Citrix 2003 Annual Report Download

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  • Page 7
    ...) 75-2275152 (I.R.S. Employer IdentiÃ'cation No.) 851 West Cypress Creek Road Fort Lauderdale, Florida (Address of principal executive oÇces) 33309 (Zip Code) Registrant's telephone number, including area code: (954) 267-3000 Securities registered pursuant to Section 12(b) of the Act: None...

  • Page 8
    ... 48 Directors and Executive OÇcers of the Registrant Executive Compensation Security Ownership of Certain BeneÃ'cial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions Principal Accountant Fees and Services 47 47 47 47 47 Market for Registrant...

  • Page 9
    ... as Web-based desktop access. The Company's MetaFrame» products permit organizations to provide secure access to Windows based, Webbased and UNIX applications regardless of the user's location, network connection, or type of client hardware platforms. The Company markets and licenses its products...

  • Page 10
    ... management, monitoring and measurement. ‚ Ensures that only the right people have access to the right resources to protect the security of enterprise information assets. The Citrix» MetaFrame» Access Suite Products Citrix access infrastructure is packaged and sold as the Citrix MetaFrame Access...

  • Page 11
    ..., enforcing password policies, monitoring password-related events, and even automating end-user tasks, including password changes. MetaFrame Password Manager makes connecting to secure applications faster and more secure, and lowers the costs of support for IT organizations. ‚ Citrix» MetaFrame...

  • Page 12
    ...» line of software services that provide secure, browser-based access to desktop PCs from virtually anywhere over the Web. In addition, the acquisition will add the GoToAssistTM software service, that will enable remote technical support for helpdesks and call centers, corporate training, product...

  • Page 13
    ...Server, which was released in February 2000. In May 2002, the Company signed an agreement with Microsoft to provide the Company with access to Microsoft Windows Server source code for current and future Microsoft Server operating systems, including access to Windows Server 2003 and terminal services...

  • Page 14
    ... and secure sockets layers-based (""SSL'') secure access. The software development team also includes a number of key employees who were instrumental in the release of Microsoft's Window's NT 4.0 Terminal Server Edition, have expertise in current Microsoft and UNIX operating system environments...

  • Page 15
    ... cases, end-customers can also choose from a Citrix-delivered fee-based support program ranging from one-time incident charges to an enterprise-level support agreement covering multiple sites and servers. In addition, the Company also provides free technical advice through on-line support systems...

  • Page 16
    ... are performed internally in the United States and by independent contractors on a purchase order basis in Ireland, depending upon the customer's geographic market. Master software CD-ROMs, development of user manuals, packaging designs, initial product quality control and testing are performed at...

  • Page 17
    ... are good. The Company's relations with employees are governed by labor regulations in certain countries. ITEM 2. PROPERTIES The Company's corporate oÇces are located in Fort Lauderdale, Florida. The Company's corporate oÇces include leased and subleased oÇce space totaling approximately 454...

  • Page 18
    ... II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Price Range of Common Stock and Dividend Policy The Company's Common Stock is currently traded on The Nasdaq National Market under the symbol ""CTXS.'' The following table sets forth the high and low closing prices for...

  • Page 19
    ...2003 Year Ended December 31, 2002 2001 2000 (In thousands, except per share data) 1999 Consolidated Statements of Income Data: Net revenues Cost of revenues (excluding amortization, presented separately below Gross margin Operating expenses: Research and development Sales, marketing and support...

  • Page 20
    ...of record of the Company's Common Stock on January 31, 2000. (d) Pursuant to the Company's stock repurchase programs, the eÃ...ect on the calculation of weighted-average shares outstanding from repurchase activities was 5.4 million, 8.2 million, 3.2 million and 0.8 million in 2003, 2002, 2001 and 2000...

  • Page 21
    ... OF OPERATIONS Overview We develop, market, license and support access infrastructure software and services that enable eÃ...ective and eÇcient enterprise-wide deployment, management and access of applications and information, including those designed for Microsoft Windows operating systems, for UNIX...

