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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 2000
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 75-2275152
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6400 N. W. 6TH WAY
33309
FORT LAUDERDALE, FLORIDA (Zip Code)33309
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (954) 267-3000
NOT APPLICABLE
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year if
Changed Since Last Report.
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 [X] No [ ]
As of April 28,August 3, 2000 there were 185,114,935185,721,213 shares of the registrant's
Common Stock, $.001 par value per share, outstanding.
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CITRIX SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31,JUNE 30, 2000
CONTENTS
Page NumberPAGE NUMBER
-----------
PART I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets:
March 31,June 30, 2000 and December 31, 1999 ........... 3
Condensed Consolidated Statements of Income:
Three Months Ended March 31,and Six Months ended June 30, 2000
and 1999 ...................................... 5
Condensed Consolidated Statements of Cash Flows:
ThreeSix Months Ended March 31,June 30, 2000 and 1999 ....... 6
Notes to Condensed Consolidated Financial Statements ... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12....................................... 13
Item 3. Qualitative & Quantitative Disclosures AboutDisclosure about Market Risk 25......... 27
PART II: OTHER INFORMATION
Item 1. Legal Proceedings ............................................... 28
Item 4. Submission of Matters to a Vote of Security Holders ............. 28
Item 6. Exhibits and Reports on Form 8-K 26................................ 29
Signatures 27............................................................... 30
Exhibit Index 28............................................................ 31
Exhibit 3, 4
Exhibit 10.1
Exhibit 10.2
Exhibit 27
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PART I: FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, DecemberJUNE 30, DECEMBER 31,
2000 1999
---------- ----------
(in thousands)---------------------------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents ................................................................................... $ 265,142350,960 $ 216,116
Short-term investments ............................................. 238,381............................................ 276,065 221,978
Accounts receivable, net of allowances of $6,956$8,181 and $8,242 at
March
31,June 30, 2000 and December 31, 1999, respectively.................... 82,974respectively ............... 57,282 55,327
Inventories ........................................................ 10,489....................................................... 8,840 7,731
Prepaid taxes ...................................................... 89,566..................................................... 62,688 30,394
Other prepaid expenses ............................................. 5,617............................................ 6,823 4,970
Other current assets ............................................... 4,828.............................................. 3,810 7,184
Current portion of deferred tax assets ............................. 25,556............................ 27,787 26,544
---------- ----------
Total current assets .................................................. 722,553................................................. 794,255 570,244
Long-term investments ................................................. 321,920................................................ 261,227 325,755
Property and equipment, net ........................................... 36,438.......................................... 42,595 31,530
Intangible assets, net ................................................ 84,107............................................... 75,432 63,396
Long-term portion of deferred tax assets .............................. 24,928............................. 30,934 30,197
Other assets, net ..................................................... 15,863.................................................... 16,899 16,735
---------- ----------
$1,205,809$1,221,342 $1,037,857
========== ==========
CONTINUED ON FOLLOWING PAGE.
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CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
March 31, DecemberJUNE 30, DECEMBER 31,
2000 1999
----------- -----------
(in thousands, except par value)--------------------------------------
(IN THOUSANDS, EXCEPT PAR VALUE)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued expenses ..................................................... $ 77,42471,019 $ 59,561
Accrued royalties and other accounts payable to stockholder ..... 263 427
Deferred revenues ............................................... 35,732 27,90759,988
Current portion of deferred revenues on contract with stockholder 39,898 39,898....................................... 76,813 67,805
Income taxes payable ............................................ 6,676....................................................... 3,268 9,202
----------- -----------
Total current liabilities .......................................... 159,993..................................................... 151,100 136,995
DeferredLong term portion of deferred revenues on contract with stockholder ..................... 43,972........................................ 34,099 53,912
Convertible subordinated debentures ................................ 317,951........................................... 322,044 313,880
Stockholders' equity:
Preferred stock at $.01 par value--5,000,000 shares authorized, none issued
and outstanding at June 30, 2000 and December 31, 1999,
respectively .......................................................... -- --
Common stock at $.001 par value: 400,0001,000,000 shares authorized;
184,857185,995 and 181,093 issued and outstanding at March 31,June 30, 2000 and
December 31, 1999, respectively ........................ 185....................................... 186 181
Additional paid-in capital ...................................... 411,455................................................. 431,915 309,321
Retained earnings ............................................... 264,650.......................................................... 279,623 226,105
Accumulated other comprehensive income (loss) ................... 7,603.............................. 2,375 (2,537)
----------- -----------
Total stockholders' equity ......................................... 683,893.................................................... 714,099 533,070
----------- -----------
$ 1,205,8091,221,342 $ 1,037,857
=========== ===========
SEE ACCOMPANYING NOTES.
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CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
--------------------------THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------------------------------------
2000 1999 --------- ---------
(in thousands, except per share
information)2000 1999
------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
Revenues:
NetRevenues ................................... $ 96,146 $ 84,475 $ 213,720 $ 159,641
Other revenues ....................................................... $ 117,575 $ 75,166
Net revenues--related party ..................................................................... 9,940 9,8739,940 19,881 19,813
--------- --------- --------- ---------
Net revenues ................................................. 127,515 85,039.............................. 106,086 94,415 233,601 179,454
--------- --------- --------- ---------
Cost of revenues:
Cost of revenues (excluding amortization
presented separately below) 4,967 4,280.............. 8,246 2,897 13,212 7,176
Cost of revenues--related party .................................... 162 242other revenues ..................... 158 204 320 446
--------- --------- --------- ---------
Total cost of revenues ....................................... 5,129 4,522................... 8,404 3,101 13,532 7,622
--------- --------- --------- ---------
Gross margin .......................................................... 122,386 80,517................................. 97,682 91,314 220,069 171,832
Operating expenses:
Research and development ........................................... 12,112 8,406.................. 12,300 8,913 24,413 17,121
Sales, marketing and support ....................................... 41,189 24,769.............. 45,425 29,291 86,614 53,938
General and administrative ......................................... 12,655 6,410................ 16,213 8,226 28,868 14,957
Amortization of intangible assets .................................. 6,819 3,778......... 7,842 3,764 14,661 7,542
--------- --------- --------- ---------
Total operating expenses ..................................... 72,775 43,363............ 81,780 50,194 154,556 93,558
--------- --------- --------- ---------
Income from operations ................................................ 49,611 37,154....................... 15,902 41,120 65,513 78,274
Interest and other income ............................................. 9,596 3,513.................... 9,734 6,375 19,330 9,888
Interest expense ...................................................... (4,143) (404)............................. (4,246) (4,081) (8,389) (4,485)
--------- --------- --------- ---------
Income before income taxes ............................................ 55,064 40,263................... 21,390 43,414 76,454 83,677
Income taxes .......................................................... 16,519 14,495................................. 6,417 15,629 22,936 30,124
--------- --------- --------- ---------
Net income ............................................................................................... $ 38,54514,973 $ 25,76827,785 $ 53,518 $ 53,553
========= ========= ========= =========
Earnings per common share:
Basic earnings per share ............................................................. $ 0.210.08 $ 0.150.16 $ 0.29 $ 0.31
========= ========= ========= =========
Weighted average shares outstanding ................................ 183,151 172,983....... 185,356 175,083 184,279 174,039
========= ========= ========= =========
Earnings per common share--assuming dilution:
Diluted earnings per share ......................................................... $ 0.190.07 $ 0.140.15 $ 0.26 $ 0.28
========= ========= ========= =========
Weighted average shares outstanding ................................ 208,309 187,363....... 203,316 188,981 205,833 188,179
========= ========= ========= =========
SEE ACCOMPANYING NOTES.NOTES
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CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
---------------------------SIX MONTHS ENDED
JUNE 30,
------------------------------------
2000 1999
--------- ---------
(in thousands)------------------------------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income ...................................................................... $ 38,54553,518 $ 25,76853,553
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................ 10,783 5,40023,015 11,238
Provision for (recovery of) doubtful accounts ................................ 1,504 (33)
Provision for product returns ................................................ 9,621 13,135
Provision for inventory reserves ............................................. 3,421 860
Tax benefit related to the exercise of non-statutory stock options and
disqualifieddisqualifying dispositions of incentive stock options ....................... 63,735 7,860
Provision for (recovery of) doubtful accounts ................................ 313 (37)
Provision for product returns ................................................ 1,813 3,695
Provision for inventory reserves ............................................. 971 860...................... 72,472 9,490
Accretion of original issue discount and amortization of financing cost ...... 4,143 3908,311 4,485
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable ....................................................... (29,087) (14,633)...................................................... (11,559) (24,342)
Inventories ............................................................... (3,729) (1,550).............................................................. (4,531) (4,333)
Prepaid taxes ............................................................. (59,172) --............................................................ (32,295) 4,236
Other prepaid expenses .................................................... 1,789 3,994................................................... 1,602 (2,491)
Other assets .............................................................. 801 (7,613)............................................................. (310) (6,289)
Deferred tax assets ....................................................... 6,257 (14,581)...................................................... (1,980) (17,345)
Deferred revenues ........................................................ (10,805) 4,713
Accounts payable and other accrued expenses ............................... 17,522 14,861
Accrued royalties and other accounts payable to stockholder ............... (163) 307
Deferred revenues ......................................................... 7,825 4,761
Deferred revenues on contract with stockholder ............................ (9,940) (9,872).............................. 10,695 14,645
Income taxes payable ...................................................... (2,526) 16,794..................................................... (5,935) 10,229
--------- ---------
Net cash provided by operating activities ....................................... 49,880 36,404116,744 71,751
INVESTING ACTIVITIES
Purchases of investments ........................................................ (56,143) (102,411)(90,754) (354,356)
Proceeds from sale of investments ............................................... 53,713 50,308106,105 84,615
Cash paid for acquisitions, net of cash acquired ................................ (28,112) --
Cash paid for licensing agreement ............................................... -- (250)(500)
Purchases of property and equipment ............................................. (8,670) (2,691)(19,217) (6,214)
--------- ---------
Net cash used in investing activities ........................................... (39,212) (55,044)(31,978) (276,455)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock ...................................... 38,404 11,75550,127 19,622
Net proceeds from issuance of convertible subordinated debentures ............... -- 292,458
Payments on capital lease obligations ........................................... (46) (15)Other ........................................................................... (49) (69)
--------- ---------
Net cash provided by financing activities ....................................... 38,358 304,19850,078 312,011
--------- ---------
Increase in cash and cash equivalents ........................................... 49,026 285,558134,844 107,307
Cash and cash equivalents at beginning of period ................................ 216,116 127,546
--------- ---------
Cash and cash equivalents at end of period ...................................... $ 265,142350,960 $ 413,104234,853
========= =========
SEE ACCOMPANYING NOTES.
