Citrix 2014 Annual Report Download - page 33

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the indenture. A default under the indenture or the fundamental change itself could also lead to a default under our Credit
Agreements or agreements governing our future indebtedness. If the repayment of the related indebtedness were to be
accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and
repurchase the Convertible Notes or make cash payments upon conversions of the Convertible Notes.
Further, the Credit Agreement requires the Company to maintain certain leverage and interest ratios and contains various
affirmative and negative covenants, including covenants that limit or restrict our ability to grant liens, merge or consolidate,
dispose of all or substantially all of our assets, change our business or incur subsidiary indebtedness. If we fail to comply with
these covenants or any other provision of the Credit Agreement, we may be in default under the Credit Agreement, and we
cannot assure you that we will be able to obtain the necessary waivers or amendments of such default. Upon an event of default
under our Credit Agreement, if not otherwise amended or waived, the affected lenders could accelerate the repayment of any
outstanding principal and accrued interest on their outstanding loans and terminate their commitments to lend additional funds,
which may have a material adverse effect on our liquidity and financial position and, further, we may not have sufficient funds
to repay such indebtedness.
In addition, our indebtedness, combined with our other financial obligations and contractual commitments, could have
other important consequences. For example, it could:
• make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry and competitive
conditions and adverse changes in government regulation;
• limit our flexibility in planning for, or reacting to, changes in our business and our industry;
• place us at a disadvantage compared to our competitors who have less debt; and
• limit our ability to borrow additional amounts to fund acquisitions, for working capital and for other general corporate
purposes.
Any of these factors could materially and adversely affect our business, financial condition and results of operations. In
addition, if we incur additional indebtedness, the risks related to our business and our ability to service or repay our
indebtedness would increase.
The accounting method for convertible debt securities that may be settled in cash, such as the Convertible Notes, could have
a material effect on our reported financial results.
In May 2008, the FASB issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That
May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement), which has subsequently been codified as
Accounting Standards Codification 470-20, Debt with Conversion and Other Options, or ASC 470-20. Under ASC 470-20, an
entity must separately account for the liability and equity components of the convertible debt instruments (such as the
Convertible Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s
economic interest cost. The effect of ASC 470-20 on the accounting for the Convertible Notes is that the equity component is
required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet, and
the value of the equity component would be treated as original issue discount for purposes of accounting for the debt
component of the Convertible Notes. As a result, we will be required to record a greater amount of non-cash interest expense in
current periods presented as a result of the amortization of the discounted carrying value of the Convertible Notes to their face
amount over the term of the Convertible Notes. We will report lower net income in our financial results as reported in
accordance with U.S. GAAP because ASC 470-20 will require interest to include both the current period’s amortization of the
debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results.
In addition, under certain circumstances, convertible debt instruments (such as the Convertible Notes) that may be settled
entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares
issuable upon conversion of the Convertible Notes are not included in the calculation of diluted earnings per share except to the
extent that the conversion value of the Convertible Notes exceeds their principal amount. Under the treasury stock method, for
diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be
necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting
standards in the future will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock
method in accounting for the shares issuable upon conversion of the Convertible Notes, then our diluted earnings per share
would be adversely affected.