Citrix 2006 Annual Report Download - page 23

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Citrix Systems, Inc.  Annual Report
options were issued between three and 21 days
in advance of the actual anniversary date. We
determined that the grants were not fixed with
finality until the anniversary date prescribed by
the plan because that date represents the date on
which approval existed pursuant to the stockholder
approved plan. We revised the measurement dates
accordingly, and recognized pre-tax compensation
expense of $0.5 million representing the difference
in intrinsic value between grant date prescribed by
the plan and the original grant date.
• We awarded approximately 0.1 million options
in June 2002 to non-employee directors. The
grant was one day later than the automatic date
prescribed by the stockholder approved plan and
the number of options were nominally different
from the plan formula (aggregate difference of
770 options). Based on the available evidence, we
concluded that the grant date error constituted
a modification of the automatic grant that should
have occurred on the previous day. We concluded
that the grant was fixed with finality on the date
awarded and the dating error and share differences
resulted in compensation expense of approximately
$5,000, representing the difference in the intrinsic
value between the automatic grant date prescribed
by the plan and the original grant date.
• In 2000, we awarded an anniversary grant for
approximately 0.2 million options in error one year
after the actual anniversary date of the director.
We considered the grant a modification of the
prescribed automatic grant under the stockholder
approved plan and concluded that the grant was
fixed with finality on the grant date. However, no
compensation expense resulted as the closing
price of our common stock increased from the
automatic grant date to the grant date of the award.
Other Measurement Date Judgments
We identified other circumstances related to approximately
4.2 million options (approximately 3.8% of options issued)
that resulted in revised measurement dates. In some
instances, we made changes after the grant date to add
individuals to the list of grant recipients and received
later approval by the Compensation Committee. In other
instances, we issued options that were different in amount
than that approved by the Compensation Committee or
issued options for which we were unable to locate the
approval documentation during the investigation. In each of
these circumstances, we evaluated the existing information
related to each individual grant and we established a new
measurement date when we determined that the terms of
the award were fixed with finality.
Impact of the Errors on our Financial Statements
We have determined that after accounting for forfeitures,
the errors described above resulted in an understatement
of stock-based compensation expense over the vesting
terms of the grants corrected. Most of the adjusted
measurement dates were with respect to grants made prior
to December 31, 2004. We recorded pre-tax stock-based
compensation expense of approximately $3.1 million and
$6.2 million for the years ended December 31, 2005 and
2004, respectively, and $156.3 million related to years
prior to fiscal 2004. There was no impact on revenue or
cash and investments as a result of this additional stock
compensation expense and the adjustments related to our
historical stock option granting practices.
As a result of the review, we determined that we failed
to properly withhold employment (the employee and our
portions of FICA and supplemental federal withholding)
taxes associated with certain stock option exercises. We
recorded such amounts in the consolidated statements of
income in the period in which we were originally obligated
to make the withholding. Additionally, for tax years where
the statute of limitations has lapsed, we have recorded
the reduction in previously recorded liabilities in the period
the statute of limitations expires. We have recorded
approximately $8.0 million, net of income tax, through
December 31, 2006 for employment taxes and
related charges.
Additionally, we believe that United States income tax
deductions taken for stock option exercises in prior
years, which pertained to certain executives, may
not be deductible under limitations imposed by IRC
Section 162(m). Section 162(m) limits the deductibility of
compensation above $1 million to certain executive officers
of public companies when such compensation is not