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CITRIX SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31,(Unaudited)
JUNE 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. All adjustments which, in the opinion of
management, are considered necessary for a fair presentation of the
results of operations for the periods shown are of a normal recurring
nature and have been reflected in the unaudited condensed consolidated
financial statements. The results of operations for the periods presented
are not necessarily indicative of the results expected for the full
fiscal year or for any future period. The information included in these
unaudited condensed consolidated financial statements should be read in
conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in this report and the
consolidated financial statements and accompanying notes included in the
Citrix Systems, Inc. (the "Company") Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the condensed
consolidated financial statements and accompanying notes. While the
Company believes that such estimates are fair when considered in
conjunction with the condensed consolidated financial position and
results of operations taken as a whole, the actual amount of such
estimates, when known, will vary from these estimates.
3. REVENUE RECOGNITION
Revenue is recognized when earned. The Company's revenue recognition
policies are in compliance with the American Institute of Certified
Public Accountants Statement of Position ("SOP") 97-2 (as amended by SOP
98-4 and SOP 98-9) "Software Revenue Recognition." Product revenues are
recognized upon shipment of the software product only if no significant
Company obligations remain, the fee is fixed or determinable, and
collection of the resulting receivable is deemed probable. In the case of non-cancelable product licensing arrangements under
which certain Original Equipment Manufacturers ("OEMs") have software
reproduction rights, initial recognition of revenue also requires delivery and
customer acceptance of the product master or first copy. Subsequent recognition
of revenues is based upon reported royalties from the OEMs as well as estimates
of royalties due through the Company's reporting date. Revenue from
packaged product sales to distributors and resellers is recorded when
related products are shipped. In software arrangements that include
rights to multiple software products, post-contract customer support
("PCS"), and/or other services, the Company allocates the total
arrangement fee among each deliverable based on the relative fair value
of each of the deliverables based on vendor-specific objective evidence
("VSOE"). The Company sells software and PCS separately and VSOE is
determined by the price charged when each element is sold separately.
Product returns and sales allowances, including stock rotations, are
estimated and provided for at the time of sale. Non-recurring engineering
fees are recognized ratably as the work is performed. Revenues from
training and consulting are recognized when the services are performed.
Service and subscription revenues from customer maintenance fees for
ongoing customer support and product updates and upgrades are based on
the price charged or derived value of the undelivered elements and are
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recognized ratably over the term of the contract, which is typically
twelve months. Service revenues, which are immaterial when compared to
net revenues, are included in net revenues on the face of the
consolidated statements of income.
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4. EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share
is computed using the weighted average number of common and dilutive
common share equivalents outstanding during the period. Dilutive common
share equivalents consist of shares issuable upon the exercise of stock
options. The shares related to the Company's convertible subordinated
debentures were excluded from the computation of diluted earnings per
share due to of their antidilutive effect.
All share and per share data have been retroactively adjusted to reflect
the two-for-one stock split in the form of a stock dividend paid on March
25, 1999 to stockholders of record as of March 17, 1999, and the
two-for-one stock split in the form of a stock dividend paid on February
16, 2000 to stockholders of record as of January 31, 2000.
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended
March 31,
--------------------------THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
2000 1999 --------- ---------
(in thousands)2000 1999
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
Numerator:
Net income..........................................................income ............................... $ 38,54514,973 $ 25,768
========= =========27,785 $ 53,518 $ 53,553
-------- -------- -------- --------
Denominator:
Denominator for basic earnings per share--weighted average shares.... 183,151 172,983share
- weighted-average shares .......... 185,356 175,083 184,279 174,039
Effect of dilutive securities:
Employee stock options........................................... 25,158 14,380
--------- ---------options ................... 17,960 13,898 21,554 14,140
-------- -------- -------- --------
Dilutive potential common shares ......... 17,960 13,898 21,554 14,140
-------- -------- -------- --------
Denominator for diluted earnings per share--adjusted weighted-
average shares............................................... 208,309 187,363
========= =========share
- weighted-average shares .......... 203,316 188,981 205,833 188,179
======== ======== ======== ========
Basic earnings per share................................................share ................... $ 0.210.08 $ 0.15
========= =========0.16 $ 0.29 $ 0.31
======== ======== ======== ========
Diluted earnings per share..............................................share ................. $ 0.190.07 $ 0.14
========= =========0.15 $ 0.26 $ 0.28
======== ======== ======== ========
5. ACQUISITION
In February 2000, the Company acquired all of the operating assets of the
Innovex Group, Inc. ("Innovex"), a privately owned e-business consulting
services organization specializing in the design, development and
implementation of Web-based solutions and systems integration, for
approximately $47.8 million, of which $28.7 million was paid at the
closing date and the balance is payable, in equal installments 18 and 24
months after the closing date, contingent on future events, as set forth
in the acquisition agreement.
The acquisition was accounted for as a purchase. The cost in excess of
net tangible assets acquired was approximately $45.5$26.1 million, of which
$9.0 million was allocated to the acquired workforce and $13.5$17.1 million
was allocated to goodwill. The cost associated with the acquired
workforce and goodwill are both being amortized on a straight linestraight-line basis
over six and four years.years, respectively. The results of operations of
Innovex are included in the Company's results of operations from the date
of acquisition. The allocation of the purchase price was based on an
independent report. Contingent payments to be made at a future date,dates, if
any, will be accounted for as additional purchase price and amortized
over the remaining life of the intangible assets acquired.
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6. SEGMENT INFORMATION
The Company operates in a single market consisting of the design,
development, marketing and support of client and server-based computing
software for enterprise applications. Design, development, marketing and
support operations outside of the United States are conducted through
subsidiaries located primarily in Europe and the Asia Pacific region.
The Company tracks revenue and gross margin by geography and product
category but does not track operating expenses nor identifiable assets on
a product category basis. The Company does not engage in intercompany
transfers between segments. The Company's management evaluates
performance based primarily on revenues and profit in the geographic
locations in which the Company operates. Segment profit for each segment
includes sales and marketing expenses directly attributable to the
segment and excludes certain expenses which are managed outside the
reportable segments. Costs excluded from segment profit primarily consist
of cost of revenues, research and development costs, interest, corporate
expenses, including income taxes, as well as non-recurring charges for
purchased in-process technology, and overhead costs, including rent,
utilities, depreciation and amortization. Corporate expenses are
comprised primarily of corporate marketing costs, operations and other
general and administrative expenses which are separately managed.
Accounting policies of the segments are the same as the Company's
consolidated accounting policies.
Net revenues and segment profit, classified by the major geographic areaareas
in which the Company operates, are as follows:
Three Months Ended
March 31,
---------------------------THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------- --------------------------
2000 1999 -------- --------
(in thousands)2000 1999
--------- --------- --------- ---------
(IN THOUSANDS)
Net revenues:
Americas.............................Americas ..................... $ 66,69151,303 $ 40,383
EMEA................................. 43,731 28,02446,047 $ 117,994 $ 86,430
EMEA(1) ...................... 37,582 30,772 81,313 58,796
Asia Pacific......................... 5,176 5,010Pacific ................. 6,055 5,331 11,231 10,341
Other (1)............................ 11,917 11,622
-------- --------
Consolidated......................... $127,515(2) .................... 11,146 12,265 23,063 23,887
--------- --------- --------- ---------
Consolidated ................. $ 85,039
======== ========106,086 $ 94,415 $ 233,601 $ 179,454
========= ========= ========= =========
Segment profit:
Americas.............................Americas ..................... $ 56,76441,546 $ 31,772
EMEA................................. 35,050 22,44934,410 $ 98,310 $ 66,182
EMEA(1) ...................... 28,845 24,748 63,895 47,197
Asia Pacific......................... 2,591 3,074Pacific ................. 3,123 3,185 5,714 6,259
Other (1)............................ 11,917 11,622(2) .................... 11,146 12,265 23,063 23,887
Unallocated expenses (2)(3):
Cost of revenues................. (5,129) (4,522)revenues ......... (8,404) (3,101) (13,532) (7,622)
Overhead costs................... (18,640) (10,157)costs ........... (20,602) (11,335) (39,243) (21,493)
Research and development......... (12,112) (8,406)Development.. (12,300) (8,913) (24,413) (17,121)
Net interest..................... 5,453 3,109interest ............. 5,488 2,294 10,941 5,403
Other corporate expenses......... (20,830) (8,678)
-------- --------expenses . (27,452) (10,139) (48,281) (19,015)
--------- --------- --------- ---------
Consolidated income before income taxes.......taxes $ 55,06421,390 $ 40,263
======== ========43,414 $ 76,454 $ 83,677
========= ========= ========= =========
(1) Europe, Middle East and Africa ("EMEA").
