period amounts have not been adjusted under the modified retrospective method of adoption of the revenue recognition standard. See Note 2 for further information regarding the Company’s adoption of the revenue recognition standard. 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 2018, 2017 and 2016 were $141.9 million, $151.9 million and $160.5 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 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 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 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, 2018, 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 F-38 F o r m 1 0 - K CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS to customary exceptions for a credit facility of this size and type. The Company was in compliance with these covenants as of December 31, 2018. Convertible Senior Notes 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 purchased approximately $101.0 million of common stock from certain purchasers of the Convertible Notes in privately negotiated transactions concurrently with the closing of the offering, and purchased approximately $1.4 billion of additional shares of common stock through an ASR agreement which the Company entered into with the ASR counterparty on April 25, 2014. 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 0.500% 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 deliver shares of common stock, 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. In accordance with the terms of the Indenture, the conversion rate for the Convertible Notes was adjusted to 13.9510 shares of the Company's common stock per $1,000 principal amount of the Convertible Notes, which corresponds to a conversion price of $71.68 per share of common stock, as a result of a cash dividend paid in December 2018. 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 last reported sale price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on September 30, 2018 was greater than or equal to $93.48 (130% of the conversion price) on each applicable trading day. As a result, each holder of the Company’s Convertible Notes had the right to convert any portion of its Convertible Notes (in minimum denominations of $1,000 in principal amount or an integral multiple thereof) during the fourth quarter of 2018. The sales price condition was also met for the quarter ended June 30, 2018. As of October 15, 2018, the Company received conversion notices from noteholders with respect to $273.0 million in aggregate principal amount of Convertible Notes requesting conversion as a result of the sales price condition having been met. Accordingly, in accordance with the terms of the Convertible Notes, in the fourth quarter of 2018 the Company made cash payments of this aggregate principal amount and delivered 1.3 million newly issued shares of its common stock in respect of the remainder of the Company's conversion obligation in excess of the aggregate principal amount of the Convertible Notes being redeemed, in full satisfaction of such converted notes. The Company received shares of its common stock under the Bond Hedges (as defined below) that offset the issuance of shares of common stock upon conversion of the Convertible Notes. See the discussion under “Convertible Note Hedge and Warrant Transaction” in this Note 13 for detailed information on the Bond Hedges. In addition, on or after October 15, 2018 until the close of business on the second scheduled trading day immediately preceding the April 15, 2019 maturity date, holders of the Convertible Notes have the right to convert their notes at any time, regardless of whether the sales price condition is met. Any conversions with respect to conversion notices received by the Company on or after October 15, 2018 will settle on the maturity date. As of December 31, 2018, the outstanding balance, net of discount, of $1.16 billion of the Convertible Notes is included in current liabilities and the difference between the face value and carrying value of $8.1 million is included in temporary equity in the accompanying consolidated balance sheets. In accounting for the settlement of the Convertible Notes, the Company allocated the fair value of the settlement consideration remitted to the noteholders between the liability and equity components. The portion of the settlement consideration allocated to the extinguishment of the liability component was based on the fair value of that component immediately before extinguishment. A loss was recognized in the consolidated statements of income for the difference between the consideration allocated to the liability component and the sum of the carrying amount of the liability component and any unamortized debt issuance costs. Additionally, upon settlement of the converted principal, the Company derecognized the F-39 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS related unamortized discount and issuance costs. The Company allocated the remaining settlement consideration to the reacquisition of the equity component and recognized this amount as a reduction of stockholders' equity. 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. 