Citrix 2005 Annual Report Download - page 17

Page฀15
estimated฀future฀discounted฀cash฀flows฀of฀the฀relationships฀in฀place฀after฀considering฀historical฀and฀expected฀buying฀patterns฀of฀
customers,฀expected฀cash฀flows฀from฀current฀customers,฀the฀duration฀of฀support฀contracts฀and฀the฀application฀of฀charges฀of฀other฀
contributory฀assets.฀The฀valuation฀of฀the฀trade฀name฀for฀the฀2005฀Acquisitions฀was฀determined฀based฀on฀assigning฀a฀royalty฀rate฀to฀
the฀revenue฀stream฀that฀was฀expected฀from฀the฀products฀using฀the฀trade฀name.฀The฀pre-tax฀royalty฀rate฀was฀applied฀to฀the฀product฀
revenue฀and฀discounted฀to฀a฀present฀value.฀The฀value฀of฀the฀covenants฀not฀to฀compete฀was฀determined฀by฀using฀a฀discounted฀
income฀approach฀that฀considered฀the฀value฀of฀the฀agreements฀in฀place฀adjusted฀for฀competition,฀among฀other฀things.฀The฀goodwill฀
recorded฀in฀relation฀to฀the฀2005฀Acquisitions฀was฀assigned฀to฀the฀Americas฀segment฀and฀is฀not฀deductible฀for฀tax฀purposes.
2004฀Acquisitions
During฀2004,฀we฀acquired฀all฀of฀the฀issued฀and฀outstanding฀capital฀stock฀of฀two฀privately฀held฀companies,฀Net6,฀Inc,฀a฀leader฀in฀
providing฀secure฀access฀gateways฀and฀Expertcity.com,฀Inc.,฀a฀leader฀in฀Web-based฀desktop฀access฀as฀well฀as฀a฀leader฀in฀Web-based฀
meeting฀ and฀ customer฀ assistance฀ services,฀ together,฀ the฀ 2004฀ Acquisitions.฀ The฀ consideration฀ for฀ the฀ 2004฀ Acquisitions฀ was฀
approximately฀$291.0฀million฀comprised฀of฀approximately฀$161.8฀million฀in฀cash,฀$6.1฀million฀of฀direct฀transaction฀costs฀and฀approx-
imately฀5.8฀million฀shares฀of฀our฀common฀stock฀valued฀at฀approximately฀$124.8฀million.฀The฀common฀stock฀valued฀at฀$124.8฀million฀
included฀$118.0฀million฀related฀to฀the฀initial฀purchase฀price฀and฀the฀remaining฀balance฀is฀primarily฀related฀to฀additional฀common฀stock฀
earned฀by฀the฀former฀stockholders฀of฀Expertcity.com,฀Inc.฀upon฀the฀achievement฀of฀certain฀revenue฀and฀other฀financial฀milestones฀
during฀2004฀pursuant฀to฀the฀applicable฀merger฀agreement,฀which฀was฀issued฀in฀March฀2005.฀The฀fair฀value฀of฀the฀common฀stock฀
earned฀ as฀ additional฀ purchase฀ price฀ consideration฀was฀ recorded฀ as฀ goodwill฀on฀ the฀date฀earned.฀ In฀ connection฀ with฀ the฀ 2004฀
Acquisitions,฀we฀allocated฀$195.1฀million฀to฀goodwill,฀$38.7฀million฀to฀core฀and฀product฀technology฀and฀$32.4฀million฀to฀other฀intangible฀
assets.฀We฀assigned฀$31.7฀million฀of฀the฀goodwill฀to฀our฀Americas฀segment฀and฀$163.4฀million฀of฀the฀goodwill฀to฀our฀Online฀Services฀
division.฀The฀sources฀of฀funds฀for฀consideration฀paid฀in฀these฀transactions฀consisted฀of฀available฀cash฀and฀investments฀and฀our฀
authorized฀common฀stock.฀There฀is฀no฀additional฀contingent฀consideration฀related฀to฀these฀acquisitions.
