Citrix 2012 Annual Report Download - page 49

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With respect to our segment revenues, the increase in net revenues for the comparative periods presented was due
primarily to the factors previously discussed above. See Note 11 of our consolidated financial statements included in this
Annual Report on Form 10-K for the year ended December 31, 2012 for additional information on our segment revenues.
Cost of Net Revenues
Year Ended December 31, 2012
Compared to
2011
2011
Compared to
2010
2012 2011 2010
(In thousands)
Cost of product and license revenues $ 96,962 $ 74,393 $ 66,682 $ 22,569 $ 7,711
Cost of services and maintenance revenues 227,150 164,465 115,080 62,685 49,385
Amortization of product related intangible assets 80,025 54,741 50,504 25,284 4,237
Total cost of net revenues $ 404,137 $ 293,599 $ 232,266 $ 110,538 $ 61,333
Cost of product and license revenues consist primarily of hardware, product media and duplication, manuals, packaging
materials, shipping expense and royalties. Cost of services and maintenance revenues consist primarily of compensation and
other personnel-related costs of providing technical support and consulting, as well as the costs related to providing our SaaS.
Also included in cost of net revenues is amortization of product related intangible assets.
Cost of product and license revenues increased during 2012 when compared to 2011 and during 2011 when compared to
2010 primarily due to increased sales of our Networking and Cloud products, as described above, many of which contain
hardware components that have a higher cost than our other software products. We currently are targeting cost of product and
license revenues will increase when comparing the first quarter of 2013 to the first quarter of 2012 consistent with the targeted
increase in sales of our hardware products.
Cost of services and maintenance revenues increased during 2012 compared to 2011 consistent with the increase in sales
of our Collaboration products and continuing investment in infrastructure to support the voice and video offerings in our
Collaboration products of $20.0 million. Also contributing to the increase in Cost of services and maintenance revenues is an
increase in maintenance and support costs of $16.6 million and consulting costs of $15.7 million related to increased sales of
our Enterprise division's products as described above. Cost of services and maintenance revenues increased during 2011
compared to 2010 consistent with the increase in revenue of Professional services related to our Enterprise division's products
as described above. We currently are targeting cost of services and maintenance revenues will increase when comparing the
first quarter of 2013 to the first quarter of 2012 consistent with the increase in Software as a Service and Professional services
revenues as discussed above.
Gross Margin
Gross margin as a percent of revenue was 84.4% for 2012, 86.7% for 2011 and 87.6% for 2010. The decrease in gross
margin as a percentage of net revenue for all periods presented was primarily due to the increase in sales of products with a
hardware component and increased sales of our services both of which have a higher cost than our software products. When
comparing the first quarter of 2013 to the first quarter of 2012, we expect a slight decline in gross margin, consistent with our
targeted increase in sales of our hardware products and services.
Operating Expenses
Foreign Currency Impact on Operating Expenses
The functional currency for all of our wholly-owned foreign subsidiaries in our Enterprise division is the U.S. dollar. A
substantial majority of our overseas operating expenses and capital purchasing activities are transacted in local currencies and
are therefore subject to fluctuations in foreign currency exchange rates. In order to minimize the impact on our operating
results, we generally initiate our hedging of currency exchange risks up to 15 months in advance of anticipated foreign
currency expenses. When the dollar is weak, the resulting increase to foreign currency denominated expenses will be partially
offset by the gain in our hedging contracts. When the dollar is strong, the resulting decrease to foreign currency denominated
expenses will be partially offset by the loss in our hedging contracts. There is a risk that there will be fluctuations in foreign
currency exchange rates beyond the timeframe for which we hedge our risk.