  • Page 22
    ... Secure Access Manager software. In February 2000, we acquired all of the operating assets of Innovex Group, Inc. for approximately $47.8 million. On the date of the acquisition, we paid approximately $28.9 million in cash, including closing costs. Under the terms of the acquisition agreement...

  • Page 23
    ... software products bundled with an initial subscription for software license updates that provide the end-user with free enhancements and upgrades to the licensed product on a when and if available basis. Customers may also elect to purchase technical support, product training or consulting services...

  • Page 24
    ... estimated undiscounted future cash Ã-ows associated with our MetaFrame Secure Access Manager. Our revenues are forecasted based on historical sales, data received from rate projections on our installed customer base and estimates from our sales channels and end-customer sales force. Our assumptions...

  • Page 25
    .... All employees are eligible to participate in the stock option program. As of December 31, 2003, we had four stock-based compensation plans. We grant stock options for a Ã'xed number of shares to employees with an exercise price equal to or above the market value of the shares at the date of grant...

  • Page 26
    ... earned total annual salary and bonus in excess of $100,000 in 2002. The 2002 Named Executive OÇcers are identiÃ'ed in our 2002 Proxy Statement dated April 4, 2003. Named Executive oÇcers for both years presented were employees as of the respective year end. Year ended December 31, 2003 2002 Net...

  • Page 27
    ... 31, 2003 (in thousands, except weighted-average exercise price). Some amounts may not add due to rounding. Options Available for Grant Options Outstanding Weighted Number of Average Shares Exercise Price Balance at December 31, 2001 Granted at market value Granted above market value Exercised...

  • Page 28
    ... in this column were calculated based on the diÃ...erence between the fair market value of our common stock on the date of exercise and the exercise price of the options in accordance with regulations promulgated under the Securities Exchange Act of 1934, as amended (the ""Exchange Act''), and do not...

  • Page 29
    ..., additional user licenses and management products (such as load balancing and resource management products). These amounts are reÃ-ected net of sales allowances and provisions for stock balancing return rights. Software License Updates consists of fees related to our Subscription Advantage program...

  • Page 30
    ... from Software License Updates mainly due to the continued acceptance of our renewable Subscription Advantage program. To a lesser extent, the increase was due to an increase in Software Licenses, primarily of Citrix MetaFrame Presentation Server, particularly under enterprise customer license...

  • Page 31
    ... in research and development expenses, $2.8 million were included in sales, marketing and support expenses and $1.1 million were included in general and administrative expenses. Our results of operations are subject to Ã-uctuations in foreign currency exchange rates. In order to minimize adverse...

  • Page 32
    ... a worldwide brand awareness and advertising campaign. To a lesser extent the increase was due to increases in product training costs and distributor commissions associated with the increase in our software license updates. We currently expect sales, marketing and support expenses to increase as we...

  • Page 33
    ... determination of our eÃ...ective tax rate, ceased. The reduction in the tax rate was also due to higher tax credits related to our foreign operations and research and development, and the cessation of revenues from the Microsoft Development Agreement, which expired in May 2002. Liquidity and Capital...

  • Page 34
    ... in the event of immediate cash needs. Our short and long-term investments, other than $0.3 million of equity investments, consist of interest bearing securities. For more information on our cash and investments balances see ""Management's Discussion and Analysis of Financial Condition and Results...

  • Page 35
    ... demand within one year of the balance sheet date. In 2000, our board of directors approved a program authorizing us to spend up to $25 million to repurchase debentures in open market purchases. Additionally, in 2002 our board of directors granted us the additional authority to repurchase up to $100...

  • Page 36
    ... for up front payments of $40 million, we will receive a number of shares at monthly intervals based on the average closing price during the contract term less a speciÃ'ed discount. Due to the fact that the total shares to be received for the open repurchase agreements at December 31, 2003 is not...

