Document and Entity Information
Document and Entity Information | ||
3 Months Ended
Mar. 31, 2010 | Apr. 30, 2010
| |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | 2010-03-31 | |
Document Fiscal Year Focus | 2,010 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | CTXS | |
Entity Registrant Name | CITRIX SYSTEMS INC | |
Entity Central Index Key | 0000877890 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 185,747,839 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) | ||
In Thousands | 3 Months Ended
Mar. 31, 2010 | 12 Months Ended
Dec. 31, 2009 |
Current assets: | ||
Cash and cash equivalents | $281,847 | $261,443 |
Short-term investments - available-for-sale | 355,300 | 338,168 |
Short-term investments - trading | 35,920 | |
Accounts receivable, net of allowances of $5,291 and $4,836 at March 31, 2010 and December 31, 2009, respectively | 242,607 | 304,912 |
Inventories, net | 7,337 | 8,664 |
Prepaid expenses and other current assets | 108,646 | 71,519 |
Current portion of deferred tax assets, net | 55,068 | 54,589 |
Total current assets | 1,086,725 | 1,039,295 |
Long-term investments - trading | 38,689 | |
Long-term investments - available-for-sale | 717,933 | 568,957 |
Property and equipment, net | 243,094 | 247,703 |
Goodwill | 912,406 | 899,819 |
Other intangible assets, net | 211,154 | 213,195 |
Long-term portion of deferred tax assets, net | 24,980 | 37,944 |
Other assets | 42,168 | 45,545 |
Assets, Total | 3,238,460 | 3,091,147 |
Current liabilities: | ||
Accounts payable | 54,166 | 57,352 |
Accrued expenses and other current liabilities | 209,042 | 221,498 |
Current portion of deferred revenues | 570,743 | 555,514 |
Total current liabilities | 833,951 | 834,364 |
Long-term portion of deferred revenues | 65,544 | 63,336 |
Other liabilities | 4,334 | 4,940 |
Commitments and contingencies | ||
Stockholders' equity: | ||
Preferred stock at $.01 par value: 5,000 shares authorized, none issued and outstanding | ||
Common stock at $.001 par value: 1,000,000 shares authorized; 270,592 and 264,831 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively | 271 | 265 |
Additional paid-in capital | 2,784,560 | 2,587,727 |
Retained earnings | 1,625,433 | 1,578,084 |
Accumulated other comprehensive loss | (5,675) | (2,060) |
Stockholders Equity Subtotal Before Treasury Stock, Total | 4,404,589 | 4,164,016 |
Less- common stock in treasury, at cost (84,571 and 82,222 shares at March 31, 2010 and December 31, 2009, respectively) | (2,078,179) | (1,975,509) |
Total Citrix Systems, Inc. stockholders' equity | 2,326,410 | 2,188,507 |
Non-controlling interest | 8,221 | |
Total stockholders' equity | 2,334,631 | 2,188,507 |
Liabilities and Stockholders' Equity, Total | $3,238,460 | $3,091,147 |
1_CONDENSED CONSOLIDATED BALANC
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | ||
In Thousands, except Per Share data | Mar. 31, 2010
| Dec. 31, 2009
|
Accounts receivable, allowances | $5,291 | $4,836 |
Preferred stock, par value | 0.01 | 0.01 |
Preferred stock, shares authorized | 5,000 | 5,000 |
Preferred stock, issued | 0 | 0 |
Preferred stock, outstanding | 0 | 0 |
Common stock, par value | $0 | $0 |
Common stock, shares authorized | 1,000,000 | 1,000,000 |
Common stock, shares issued | 270,592 | 264,831 |
Common stock, shares outstanding | 270,592 | 264,831 |
Common stock in treasury, shares | 84,571 | 82,222 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $) | ||
In Thousands, except Per Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Revenues: | ||
Product licenses | $122,706 | $111,900 |
License updates | 162,955 | 148,198 |
Online services | 84,950 | 71,980 |
Technical services | 43,661 | 36,980 |
Total net revenues | 414,272 | 369,058 |
Cost of net revenues: | ||
Cost of product licenses revenues | 12,651 | 11,494 |
Cost of services revenues | 23,690 | 21,623 |
Amortization of product related intangible assets | 12,358 | 12,099 |
Total cost of net revenues | 48,699 | 45,216 |
Gross margin | 365,573 | 323,842 |
Operating expenses: | ||
Research and development | 77,702 | 71,037 |
Sales, marketing and services | 170,520 | 163,589 |
General and administrative | 60,619 | 58,489 |
Amortization of other intangible assets | 4,157 | 4,994 |
Restructuring | 500 | 20,730 |
Total operating expenses | 313,498 | 318,839 |
Income from operations | 52,075 | 5,003 |
Interest income | 3,556 | 2,715 |
Interest expense | (56) | (124) |
Other income (expense), net | 433 | (1,422) |
Income before income taxes | 56,008 | 6,172 |
Income tax provision (benefit) | 8,659 | (755) |
Net income | $47,349 | $6,927 |
Earnings per share: | ||
Basic | 0.26 | 0.04 |
Diluted | 0.25 | 0.04 |
Weighted average shares outstanding: | ||
Basic | 184,018 | 180,347 |
Diluted | 188,842 | 182,373 |
2_CONDENSED CONSOLIDATED STATEM
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | ||
In Thousands | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Operating Activities | ||
Net income | $47,349 | $6,927 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Amortization of intangible assets | 16,515 | 17,093 |
Depreciation and amortization of property and equipment | 17,480 | 17,001 |
Stock-based compensation expense | 24,927 | 28,148 |
Loss (gain) on investments | 126 | (28) |
Provision for doubtful accounts | 792 | 437 |
Provision for product returns | 662 | 641 |
Provision for inventory reserves | 585 | 1,527 |
Tax effect of stock-based compensation | 9,449 | (1,886) |
Excess tax benefit from exercise of stock options | (13,581) | (505) |
Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies | 1,440 | 1,639 |
Other non-cash items | 97 | 4 |
Total adjustments to reconcile net income to net cash provided by operating activities | 58,492 | 64,071 |
Changes in operating assets and liabilities, net of the effects of acquisitions: | ||
Accounts receivable | 60,112 | 31,474 |
Inventories | 743 | (338) |
Prepaid expenses and other current assets | (39,420) | (18,671) |
Other assets | 3,567 | (1,446) |
Deferred tax assets, net | 10,246 | (4,349) |
Accounts payable | (3,328) | (6,368) |
Accrued expenses and other current liabilities | (11,019) | 8,771 |
Deferred revenues | 17,438 | 1,727 |
Other liabilities | (615) | (52) |
Total changes in operating assets and liabilities, net of the effects of acquisitions | 37,724 | 10,748 |
Net cash provided by operating activities | 143,565 | 81,746 |
Investing Activities | ||
Purchases of available-for-sale investments | (455,678) | (188,977) |
Proceeds from sales of available-for-sale investments | 116,206 | 23,412 |
Proceeds from maturities of available-for-sale investments | 175,903 | 52,629 |
Proceeds from repayments of trading securities | 3,026 | |
Purchases of property and equipment | (11,261) | (22,897) |
Cash paid for acquisitions, net of cash acquired | (9,466) | (1,200) |
Cash paid for licensing agreements and product related intangible assets | (7,293) | (225) |
Net cash used in investing activities | (188,563) | (137,258) |
Financing Activities | ||
Proceeds from issuance of common stock under stock-based compensation plans | 154,930 | 24,100 |
Excess tax benefit from exercise of stock options | 13,581 | 505 |
Stock repurchases, net | (99,993) | (24,998) |
Cash paid for tax withholding on vested stock awards | (2,676) | |
Net cash provided by (used in) financing activities | 65,842 | (393) |
Effect of exchange rate changes on cash and cash equivalents | (440) | (393) |
Change in cash and cash equivalents | 20,404 | (56,298) |
Cash and cash equivalents at beginning of period | 261,443 | 326,121 |
Cash and cash equivalents at end of period | $281,847 | $269,823 |
BASIS OF PRESENTATION
BASIS OF PRESENTATION | |
3 Months Ended
Mar. 31, 2010 | |
BASIS OF PRESENTATION | 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Citrix Systems, Inc. (the Company) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States 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 condensed consolidated financial statements and accompanying notes. The results of operations for the periods presented are not necessarily indicative of the results expected for the full year or for any future period partially because of the seasonality of the Companys business. Historically, the Companys revenue for the fourth quarter of any year is typically higher than the revenue for the first quarter of the subsequent year. The information included in these condensed consolidated financial statements should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations contained in this report and the condensed consolidated financial statements and accompanying notes included in the Companys Annual Report on Form 10-K for the year ended December31, 2009. The condensed consolidated financial statements of the Company include the accounts of its wholly-owned subsidiaries in the Americas, Europe, the Middle East and Africa (EMEA), Asia-Pacific and the Online Services division. All significant transactions and balances between the Company and its subsidiaries have been eliminated in consolidation. In addition, the Company presents non-controlling interests within the equity section of its condensed consolidated financial statements in accordance with the revised authoritative guidance for the presentation and disclosure of non-controlling interests of a consolidated subsidiary. |
SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES | |
3 Months Ended
Mar. 31, 2010 | |
SIGNIFICANT ACCOUNTING POLICIES | 2. SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the 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 statements and accompanying notes, the actual amount of such estimates, when known, will vary from these estimates. Investments Short-term and long-term investments at March31, 2010 and December31, 2009 primarily consist of agency securities, corporate securities, government securities, commercial paper and municipal securities. Investments classified as available-for-sale are stated at fair value with unrealized gains and losses, net of taxes, reported in accumulated other comprehensive loss. Investments classified as trading securities are stated at fair value with unrealized gains and losses reported in earnings. The Company classifies its available-for-sale investments as current and non-current based on their actual remaining time to maturity. The Company does not recognize changes in the fair value of its available-for-sale investments in income unless a decline in value is considered other-than-temporary in accordance with the authoritative guidance. The Companys investment policy is designed to limit exposure to any one issuer depending on credit quality. The Company uses information provided by third parties to adjust the carrying value of certain of its investments to fair value at the end of each period. Fair values are based on valuation models that use market quotes and, for certain investments, assumptions as to the creditworthiness of the entities issuing those underlying instruments. Inventory