Citrix 2006 Annual Report Download - page 17

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Citrix Systems, Inc.  Annual Report
Restatement of Financial Statements
All of the financial information presented in “Management’s
Discussion and Analysis of Financial Condition and Results
of Operations,” as well as elsewhere in this Annual Report
has been adjusted to reflect the restatement of our financial
results, as described in “Selected Consolidated Financial
Data,” and Note 2 to our consolidated financial statements
included elsewhere in this Annual Report. The impact
under Accounting Principles Board, or APB, No. 25,
Accounting for Stock Issued to Employees, of recognizing
additional stock-based compensation expense and related
tax effects as a result of our historical stock option granting
practices is $3.1 million ($0.6 million net of income taxes
and other tax charges) in 2005, $6.2 million ($0.4 million
net of income taxes and other tax charges) in 2004, and
$156.3 million ($119.9 million net of income taxes and other
tax charges) for 2003 and all prior years commencing in
December 1995.
Independent Investigation of Historical Stock Option
Granting Practices
As a result of our Audit Committee’s investigation
of our historical stock option granting practices and
management’s review, which has now been completed,
we identified approximately 76.4 million stock option grants
made on 138 grant dates during the period from December
1995 to March 31, 2005 for which we used incorrect
measurement dates and as a result of revising those
measurement dates, recorded stock-based compensation
expense for financial accounting purposes under APB No.
25. To correct these errors, we have recorded a pre-tax
cumulative charge of $165.7 million ($120.9 million on an
after tax basis) in our consolidated financial statements
through December 31, 2005 to reflect additional stock-
based compensation expense.
Background
On November 30, 2006, after our management conducted
a preliminary, limited scope review of certain of our
stock option granting practices, our Audit Committee
commenced a voluntary, independent investigation
of our historical stock option granting practices and
related accounting during the period from January 1996
through December 2006. None of the members of our
Audit Committee has ever served on the Compensation
Committee of the Board of Directors. This voluntary
investigation was not in response to any governmental
investigation, stockholder lawsuit, whistleblower complaint,
or inquiries from media organizations. The investigation
was conducted with the assistance of independent outside
legal counsel and outside forensic accounting consultants,
and covered option grants made to all employees during
the period from January 1996 through December 2006.
Management further evaluated all grants (consisting of two
employee new hire grants) in December 1995, which was
the month we completed our initial public offering, and all
grants to non-employee directors. The investigation and
related review consisted of approximately 191 grant dates
(representing over 27,000 individual option grants and
approximately 108.7 million stock options).
In connection with its investigation, the Audit Committee
retained independent outside legal counsel that had
not previously been engaged by us, to assist in the
investigation. In turn, legal counsel retained outside forensic
accounting experts and other consultants to assist it and
the Audit Committee with financial accounting issues and
related analytics during the investigation. The investigation
occurred over a period of approximately seven months.
The investigative work conducted by the Audit Committee
included the following tasks, among others:
• Reviewing hard copy and electronic files obtained
from us as well as other sources, totaling
approximately 40,000 pages of hard copy
documents and approximately 191,000 electronic
documents, typically consisting of multiple
pages each;
• Conducting more than 50 interviews with
present and former directors who have served
on the Compensation Committee during the
relevant period, present and former members of
senior management, other present and former
employees, and former outside professionals who
had provided legal services to us during the period
of the investigation;