  • Page 37
    ... cash outÃ-ows associated with our lease payments see ""Ã" Contractual Obligations.'' The initial term of the synthetic lease is seven years. Upon approval by the lessor, we can renew the lease twice for additional two-year periods. The lease payments vary based on the London Interbank OÃ...ered Rate...

  • Page 38
    ... new products, product development and oÃ...erings, Subscription Advantage, product and price competition, Expertcity, competition and strategy, product price and inventory, deferred revenues, economic and market conditions, revenue recognition, proÃ'ts, growth of revenues, cost of revenues, operating...

  • Page 39
    ... to purchase products from Microsoft. Additionally, there could be delays in the release and shipment of future versions of Windows Server Operating Systems. ‚ Termination of the Microsoft Source Licensing Agreement. In May 2002, we signed an agreement with Microsoft that provides us access to...

  • Page 40
    ... from our MetaFrame product line will depend on market acceptance of Windows Server Operating Systems and/or UNIX Operating Systems. Declines in demand for our MetaFrame products could occur as a result of: ‚ new competitive product releases and updates to existing products, ‚ price competition...

  • Page 41
    ...Manager and Citrix MetaFrame Password Manager and other future product oÃ...erings could be aÃ...ected by Microsoft's licensing and pricing scheme for client devices, servers and applications. Further, the announcement of the release, and the actual release, of new Windows-based server operating systems...

  • Page 42
    ... core technology purchased under third party licenses. We have commercialized and currently market the Sequoia and other license technology through our secure access infrastructure software, which includes Citrix MetaFrame Secure Access Manager and Citrix MetaFrame Password Manager. However, our...

  • Page 43
    ...-party's code in products of the acquired companies; ‚ the risk of diverting management's attention from normal daily operations of the business; ‚ potential diÇculties in completing products associated with purchased in-process research and development; ‚ risks of entering markets in which...

  • Page 44
    ...contract term as opposed to upon the initial shipment or licensing of the software product. We could implement diÃ...erent licensing models in certain circumstances, for which we would recognize licensing fees over a longer period. Changes to our licensing programs, including the timing of the release...

  • Page 45
    ... our headquarters oÇce buildings in Fort Lauderdale, Florida. The synthetic lease qualiÃ'es for operating lease accounting treatment under SFAS No. 13, Accounting for Leases, so we do not include the property or the lease debt on our consolidated balance sheet. In January 2003, the FASB issued FIN...

  • Page 46
    ... do the laws of the United States and Canada. For example, we derive a signiÃ'cant portion of our sales from licensing our packaged products under ""shrink wrap'' or ""click-to-accept'' license agreements that are not signed by licensees and electronic enterprise customer licensing arrangements that...

  • Page 47
    ... may need to add and remove distribution members to maintain customer satisfaction and a steady adoption rate of our products, which could increase our operating expenses. Through our accessPARTNER network, Citrix Authorized Learning Centers and other programs, we are currently investing, and intend...

  • Page 48
    ...nancial condition. If stock balancing returns or price adjustments exceed our reserves, our operating results could be adversely aÃ...ected. We provide most of our distributors with stock balancing return rights, which generally permit our distributors to return products to us, subject to ordering an...

  • Page 49
    ... business activities and could have a material adverse eÃ...ect on our business, Ã'nancial condition and results of operations. The market for our Web-based training and customer assistance products is volatile, and if it does not develop or develops more slowly than we expect, our Online Division...

  • Page 50
    ...the market for these services may not further develop at all, or it may develop more slowly than we expect, either of which would signiÃ'cantly adversely aÃ...ect our Ã'nancial condition and the operating results for our Online Division. If our security measures are breached and unauthorized access is...

  • Page 51
    ... position, results of operations, or cash Ã-ows as a result of these forward foreign exchange contracts. Exposure to Interest Rates We have interest rate exposures resulting from our interest-based available-for-sale securities. In order to better manage our exposure to interest rate risk, we are...

