Citrix 2006 Annual Report Download - page 77

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Citrix Systems, Inc.  Annual Report
3. Significant Accounting Policies
Consolidation Policy
The consolidated financial statements of the Company
include the accounts of its wholly-owned subsidiaries in
the Americas, Europe, the Middle East and Africa (“EMEA”)
and Asia-Pacific. All significant transactions and balances
between the Company and its subsidiaries have been
eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents at December 31, 2006 and
2005 consist of marketable securities, which are primarily
money market funds, commercial paper, agency securities,
corporate securities and municipal securities with initial or
remaining contractual maturities when purchased of three
months or less. The Company minimizes its credit risk
associated with cash and cash equivalents by investing
primarily in investment grade, highly liquid instruments.
Restricted Cash Equivalents and Investments
Restricted cash equivalents and investments at
December 31, 2006 and 2005 are primarily comprised of
$62.8 million in investment securities and cash equivalents
pledged as collateral for specified obligations under the
Company’s synthetic lease arrangement. The Company
maintains the ability to manage the composition of the
restricted cash equivalents and investments within certain
limits and to withdraw and use excess investment earnings
from the restricted collateral for operating purposes. For
further information, see Note 11.
Investments
Short-term and long-term investments at December 31,
2006 and 2005 primarily consist of corporate securities,
agency securities, commercial paper, municipal securities
and government securities. Investments classified as
available-for-sale are stated at fair value with unrealized
gains and losses, net of taxes, reported in accumulated
other comprehensive income (loss). Investments classified
as held-to-maturity are stated at amortized cost. In
accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 95, Statement of Cash Flows, the
Company classifies available-for-sale securities, including
its investments in auction rate securities that are available to
meet the Company’s current operational needs, as short-
term. The Company does not recognize changes in the fair
value of its investments in income unless a decline in value
is considered other-than-temporary in accordance with the
Financial Accounting Standards Board (the “FASB”) Staff
Position 115-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments.
The Company minimizes its credit risk associated with
investments by investing primarily in investment grade,
highly liquid securities. The Company’s policy is designed
to limit exposure to any one issuer depending on credit
quality. Periodic evaluations of the relative credit standing
of those issuers are considered in the Company’s
investment strategy. The Company uses information
provided by third parties to adjust the carrying value of
certain of its investments and derivative instruments to fair
value at the end of each period. Fair values are based on
valuation models that use market quotes and, for certain
investments, assumptions as to the creditworthiness of the
entities issuing those underlying instruments.
Accounts Receivable
The Company’s accounts receivable are due from
value-added resellers, distributors and end customers.
Collateral is not required. Product returns are provided
for in the consolidated financial statements and have
historically been within management’s expectations.
The Company also maintains allowances for doubtful
accounts for estimated losses resulting from the inability
of the Company’s customers to make payments. The
Company periodically reviews these estimated allowances,
including an analysis of the customers’ payment history
and creditworthiness. The allowance for doubtful accounts
was $2.4 million and $2.1 million as of December 31,
2006 and 2005, respectively. If the financial condition of a
significant distributor or customer were to deteriorate, the
Company’s operating results could be adversely affected.
No distributor or customer accounted for more than 10% of
gross accounts receivable at December 31, 2006 or 2005.
Inventory
Inventories are stated at the lower of cost or market on
a first-in, first out basis and primarily consist of finished
goods. As of December 31, 2006 and 2005, the provision
to reduce obsolete or excess inventories to market was
$5.2 million and $0.6 million, respectively.