Citrix 2006 Annual Report Download - page 51


Citrix Systems, Inc.  Annual Report
breaches to extend the due date of our Annual Report on
Form 10-K for the year ended December 31, 2006 and
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 until
October 31, 2007. We provided such reports to the lessor
on September 14, 2007.
In January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities, which addresses
the consolidation of variable interest entities in which an
enterprise absorbs a 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 financial interests in the entity. In December 2003,
the FASB issued FIN No. 46 (revised), which replaced FIN
No. 46. FIN No. 46 (revised) was effective immediately
for certain disclosure requirements and variable interest
entities referred to as special-purpose entities for periods
ending after December 15, 2003 and for other types of
entities for financial statements for periods ending after
March 15, 2004. We determined that we are not required
to consolidate the lessor, the leased facility or the related
debt associated with our synthetic lease in accordance
with FIN No. 46 (revised). Accordingly, there was no impact
on our financial position, results of operations or cash
flows from adoption. However, if the lessor were to change
its ownership of the property or significantly change its
ownership of other properties that it currently holds, we
could be required to consolidate the entity, the leased
facility and the debt in a future period.
Commitments
Capital expenditures were $52.1 million during 2006, $26.4
million during 2005 and $24.4 million during 2004. During
2006, capital expenditures were primarily related to the
implementation of certain systems to streamline business
operations and enhance management reporting capabilities
and leasehold improvements. During 2005, capital
expenditures were primarily related to computer equipment
purchases associated with our research and development
activities, software purchases related to improving our
internal infrastructure and leasehold improvements.
During 2002 and 2001, we took actions to consolidate
certain of our offices, including the exit of certain leased
office space and the abandonment of certain leasehold
improvements. During the third quarter of 2006, we
entered into an agreement, which assigned the operating
lease and all remaining liability related to one of the closed
offices to a third party. Lease obligations related to the
remaining existing operating lease continue to 2018
with a total remaining obligation at December 31, 2006
of approximately $8.9 million, of which $1.6 million was
accrued as of December 31, 2006, and is reflected in
accrued expenses and other liabilities in our consolidated
financial statements. In calculating this accrual, we made
estimates, based on market information, including the
estimated vacancy periods and sublease rates and
opportunities. We periodically re-evaluate our estimates;
and if actual circumstances prove to be materially worse
than management has estimated, the total charges for
these vacant facilities could be significantly higher.
Because virtually all holders of stock options granted by
us were not involved in or aware of the incorrect pricing of
certain options, we have taken and intend to take further
actions to address certain adverse tax consequences
that may be incurred by the holders of such incorrectly
priced options. The primary adverse tax consequence is
that the re-measured options vesting after December 31,
2004 subject the option holder to a penalty tax under
Section 409A of the IRC (and, as applicable, similar excise
taxes under state laws). As a result during the first quarter
of 2007, we recorded $2.5 million, net of income tax, in
liabilities related to the anticipated payment by us of payroll
and excise taxes on behalf of our employees for options
that were exercised during open tax years under the related
statutes. We expect to incur approximately $0.9 million,
net of income tax, in additional charges to correct future
adverse tax consequences under IRC Section 409A related
to future employee option exercises of incorrectly priced
stock options.