  • Page 52
    ... and results of operations. In addition to interest rate exposure, if the fair value of our headquarters building in Fort Lauderdale, Florida were to signiÃ'cantly decline, there could be a material adverse eÃ...ect on our results of operations and Ã'nancial condition. ITEM 8. FINANCIAL STATEMENTS AND...

  • Page 53
    ... proxy statement will be Ã'led with the Securities and Exchange Commission not later than 120 days after the close of the Company's Ã'scal year ended December 31, 2003. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required under this item is incorporated herein by reference to the...

  • Page 54
    ...Registration Rights Agreement by and between the Company and Credit Suisse First Boston Corporation dated as of March 22, 1999. Fourth Amended and Restated 1995 Stock Plan Second Amended and Restated 1995 Non-Employee Director Stock Option Plan Third Amended and Restated 1995 Employee Stock Purchase...

  • Page 55
    ... pursuant to a request for conÃ'dential treatment and Ã'led separately with the Securities and Exchange Commission) Master Lease dated as of April 23, 2002 by and between Citrix Systems, Inc. and Selco Service Corporation (with certain information omitted pursuant to a request for conÃ'dential...

  • Page 56
    ... Report on Form 8-K dated as of December 18, 2003. On December 30, 2003, the Company furnished a report on Form 8-K to the Securities and Exchange Commission. That report on Form 8-K, furnished pursuant to Item 5 of that form, announced that, on December 18, 2003, the Company and EAC Acquisition...

  • Page 57
    SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Fort Lauderdale, Florida on the 12th day of March, 2004. CITRIX SYSTEMS, INC...

  • Page 58
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  • Page 59
    ... following consolidated Ã'nancial statements of Citrix Systems, Inc. are included in Item 8: Report of Independent CertiÃ'ed Public Accountants Consolidated Balance Sheets ÃŒ December 31, 2003 and 2002 Consolidated Statements of Income ÃŒ Years ended December 31, 2003, 2002 and 2001 Consolidated...

  • Page 60
    ... present fairly, in all material respects, the consolidated Ã'nancial position of Citrix Systems, Inc. at December 31, 2003 and 2002, and the consolidated results of its operations and its cash Ã-ows for each of the three years in the period ended December 31, 2003, in conformity with accounting...

  • Page 61
    CITRIX SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS December 31, 2003 2002 (In thousands, except par value) Assets Current assets: Cash and cash equivalents Short-term investments Accounts receivable, net of allowances of $6,365 and $16,538 at 2003 and 2002, respectively Prepaid expenses and other ...

  • Page 62
    ... licenses Software license updates Services Other Total net revenues Cost of revenues: Cost of software license revenues Cost of services revenues Total cost of revenues Gross margin Operating expenses: Research and development Sales, marketing and support General and administrative...

  • Page 63
    ... under employee stock purchase plan 214 Common stock issued upon debt conversion Tax beneÃ't from employer stock plansÏÏ ÃŒ Proceeds from sale of put warrants Put warrant obligations, net of expired put warrants Repurchase of common stock Cash paid in advance for share repurchase contract...

  • Page 64
    ...Net cash provided by operating activities Investing activities Purchases of investments Proceeds from sales and maturities of investments Purchases of property and equipment Payment for) proceeds from termination of interest rate swaps Cash paid for acquisitions, net of cash acquired Cash paid...

  • Page 65
    ...-based desktop access. The Company's MetaFrame» products permit organizations to provide secure access to Windows based, Webbased and UNIX applications regardless of the user's location, network connection or type of client hardware platforms. The Company markets and licenses its software products...

  • Page 66
    ... all of the Company's accounts receivable are due from value-added resellers and distributors of computer software. Collateral is not required. Credit losses and expected product returns are provided for in the consolidated Ã'nancial statements and have been within management's expectations. If the...

  • Page 67
    ... beneÃ'ts of those employees directly associated with the development of the software. The amount of costs capitalized in 2003 and 2002 relating to internal use software were $3.8 million and $3.4 million, respectively, consisting principally of purchased software and services provided by external...

