Citrix 2006 Annual Report Download - page 50

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As of December 31, 2006, we did not have any individually
material capital lease obligations, purchase obligations,
or other material long-term commitments reflected on our
consolidated balance sheets.
Off-Balance Sheet Arrangement
During 2002, we became a party to a synthetic lease
arrangement totaling approximately $61.0 million for our
corporate headquarters office space in Fort Lauderdale,
Florida. The synthetic lease represents a form of off-
balance sheet financing under which an unrelated third
party lessor funded 100% of the costs of acquiring the
property and leases the asset to us. The synthetic lease
qualifies as an operating lease for accounting purposes
and as a financing lease for tax purposes. We do not
include the property or the lease debt as an asset or a
liability on our accompanying consolidated balance sheets.
Consequently, payments made pursuant to the lease
are recorded as operating expenses in our consolidated
statements of income. We entered into the synthetic
lease in order to lease our headquarters properties under
more favorable terms than under our previous lease
arrangements. We do not materially rely on off-balance
sheet arrangements for our liquidity or as capital resources.
For information regarding cash outflows associated with
our lease payments see “— 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 LIBOR, plus a margin. At any time during the
lease term, we have the option to sublease the property
and upon thirty days’ written notice, we have the option
to purchase the property for an amount representing the
original property cost and transaction fees of approximately
$61.0 million plus any lease breakage costs and
outstanding amounts owed. Upon at least 180 days notice
prior to the termination of the initial lease term, we have the
option to remarket the property for sale to a third party. If
we choose not to purchase the property at the end of the
lease term, we have guaranteed a residual value to the
lessor of approximately $51.9 million and possession of the
buildings will be returned to the lessor. On a periodic
basis, we evaluate the property for indications of
permanent impairment. If an evaluation were to indicate
that the fair value of the property were to decline below
$51.9 million, we would be responsible for the difference
under our residual value guarantee, which could have a
material adverse effect on our results of operations and
financial condition.
The synthetic lease includes certain financial covenants
including a requirement for us to maintain a restricted cash,
cash equivalent or investment balance of approximately
$62.8 million as collateral, which is classified as restricted
cash equivalents and investments in our accompanying
consolidated balance sheets. We maintain the ability to
manage the composition of restricted investments within
certain limits and to withdraw and use excess investment
earnings from the pledged collateral for operating
purposes. Additionally, we must maintain a minimum net
cash and investment balance of $100.0 million, excluding
our collateralized investments, equity investments and
outstanding debt as of the end of each fiscal quarter. As
of December 31, 2006, we had approximately $642.5
million in cash and investments in excess of this required
level. The synthetic lease includes non-financial covenants,
including the maintenance of the property and adequate
insurance, prompt delivery of financial statements to the
administrative agent of the lessor and prompt payment of
taxes associated with the property. As of December 31,
2006, we were in compliance with all material provisions of
the arrangement.
Our synthetic lease contains a number of affirmative and
negative covenants. Because of delays in filing our Annual
Report on Form 10-K for the year ended December 31,
2006, our Quarterly Report on Form 10-Q for the three
months ended March 31, 2007 and our Quarterly Report
on Form 10-Q for the three months ended June 30, 2007,
we were at risk of breaching the affirmative covenants
requiring our Annual Report on Form 10-K to be provided
to the lessor within 100 days after the end of our fiscal
year and our Quarterly Reports on Form 10-Q within 55
days after the end of our fiscal quarters, respectively. We
received waivers related to these anticipated covenant