Citrix 2006 Annual Report Download - page 72

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In this Annual Report, the Company 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 the
Company’s historical stock option granting practices.
The cumulative effect of the restatement adjustments
on the consolidated balance sheet at December 31,
2005 was an increase in additional paid-in capital, offset
by a corresponding decrease in retained earnings and
deferred compensation, which results in no net effect on
stockholders’ equity. There were also adjustments made
to increase the Company’s short and long-term deferred
tax assets and its accrued expenses due to the tax effects
of the restatement. The adjustments decreased previously
reported basic net income per share by $0.01 for the
year ended December 31, 2005 and had no impact on
previously reported basic net income per share for the
year ended December 31, 2004. The adjustments had no
impact on previously reported diluted net income per share
for the years ended December 31, 2005 and 2004.
Tax Related Issues
Because virtually all holders of stock options granted by
the Company were not involved in or aware of the incorrect
pricing of certain options, the Company has taken and
intends 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, the Company has recorded
$2.5 million, net of income tax, in liabilities related to the
anticipated payment by the Company of payroll and excise
taxes on behalf of the Company’s employees for options
that were exercised during open tax years under the related
statutes. The Company expects 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 options.
Additionally, the Company believes that United States
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
incentive based. As a result, the Company has reduced its
available tax net operating loss carry-forwards arising from
The following table reflects the impacts of the restatement adjustments on the Company’s consolidated statements of
income for the periods presented below (in thousands):
Category of Adjustments: 2005 2004
Cumulative
Effect from
January 1, 1996
through
December 31, 2003
Pre-tax stock-based compensation expense related to stock
option measurement date changes $ 3,142 $ 6,226 $ 156,299
Other tax charges (2,127) (6,031) 14,438
Income tax impact on other tax charges 727 1,963 (3,848)
Income tax adjustments related to IRC Section 162 (m) (288) — 494
Income tax impact related to stock option compensation
expense date changes (862) (1,802) (47,456)
Total income tax adjustments (423) 161 (50,810)
Total charge to net income $ 592 $ 356 $ 119,927