  • Page 68
    ...-added resellers, channel distributors, system integrators and independent software vendors, managed by the Company's worldwide sales force. The Company also separately sells software license updates and technical services, which includes product training, technical support and consulting services...

  • Page 69
    ... an executed standard software license agreement from the end-user. The Company requires a purchase order for technical support, product training and consulting services. ‚ Delivery has occurred and the Company has no remaining obligations. The Company's standard delivery method is free-on-board...

  • Page 70
    ...) products). These revenues are reÃ-ected net of sales allowances and provisions for stock balancing return rights. Software License Updates consists of fees related to the Subscription Advantage program (the Company's terminology for PCS) that are recognized ratably over the term of the contract...

  • Page 71
    ..., which give the Company the right to use certain software code in its products or in the development of future products in exchange for the payment of a Ã'xed fee or certain amounts based upon the sales of the related product. The licensing agreements generally have terms ranging from one to Ã've...

  • Page 72
    ... estimates made by management include the provision for doubtful accounts receivables, provision 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...

  • Page 73
    ...those of traded options and because changes in the subjective input assumptions can materially aÃ...ect the fair value estimate, in management's opinion, the existing pricing models do not necessarily provide a reliable single measure of the fair value of its stock-based awards to employees. Since the...

  • Page 74
    ... changes in the historical stock price. The higher the volatility, the higher the fair value of the option. The risk-free interest rate represents the current rate associated with zero coupon U.S. Government securities with a remaining term equal to the expected life of the options being valued...

  • Page 75
    ... events. During 2001, these contingencies were met, resulting in approximately $16.2 million of additional purchase price and $2.9 million in compensation paid to the former owners. Pursuant to the acquisition agreement, payment of $10.5 million of the contingent amounts and associated interest...

  • Page 76
    ... have been no losses associated with the corporate securities to date. At December 31, 2003 and 2002, the fair value of the securities were $194.5 million and $180.2 million, respectively The Company's other short and long-term investments are classiÃ'ed as available-for-sale and are recorded at...

  • Page 77
    ..., except for ISOs granted to employees who own more than 10% of the Company's combined voting power, for which the exercise prices will be no less than 110% of the market value at the date of grant. NSOs, stock awards or stock purchases may be granted or authorized, as applicable, at prices no less...

  • Page 78
    ...000 (as adjusted for stock splits) shares of Common Stock of the Company to non-employee directors of the Company. Pursuant to the Director Option Plan, each non-employee director is eligible to receive an initial grant of an option to purchase 60,000 shares of Common Stock and an annual grant of an...

  • Page 79
    ... in 2003, 2002, and 2001, respectively. BeneÃ't Plan The Company maintains a 401(k) beneÃ't plan (the ""Plan'') allowing eligible U.S.-based employees to contribute up to 60% of their annual compensation, limited to an annual maximum amount as set periodically by the Internal Revenue Service. The...

  • Page 80
    ... up front payments of $40 million, the Company will receive a number of shares at monthly intervals based on the average closing price during the contract term less a speciÃ'ed discount. Due to the fact that the total shares to be received for the open repurchase agreements at December 31, 2003 is...

  • Page 81
    ..., on Ã'xed dates and at set redemption prices (equal to the issue price plus accrued original issue discount), beginning on March 22, 2004. In October 2000, the Board of Directors approved a program authorizing the Company to repurchase up to $25 million of the Debentures in open market purchases...

  • Page 82
    ... order to lease its headquarters properties under more favorable terms than under its previous lease arrangements. The initial term of the synthetic lease is seven years. Upon approval by the lessor, the Company can renew the lease twice for additional two-year periods. The lease payments vary based...

  • Page 83
    CITRIX SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ÃŒ (Continued) majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other Ã'nancial interests in the entity. In December 2003, the ...