(2) Primarily represents royalty fees earned in connection with the
License, Development and Marketing Agreement with Microsoft and OEM
revenue.
(2)(3) Represents expenses presented to management only on a consolidated
basis and not allocated to the geographic operating segments.
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Additional information regarding revenue by products and services groupsproduct line is as follows:
Three Months Ended
March 31,
---------------------THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- --------------------------
2000 1999 2000 1999
-------- -------
(in thousands)-------- -------- --------
(IN THOUSANDS)
Revenue:
Windows Application Servers.................................... $91,382 $64,333
Web Application Servers........................................ 4,123 --Servers...... $ 72,870 $ 68,734 $168,373 $133,598
Management Services Products................................... 13,481 5,624Products..... 14,416 9,646 27,897 14,739
Computing Appliances Products.................................. 1,976 2,119Products.... 1,206 2,202 3,182 4,320
Microsoft Royalties............................................Royalties ............. 9,940 9,8729,940 19,881 19,813
Other Revenue.................................................. 6,613 3,091Revenue ................... 7,654 3,893 14,268 6,984
-------- --------------- -------- --------
Net Revenues................................................... $127,515 $85,039Revenues .................... $106,086 $ 94,415 $233,601 $179,454
======== =============== ======== ========
7. COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the three month
periods ended March 31, 2000 and 1999taxes, are as follows:
Three Months Ended
March 31,
------------------------THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ----------------------------
2000 1999 ------- -------
(in thousands)2000 1999
-------- -------- -------- --------
(IN THOUSANDS)
Net income..................................................... $38,545 $25,768income .......................................... $ 14,973 $ 27,785 $ 53,518 $ 53,553
Unrealized gainloss on available-for-sale securities, net.......... 10,140 --
------- -------net (5,228) (1,497) 4,912 (1,497)
-------- -------- -------- --------
Comprehensive income........................................... $48,685 $25,768
======= =======income ................................ $ 9,745 $ 26,288 $ 58,430 $ 52,056
======== ======== ======== ========
8. INCOME TAXES
In July 1999, the Company changed its organizational structure whereby it moved
certain operational and administrative processes to overseas subsidiaries. The
restructuring resulted in foreign earnings being taxed at lower foreign tax
rates. Effective January 1, 2000, these earnings will be permanently reinvested
overseas in order to fund the Company's growth in overseas markets. As a result,
the Company's effective tax rate was reduced to 30% for the three and six month
periodperiods ended March 31,June 30, 2000 from 36% for the same periodperiods in the prior year.
9. CONVERTIBLE SUBORDINATED DEBENTURES
In March 1999, the Company completed a private placement of $850.0 million
principal amount at maturity of its zero coupon convertible subordinated
debentures (the "debentures") due March 22, 2019. The debentures were priced
with a yield to maturity of 5.25% and resulted in net proceeds to the Company of
approximately $291.9 million, net of original issue discount and net of debt
issuance costs of $9.6 million. Except under limited circumstances, no interest
will be paid on the debentures prior to maturity. The debentures are convertible
at the option of the security holder at any time on or before the maturity date
at a conversion rate of 14.0612 shares of the Company's common stock for each
$1,000 principal amount at maturity of debentures, subject to adjustment in
certain events. The Company may redeem the debentures on or after March 22,
2004. Holders may require the Company to repurchase the debentures, at set
redemption prices (equal to the issue price plus accrued original issue
discount) beginning on March 22, 2004. Interest expense related to the
Debenturesdebentures was $4.1$4.2 million and $0.4$4.1 million for the three month periods ended
March 31,June 30, 2000 and March 31, 1999, respectively. Interest expense related to the debentures
was $8.4 million and $4.5 million for the six month periods ended June 30, 2000
and 1999, respectively. In March and April of 2000, holders of an aggregate face
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value amount of $200,000 of debentures converted the notes into approximately
2,810 shares of the Company's common stock. The Company made immaterial payments
in connection with these conversions.
10. OTHER REVENUES
In May 1997, the Company entered into an agreement, as amended (the
"Agreement"), with Microsoft Corporation ("Microsoft"), which provides for the
licensing of certain of the Company's multi-user software enhancements and for
the cooperation between the parties for the development of certain future
software. At the time of the agreement, Microsoft held in excess of 5% of the
Company's outstanding common stock and also had a representative on the
Company's Board of Directors. Microsoft is no longer a significant shareholder
and no longer has Board representation. Amounts arising from the Agreement are
designated as other revenue. Deferred revenue at June 30, 2000 and December 31,
1999 includes $73.9 million and $93.8 million, respectively, related to this
agreement which is being recognized ratably over the five year term of the
Agreement, which began in May 1997.
11. STOCK REPURCHASE PROGRAM
On April 15, 1999, the Board of Directors approved a stock repurchase program
authorizing the repurchase of up to $200 million of the Company's common stock.
Purchases, if any, will be made from time to time in the open market and paid
out of general corporate funds. As of March 31,June 30, 2000, none of the Company's
outstanding common stock had been repurchased under this program. 11.As of August
8, 2000, the Company purchased 1,050,000 shares of outstanding common stock on
the open market at an average price $15.12 per share.
On August 8, 2000, the Company entered into an agreement with a counterparty in
a private transaction to purchase up to 5.8 million shares of the Company's
common stock at various times through the third quarter of 2002. Pursuant to the
terms of the agreement, $100 million will be paid to the counterparty in August
2000. The ultimate number of shares repurchased will depend on market
conditions. Shares received under the agreement will be recorded as treasury
stock.
12. LEGAL PROCEEDINGS
In June 2000, the Company and certain of its officers and directors were named
as defendants in several securities class action lawsuits filed in the United
States District Court for the Southern District of Florida. These actions, which
were filed on behalf of purchasers of the Company's common stock during the
period October 20, 1999 to June 9, 2000, generally allege that, during the class
period, the defendants made misstatements to the investing public about the
Company's financial condition and prospects. The complaints seek unspecified
damages. The Company believes the plaintiffs' claims lack merit and intends to
vigorously defend the lawsuits.
13. RECLASSIFICATIONS
Certain reclassifications have been made for consistent presentation.
12.14. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board (FASB)("FASB") issued SFAS 137,
Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement 133. The Statement defers the effective date of
SFAS 133 to fiscal 2001. Management is evaluating SFAS 133 and does not believe
that adoption of the Statement will have a material impact on its financial
statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the requirements that must be met in order to
recognize revenue and provides guidance for disclosure of revenue recognition
policies. In June 2000, the SEC issued SAB No. 101B which delays the
implementation date of SAB 101 until no later than the fourth quarter of fiscal
11
12
2000. The Company does not expect the adoption of SAB 101 to have a material
effect on its financial position or results of operation.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting for
Certain Transactions Involving Stock Compensation", an interpretation of APB
Opinion No. 25 ("APB 25"). FIN 44 clarifies the application of APB 25 with
respect to: the definition of an employee for the purposes of applying APB 25,
the criteria for determining whether a plan qualifies as a non-compensatory
plan, the accounting consequences of various modifications to the terms of a
previously fixed stock option or awards, and the accounting for an exchange of
stock compensation awards in a business combination. FIN 44 is effective July 1,
2000, but certain conclusions cover specific events that occur after either
December 15, 1998 or January 12, 2000. The Company does not expect the adoption
of FIN 44 to have a material effect of its financial position or results of
operation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company develops, markets, sells and supports innovative client and
server-based computing software that enables effective and efficient deployment
and management of enterprise applications that are designed for Microsoft
Windows(R) operating systems. The Company's Windows Application Servers, which
comprise the largest source of the Company's revenue, primarily consist of the
MetaFrame(TM) product line and related options. The MetaFrame product line,
which began shipping in the second quarter of 1998, permits organizations to
deploy Windows applications without regard to location, network connection, or
type of client hardware platforms.
On May 9, 1997, the Company and Microsoft entered into a License,
Development and Marketing Agreement, as amended (the "Development Agreement"),
which provides for the licensing to Microsoft of certain of the Company's
multi-user software enhancements to Microsoft's Windows NT Server and for the
cooperation between the parties for the development of certain future multi-user
versions of Microsoft Windows NT Server, including Microsoft Windows NT Server,
Terminal Server Edition ("NT Terminaland Microsoft Windows 2000 (collectively, "NT Server").
As a result of the Development Agreement, the Company continues to support the
Microsoft Windows NT platform, but the MetaFrame products and later releases
will no longer directly incorporate Windows NT technology. The Company plans to
continue developing enhancements to its MetaFrame product line and expects that
this product and associated options will constitute a majority of its revenues
for the foreseeable future.
The Company's revenue recognition policies are in compliance with the
American Institute of Certified Public Accountants Statement of Position ("SOP")
97-2 (as amended by SOP 98-4 and SOP 98-9) and related interpretations,
"Software Revenue Recognition" as described in Note 3 of the Notes to Condensed
Consolidated Financial Statements included in this report.
In February 2000, the Company acquired all of the operating assets of the
Innovex Group, Inc. ("Innovex"), a privately owned e-business consulting
services organization specializing in the design, development and implementation
of Web-based solutions and systems integration, for approximately $47.8 million,
of which $28.7 million was paid at the closing date and the balance is payable,
in equal installments, 18 and 24 months after the closing date, contingent on
future events.
The following discussion below relating to the individual financial statement
captions, the Company's overall financial performance, operations and financial
position should be read in conjunction with the factors and events described in
"OVERVIEW" and "CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS" which may
impact the Company's future performance and financial position.
1213
1314
RESULTS OF OPERATIONS
The following table sets forth statement of operationsincome data of the Company
expressed as a percentage of net revenues and as a percentage of change from
period-to-period for the periods indicated.
