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Page฀50
for฀ estimated฀ returns฀ for฀ stock฀ balancing฀ and฀ price฀ protection฀ rights,฀ as฀ well฀ as฀ other฀ sales฀ allowances,฀ the฀ valuation฀ of฀ the฀
Company’s฀goodwill,฀net฀realizable฀value฀of฀core฀and฀product฀technology,฀the฀provision฀for฀vacant฀facility฀costs,฀the฀provision฀for฀
income฀taxes฀and฀the฀amortization฀and฀depreciation฀periods฀for฀intangible฀and฀long-lived฀assets.฀While฀the฀Company฀believes฀that฀
such฀estimates฀are฀fair฀when฀considered฀in฀conjunction฀with฀the฀consolidated฀financial฀position฀and฀results฀of฀operations฀taken฀as฀
a฀whole,฀the฀actual฀amounts฀of฀such฀estimates,฀when฀known,฀will฀vary฀from฀these฀estimates.
Accounting฀for฀Stock-Based฀Compensation
SFAS฀No.฀123,฀Accounting฀for฀Stock-Based฀Compensation,฀as฀amended฀by฀SFAS฀No.฀148,฀Accounting฀for฀Stock-Based฀Compensation—
Transition฀and฀Disclosure,฀defines฀a฀fair฀value฀method฀of฀accounting฀for฀issuance฀of฀stock฀options฀and฀other฀equity฀instruments.฀Under฀
the฀fair฀value฀method,฀compensation฀cost฀is฀measured฀at฀the฀grant฀date฀based฀on฀the฀fair฀value฀of฀the฀award฀and฀is฀recognized฀over฀
the฀service฀period,฀which฀is฀usually฀the฀vesting฀period.฀Pursuant฀to฀SFAS฀No.฀123,฀companies฀are฀not฀required฀to฀adopt฀the฀fair฀value฀
method฀of฀accounting฀for฀employee฀stock-based฀transactions.฀Companies฀are฀permitted฀to฀account฀for฀such฀transactions฀under฀
Accounting฀Principles฀Board฀(“APB”)฀Opinion฀No.฀25,฀Accounting฀for฀Stock฀Issued฀to฀Employees,฀but฀are฀required฀to฀disclose฀in฀a฀note฀
to฀the฀consolidated฀financial฀statements฀pro฀forma฀net฀income฀and฀per฀share฀amounts฀as฀if฀a฀company฀had฀applied฀the฀fair฀methods฀
prescribed฀by฀SFAS฀No.฀123.฀The฀Company฀applies฀APB฀Opinion฀No.฀25฀and฀related฀interpretations฀in฀accounting฀for฀its฀plans,฀stock฀
awards฀granted฀to฀employees฀and฀non-employee฀directors฀and฀has฀complied฀with฀the฀disclosure฀requirements฀of฀SFAS฀No.฀123.
The฀ Company฀ recorded฀ deferred฀ stock-based฀ compensation฀ expense฀ related฀ to฀ shares฀ issuable฀ for฀ unvested฀ stock-based฀
compensation฀awards฀assumed฀as฀part฀of฀its฀acquisitions.฀The฀unvested฀awards฀assumed฀were฀accounted฀for฀in฀accordance฀with฀
Financial฀ Accounting฀ Standards฀ Board฀ (“FASB”)฀ Interpretation฀ No.฀ 44,฀ Accounting฀ for฀ Certain฀ Transactions฀ Involving฀ Stock฀
Compensation฀(an฀Interpretation฀of฀APB฀Opinion฀No.฀25).฀All฀stock฀awards฀granted฀under฀the฀Company’s฀stock-based฀compensation฀
plans,฀excluding฀those฀awards฀assumed฀in฀acquisitions,฀have฀an฀exercise฀or฀purchase฀price฀equal฀to฀or฀above฀market฀value฀of฀the฀
underlying฀common฀stock฀on฀the฀date฀of฀grant.฀Had฀compensation฀cost฀for฀the฀grants฀issued฀at฀an฀exercise฀price฀equal฀to฀or฀above฀
market฀value฀under฀the฀Company’s฀stock-based฀compensation฀plans฀been฀determined฀based฀on฀the฀fair฀value฀at฀the฀grant฀dates฀for฀
grants฀under฀those฀plans฀consistent฀with฀the฀fair฀value฀method฀of฀SFAS฀No.฀123,฀the฀Company’s฀cash฀flows฀would฀have฀remained฀
unchanged;฀however,฀net฀income฀and฀earnings฀per฀share฀would฀have฀been฀reduced฀to฀the฀pro฀forma฀amounts฀indicated฀below:
(In฀thousands,฀except฀per฀share฀information) ฀2005 ฀2004 2003
Net฀income:
฀ As฀reported $฀166,340 $฀131,546 $฀126,943
฀ ฀ Add:฀Total฀stock-based฀employee฀compensation฀included฀in฀net฀income฀฀
฀ ฀ ฀ as฀reported,฀net฀of฀related฀tax฀effects 2,744 — —
฀ ฀ Deduct:฀Total฀stock-based฀employee฀compensation฀expense฀determined฀฀
฀ ฀ ฀ under฀fair฀value฀based฀method฀for฀all฀awards,฀net฀of฀related฀tax฀effects (37,881) (48,043) (87,645)
฀ Pro฀forma $฀131,203 $฀ 83,503 $฀ 39,298
Basic฀earnings฀per฀share:
฀ As฀reported $฀ 0.97 $฀ 0.78 $฀ 0.77
฀ Pro฀forma $฀ 0.76 $฀ 0.49 $฀ 0.24
Diluted฀earnings฀per฀share:
฀ As฀reported $฀ 0.93 $฀ 0.75 $฀ 0.74
฀ Pro฀forma $฀ 0.74 $฀ 0.48 $฀ 0.23
For฀purposes฀of฀the฀pro฀forma฀calculations,฀the฀fair฀value฀of฀each฀award฀is฀estimated฀on฀the฀date฀of฀the฀grant฀using฀the฀Black-Scholes฀
option-pricing฀model,฀assuming฀no฀expected฀dividends฀and฀the฀following฀assumptions:
2005฀Grants 2004฀Grants 2003฀Grants
Expected฀volatility฀factors 0.31–0.35 0.38–0.49 0.57–0.68
Approximate฀risk฀free฀interest฀rates 3.7%–4.4% 3.0%–3.5% 2.5%–3.0%
Expected฀lives 3.32฀years 3.32–4.76฀years 4.70–4.75฀years
Citrix฀Systems,฀Inc.
Notes฀to฀Consolidated฀Financial฀Statements฀(Continued)