  • Page 84
    ... from prior year acquisitions. The utilization of these net operating loss carryforwards are limited in any one year pursuant to Internal Revenue Code Section 382 and begin to expire in 2010. At December 31, 2003, the Company had research and development tax credit carryforwards of approximately...

  • Page 85
    ... SIGNIFICANT CUSTOMERS The Company operates in a single market consisting of the design, development, marketing, sales and support of access infrastructure software and services for enterprise applications. The Company's revenues are derived from sales in the Americas, EMEA and Asia-PaciÃ'c regions...

  • Page 86
    ...687 $113,157 $152,551 (1) Represents royalty fees in connection with the Microsoft Development Agreement, which expired in May 2002. (2) Represents expenses presented to management only on a consolidated basis and not allocated to the geographic operating segments. IdentiÃ'able assets classiÃ'ed by...

  • Page 87
    ...was to expire in March 2004. The swap converted the Ã-oating rate return on certain of the Company's available for sale investment securities to a Ã'xed interest rate. In October 2002, the Company terminated this interest rate swap instrument. Upon termination, the Company received a cash payment of...

  • Page 88
    ... a variable rate based on the London Interbank OÃ...ered Rate (""LIBOR'') plus a speciÃ'ed margin. During 2003, the Company sold $104 million of the underlying Ã'xed rate available-for-sale securities and discontinued hedge accounting for the related $104 million of the interest rate swaps. Changes in...

  • Page 89
    ... per share: Year Ended December 31, 2003 2002 2001 (In thousands, except per share Information) Numerator: Net income Denominator: Denominator for basic earnings per share ÃŒ weighted average shares EÃ...ect of dilutive securities: Put warrants Employee stock options Denominator for diluted...

  • Page 90
    ... into a merger agreement with Expertcity, a market leader in Web-based desktop access as well as a leader in Web-based training and customer assistance products. On February 27, 2004, the Company acquired all of the issued and outstanding capital stock of Expertcity. The results of operations of...

  • Page 91
    ...in order to assist the Company in determining the fair values of a signiÃ'cant portion of Expertcity's net assets. The work being performed by the independent valuation specialists was considered in management's preliminary allocation of the purchase price summarized below. Under the purchase method...

  • Page 92
    ... thousands, except per share amounts) 2003 Net revenues Gross margin Income from operations Net income Basic earnings per common ...do not add to the annual earnings per share amount due to the weighting of common and common equivalent shares outstanding during each of the respective periods. F-...

  • Page 93
    CITRIX SYSTEMS, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Beginning of Period Charged (Credited) to Costs and Expenses Charged to Other Accounts (In thousands) Balance at End of Period Deductions 2003 Deducted from asset accounts: Allowance for doubtful accounts Allowance for returns ...

  • Page 94
    ...Registration Rights Agreement by and between the Company and Credit Suisse First Boston Corporation dated as of March 22, 1999. Fourth Amended and Restated 1995 Stock Plan Second Amended and Restated 1995 Non-Employee Director Stock Option Plan Third Amended and Restated 1995 Employee Stock Purchase...

  • Page 95
    ....1 24.1 31.1 31.2 32.1 Master Lease dated as of April 23, 2002 by and between Citrix Systems, Inc. and Selco Service Corporation (with certain information omitted pursuant to a request for conÃ'dential treatment and Ã'led separately with the Securities and Exchange Commission) List of Subsidiaries...

  • Page 96
    ...recent evaluation of internal control over Ã'nancial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All signiÃ'cant deÃ'ciencies and material weaknesses in the design or operation of internal...

  • Page 97
    ...recent evaluation of internal control over Ã'nancial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All signiÃ'cant deÃ'ciencies and material weaknesses in the design or operation of internal...

  • Page 98
    ... ACT OF 2002 In connection with the Annual Report of Citrix Systems, Inc. (the ""Company'') on Form 10-K for the period ending December 31, 2003 as Ã'led with the Securities and Exchange Commission on the date hereof (the ""Report''), we, Mark B. Templeton, Chief Executive OÇcer of the Company, and...

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