Change From
Three Months
Three Months Ended Ended
March 31 March 31,INCREASE/(DECREASE) FOR THE
THREE MONTHS SIX MONTHS
THREE MONTHS ENDED SIX MONTHS ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, 2000 --------------------- vs.JUNE 30, 2000
----------------- ------------------- VS. VS.
2000 1999 March 31,2000 1999 ------ ------ --------------JUNE 30, 1999 JUNE 30, 1999
---- ---- ---- ---- ------------- -------------
Net revenues ................................................................ 100.0% 100.0% 49.9%100.0% 100.0% 12.4% 30.2%
Cost of revenues (excluding
amortization presented
separately below) .................................. 4.0 5.3 13.4
----- -----............. 7.9 3.3 5.8 4.3 171.0 77.5
------ ------ ------ ------
Gross margin ......................................... 96.0 94.7 52.0....................... 92.1 96.7 94.2 95.7 7.0 28.1
Operating expenses:
Research and development .................................. 11.6 9.4 10.5 9.5 9.9 44.138.0 42.6
Sales, marketing and support ...................... 32.3 29.1 66.3.... 42.8 31.0 37.1 30.2 55.1 60.6
General and administrative ........................ 9.9 7.5 97.4...... 15.3 8.7 12.3 8.2 97.1 93.0
Amortization of intangible assets ................. 5.3 4.4 80.5
----- -----7.4 4.0 6.3 4.2 108.3 94.4
------ ------ ------ ------
Total operating expenses ........................ 57.0 50.9 67.8
----- -----...... 77.1 53.1 66.2 52.1 62.9 65.2
------ ------ ------ ------
Income from operations ............................... 39.0 43.8 33.5............. 15.0 43.6 28.0 43.6 (61.3) (16.3)
Interest and other income ............................ 7.5 4.1 173.2.......... 9.2 6.8 8.3 5.5 52.7 95.5
Interest expense ..................................... (3.2) (0.5) 925.5
----- -----................... (4.0) (4.3) (3.6) (2.5) 4.0 87.0
------ ------ ------ ------
Income before income taxes ........................... 43.3 47.4 36.8......... 20.2 46.1 32.7 46.6 (50.7) (8.6)
Income taxes ......................................... 13.0 17.0 14.0
----- -----....................... 6.1 16.6 9.8 16.8 (58.9) (23.9)
------ ------ ------ ------
Net income ........................................... 30.3% 30.4% 49.6%
===== =====......................... 14.1% 29.5% 22.9% 29.8% (46.1)% (0.1)%
====== ====== ====== ======
NET REVENUES. Net revenues are presented below in sixfive categories: Windows
Application Servers, Web
Application Servers, Management Services Products, Computing Appliances
Products, Microsoft Royalties and Other Revenue. Windows Application Servers
revenue represents fees related primarily to the licensing of the Company's
MetaFrame product, subscription for product updates and upgrades and additional user licenses. Web Application Servers revenue
represents fees related primarily to the licensing of the Company's MetaFrame
for UNIX product and related subscriptions and additional
user licenses. Computing Appliances Products revenue consists of license fees
and royalties from OEMs who are granted a license to incorporate and/or market
the Company's multi-user technologies in their own product offerings. Management
Services Products consist of system option products such as Load Balancing
Services, Resource Management Services and other options. Microsoft royalties
represent fees recognized in connection with the Development Agreement.
In terms ofWith respect to product mix, the increase in net revenues infor the first quarter
ofthree
months ended June 30, 2000 compared to the first quarter ofthree months ended June 30, 1999 was
primarily attributable to an increase in the volume of shipments of Management
Services Products and an increase in Windows Application Servers specifically,revenue which
was due to an increase in the number of MetaFrame licenses sold. The increase in
Windows Application Servers revenue was partially offset by a decrease in
revenue from the WinFrame product and additional user licenses.line. The increase in net revenues was also
due to an increase in other revenue due mainly to customer support revenue. The
Company anticipates Management Services Products will continue to account for an
increasing percentage of net revenues.
The increase in net revenues for the six months ended June 30, 2000
compared to the six months ended June 30, 1999 was primarily attributable to an
increase in Windows Application Servers revenue due primarily to an increase in
the number of MetaFrame licenses sold. To a lesser extent, the increase in net
revenues was due to an increase in the volume of shipments of Management
Services Products, specifically, Load Balancing Services and Resource Management
Services products, as end users continued to implement
larger scale MetaFrame solutions, and the introduction of the Web Application
Servers, which began shipping in March 2000.
13Products.
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An analysis of the Company's net revenues by categoryproduct line is presented in
the table below:
Revenue
Growth for
the Three
Three Months Ended Months Ended
March 31, March 31, 2000
---------------- vs.
2000 1999 March 31, 1999
---- ---- --------------
Windows Application Servers . 72% 76% 42.0%
Web Application Servers ..... 3 -- *
Management Services Products 11 7 139.7
Computing Appliances Products 1 2 (6.7)
Microsoft Royalties ......... 8 11 0.7
Other Revenue ............... 5 4 114.0
---- ---
Net Revenues ................ 100% 100% 49.9
=== ===
* Not meaningful.
INTERNATIONAL AND
INCREASE/(DECREASE) FOR THE
THREE MONTHS SIX MONTHS
THREE MONTHS ENDED SIX MONTHS ENDED ENDED ENDED
JUNE 30. JUNE 30, JUNE 30, 2000 JUNE 30, 2000
------------------- ------------------- VS. VS.
2000 1999 2000 1999 JUNE 30, 1999 JUNE 30, 1999
---- ---- ---- ---- ------------- -------------
Windows Application Servers.. 69% 73% 72% 75% 6% 26%
Management Services Products. 14 10 12 8 49 89
Computing Appliances Products 1 2 1 2 (45) (26)
Microsoft royalties ......... 9 11 9 11 -- --
Other revenue ............... 7 4 6 4 97 104
--- --- ---- ----
Net revenues ................ 100% 100% 100% 100% 12% 30%
SEGMENT REVENUES. International revenues (sales
outside of the United States) accounted for approximately 39% of net revenues
for the three months ended March 31, 2000 and March 31, 1999. See Note 6 to the
Company's Condensed Consolidated Financial Statements appearing in this report. The increase in internationalnet revenues by operating segment was
primarily due to the Company's increased sales and marketing efforts in Europe,
Middle East and Asia.Africa ("EMEA") and in the Americas however, revenue by
operating segment as a percentage of net revenues remained relatively constant
for the three and six month periods ended June 30, 2000 compared to the same
periods in 1999.
An analysis of net revenues by operating segment is presented in the table
below:
Revenue
Growth for
the Three
Three Months Ended Months Ended
March 31, March 31, 2000
---------------- vs.
2000 1999 March 31, 1999
---- ---- --------------
Americas........................ 52% 47% 65.1%
EMEA............................ 34 33 56.0
Asia Pacific.................... 4 6 3.3
Other (1)....................... 10 14 2.5
--- ---
Consolidated net revenues....... 100% 100% 49.9
=== ===
INCREASE/(DECREASE) FOR THE
THREE MONTHS SIX MONTHS
THREE MONTHS ENDED SIX MONTHS ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, 2000 JUNE 30, 2000
------------------ ------------------- VS. VS.
2000 1999 2000 1999 JUNE 30, 1999 JUNE 30, 1999
---- ---- ---- ---- ------------- -------------
Americas ............ 48% 49% 50% 48% 11% 37%
EMEA ................ 35 33 35 33 22 38
Asia Pacific......... 6 5 5 6 14 9
Other (1) ........... 11 13 10 13 (9) (3)
--- --- --- ---
Net revenues......... 100% 100% 100% 100% 12% 30%
(1) Primarily represents royalty fees earned in connection with the
Development Agreement and OEM revenue.
In terms ofWith respect to operating segments, the increase in net revenues infor the
first
quarter ofthree and six months ended June 30, 2000 compared to the first quarter of 1999 was primarily attributable to continued
demand for Citrix products in the Americas and Europe, Middle East
and Africa ("EMEA")EMEA regions and larger scale
MetaFrame implementations in these regions. The EMEA revenue increase is also due to greater sales and marketing
efforts in Europe and the opening and expansion of additional sales offices in
that region. Other revenue has remained
relatively stable, from the firstsecond quarter of 1999 to the firstsecond quarter of
2000, but has decreased as a percentage of net revenues due to the growth of the
other segments.
The Company expects to continue investing in international markets and
expanding its international operations by establishing additional foreign
operations, hiring personnel, expanding its international sales force and
continuing to add third party channel partners.
COST OF REVENUES. Cost of revenues consists primarily of the cost of
royalties, product media and duplication, manuals, 14
15
packaging materials and
shipping expense. All development costs incurred in connection with the
Development Agreement were expensed as incurred as a separate component of cost
of revenues. The Company's cost of revenues excludes amortization of core
technology. Cost of revenues also consists of compensation and other
personnel-related costs for consulting services.
GROSS MARGIN. Gross margin increased indecreased for the first quarter ofthree and six months ended
June 30, 2000 compared
to the first quarter of 1999 primarily due to higher sales volumes of the
MetaFrame product line and additional user licenses compared to sales of the
WinFrame product line since the MetaFrame product line has a relatively high
gross margin contribution as it bears no royalties.reserve for obsolete inventory. To a lesser
extent, the increasedecrease in gross margin was attributable to higher sales volumes of Management
Services Products, particularly Load Management Services, andcosts associated with
the introduction
of Web Application Servers both of which have relatively high gross margins.Innovex acquisition as the consultants obtained in that acquisition are not
yet fully integrated into the Company's consulting services business. The
Company anticipates gross margin as a percentage of net revenues will decreaseincrease
from current levels but will remain below historical levels as the Company
increases its consulting services offering which has a lower gross profit margin.margin
than that associated with the sale of software licenses.