Inventories are stated at the lower of cost or market on an average cost method and primarily consist of finished goods as of March31, 2010 and December31, 2009. Revenue Recognition The Company markets and licenses products primarily through multiple channels such as value-added resellers (VARs), value-added distributors (VADs), system integrators, independent software vendors, its websites and original equipment manufacturers. The Companys product licenses are generally perpetual. The Company also separately sells license updates and services, which may include product training, technical support and consulting services, as well as online services. The Companys revenue recognition policies are in compliance with the Financial Accounting Standards Boards (FASB) authoritative guidance governing software revenue recognition and because the Companys Online Services provide applications as an online service, the Company also follows the provisions of Securities and Exchange Commission Staff Accounting Bulletin (SAB) No.104, Revenue Recognition. The Company recognizes revenue when all of the following criteria are met: persuasive evidence of the arrangement exists; delivery has occurred or the service has been provided and the Company has no remaining obli |
EARNINGS PER SHARE
EARNINGS PER SHARE | |
3 Months Ended
Mar. 31, 2010 | |
EARNINGS PER SHARE | 3. EARNINGS PER SHARE Basic earnings per share is calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share is computed using the weighted average number of common and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise of stock awards (calculated using the treasury stock method) during the period they were outstanding. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share information): ThreeMonthsended March31, 2010 2009 Numerator: Net income $ 47,349 $ 6,927 Denominator: Denominator for basic earnings per share weighted-average shares outstanding 184,018 180,347 Effect of dilutive employee stock awards 4,824 2,026 Denominator for diluted earnings per share weighted-average shares outstanding 188,842 182,373 Basic earnings per share $ 0.26 $ 0.04 Diluted earnings per share $ 0.25 $ 0.04 Anti-dilutive weighted-average shares 1,760 26,056 |
ACQUISITIONS
ACQUISITIONS | |
3 Months Ended
Mar. 31, 2010 | |
ACQUISITIONS | 4. ACQUISITIONS During the first quarter of 2010, the Company acquired two privately-held companies for a total cash consideration of approximately $9.2 million. The Company recorded approximately $3.8 million of goodwill, which is not deductible for tax purposes, and acquired $8.4 million in assets including $7.1 million of identifiable intangible assets. In addition, the Company assumed liabilities of approximately $3.0 million in conjunction with the acquisitions. The Company has included the effects of these transactions in its results of operations prospectively from the respective dates of the acquisitions which results were not material to its consolidated results. |
INVESTMENTS
INVESTMENTS | |
3 Months Ended
Mar. 31, 2010 | |
INVESTMENTS | 5. INVESTMENTS Available-for-sale Investments Investments in available-for-sale securities at fair value were as follows for the periods ended (in thousands): March31, 2010 December31, 2009 Description of the Securities Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Agency securities $ 551,090 $ 1,436 $ (922 ) $ 551,604 $ 507,443 $ 1,412 $ (781 ) $ 508,074 Corporate securities 420,633 1,142 (2,508 ) 419,267 315,239 1,255 (5,295 ) 311,199 Government securities 66,914 183 (13 ) 67,084 30,269 146 (70 ) 30,345 Commercial paper 22,449 (9 ) 22,440 26,314 (1 ) 26,313 Municipal securities 12,789 57 (8 ) 12,838 31,177 25 (8 ) 31,194 Total $ 1,073,875 $ 2,818 $ (3,460 ) $ 1,073,233 $ 910,442 $ 2,838 $ (6,155 ) $ 907,125 The change in net unrealized gains (losses) on available-for-sale securities recorded in other comprehensive loss includes unrealized gains (losses) that arose from changes in market value of specifically identified securities that were held during the period and gains (losses) that were previously unrealized, but have been recognized in current period net income due to sales or maturities of available-for-sale securities. This reclassification has no effect on total comprehensive income or stockholders equity and was immaterial for all periods presented. For the three months ended March31, 2010 and 2009, the Company received proceeds from sales of available-for-sale investments of $116.2 million and $23.4 million, respectively. For the three months ended March31, 2010, the Company had realized gains on the sales of available-for-sale investments of $0.2 million. For the three months ended March31, 2009, the Company did not have any material realized gains on the sales of available-for-sale investments. For the three months ended March31, 2010 and 2009, the Company did not have any material realized losses on the sales of available- for-sale investments. All realized gains and losses related to the sales of available-for-sale investments are included in other income (expense), net, in the accompanying condensed consolidated statements of income. The average remaining maturities of the Companys short-term and long-term available-for-sale investments at March31, 2010 were approximately seven months and 8 years, respectively. Unrealized Losses on Available-for-Sale Investments The following table shows the gross unrealized losses and fair value of the Companys available-for-sale investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position as of March31, 2010 (in thousands) |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | |
3 Months Ended
Mar. 31, 2010 | |
FAIR VALUE MEASUREMENTS | 6. FAIR VALUE MEASUREMENTS The authoritative guidance defines fair value as an exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Assets and Liabilities Measured at Fair Value on a Recurring Basis AsofMarch31, 2010 Quoted Prices In ActiveMarkets for Identical Assets(Level1) Significant Other Observable Inputs(Level2) Significant Unobservable Inputs(Level3) (in thousands) Short-term investments- available-for-sale $ 355,300 $ 355,300 $ $ Short-term investments- trading 35,920 35,920 Prepaid expenses and other current assets 12,660 6,860 5,800 Long-term investments- available-for-sale 717,933 669,973 47,960 Accrued expenses and other current liabilities 9,292 9,292 The Company measures its cash flow hedges, which are classified as prepaid expenses and other current assets and accrued expenses and other current liabilities, at fair value based on indicative prices in active markets and generally measures its investments in available-for-sale securities at fair value based on quoted prices in active markets for identical securities. Due to the illiquidity in the municipal auction rate securities market caused by failed auctions, the Companys valuation technique for certain of its municipal auction rate securities was to measure such securities at fair value using a discounted cash flow model. In its discounted cash flow model, the Company used several assumptions to derive a fair value for its investments in municipal auction rate securities, including a discount rate based on the credit quality of the underlying investments and a factor to further discount the investments for the illiquidity currently present in the market for these securities. Accordingly, these trading investments are included in Level 3. Also included in Level 3 is the Put Option. In order to determine the fair value of the Put Option, the Company measured the differential between the aggregate par value of its auction rate securities and their fair value as of the reporting date and applied a discount rate that considers both the time period between the reporting date and the first date the Company is able to exercise its right to put the auction rate securities to UBS per the |
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION | |
3 Months Ended
Mar. 31, 2010 | |
STOCK-BASED COMPENSATION | 7. STOCK-BASED COMPENSATION The Companys stock-based compensation program is a long-term retention program that is intended to attract and reward talented employees and align stockholder and employee interests. As of March31, 2010, the Company had two stock-based compensation plans under which it was granting stock options and non-vested stock units. The Company is currently granting stock-based awards from its Amended and Restated 2005 Equity Incentive Plan (as amended, the 2005 Plan) and its 2005 Employee Stock Purchase Plan (the 2005 ESPP). In connection with certain of the Companys acquisitions, the Company has assumed several plans from acquired companies. The Companys Board of Directors has provided that no new awards will be granted under the Companys acquired stock plans. The Companys superseded and expired stock plans include the Amended and Restated 1995 Stock Plan, Second Amended and Restated 2000 Director and Officer Stock Option and Incentive Plan, Second Amended and Restated 1995 Non-Employee Director Stock Option Plan and Third Amended and Restated 1995 Employee Stock Purchase Plan. Awards previously granted under these plans and still outstanding typically expire ten years from the date of grant and will continue to be subject to all the terms and conditions of such plans, as applicable. Under the terms of the 2005 Plan, the Company is authorized to grant incentive stock options (ISOs), non-qualified stock options (NSOs), non-vested stock, non-vested stock units, stock appreciation rights (SARs), and performance units and to make stock-based awards to full and part-time employees of the Company and its subsidiaries or affiliates, where legally eligible to participate, as well as consultants and non-employee directors of the Company. Currently, the 2005 Plan provides for the issuance of a maximum of 32,100,000 shares of common stock. On April14,2010, subject to shareholder approval at the 2010 Annual Meeting of Stockholders, the Board of Directors approved a fifth amendment to the 2005 Plan (the Plan Amendment) to (i)increase the aggregate number of shares of Common Stock authorized for issuance under the 2005 Plan by an additional 5,500,000 shares and (ii)increase the aggregate number of shares of Common Stock issuable pursuant to unvested stock, unvested stock units, performance units or stock grants by an additional 1,000,000 shares of Common Stock. Under the 2005 Plan, ISOs must be granted at exercise prices no less than fair market value on the date of grant, except for ISOs granted to employees who own more than 10% of the Companys combined voting power, for which the exercise prices must be no less than 110% of the fair market value at the date of grant. NSOs and SARs must be granted at no less than fair market value on the date of grant, or in the case of SARs in tandem with options, at the exercise price of the related option. Non-vested stock awards may be granted for such consideration in cash, other property or services, or a combination thereof, as determined by the Companys Compensation Committee of its Board of Directors. All stock-based awards, other than the long-term incentive awards discussed below, |