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. The Convertible Notes consist of the following (in thousands): Liability component Principal Less: note discount and issuance costs Net carrying amount Equity component Temporary equity Additional paid-in-capital Total (including temporary equity) December 31, 2018 December 31, 2017 1,164,497 $ (9,052) 1,155,445 $ 1,437,483 (51,159) 1,386,324 8,110 $ 127,374 135,484 $ — 162,869 162,869 $ $ $ $ The following table includes total interest expense recognized related to the Convertible Notes and 2027 Notes (in thousands): Contractual interest expense Amortization of debt issuance costs Amortization of debt discount Year Ended December 31, 2018 2017 2016 $ $ 40,151 $ 11,406 $ 4,663 34,228 79,042 $ 4,050 34,039 49,495 $ 7,187 3,863 33,014 44,064 See Note 6 to the Company's consolidated financial statements for fair value disclosures related to the Company's Convertible Notes and 2027 Notes. F-40 F o r m 1 0 - K CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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") and also entered into separate warrant transactions (the "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 of its GoTo Business, 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 strike price of the Warrants was adjusted to $94.94 as a result of the cash dividend paid in December 2018. 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, 2018, 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, 2018, 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 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 loss on cash flow derivative instruments was $1.0 million at December 31, 2018, and is included in Accumulated other comprehensive loss in the accompanying consolidated balance sheets. 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. See Note 16 for more information related to comprehensive income. The net unrealized loss as of December 31, 2018 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. F-41 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 (expense) income, net. Fair Values of Derivative Instruments Asset Derivatives Liability Derivatives (In thousands) December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017 Balance Sheet Location Prepaid expenses and other current assets Fair Value $708 Balance Sheet Location Prepaid expenses and other current assets Fair Value $2,481 Balance Sheet Location Accrued expenses and other current liabilities Fair Value $1,811 Balance Sheet Location Accrued expenses and other current liabilities Fair Value $110 Asset Derivatives Liability Derivatives (In thousands) December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017 Balance Sheet Location Prepaid expenses and other current assets Fair Value $56 Balance Sheet Location Prepaid expenses and other current assets Fair Value $17 Balance Sheet Location Accrued expenses and other current liabilities Fair Value $732 Balance Sheet Location Accrued expenses and other current liabilities Fair Value $704 Derivatives Designated as Hedging Instruments Foreign currency forward contracts Derivatives Not Designated as Hedging Instruments Foreign currency forward contracts The Effect of Derivative Instruments on Financial Performance Derivatives in Cash Flow Hedging Relationships For the Year ended December 31, (In thousands) Location of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) Amount of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss (Effective Portion) 2018 2017 Amount of (Loss) Gain Recognized in Other Comprehensive Income (Loss) (Effective Portion) 2018 2017 Foreign currency forward contracts $ (3,143) $ 5,288 Operating expenses $ (699) $ 758 There was no material ineffectiveness in the Company’s foreign currency hedging program in the periods presented. Derivatives Not Designated as Hedging Instruments Location of Gain (Loss) Recognized in Income on Derivative Amount of Gain (Loss) Recognized in Income on Derivative 2018 2017 Foreign currency forward contracts Other (expense) income, net $ 7,062 $ (6,804) For the Year ended December 31, (In thousands) F-42 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Outstanding Foreign Currency Forward Contracts As of December 31, 2018, the Company had the following net notional foreign currency forward contracts outstanding F o r m 1 0 - K (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 Korean Won New Zealand Dollar Singapore dollars Swiss francs Currency Denomination AUD 18,200 BRL 5,500 GBP 14,100 CAD 2,350 CNY 41,800 DKK 6,329 EUR 9,736 HKD 20,600 INR 62,000 JPY 2,300,000 KRW 150,000 NZD 100 SGD 13,500 CHF 19,450 15. EARNINGS PER SHARE Basic earnings per share is calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share is computed using the weighted-average number of common and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise or settlement of stock awards and shares issuable under the employee stock purchase plan (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 and the Company's warrants. F-43 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share information): Numerator: Income from continuing operations (Loss) income from discontinued operations, net of income taxes Net income (loss) Denominator: Denominator for basic earnings per share - weighted-average shares outstanding Effect of dilutive employee stock awards Effect of dilutive Convertible Notes Effect of dilutive warrants Denominator for diluted earnings per share - weighted-average shares outstanding Basic earnings (loss) per share: Income from continuing operations (Loss) income from discontinued operations, net of income taxes Basic net earnings (loss) per share Diluted earnings (loss) per share: Income from continuing operations (Loss) income from discontinued operations, net of income taxes Diluted net earnings (loss) per share: $ $ $ $ $ $ Year Ended December 31, 2018 2017 2016 575,667 — 575,667 $ $ $ 21,985 (42,704) (20,719) $ 469,855 66,257 536,112 136,030 150,779 155,134 2,653 5,769 1,482 2,493 2,231 — 1,950 — — 145,934 155,503 157,084 4.23 — 4.23 3.94 — 3.94 $ $ $ $ $ 0.15 (0.28) (0.13) $ $ 0.14 (0.27) (0.13) $ 3.03 0.43 3.46 2.99 0.42 3.41 For the year ended December 31, 2018, the weighted-average number of shares outstanding used in the computation of diluted earnings per share includes the dilutive effect of the Company's warrants, as the average stock price during the year was above the weighted-average warrant strike price of $94.94 per share. For the years ended December 31, 2017 and 2016, the weighted-average number of shares outstanding used in the computation of 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. Anti-dilutive stock-based awards excluded from the calculations of diluted earnings per share were immaterial during the periods presented. The Company uses the treasury stock method for calculating any potential dilutive effect of the conversion spread on its 0.500% Convertible Notes due 2019 on diluted earnings per share, if applicable, because 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 stock for a given period exceeds the conversion price of $71.68 per share of common stock. For the years ended December 31, 2018 and 2017, the average market price of the Company's common stock exceeded the conversion price, therefore, the dilutive effect of the Convertible Notes was included in the denominator of diluted earnings per share. For the year ended December 31, 2016, 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. See Note 13 to the Company's consolidated financial statements for detailed information on the Convertible Notes offering. F-44 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16. COMPREHENSIVE INCOME The changes in Accumulated other comprehensive loss by component, net of tax, are as follows: F o r m 1 0 - K Balance at December 31, 2017 Other comprehensive (loss) income before reclassifications Amounts reclassified from accumulated other comprehensive loss Net current period other comprehensive income (loss) Balance at December 31, 2018 Unrealized loss on available-for- sale securities Unrealized gain (loss) on derivative instruments Other comprehensive loss on pension liability Total Foreign currency $ (2,946) $ (6,666) $ 2,158 $ (3,352) $ (10,806) (In thousands) — — (1,770) (3,842) 1,569 (4,043) 5,996 699 — 6,695 — (2,946) $ 4,226 (2,440) $ (3,143) (985) $ 1,569 (1,783) $ 2,652 (8,154) $ 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: For the Year Ended December 31, 2018 (In thousands) 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 Unrealized net loss on available-for-sale securities $ Unrealized net loss on cash flow hedges $ 5,996 699 6,695 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. For the years ended December 31, 2018, 2017 and 2016, restructuring charges from continuing operations were comprised of the following (in thousands): Employee severance and related costs Consolidation of leased facilities Reversal of previous charges Total Restructuring charges Year Ended December 31, 2018 2017 2016 $ $ 2,507 $ 62,844 $ 14,218 — 16,725 $ 9,718 (187) 72,375 $ 41,054 28,857 (2,510) 67,401 During the years ended December 31, 2018 and 2017, the Company incurred costs of $2.5 million and $53.7 million, respectively, related to initiatives intended to accelerate the transformation to a cloud-based subscription business, increase strategic focus, and improve operational efficiency. No costs were incurred during the year ended December 31, 2016. The majority of the activities related to this program were substantially completed by the end of 2018. In connection with its restructuring initiatives, the Company had previously vacated or consolidated properties and subsequently reassessed its obligations on non-cancelable leases. The fair value estimate of these non-cancelable leases is based on the contractual lease costs over the remaining term, partially offset by estimated future sublease rental income. During the year ended December 31, 2018, the Company incurred costs of $14.2 million related to the consolidation of leased facilities. During F-45 CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. No costs were incurred during the year ended December 31, 2016. The charges related to employee severance were substantially completed as of the first quarter of 2018; however, the Company could continue to incur lease losses related to the consolidation of leased facilities during fiscal year 2019. During the years ended December 31, 2017 and 2016, the Company incurred costs of $1.9 million and $44.5 million, respectively, 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. During the years ended December 31, 2017 and 2016, the Company recorded charges of $8.7 million and $24.0 million, respectively, 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. Restructuring accruals The activity in the Company’s restructuring accruals for the year ended December 31, 2018 is summarized as follows (in thousands): Balance at January 1, 2018 Restructuring charges Payments Balance at December 31, 2018 Total 55,283 16,725 (26,913) 45,095 $ $ As of December 31, 2018, the $45.1 