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16
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consisted primarily of personnel-related costs. To date, all internal software
development costs have been expensed as incurred. The increase in research and
development expenses resulted primarily from additional staffing, associated
salaries and related expenses required to expand and enhance the Company's
product lines. All development costs included
in the research and development of software products and enhancements to
existing products have been expensed as incurred except for certain intangible
assets related to certain acquisitions and licensing arrangements. The increase
in research and development expenses resulted primarily from additional
staffing, associated salaries and related expenses required to expand and
enhance the Company's product lines.
SALES, MARKETING AND SUPPORT EXPENSES. The increase in sales, marketing
and support expenses for the three and six months ended June 30, 2000 resulted
primarily from increased advertising and corporate branding and advertisingmarketing
activities related to specific product lines.directed at customer and business partner acquisition and retention.
The increase was also due to higher headcount levels of sales, services and
marketing staff and associated salaries, commissions and related expenses in
order to increase the Company's sales, consulting and marketing efforts.
GENERAL AND ADMINISTRATIVE EXPENSES. The increase in general and
administrative expenses isfor the three and six months ended June 30, 2000 was
primarily due to increased expenses associated with additional staff, associated
salaries and related expenses necessary to support overall increases in the
scope and geographical diversity of the Company's operations. The increase was
also due to an increase in the provision for doubtful accounts resulting from
the reserve of specific customers' accounts receivable balances, an increase in
consulting fees for information systems projects and an increase in legal fees
relating to litigation defense. The Company is in the early stages of an
enterprise resource planning implementation project. While a significant portion
of the costs associated with this project will be capitalized, certain costs
will be expensed during the course of the project, which is expected to continue
through 2001.
AMORTIZATION OF INTANGIBLE ASSETS. The increase in amortization of
goodwill and identifiable intangible assets is primarily due to the acquisition
of ViewSoft, Inc. ("ViewSoft") in July 1999 and Innovex in February 2000 which
resulted in additional goodwill and identifiable intangible assets of $31.1
million and $26.7 million, respectively. As of March 31,June 30, 2000, the Company had
net goodwill and identifiable intangible assets of $84.1$75.4 million associated with
these and other transactions which will be fully amortized over the next threetwo to foursix
years. The Company anticipates that amortization of goodwill and identifiable
intangible assets will increase as the Company continues itsto search for suitable
acquisition efforts.candidates.
IN-PROCESS RESEARCH AND DEVELOPMENT. In connection with the acquisition of
certain in-process software technologies from ViewSoft, the Company allocated
$2.3 million of the purchase price to in-process researchIn-Process Research and developmentDevelopment
("IPR&D"). During 1998, the Company completed acquisitions of certain in-process
software technologies in which it allocated a portion of the purchase price to
IPR&D. The Company allocated $10.7 million and $2.4 million for IPR&D related to
the APM Ltd ("APM") and VDOnet Corporation, Ltd ("VDOnet") acquisitions,
respectively.
Since the respective dates of acquisition, the Company has used the
acquired in-process technology to develop new product offerings and
enhancements, which have or will become part of the Company's suite of products
when completed. Functionality included in products using the acquired in-process
technology have been introduced at various times following the respective
transaction dates of the acquired assets. The Company currently expects to
complete the development of the remaining projects at various dates in 2000.
Upon completion, the Company has offered and intends to offer the related
products to its customers.
15
16
The nature of the efforts required to develop and integrate the acquired
in-process technology into commercially viable products or features and
functionalities within the Citrix suite of existing products principally relate
to the completion of all planning, designing and testing activities that are
necessary to establish that the products can be produced to meet design
requirements, including functions, features and technical performance
requirements. The Company currently expects that products utilizing the acquired
16
17
in-process technology will be successfully developed, but there can be no
assurance that commercial viability of any of these products will be achieved.
Furthermore, future developments in the software industry, particularly the
server-based computing environment, changes in technology, changes in other
products and offerings or other developments may cause the Company to alter or
abandon product plans.
Failure to complete the development of these projects in their entirety,
or in a timely manner, could have a material adverse impact on the Company's
financial condition and results of operations. No assurance can be given that
actual revenues and operating profit attributable to acquired in-process
research and development will not deviate from the projections used to value
such technology in connection with each of the respective acquisitions. Ongoing
operations and financial results for acquired assets, and the Company as a
whole, are subject to a variety of factors which may not have been known or
estimable at the date of such transactions, and the estimates discussed below
should not be considered the Company's current projections for operating results
for the acquired assets or the Company as a whole.
A description of the in-process research and development and the estimates
made by the Company for APM, VDOnet, and ViewSoft is summarized below. After the
acquisition of each technology, the Company has continued the development of
these in-process projects. The updated status of completion for each project is
set forth in the table below.
APM
The in-process research and development acquired in the APM acquisition
consisted primarily of one significant research and development project. The
project is a Windows NT-based application server which runs Java applications.
At the date of the acquisition, APM was shipping a Java application server
solution that allowed an enterprise user to access Java-applets from the
Internet and execute these applets outside the corporate firewall in a
server-based computing configuration in a fashion that was transparent to the
enterprise user. APM was in the process of modifying its software product to
incorporate changes necessary for it to interface with Java 2.0, which was a
major new release that included significant rewrites to the Java desktop.
Following the acquisition, the Company planned on continuing the process of
incorporating changes necessary to interface with Java 2.0, and in addition,
planned on further developing the software product into an application server
for Java 2.0 that would operate in a MetaFrame server environment.
In the second quarter of 2000, management changed the Java application server to
a Java Performance Pack product, which adds performance enhancements and
management tools to other Citrix products. The remaining efforts to complete the
project are primarily the continuing incorporation of changes necessary to
interface with Java 2.0 and the utilization of acquired technology to develop an application server fora
Java Performance Pack product that will operate in a MetaFrame server
environment. The research and development risks associated with this project
relate primarily to updating the acquired technology to be compatible with Sun
Microsystems' Java 2.0 application, integrating and porting such technology into
a variety of server-based computing architectures.
VDONET
The in-process research and development acquired in the VDOnet acquisition
consisted primarily of one significant research and development project, ICA
Video Services. This project allows video applications and applications
containing video to be viewed on an ICA client, and is targeted for the
server-based computing market. At the date of the acquisition, VDOnet was
shipping a client server video streaming product that was not operational in a
Windows NT or in a MetaFrame environment. VDOnet was in the process of modifying
its software to be operational in a Windows NT environment. In addition, VDOnet
was developing enhancements that would provide for a live camera feed and
multicast, which is intended to direct a video stream to multiple client devices
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simultaneously. Following the acquisition, the Company continued the process of
modifying
16
17 the VDOnet software to be operational in a Windows NT environment and
is continuing the development of enhancements that would provide for live camera
feed and multicast. In addition, the Company plans on further developing the
software to be operational in a MetaFrame environment.
The remaining efforts to complete the project are primarily the continuing
modification of the VDOnet software to be operational in a Windows NT
environment and the continuation of enhancements that provide for live camera
feed and multicast functionality and the utilization of acquired technology to
develop a video server that is operational in a MetaFrame server environment.
The research and development risks associated with this project relate primarily
to integrating this product into the server-based computing environment.
VIEWSOFT
The in-process research and development acquired in the ViewSoft
acquisition consisted primarily of one significant research and development
project, ViewSoft Internet 4.0. This project enables multi-tier, Web-based
application development and deployment. At the date of the valuation, ViewSoft
was in development with this product. The product was intended to operate in the
multi-tier web application market and was not intended to operate in a MetaFrame
environment.
The remaining efforts to complete the project relate primarily to on-going
stress testing and, to a lesser extent, bug fixes and documentation. The
research and development risks associated with this project relate primarily to
potential design flaws revealed during testing.
The actual and estimated costs to complete and completion dates of the
in-process and core technology acquired for each acquisition are as follows:
APM VDOnet ViewSoftVDONET VIEWSOFT
----------------- ------------------- ----------------
(dollar amounts in thousands)-----------------
(IN THOUSANDS)
Date Acquired...........................acquired........................... June 1998 July 1998 July 1999
Cost Incurredincurred to Date................... $4,200 $4,180 $1,990date................... $4,260 $4,230 $2,840
Estimated Costcost to Complete.............. 770 630 1,800complete.............. 50 580 950
----------------- ------------------- -----------------
Total Estimated Project Cost............ $4,970estimated project cost............ $4,310 $4,810 $3,790
================= =================== =================
Estimated Costcost to Completecomplete at Datedate of
Valuation...............................valuation............................... $4,000 $ 200 $ 660
================= =================== =================
Estimated Completion Datecompletion date at Datedate of First Quarter Second Quarter of Fourth Quarter
Valuation...............................valuation............................... of 1999 1999 of 1999
Current Estimated Completion Date......estimated completion date...... Third Quarter ThirdFourth Quarter of Third Quarter
of 2000 2000 of 2000
The estimated completion date of the in-process and core technology
related to the APM acquisition has been extended from the originally anticipated
completion date as certain personnel working on this project have been allocated
to other projects.projects and as development efforts of the APM technology have been
redirected from a Java application server to a Java Performance Pack to
accommodate changes in the development of the Java market. The completion date
of the in-process and core technology acquired from VDOnet has been delayed from
the originally anticipated completion date due to changes in the development of
these technologies resulting from end user feedback. The estimated completion
date of the ViewSoft project has been delayed from the originally anticipated
completion date due to increases in project scope and a longer testing period.
The Company is currently unable to determine the impact of such delays on its
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19
business, future results of operations and financial condition. There can be no
assurance that the Company will not incur additional charges in subsequent
periods to reflect costs associated with completing these projects or that the
Company will be successful in its efforts to integrate and further develop these
technologies.