In-Process฀Research฀and฀Development
We฀expensed฀purchased฀in-process฀research฀and฀development,฀or฀IPR&D,฀of฀approximately฀$7.0฀million฀related฀to฀the฀2005฀Acquisitions฀
and฀$19.1฀million฀related฀to฀the฀2004฀Acquisitions฀immediately฀upon฀the฀closing฀of฀the฀acquisitions.฀For฀more฀information฀regarding฀
the฀ IPR&D฀ acquired฀ from฀ acquisitions,฀ see฀ “Management’s฀ Discussion฀ and฀ Analysis฀ of฀ Financial฀ Condition฀ and฀ Results฀ of฀
Operations—Results฀of฀Operations”฀and฀Note฀3฀to฀our฀consolidated฀financial฀statements.
CRITICAL฀ACCOUNTING฀POLICIES฀AND฀ESTIMATES
Our฀discussion฀and฀analysis฀of฀financial฀condition฀and฀results฀of฀operations฀are฀based฀upon฀our฀consolidated฀financial฀statements,฀
which฀have฀been฀prepared฀in฀accordance฀with฀accounting฀principles฀generally฀accepted฀in฀the฀United฀States.฀The฀preparation฀of฀
these฀ financial฀ statements฀ requires฀ us฀ to฀ make฀ estimates฀ and฀ judgments฀ that฀ affect฀ the฀ reported฀ amounts฀ of฀ assets,฀ liabilities,฀
revenues฀and฀expenses,฀and฀related฀disclosure฀of฀contingent฀liabilities.฀We฀base฀these฀estimates฀on฀our฀historical฀experience฀and฀
on฀various฀other฀assumptions฀that฀we฀believe฀to฀be฀reasonable฀under฀the฀circumstances,฀and฀these฀estimates฀form฀the฀basis฀for฀our฀
judgments฀concerning฀the฀carrying฀values฀of฀assets฀and฀liabilities฀that฀are฀not฀readily฀apparent฀from฀other฀sources.฀We฀periodically฀
evaluate฀these฀estimates฀and฀judgments฀based฀on฀available฀information฀and฀experience.฀Actual฀results฀could฀differ฀from฀our฀estimates฀
under฀ different฀ assumptions฀ and฀ conditions.฀ If฀ actual฀ results฀ significantly฀ differ฀ from฀ our฀ estimates,฀ our฀ financial฀ condition฀ and฀
results฀of฀operations฀could฀be฀materially฀impacted.
We฀believe฀that฀the฀accounting฀policies฀described฀below฀are฀critical฀to฀understanding฀our฀business,฀results฀of฀operations฀and฀financial฀
condition฀ because฀ they฀ involve฀ more฀ significant฀ judgments฀ and฀ estimates฀ used฀ in฀ the฀ preparation฀ of฀ our฀ consolidated฀ financial฀
statements.฀An฀accounting฀policy฀is฀deemed฀to฀be฀critical฀if฀it฀requires฀an฀accounting฀estimate฀to฀be฀made฀based฀on฀assumptions฀
about฀matters฀that฀are฀highly฀uncertain฀at฀the฀time฀the฀estimate฀is฀made,฀and฀if฀different฀estimates฀that฀could฀have฀been฀used,฀or฀
changes฀in฀the฀accounting฀estimates฀that฀are฀reasonably฀likely฀to฀occur฀periodically,฀could฀materially฀impact฀our฀consolidated฀financial฀
statements.฀We฀have฀discussed฀the฀development,฀selection฀and฀application฀of฀our฀critical฀accounting฀policies฀with฀the฀audit฀com-
mittee฀of฀our฀board฀of฀directors฀and฀our฀independent฀auditors,฀and฀our฀audit฀committee฀has฀reviewed฀our฀disclosure฀relating฀to฀our฀
critical฀accounting฀policies฀in฀this฀“Management’s฀Discussion฀and฀Analysis฀of฀Financial฀Condition฀and฀Results฀of฀Operations.”
Other฀significant฀accounting฀policies,฀primarily฀those฀with฀lower฀levels฀of฀uncertainty฀than฀those฀discussed฀below,฀are฀also฀important฀
to฀ understanding฀ our฀ consolidated฀ financial฀ statements.฀ The฀ notes฀ to฀ our฀ consolidated฀ financial฀ statements฀ contain฀ additional฀
information฀related฀to฀our฀accounting฀policies฀and฀should฀be฀read฀in฀conjunction฀with฀this฀discussion.