million in outstanding restructuring accruals primarily relate to future payments for leased facilities. F-46 CITRIX SYSTEMS, INC. SUPPLEMENTAL FINANCIAL INFORMATION QUARTERLY FINANCIAL INFORMATION (UNAUDITED) F o r m 1 0 - K 2018 Net revenues Gross margin Income from operations Net income Earnings per share - basic Earnings per share - diluted 2017 Net revenues Gross margin Income from continuing operations Loss from discontinued operations, net of tax Net income Basic earnings per share: Income (loss) from continuing operations Loss from discontinued operations Basic earnings (loss) per share Diluted earnings per share: Income (loss) from continuing operations Loss from discontinued operations Diluted earnings (loss) per share First Quarter Fourth Third Second Quarter Quarter Quarter (In thousands, except per share amounts) Total Year $ 697,192 $ 742,365 $ 732,476 $ 801,870 $ 2,973,903 588,906 165,563 144,259 1.04 0.99 633,616 145,147 106,833 0.79 0.73 628,559 164,779 158,857 1.18 1.08 689,019 202,471 165,718 1.24 1.15 2,540,100 677,960 575,667 4.23 3.94 First Quarter Second Quarter Third Quarter Fourth Quarter Total Year (In thousands, except per share amounts) $ 662,677 $ 693,227 $ 690,925 $ 777,857 $ 2,824,686 655,918 2,385,040 560,219 70,325 (42,704) 27,621 0.46 (0.28) 0.18 0.44 (0.27) 0.17 583,915 108,829 — 584,988 126,720 — (283,889) — 108,829 126,720 (283,889) 0.72 — 0.72 0.70 — 0.70 0.84 — 0.84 0.82 — 0.82 (1.93) — (1.93) (1.93) — (1.93) 21,985 (42,704) (20,719) 0.15 (0.28) (0.13) 0.14 (0.27) (0.13) 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. CITRIX SYSTEMS, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS 2018 Deducted from asset accounts: Allowance for doubtful accounts Allowance for returns Valuation allowance for deferred tax assets 2017 Deducted from asset accounts: Allowance for doubtful accounts Allowance for returns Valuation allowance for deferred tax assets 2016 Deducted from asset accounts: Allowance for doubtful accounts Allowance for returns Valuation allowance for deferred tax assets Beginning of Period Charged to Expense Charged to Other Accounts (In thousands) Deductions Balance at End of Period $ $ $ $ $ $ 3,420 1,225 76,789 3,889 1,994 14,156 6,241 1,438 16,673 3,586 — — 3,917 — — 954 — — $ $ $ 457 1,561 8,611 9 4,890 62,633 — 2,088 (2,517) (3) (1) (5) (3) (1) (5) (1) (5) $ $ $ 3,829 1,890 (2) (4) $ — 3,634 896 85,400 4,395 5,659 (2) (4) $ — 3,420 1,225 76,789 3,306 1,532 (2) (4) $ — 3,889 1,994 14,156 (1) (2) (3) (4) (5) Charged against revenues. Uncollectible accounts written off, net of recoveries. Adjustments from acquisitions. Credits issued for returns. Related to deferred tax assets on foreign tax credits, net operating loss carryforwards, and depreciation. Annual Report 2018 Citrix Systems, Inc. CORPORATE INFORMATION Citrix (NASDAQ:CTXS) is powering a better way to work with unified workspace, networking, and analytics solutions that help organizations unlock innovation, engage customers, and boost productivity, without sacrificing security. With Citrix, users get a seamless work experience and IT has a unified platform to secure, manage, and monitor diverse technologies in complex cloud environments. With 2018 revenues of $2.97 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. STOCKHOLDER INFORMATION Executives Board of Directors Investor Relations David J. Henshall President, Chief Executive Officer and Director Jessica Soisson Interim Chief Financial Officer, Vice President, Corporate Controller and Chief Accounting Officer Mark Ferrer Executive Vice President and Chief Revenue Officer Tony Gomes Executive Vice President and General Counsel PJ Hough Executive Vice President and Chief Product Officer Donna Kimmel Executive Vice President and Chief People Officer Tim Minahan Executive Vice President, Business Strategy and Chief Marketing Officer Jeroen van Rotterdam Executive Vice President, Engineering Bob Calderoni Chairman of the Board, Citrix Nanci E. Caldwell Lead Independent Director, Citrix Jesse A. Cohn Partner and Head of U.S. Equity Activism, Elliott Management Robert D. Daleo Former Vice Chairman, Thomson Reuters Murray J. Demo Chief Financial Officer, Rubrik Ajei S. Gopal President and Chief Executive Officer, ANSYS David J. Henshall President and Chief Executive Officer, Citrix Thomas E. Hogan Chairman and Chief Executive Officer, Kony Moira A. Kilcoyne Former Chief Operating Officer Global Operations, Technology and Data, Morgan Stanley Peter J. Sacripanti Partner, McDermott Will & Emery Citrix’s stock trades on the NASDAQ Global Select Market under the ticker symbol CTXS. The Citrix Annual Report, Proxy and Form 10-K are available electronically at investors.citrix.com/financials/ annual-reports. For further information about Citrix, additional copies of this report, Form 10-K, or other financial information without charge, contact: Citrix Systems, Inc. Attn: Investor Relations 851 West Cypress Creek Road Fort Lauderdale, FL 33309 United States Tel: +1 954 267 3000 Tel: +1 800 424 8749 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 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 4, 2019, at 5:00 p.m., Eastern Time. Citrix Headquarters 851 West Cypress Creek Road Fort Lauderdale, FL 33309 United States Shareholder Materials Annual Meeting Voting Citrix Systems, Inc. 851 West Cypress Creek Road Fort Lauderdale, FL 33309 citrix.com 

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