LONG-TERM DEBT
LONG-TERM DEBT | |
3 Months Ended
Mar. 31, 2010 | |
LONG-TERM DEBT | 8. LONG-TERM DEBT Effective on August9, 2005, the Company entered into a revolving credit facility (the Credit Facility) with a group of financial institutions (the Lenders). Effective September27, 2006, the Company entered into an amendment and restatement of its Credit Facility (the Amendment). The Amendment decreased the overall range of interest rates the Company must pay on amounts outstanding on the Credit Facility and lowered the facility fee. In addition, the Amendment extended the term of the Credit Facility. The Credit Facility, as amended, allows the Company to increase the revolving credit commitment up to a maximum aggregate revolving credit commitment of $175.0 million. The Credit Facility, as amended, currently provides for a revolving line of credit that will expire on September27, 2011 in the aggregate amount of $100.0 million, subject to continued covenant compliance. A portion of the revolving line of credit (i)in the aggregate amount of $25.0 million may be available for issuances of letters of credit and (ii)in the aggregate amount of $15.0 million may be available for swing line loans. The Credit Facility, as amended, currently bears interest at LIBOR plus 0.32% and adjusts in the range of 0.32% to 0.80% above LIBOR based on the level of the Companys total debt and its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) as defined in the agreement. In addition, the Company is required to pay a quarterly facility fee ranging from 0.08% to 0.20% based on the aggregate amount available under the Credit Facility, as amended, and the level of the Companys total debt and its adjusted EBITDA. Borrowings under the Credit Facility, as amended, are guaranteed by the Company and certain of the Companys U.S. and foreign subsidiaries, which guarantees are secured by a pledge of shares of certain foreign subsidiaries. As of March31, 2010, there were no amounts outstanding under the Credit Facility, as amended. The Credit Facility, as amended, contains customary default provisions, and the Company must comply with various financial and non-financial covenants. The financial covenants consist of a minimum interest coverage ratio and a maximum consolidated leverage ratio. The primary non-financial covenants contain certain limits on the Companys ability to pay dividends, conduct certain mergers or acquisitions, make certain investments and loans, incur future indebtedness or liens, alter the Companys capital structure or sell stock or assets. As of March31, 2010, the Company was in compliance with all covenants of the Credit Facility. |
SEGMENT INFORMATION
SEGMENT INFORMATION | |
3 Months Ended
Mar. 31, 2010 | |
SEGMENT INFORMATION | 9. SEGMENT INFORMATION During the first quarter of 2010, the Company changed how it measures profitability, develops its annual plan and allocates its resources from a geography-based approach (which included the Americas, EMEA, Asia-Pacific and the Companys Online Services division), to a product division-based approach. This change reflects how the Company markets and sells its products. Accordingly, the Company has revised its reportable segments to reflect the way its chief operating decision maker (CODM) is currently managing and viewing the business. In addition, previously reported segment results have been restated to conform to the 2010 presentation. The Companys revenues are derived from sales of Enterprise division products which include its Desktop Solutions, Datacenter and Cloud Solutions and related technical services and from sales of its Online Services divisions web collaboration, connectivity and remote support services. The Enterprise division and the Online Services division constitute the Companys two reportable segments The Company does not engage in intercompany revenue transfers between segments. The Companys CODM evaluates the Companys performance based primarily on profitability from its Enterprise division products and Online Services division products. Segment profit for each segment includes certain research and development, sales, marketing, general and administrative expenses directly attributable to the segment as well as other corporate costs allocated to the segment and excludes certain expenses that are managed outside the reportable segments. Costs excluded from segment profit primarily consist of certain restructuring charges, stock-based compensation costs, amortization of product related technology, amortization of other intangible assets, net interest and other income and income taxes. Accounting policies of the Companys segments are the same as its consolidated accounting policies. In addition, the Company will evaluate goodwill for impairment between these segments, which represents its reporting units. Net revenues and segment profit, classified by the Companys two reportable segments were as follows (in thousands): ThreeMonthsEnded March31, 2010 2009 Net revenues: Enterprise division $ 329,322 $ 297,078 Online Services division 84,950 71,980 Consolidated $ 414,272 $ 369,058 Segment profit: Enterprise division $ 75,458 $ 55,129 Online Services division 18,559 15,845 Unallocated expenses (1): Amortization of intangible assets (16,515 ) (17,093 ) Restructuring (500 ) (20,730 ) Net interest and other income 3,933 1,169 Stock-based compensation (24,927 ) (28,148 ) Consolidated income before income taxes $ 56,008 $ 6,172 (1) Represents expenses presented to management on a consolidated basis only and not allocated to the operating segments. In addition to evaluating the Companys profitability by product divisi |