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18
INTEREST AND OTHER INCOME. The increase in interest and other income for
the three and six months ended March 31,June 30, 2000 was primarily due to interest
earned on the invested net proceeds from the issuance of the zero coupon
convertible subordinated debentures in March 1999.1999 and from an increase in cash
from operations. The Company may acquire or make investments in companies it
believes are related to its strategic objectives. Such investments will reduce
the Company's cash and/or investment balances and therefore may reduce interest
income.
INTEREST EXPENSE. The increase in interest expense for the three and six
months ended March 31,June 30, 2000 was primarily due to interest related to the zero
coupon convertible subordinated debentures issued in March 1999.
INCOME TAXES. The Company's effective tax rate amounted to 30% for the
three months ended March 31, 2000 and 36% for the three months ended March 31,
1999. In July 1999, the Company changed its organizational
structure whereby it moved certain operational and administrative processes to
overseas subsidiaries. The restructuring resulted in foreign earnings being
taxed at lower foreign tax rates. These earnings will be permanently reinvested
overseas in order to fund the Company's growth in overseas markets. As a result
of these organizational changes, the Company's effective tax rate amounted to
30% for the three and six month periods ended June 30, 2000 and 36% for the
three and six month periods ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
During the threesix months ended March 31,June 30, 2000, the Company generated positive
operating cash flows of approximately $49.9$116.7 million. Cash provided by operating
activities relatedwas derived primarily tofrom net income of $53.5 million, adjusted for,
among other things, tax benefits from the exercise of non-statutory stock
options and disqualifieddisqualifing dispositions of incentive stock options of $63.7$72.5
million, net income of $38.5 million, an increase of $17.5
million in accounts payable and other accrued expenses due to increased accrued
taxes and increased expenses resulting from higher levels of operating activity,
andnon-cash charges for depreciation and amortization of $10.8 million. These cash inflows were
partially$23.0 million,
offset by an increasea net decrease of $55.1 from changes in prepaid taxes of $59.2 million primarily due
to a receivable from estimated tax payments in excess of the tax liabilityoperating assets and
an increase in accounts receivable of $25.8 million due to higher revenue
levels.liabilities. Cash used in investing activities of $39.2$32.0 million related
primarily to the purchase of investments of $56.1$90.8 million, and net cash paid for the
acquisition of Innovex of $28.1 million and the purchase of property and
equipment of $19.2 million. ThisThese cash outflow was partiallyoutflows were offset by cash inflows from
the sale of investments of approximately $53.7$106.1 million. Cash provided by
financing activities of $38.4$50.1 million related primarily tois a result of the proceeds from the
issuance of common stock under the Company's stock option plan.
As of March 31,June 30, 2000, the Company had approximately $825.4$888.3 million in cash
and investments and $562.6$643.2 million of working capital. The Company's cash and
cash equivalents are invested in investment grade, highly liquid securities to
minimize interest rate risk and allow for flexibility in the event of immediate
cash needs. At March 31,June 30, 2000, the Company had approximately $83.0$57.3 million in
accounts receivable, net of allowances, and $119.6$110.9 million of deferred revenues,
of which the Company anticipates $75.6$76.8 million will be earned over the next
twelve months.
On April 15, 1999, the Board of Directors approved a stock repurchase
program authorizing the repurchase of up to $200 million of the Company's common
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stock. Purchases will be made from time to time in the open market and paid out
of general corporate funds. As of March 31,June 30, 2000, none of the Company's
outstanding common stock had been repurchased under this program. As of August
8, 2000, the Company purchased 1,050,000 shares of outstanding common stock on
the open market at an average price $15.12 per share.
On August 8, 2000, the Company entered into an agreement with a
counterparty in a private transaction to purchase up to 5.8 million shares of
the Company's common stock at various times through the third quarter of 2002.
Pursuant to the terms of the agreement, $100 million will be paid to the
counterparty in August 2000. The ultimate number of shares repurchased will
depend on market conditions.
In February 2000, the Company completed its acquisition of all of the
operating assets of Innovex for approximately $47.8 million, of which $28.7$28.1
million was paid in cash at the closing date and the balance is payable, in
equal installments, 18 and 24 months after the closing date, contingent upon
future events.
The Company believes existing cash and investments together with cash flow
expected from operations will be sufficient to meet operating and capital
expenditures requirements through 2000. The Company may from time to time seek
to raise
18
19 additional funds through public or private financing. The Company may
also acquire or make investments in companies it believes are related to its
strategic objectives. Such investments will reduce the Company's available
working capital.
YEAR 2000 READINESS DISCLOSURE
Last year, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its identification
and testing of systems. As a result of those efforts, the Company experienced no
significant disruptions in mission critical information technology and
non-information technology systems and believes those systems successfully
responded to the Year 2000 date change. The Company has not incurred any
material expenditure in connection with identifying or evaluating Year 2000
compliance issues. The Company estimates it will not incur any material levels
of expenditure on this issue during 2000 to support its compliance initiatives.
The Company is not aware of any material problems resulting from Year 2000
issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its computer
systems and those of its suppliers and vendors to ensure that any latent Year
2000 matters that may arise are addressed promptly.
CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS
We do not provide financial performance forecasts. Our operating results
and financial condition have varied in the past and may in the future vary
significantly depending on a number of factors. Except for the historical
information in this report, the matters contained in this report include
forward-looking statements that involve risks and uncertainties. The following
factors, among others, could cause actual results to differ materially from
those contained in forward-looking statements made in this report. Such factors,
among others, may have a material adverse effect upon our business, results of
operations and financial condition.
OUR SUCCESS IS SUBSTANTIALLY DEPENDENT UPON OUR STRATEGIC RELATIONSHIP
WITH MICROSOFT
Microsoft is the leading provider of desktop operating systems. We depend
upon the license of key technology from Microsoft, including certain source and
object code licenses, and technical support. We also depend upon our strategic
alliance agreement with Microsoft pursuant to which Citrix and Microsoft have
agreed to cooperate to develop advanced operating systems. Our relationship with
Microsoft is subject to the following risks and uncertainties:
o COMPETITION WITH MICROSOFT. NT Terminal Server is, and future product offerings by
Microsoft may be, competitive with our current MetaFrame products, and any
future product offerings by Citrix.
o EXPIRATION OF MICROSOFT'S ENDORSEMENT OF THE ICA PROTOCOl.PROTOCOL. Microsoft's
obligation to endorse only our ICA protocol as the preferred method to
provide multi-user Windows access for devices other than Windows clients
expired in November 1999. Microsoft may now market or endorse other
methods to provide multi-user Windows access to non-Windows client
devices.
o DEPENDENCE ON MICROSOFT FOR COMMERCIALIZATION. Our ability to successfully
commercialize our MetaFrame product depends on Microsoft's ability to
market NT Terminal Server products. We do not have control over Microsoft'sMicrosoft or any
of its distributors or resellers. Microsoft is not obligated to continue
marketing specific NT Server products, and resellers and,could discontinue one or more
NT Server products at any time. Further, to our knowledge, Microsoft's
distributors and resellers are not obligated to purchase products from
Microsoft.
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o PRODUCT RELEASE DELAYS. There may be delays in the release and shipment of
future versions of NT Terminal Server.
o IMPACT OF MICROSOFT ANTITRUST LITIGATION ON CITRIX INTELLECTUAL PROPERTY.
The United States District Court for the District of Columbia, in the
matter of UNITED STATES V. MICROSOFT, Civ. No. 98-1232 ET SEQ., by order
of June 7, 2000 directed that Microsoft be required to share certain
intellectual property with certain other firms in the information
technology industry. The scope of the District Court's order, and its
potential impact, if any, upon any intellectual property licensed by
Citrix to Microsoft, have not been clarified by the District Court or
otherwise, because the District Court, by order of June 20, 2000, stayed
its order of June 7, 2000 until the currently pending appeals in the
matter have been concluded, or until the District Court's stay is earlier
vacated by an appellate court.
If our relationship with Microsoft were terminated or adversely affected
for any reason, our business, operating results and financial condition would be
materially adversely affected.
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OUR CONTINUED GROWTH DEPENDS UPON BROAD-BASED ACCEPTANCE OF OUR ICA PROTOCOL
We believe that our success in the markets in which we compete will depend
upon our ability to make the ICA protocol a widely accepted standard for
supporting Windows applications. Microsoft includes as a component of NT
Terminal
Server its Remote Desktop Protocol (RDP) which has certain of the capabilities
of our ICA protocol, and may offer customers a competitive solution. We believe
that our success is dependent on our ability to enhance and differentiate our
ICA protocol, and foster broad acceptance of the ICA protocol based on its
performance, scalability, reliability and enhanced features. In addition, our
ability to win broad market acceptance of our ICA protocol will depend upon the
degree of success achieved by our strategic partners in marketing their
respective product offerings, product pricing and customers' assessment of our
technical, managerial, service and support expertise. If another standard
emerges or if we otherwise fail to achieve wide acceptance of the ICA protocol
as a standard for supporting Windows applications, our business, operating
results and financial condition could be materially adversely affected.
THE SUCCESS OF OUR BUSINESS ALSO DEPENDS UPON OUR STRATEGIC RELATIONSHIPS WITH
PARTIES OTHER THAN MICROSOFT
In addition to our relationship with Microsoft, we have strategic
relationships with IBM, Compaq, Hewlett Packard and others. We depend upon our
strategic partners to successfully market and promote the use of the Company'sour products
and incorporate our technology into their products and to market and sell such
products. If we are unable to maintain our current strategic relationships or
develop additional strategic relationships, or if any of our key strategic
partners are unsuccessful in incorporating our technology into their products or
marketing or selling such products, our business, operating results and
financial condition could be materially adversely affected.
