Citrix 2006 Annual Report Download - page 34

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is based on the estimated undiscounted future cash
flows derived from such technology. Our assumptions
about future revenues and expenses require significant
judgment associated with the forecast of the performance
of our products. Actual revenues and costs could vary
significantly from these forecasted amounts. As of
December 31, 2006, the estimated undiscounted future
cash flows expected from core and product technology
assets from these acquisitions is sufficient to recover
their carrying value. If these products are not ultimately
accepted by our customers and distributors, and there
is no alternative future use for the technology, we could
determine that some or all of their remaining $81.8 million
carrying value is impaired. In the event of impairment, we
would record an impairment charge to earnings that could
have a material adverse effect on our results of operations.
Goodwill
At December 31, 2006, we had $631.7 million in goodwill
primarily related to our acquisitions. The goodwill recorded
in relation to these acquisitions is not deductible for
tax purposes. We operate in a single industry segment
consisting of the design, development and marketing of
technology solutions that deliver applications on-demand.
Our revenues are derived from sales of our Application
Delivery Infrastructure products and related technical
services in the Americas, Europe, the Middle East and
Africa, or EMEA, and Asia-Pacific regions and from online
services sold by our Citrix Online Division. These three
geographic regions and the Citrix Online Division constitute
our reportable segments. See Note 13 to our consolidated
financial statements included elsewhere in this Annual
Report for additional information regarding our reportable
segments. We evaluate goodwill along these segments,
which represent our reporting units. Substantially all of
our goodwill at December 31, 2006 was associated with
our Americas and Online Services reportable segments.
Excluding goodwill, we have no intangible assets deemed
to have indefinite lives.
We use judgment in assessing goodwill for impairment.
Goodwill is reviewed for impairment annually, or sooner
if events or changes in circumstances indicate that the
carrying amount could exceed fair value. Fair values are
based on discounted cash flows using a discount rate
determined by our management to be consistent with
industry discount rates and the risks inherent in our current
business model. In accordance with SFAS No. 142,
Goodwill and Other Intangible Assets, we completed
the required annual impairment tests of goodwill as of
December 31, 2006. There were no impairment charges
recorded as a result of our annual impairment tests. Due
to uncertain market conditions and potential changes in
our strategy, product portfolio or reportable segments,
it is possible that the forecasts we use to support our
goodwill could change in the future, which could result in
non-cash charges that would adversely affect our results of
operations and financial condition.
Income Taxes
We are required to estimate our income taxes in each of
the jurisdictions in which we operate as part of the process
of preparing our consolidated financial statements. At
December 31, 2006, we have approximately $94.3 million in
current and long-term deferred tax assets. SFAS No. 109,
Accounting for Income Taxes, requires a valuation
allowance to reduce the deferred tax assets reported if,
based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will
not be realized. We review deferred tax assets periodically
for recoverability and make estimates and judgments
regarding the expected geographic sources of taxable
income, gains from investments, as well as tax planning
strategies in assessing the need for a valuation allowance.
At December 31, 2006, we determined that a valuation
allowance of approximately $1.3 million relating to foreign
tax credit carryovers was necessary to reduce our deferred
tax assets to the amount that will more likely than not be
realized. If the estimates and assumptions used in our
determination change in the future, we could be required to
revise our estimates of the valuation allowances against our
deferred tax assets and adjust our provisions for additional
income taxes.