RESTRUCTURING
RESTRUCTURING | |
3 Months Ended
Mar. 31, 2010 | |
RESTRUCTURING | 10. RESTRUCTURING During the first quarter of 2009, the Company announced a restructuring program and reduced its headcount by approximately 450 full-time positions. The restructuring program was completed in 2009. Restructuring charges related to the reduction of the Companys headcount and non-cancelable lease costs related to the consolidation and exiting of excess facilities by segment consists of the following (in thousands): Three Months Ended March31, 2010 Three Months Ended March31, 2009 Enterprise division $ 500 $ 20,269 Online Services division 461 Total restructuring charges $ 500 $ 20,730 Restructuring accruals As of March31, 2010, the $3.2 million in outstanding restructuring liability primarily relates to non-cancelable lease costs related to the consolidation of excess facilities that the Company expects to pay over the lives of the related obligations through fiscal 2012. The activity in the Companys restructuring accruals for the three months ended March31, 2010 is summarized as follows (in thousands): Total Balance at January1, 2010 $ 3,492 Employee severance and related costs 125 Adjustments to non-cancelable lease costs and other charges 375 Payments (747 ) Reversal of previous charges Balance at March31, 2010 $ 3,245 As of March31, 2010, restructuring accruals by segment consisted of the following (in thousands): Total Enterprise division $ 3,041 Online Services division 204 Total restructuring accruals $ 3,245 |
DERIVATIVE FINANCIAL INSTRUMENT
DERIVATIVE FINANCIAL INSTRUMENTS | |
3 Months Ended
Mar. 31, 2010 | |
DERIVATIVE FINANCIAL INSTRUMENTS | 11. DERIVATIVE FINANCIAL INSTRUMENTS Cash Flow Hedges As of March31, 2010, the Companys derivative assets and liabilities resulted from cash flow hedges related to its forecasted operating expenses transacted in local currencies. A substantial portion of the Companys overseas expenses are and will continue to be transacted in local currencies. To protect against fluctuations in operating expenses and the volatility of future cash flows caused by changes in currency exchange rates, the Company has established a program that uses foreign exchange forward contracts to hedge its exposure to these potential changes. The terms of these instruments, and the hedged transactions to which they relate, generally do not exceed 12 months and the maximum term is 18 months. Generally, when the dollar is weak, foreign currency denominated expenses will be higher, and these higher expenses will be partially offset by the gains realized from the Companys hedging contracts. Conversely, if the dollar is strong, foreign currency denominated expenses will be lower. These lower expenses will in turn be partially offset by the losses incurred from the Companys hedging contracts. The change in the derivative component in accumulated other comprehensive loss includes unrealized gains or losses that arose from changes in market value of the effective portion of derivatives that were held during the period, and gains or losses that were previously unrealized but have been recognized in the same line item as the forecasted transaction in current period net income due to termination or maturities of derivative contracts. This reclassification has no effect on total comprehensive income or stockholders equity. The total cumulative unrealized gain (loss) on cash flow derivative instruments was $(2.1) million and $4.3 million at March31, 2010 and December31, 2009, respectively, and is included in accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets. The net unrealized loss as of March31, 2010 is expected to be recognized in income over the next twelve months at the same time the hedged items are recognized in income. As of March31, 2010, the Company had the following net notional foreign currency forward contracts outstanding (in thousands): Foreign Currency Currency Denomination Australian dollars AUD27,680 British pounds sterling GBP 17,670 Canadian dollars CAD 8,909 Euro EUR26,452 Hong Kong dollars HKD 79,493 Indian rupees INR896,428 Japanese yen JPY1,239,065 Singapore dollars SGD 11,540 Swiss francs CHF 13,607 Derivatives not Designated as Hedges The Company utilizes certain derivative instruments that either do not qualify or are not designated for hedge accounting treatment under the authoritative guidance. Accordingly, changes in the fair value of these contracts are recorded in other income (expense), net. A substantial portion of the Companys overseas assets and liabilities are and will continue to be denominated in local currencies. To protect against fluctuations in earnings caused by changes in currency exchange rates whe |
COMPREHENSIVE INCOME
COMPREHENSIVE INCOME | |
3 Months Ended
Mar. 31, 2010 | |