WE FACE SIGNIFICANT COMPETITION FROM OTHER TECHNOLOGY COMPANIES
The markets in which we compete are intensely competitive. Most of our
competitors and potential competitors, including Microsoft, have significantly
greater financial, technical, sales, marketing and other resources. The
announcement of the release and the actual release of products competitive with
our existing and future product lines, such as NT Terminal Server and related
enhancements by Microsoft or third parties, could cause our existing and
potential customers to postpone or cancel plans to license our product lines.
This would adversely impact our business, operating results and financial
condition. Further, our ability to market MetaFrame and other future product
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offerings may be affected by Microsoft's licensing and pricing scheme for client
devices implementing our product offerings which attach to NT Terminal Server.
In addition, alternative products exist for Internet commerce that
directly or indirectly compete with our products. Existing or new products that
extend website software to provide database access or interactive computing
could materially impact our ability to sell our products in this market. As
markets for our products continue to develop, additional companies, including
companies with significant market presence in the computer hardware, software
and networking industries, may enter the markets in which we compete and further
intensify competition. Finally, although we believe that price has historically
been a less significant competitive factor than product performance, reliability
and functionality, we believe that price competition may become more significant
in the future. We may not be able to maintain our historic prices, and any
inability to do so could adversely affect our business, results of operations
and financial condition.
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OUR RELIANCE ON A FEW PRODUCTS FOR A MAJORITY OF OUR REVENUE COULD ADVERSELY
AFFECT OUR BUSINESS
The Company anticipates that its MetaFrame product line and related
enhancements will constitute the majority of its revenue for the foreseeable
future. The Company's ability to generate revenue from its MetaFrame product
will depend upon market acceptance of NT Terminal Server products. Declines in demand for
products based on MetaFrame technology may occur as a result of new competitive
product releases, price competition, lack of success of its strategic partners,
technological change or other factors.
FAILURE TO PROPERLY MANAGE OUR GROWTH COULD ADVERSELY AFFECT OUR BUSINESS
We have recently experienced rapid growth in the scope of our operations,
the number of our employees and the geographic area of our operations. In
addition, we have recently completed certain acquisitions. Such growth and
assimilation of operations and personnel of such acquired companies has placed
and may continue to place a significant strain on our managerial, operational
and financial resources. We believe we have made adequate allowances for the
costs and risks associated with these expansions. However, our systems,
procedures or controls may not be adequate to support our current or future
operations. In addition, we may not be able to effectively manage this expansion
and still achieve the rapid execution necessary to fully exploit the market
opportunity for our products and services in a timely and cost-effective manner.
Our future operating results will also depend on our ability to manage our
expanding product line, expand our sales and marketing organizations and expand
our support organization commensurate with the increasing base of our installed
product. Our failure to properly manage our growth could adversely affect our
business, operating results and financial condition.
We plan to increase our professional staff during 2000 as we implement
sales, marketing and support and product developments efforts, as well as
associated administrative systems, to support planned growth. As a result of
this planned growth in the size of our staff, we believe that we will require
additional facilities during 2000. Although we believe that the cost of such
additional facilities will not significantly impact our financial position or
results of operations, we anticipate that operating expenses will increase
during 2000 as a result of our planned growth in staff. Such an increase in
operating expenses may reduce our income from operations and cash flows from
operating activities.
OUR SUCCESS DEPENDS UPON OUR ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGY
We rely primarily on a combination of copyright, trademark and trade
secret laws, as well as confidentiality procedures and contractual provisions,
to protect our proprietary rights. Our efforts to protect our proprietary
technology rights may not be successful. The loss of any material trade secret,
trademark, tradename or copyright could have a material adverse effect on us.
Despite our precautions, it may be possible for unauthorized third parties to
copy certain portions of our products or to obtain and use information regarded
as proprietary. A significant portion of our sales are derived from the
licensing of our products under "shrink wrap"license
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agreements for packaged products. Such license agreements that are not signed by
licensees and, therefore, may be unenforceable under the laws of certain
jurisdictions. In addition, our ability to protect our proprietary rights may be
affected by the following:
o Differences in International Law. 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.
o Third Party Infringement Claims. Third parties may assert infringement
claims against us in the future. This may result in costly litigation or
require us to obtain a license to intellectual property rights of such
third parties. Such licenses may not be available on reasonable terms or
at all.
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IF WE FAIL TO INTRODUCE NEW PRODUCTS AND ENHANCE OUR EXISTING PRODUCTS TO KEEP
UP WITH RAPID TECHNOLOGICAL CHANGE, DEMAND FOR OUR PRODUCTS MAY DECLINE
The markets for our products are relatively new and are characterized by:
o rapid technological change;
o evolving industry standards;
o changes in customer requirements; and
o frequent new product introductions and enhancements, including
enhancements to certain key technology licensed from Microsoft.
These market characteristics will require us to continuously enhance our
current products and develop and introduce new products to keep pace with
technological developments and respond to evolving customer requirements.
Additionally, we and others may announce new products, new product enhancements
or technologies that could replace or shorten the life cycle of our existing
product offerings.
We believe we will incur additional costs and royalties associated with the
development, licensing or acquisition of new technologies or enhancements to
existing products. This will increase our cost of revenues and operating
expenses. We cannot currently quantify such increase with respect to
transactions that have not occurred. We may use a substantial portion of our
cash and investments to fund these additional costs, resulting in a decrease in
interest income, unless such decrease is offset by cash flows from future
operations.
We may need to hire additional personnel to develop new products, product
enhancements and technologies and to fulfill our responsibilities under the
terms of the Development Agreement. If we are unable to add staff and resources,
future enhancement and additional features to our existing or future products
may be delayed, which may have a material adverse effect on our business,
results of operations and financial condition.
IF OUR PRODUCTS CONTAIN ERRORS, THEY MAY BE COSTLY TO CORRECT, REVENUE MAY BE
DELAYED, WE COULD GET SUED AND OUR REPUTATION COULD BE HARMED
Despite significant testing by us and by current and potential customers,
new products may contain errors after commencement of commercial shipments.
Additionally, our products depend upon certain third party products which may
contain defects and could reduce the performance of our products or render them
useless. Since 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. The
occurrence or discovery of these types of errors or failures could have a
material adverse effect on our business, operating results and financial
condition.
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OUR SUCCESS DEPENDS ON OUR ABILITY TO EXPAND AND MANAGE DISTRIBUTION CHANNELS
AND MAJOR DISTRIBUTORS
We rely significantly on independent distributors and resellers for the
marketing and distribution of our products. We do not control our distributors
and resellers. Additionally, our distributors and resellers are not obligated to
purchase products from us and may also represent other lines of products.
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OUR SUCCESS DEPENDS UPON OUR ABILITY TO EXPAND OUR DISTRIBUTION CHANNELS
We intend to leverage our relationships with hardware and software vendors
and systems integrators to encourage them to recommend or distribute our
products. In addition, an integral part of our strategy is to expand our direct
sales forcelarge
account channels and add third-party distributors both domestically and
internationally. We are currently investing, and intend to continue to invest,
significant resources to develop these channels, which could reduce our profits.
OUR SUCCESS DEPENDS UPON OUR ABILITY TO ATTRACT LARGE ENTERPRISE CUSTOMERS
We intend to attract and service large enterprise customers by expanding
our direct sales forcelarge account channels and offering consulting services. Our inability to
attract large enterprise customers could have a material adverse effect on our
business, operating results and financial condition. Additionally, large
enterprise customers usually request special pricing and generally have longer
sales cycles which could negatively impact our revenues. Further, as we attempt
to attract large enterprise customers, we may need to increase corporate
branding activities which will increase our operating expenses, but may not
proportionally increase our operating revenues.
OUR SUCCESS DEPENDS UPON BROAD-BASED ACCEPTANCE OF INTERNET-BASED BUSINESS
SOFTWARE SOLUTIONS
We intend to leverage our relationships with application service providers
("ASP") to encourage them to use our products in providing their solutions to
end users. The ASP market is in its nascent stage of development but is evolving
quickly. We cannot predict when or if the ASP market will fully evolve into a
commercially viable market. We are currently investing, and intend to continue
to invest, significant resources to develop these channels, which could reduce
our profits.
IF OUR GROWTH RATE DOES NOT CONTINUE OUR FINANCIAL CONDITION COULD BE AFFECTED
Our revenue growth rate in 2000 may not approach the levels attained in
recent years. To the extent our revenue growth continues, we believe that our
cost of revenues and certain operating expenses will also increase. A
significant portion of our expenses, such as employee compensation and rent, are
relatively fixed in the short term. Moreover, our expense levels are based, in
part, on our expectations regarding future revenue levels. Our income from
operations and cash flows from operating and investing activities may decrease
as a percentage of revenues in 2000.
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OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE
Our quarterly operating results have in the past varied and may in the
future vary significantly depending on a number of factors, including:
o the success of our MetaFrame products;
o the effects of acquisitions or licenses of additional technology;
o the size, timing and recognition of revenue from significant orders;
o increased competition;
o changes in our pricing policies or those of our competitors, including
Microsoft;
o new product introductions or enhancements by competitors;
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o delays in the introduction of products or product enhancements by us or
our competitors;
o customer order deferrals in anticipation of upgrades and new products;
o market acceptance of new products and technologies offered by us;
o changes in operating expenses, including for the addition of personnel;
o foreign currency exchange rates; and
o general economic conditions.
We continually re-evaluate our programs, including specific license terms
and conditions, to market our current and future products and services. We may
implement new programs, including offering specified and unspecified
enhancements to our current and future product lines. We may recognize revenues
associated with such enhancements after the initial shipment or licensing of the
software product or over the product's life cycle. We modified our licensing
fees with certain customers to a per usage basis. We may implement a different
licensing model, in certain circumstances, which would result in the recognition
of licensing fees over a longer period which may result in decreasing revenue.
