Citrix 2009 Annual Report Download - page 97

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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
however, if it is determined that a derivative is not highly effective as a hedge or if a derivative ceases to be a
highly effective hedge, the Company will discontinue hedge accounting prospectively for the affected derivative.
The Company is exposed to risk of default by its hedging counterparties. Although this risk is concentrated
among a limited number of counterparties, the Company’s foreign exchange hedging policy attempts to minimize
it by placing limits on the amount of exposure that may exist with any single financial institution at a time.
Pension Liability
The Company provides retirement benefits to certain employees who are not U.S. based. Generally, benefits
under these programs are based on an employee’s length of service and level of compensation. The majority of
these programs are commonly referred to as termination indemnities, which provide retirement benefits in
accordance with programs mandated by the governments of the countries in which such employees work.
As of December 31, 2009, the Company had accrued $3.0 million for these pension liabilities. Expenses for
the program for 2009, 2008 and 2007 amounted to $1.4 million, $0.9 million and $0.7 million, respectively.
Advertising Costs
The Company expenses advertising costs as incurred. The Company has advertising agreements with, and
purchases advertising from, online media providers to advertise its online services products. The Company also
has cooperative advertising agreements with certain distributors and resellers whereby the Company will
reimburse distributors and resellers for qualified advertising of Citrix products. Reimbursement is made once the
distributor, reseller or provider provides substantiation of qualified expenses. The Company estimates the impact
of these expenses and recognizes them at the time of product sales as a reduction of net revenue or as a
component of sales, marketing and services expenses in the accompanying consolidated statements of income.
The total costs the Company recognized related to advertising was approximately $99.2 million, $84.6 million
and $64.0 million, during the years ended December 31, 2009, 2008 and 2007, respectively.
Income Taxes
The Company and one or more of its subsidiaries is subject to United States federal income taxes, 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 Company’s income tax returns for
2004 and 2005 and issued 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 Company’s 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 Company’s favor, and an adverse outcome of this matter could have a material adverse effect
on the Company’s results of operations and financial condition. Regardless of whether this matter is resolved in
the Company’s favor, this matter could be expensive and time-consuming to defend. During the fourth quarter of
2009, the IRS commenced its examination of the Company’s U.S. federal income tax returns for the 2006
through 2008 tax years. See Note 11.
F-17