Citrix 2006 Annual Report Download - page 64

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1. Organization
Citrix Systems, Inc. (“Citrix” or the “Company”), is a
Delaware corporation founded on April 17, 1989. The
Company designs, develops and markets technology
solutions that allow applications to be delivered, supported
and shared on-demand, securely and at a relatively low
total cost of ownership. The Company markets and
licenses its products through multiple channels such
as value-added resellers, channel distributors, system
integrators, independent software vendors, its Websites
and original equipment manufacturers.
2. Restatement of Consolidated Financial
Statements
In its Form 10-K as of and for the year ended December 31,
2006, the Company restated its consolidated balance
sheet as of December 31, 2005 and the related
consolidated statements of income, stockholders’ equity
and comprehensive income and cash flows for each of
the years in the two-year period ended December 31,
2005, and each of the quarters in its 2006 and 2005 to
reflect additional stock-based compensation expense
and related income tax effects for stock option awards
granted since December 1995 and the financial statement
impact for all subsequent periods. The restatement was
to correct errors identified as the result of a voluntary,
independent investigation of the Company’s historical
stock option granting practices and related accounting
that was conducted by the Audit Committee of its Board
of Directors and management’s further review of all grants
(consisting of two employee new hire grants) in December
1995, which was the month the Company completed its
initial public offering.
This Annual Report also reflects the restatement in
“Selected Consolidated Financial Data” for the fiscal years
ended December 31, 2005, 2004, 2003 and 2002.
Background
On November 30, 2006, after management conducted
a preliminary, limited scope review of certain of the
Company’s stock option granting practices, the Audit
Committee commenced a voluntary, independent
investigation of the Company’s historical stock option
granting practices and related accounting during the
period from January 1996 through December 2006.
None of the members of the 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
the Company completed its 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 the Company, 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 the Company 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 the Company during
the period of the investigation;