The timing of the implementation of such programs, the timing of the release of
such enhancements, the timing of the implementation of a new licensing
arrangement and other factors will impact the timing of our recognition of
revenues and related expenses associated with our products, related enhancements
and services. As a result of these factors, we currently cannot quantify the
impact of the re-evaluation of our programs on our business, results of
operations and financial condition.
We operate with little order backlog because our software products
typically are shipped shortly after orders are received. In addition, like many
systems level software companies, we recognize a substantial portion of our
revenues in the last month of a quarter, with these revenues frequently
concentrated in the last weeks or days of the quarter. As a result, product
revenues in any quarter are substantially dependent on orders booked and shipped
in that quarter, and revenues for any future quarter are not predictable with
any degree of certainty. We may also choose to reduce prices or increase
spending in response to competition or to pursue new market opportunities. New
competitors, technological advances or other factors could result in lower
revenues and may require us to incur additional expenses, which, in turn, would
materially adversely affect our operating margins in the future.
INSUFFICIENT RESERVES FOR PRODUCT RETURNS AND PRICE REDUCTIONS COULD ADVERSELY
AFFECT US
We provide certain of our distributors with product return rights for stock
balancing or limited product evaluation. We also provide certain of our
distributors with price protection rights. To cover these product returns and
price protection rights, we have established reserves based on our evaluation of
historical trends and current circumstances. These reserves may not prove to be
sufficient in the future, in which case our business, operating results and
financial condition could be adversely affected.
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OUR SUCCESS DEPENDS ON OUR ABILITY TO EXPAND AND MANAGE OUR INTERNATIONAL
OPERATIONS
Our continued growth and profitability will require further expansion of
our international operations. To successfully expand international sales, we
must establish additional foreign operations, hire additional personnel and
recruit additional international resellers. Such international operations are
subject to certain risks, such as:
o difficulties in staffing and managing foreign operations;
o fluctuations in foreign currency exchange rates;
o compliance with foreign regulatory and market requirements;
o variability of foreign economic and political conditions;
o changing restrictions imposed by regulatory requirements, tariffs or other
trade barriers or by United States export laws;
o costs of localizing products and marketing such products in foreign
countries;
o longer accounts receivable payment cycles;
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o potentially adverse tax consequences, including restrictions on
repatriation of earnings;
o difficulties in protecting intellectual property; and
o burdens of complying with a wide variety of foreign laws.
ECONOMIC AND MARKET CONDITIONS MAY AFFECT DEMAND FOR OUR PRODUCTS
The demand for our products depends in part upon the general demand for
computer hardware and software, which fluctuates based on numerous factors,
including capital spending levels and general economic conditions. If capital
spending levels or general economic conditions are affected, our business,
financial condition and results of operations could be materially adversely
affected.
POSSIBLE VOLATILITY OF OUR COMMON STOCK PRICE
The market price for our common stock has been volatile and has fluctuated
significantly to date. The trading price of our common stock is likely to
continue to be highly volatile and subject to wide fluctuations in response to
factors such as actual or anticipated variations in operating and financial
results, anticipated revenue or earnings growth, analyst reports or
recommendations and other events or factors, many of which are beyond our
control. In addition, the stock market in general, and The Nasdaq National
Market and the market for software companies and technology companies in
particular, have experienced extreme price and volume fluctuations. These broad
market and industry factors may materially and adversely affect the market price
of the common stock, regardless of our actual operating performance. In the
past, followingFollowing
periods of volatility in the market price of a company's securities, securities
class-action litigation has often been instituted against such companies. Such litigation, if instituted, could resultFor
example, on June 23, 2000, the Company and certain of its officers and directors
were named as defendants in substantial
costs and a diversionseveral securities class action lawsuits filed in
the United States District Court for the Southern District of management's attention and resources,Florida. These
actions, which would have
a material adverse effectwere filed on our business,behalf of purchasers of the Company's common stock
during the period October 20, 1999 to June 9, 2000, generally allege that,
during the class period, the defendants made misstatements to the investing
public about the Company's financial condition and results of
operations.prospects. The complaints
seek unspecified damages. The Company believes the plaintiffs' claims lack merit
and intends to vigorously defend the lawsuits.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's 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 Company does not use derivative financial instruments for speculative
or trading purposes. The Company maintains a non-trading investment portfolio of
investment grade, highly liquid, debt securities which limits the amount of
credit exposure to any one issue, issuer, or type of instrument. The securities
in the Company's investment portfolio are not leveraged and are generally
classified as available-for-sale and therefore are subject to interest rate
risk. The Company does not currently hedge interest rate exposure.exposure, however, the
Board of Directors adopted a Foreign Exchange Risk Management Policy on July 27,
2000. The modeling technique used measures the change in fair values arising
from an immediate hypothetical shift in market interest rates and assumes ending
fair values include principal plus accrued interest, dividends and reinvestment
income. If market interest rates were to increase by 100 basis points from
December 31, 1999 levels, the fair value of the portfolio would decline by
approximately $4.5 million. If market interest rates were to increase by 100
basis points from March 31,June 30, 2000 levels, the fair value of the portfolio would
decline by approximately $4.9$3.1 million.
2527
2628
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 2000, the Company and certain of its officers and directors were
named as defendants in several securities class action lawsuits filed in the
United States District Court for the Southern District of Florida. These
actions, which were filed on behalf of purchasers of the Company's common stock
during the period October 20, 1999 to June 9, 2000, generally allege that,
during the class period, the defendants made misstatements to the investing
public about the Company's financial condition and prospects. The complaints
seek unspecified damages. The Company believes the plaintiffs' claims lack merit
and intends to vigorously defend the lawsuits.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of stockholders held May 18, 2000 (the
"2000 Annual Meeting"), the Company's stockholders took the following actions:
(1) The Company's stockholders elected Edward E. Iacobucci, Michael W.
Brown and John W. White, each as Class II directors, each to serve for
a three-year term expiring at the Company's annual meeting of
stockholders in 2003 or until his successor has been duly elected and
qualified or until his early resignation or removal. Election of the
directors was determined by a plurality of the votes cast at the 2000
Annual Meeting. With respect to such matter, the votes were cast as
follows: 163,070,436 shares voted for the election of Mr. Iacobucci;
163,204,753 shares voted for the election of Mr. Brown and 163,217,672
shares voted for the election of Mr. White; and 666,575 shares were
withheld from the election of Mr. Iacobucci; 532,258 shares were
withheld from the election of Mr. Brown and 519,339 shares were
withheld from the election of Mr. White. No other persons were
nominated, or received votes, for election as directors of the Company
at the 2000 Annual Meeting. The other directors of the Company whose
term of office continued after the annual meeting were: Robert N.
Goldman, Tyrone F. Pike, Roger W. Roberts, Mark B. Templeton, Kevin R.
Compton, and Stephen M. Dow.
(2) The Company's stockholders approved and adopted an amendment to the
Company's Amended and Restated Certificate of Incorporation, as
amended, to increase the number of authorized shares of the Company's
Common Stock, par value $0.001 per share, from 400,000,000 to
1,000,000,000 shares. With respect to such matter, the votes were cast
as follows: 139,634,051 shares voted for the proposal, 23,641,925
shares voted against the proposal and 461,035 shares abstained from
voting on the proposal.
(3) The Company's stockholders approved the Corporation's 2000 Director and
Officer Stock Option and Incentive Plan. With respect to such matter,
the votes were cast as follows: 68,240,919 shares voted for the
proposal, 57,398,893 voted against the proposal, 735,858 shares
abstained from voting on the proposal, and 35,842,601 shares did not
vote with respect to the proposal. The Company's annual meeting of
stockholders adjourned without voting on one proposal.
On June 2, 2000, the Company's annual meeting of stockholders was
reconvened, and the Company's stockholders approved an amendment and restatement
to the Corporation's 1995 Stock Plan increasing from 69,945,623 (adjusted for
stock splits) to 80,000,000 the number of shares of Common stock available under
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the 1995 Stock Plan. With respect to such matter, the votes were cast as
follows: 64,514,386 shares voted for the proposal, 63,147,895 shares voted
against the proposal, 530,582 shares abstained from voting on the proposal, and
35,699,908 shares did not vote with respect to the proposal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits, which are filed with this report as set forth on the Exhibit
Index appearing on page 2831 of this report, are incorporated herein by this
reference.
(b) There were no reportsA report on Form 8-K was filed bywith the Company duringSecurities and Exchange Commission
on June 23, 2000 with respect to:
Item 5 - Other Events. To disclose several corporate changes, including changes
in the first
quartermanagement team and the resignation of 2000.
26certain directors from the Board
of Directors.
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2730
SIGNATURE
Pursuant to the requirements 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 on this 12th10th day of MayAugust 2000.
CITRIX SYSTEMS, INC.
By: /s/ MARK B. TEMPLETON
--------------------------------------------
Mark B. Templeton
President, Chief Executive Officer and
Director (Principal Executive Officer)
By: /s/ JOHN P. CUNNINGHAM
------------------------------------------------------------------------------------------------
John P. Cunningham
Chief Financial Officer and Senior Vice-President
of Finance and Administration
(Principal(Authorized Officer and Principal Financial Officer)
By: /s/ DAVID D. URBANI
--------------------------------------------
David D. Urbani
Vice-President, Corporate Controller
(Principal Accounting Officer)
2730
2831
EXHIBIT INDEX
3, 4 Certificate of Amendment of the Amended and Restated Certificate of
Incorporation
10.1 Second Amended and Restated 1995 Stock Plan
10.2 Amended and Restated 2000 Director and Officer Stock Option and Incentive
Plan
27.1 Financial Data Schedule
2831