COMPREHENSIVE INCOME | 12. COMPREHENSIVE INCOME The components of comprehensive income (loss), net of tax, are as follows (in thousands): Three Months Ended March31, 2010 2009 Net income $ 47,349 $ 6,927 Other comprehensive (loss) income: Change in unrealized (loss) gain on available-for-sale securities 2,856 (2,470 ) Net change due to derivative instruments (6,471 ) (5,677 ) Comprehensive income (loss) $ 43,734 $ (1,220 ) The components of accumulated other comprehensive loss, net of tax, are as follows (in thousands): March31, 2010 December31, 2009 Unrealized loss on available-for-sale securities $ (1,086 ) $ (3,942 ) Unrealized (loss) gain on derivative instruments (2,131 ) 4,340 Other comprehensive loss on pension liability (2,458 ) (2,458 ) Accumulated other comprehensive loss $ (5,675 ) $ (2,060 ) |
INCOME TAXES
INCOME TAXES | |
3 Months Ended
Mar. 31, 2010 | |
INCOME TAXES | 13. INCOME TAXES The Companys net unrecognized tax benefits totaled approximately $46.2 million as of March31, 2010 and December31, 2009. There were no amounts included in the balance at March31, 2010 of tax positions, which would not affect the annual effective tax rate, and approximately $0.3 million of accrued interest on tax positions, which is included in income tax expense. The Company and one or more of its subsidiaries is subject to federal income taxes in the United States, as well as income taxes of multiple state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2004. During the third quarter of 2009, the IRS concluded its examination of the Companys income tax returns for 2004 and 2005 and issued a Revenue Agents Report (the RAR). The Company agreed with all of the adjustments contained in the RAR, with the exception of the transfer pricing and consequential adjustments relating to the intercompany transfer of certain intellectual property in earlier tax years. The RAR asserts income tax deficiencies related to the transfer pricing and consequential adjustments of approximately $81.3 million for tax years 2004 and 2005, excluding interest. In addition, the transfer pricing and consequential adjustments to the Companys 2004 and 2005 tax years would impact its income tax liabilities in tax years subsequent to 2005. The Company disagrees with the adjustments and has filed a protest, which caused the matter to be referred to the Appeals Division of the IRS. The Company is contesting the adjustments through the IRS appeals process and the courts, if necessary. There can be no assurance, however, that this matter, or any future tax examinations involving similar assertions, will be resolved in the Companys favor, and an adverse outcome of this matter could have a material adverse effect on the Companys results of operations and financial condition. Regardless of whether this matter is resolved in the Companys favor, this matter could be expensive and time-consuming to defend. During the fourth quarter of 2009, the IRS also commenced its examination of the Companys U.S. federal income tax returns for the 2006 through 2008 tax years. In the ordinary course of global business, there are transactions for which the ultimate tax outcome is uncertain; thus, judgment is required in determining the worldwide provision for income taxes. The Company provides for income taxes on transactions based on its estimate of the probable liability. The Company adjusts its provision as appropriate for changes that impact its underlying judgments. Changes that impact provision estimates include such items as jurisdictional interpretations on tax filing positions based on the results of tax audits and general tax authority rulings. Due to the evolving nature of tax rules combined with the large number of jurisdictions in which the Company operates, it is possible that the Companys estimates of its tax liability and the realizability of its deferred tax assets could change in the future, which may result in ad |
TREASURY STOCK
TREASURY STOCK | |
3 Months Ended
Mar. 31, 2010 | |
TREASURY STOCK | 14. TREASURY STOCK Stock Repurchase Programs The Companys Board of Directors authorized an ongoing stock repurchase program with a total repurchase authority granted to the Company of $2.5 billion, of which $400.0 million was approved in April 2010. The Company may use the approved dollar authority to repurchase stock at any time until the approved amount is exhausted. The objective of the Companys stock repurchase program is to improve stockholders returns. At March31, 2010, approximately $57.6 million was available to repurchase common stock pursuant to the stock repurchase program. All shares repurchased are recorded as treasury stock. A portion of the funds used to repurchase stock over the course of the program was provided by proceeds from employee stock option exercises and the related tax benefit. The Company is authorized to make open market purchases of its common stock using general corporate funds. Additionally, from time to time, the Company has entered into structured stock repurchase arrangements with large financial institutions using general corporate funds in order to lower the average cost to acquire shares. These programs include terms that require the Company to make up-front payments to the counterparty financial institution and result in the receipt of stock during or at the end of the term of the agreement or the receipt of either stock or cash at the maturity of the agreement, depending on market conditions. During the three months ended March31, 2010, the Company expended approximately $100.0 million on open market purchases, repurchasing 2,288,600 shares of outstanding common stock at an average price of $43.69. As of March31, 2010, the Company did not have any prepaid notional amounts under structured stock repurchase programs and it did not make any up-front payments to financial institutions related to structured stock repurchase agreements. During the three months ended March31, 2009, the Company expended approximately $25.0 million on open market purchases, repurchasing 1,103,300 shares of outstanding common stock at an average price of $22.66. Shares for Tax Withholding During the three months ended March31, 2010, the Company repurchased 60,475 shares totaling $2.7 million to satisfy tax withholding obligations that arose on the vesting of shares of unvested stock units. These shares are reflected as treasury stock in the Companys condensed consolidated balance sheets. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | |
3 Months Ended
Mar. 31, 2010 | |
COMMITMENTS AND CONTINGENCIES | 15. COMMITMENTS AND CONTINGENCIES Leases The Company leases certain office space and equipment under various operating leases. In addition to rent, the leases require the Company to pay for taxes, insurance, maintenance and other operating expenses. Certain of these leases contain stated escalation clauses while others contain renewal options. The Company recognizes rent expense on a straight-line basis over the term of the lease, excluding renewal periods, unless renewal of the lease is reasonably assured. The Company has an operating lease obligation related to a property that is not fully utilized which continues to 2018 with a total remaining obligation at March31, 2010 of approximately $4.5 million, of which $0.9 million was accrued as of March31, 2010, and is reflected in accrued expenses and other current liabilities and other liabilities in the accompanying condensed consolidated balance sheets. In calculating this accrual, the Company made estimates, based on market information, including the estimated vacancy periods and sublease rates and opportunities. The Company periodically re-evaluates its estimates related to this vacant facility. Legal Matters Due to the nature of the Companys business, it is subject to patent infringement claims, including current suits against it or one or more of its wholly-owned subsidiaries alleging infringement by various Citrix products and services. The Company believes that it has meritorious defenses to the allegations made in its pending cases and intends to vigorously defend these lawsuits; however, it is unable currently to determine the ultimate outcome of these or similar matters or the potential exposure to loss, if any. In addition, the Company is a defendant in various litigation matters generally arising out of the normal course of business. Although it is difficult to predict the ultimate outcomes of these cases, the Company believes that the ultimate outcomes will not materially affect its business, financial position, results of operations or cash flows. Guarantees The authoritative guidance requires certain guarantees to be recorded at fair value and requires a guarantor to make disclosures, even when the likelihood of making any payments under the guarantee is remote. For those guarantees and indemnifications that do not fall within the initial recognition and measurement requirements of the authoritative guidance, the Company must continue to monitor the conditions that are subject to the guarantees and indemnifications, as required under existing generally accepted accounting principles, to identify if a loss has been incurred. If the Company determines that it is probable that a loss has been incurred, any such estimable loss would be recognized. The initial recognition and measurement requirements do not apply to the provisions contained in the majority of the Companys software license agreements that indemnify licensees of the Companys software from damages and costs resulting from claims alleging that the Companys software infringes the intellectual property rights of a third party. The Company has not made payments pursuant to these provisions. The Compa |
RECENT ACCOUNTING PRONOUNCEMENT
RECENT ACCOUNTING PRONOUNCEMENTS | |
3 Months Ended
Mar. 31, 2010 | |
RECENT ACCOUNTING PRONOUNCEMENTS | 16. RECENT ACCOUNTING PRONOUNCEMENTS In September 2009, FASB amended the Accounting Standards Codification (ASC) as summarized in Accounting Standards Update (ASU) 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements, and ASU 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. As summarized in ASU 2009-14, ASC Topic 985 has been amended to remove from the scope of industry specific revenue accounting guidance for software and software related transactions, tangible products containing software components and non-software components that function together to deliver the products essential functionality. As summarized in ASU 2009-13, ASC Topic 605 has been amended (1)to provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and the consideration allocated; (2)to require an entity to allocate revenue in an arrangement using estimated selling prices of deliverables if a vendor does not have VSOE or third-party evidence of selling price; and (3)to eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. The accounting changes summarized in ASU 2009-14 and ASU 2009-13 are both effective for fiscal years beginning on or after June15, 2010, with early adoption permitted. Adoption may either be on a prospective basis or by retrospective application. The Company is in the process of evaluating the potential impact of this standard on its financial position and results of operations. |