Citrix 2006 Annual Report Download - page 83

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Citrix Systems, Inc.  Annual Report
loss on the derivative instrument effective at offsetting
changes in the hedged item is reported as a component
of accumulated other comprehensive income (loss) and
reclassified into earnings as operating income (expense)
when the hedged transaction affects earnings. For
derivative instruments that are designated as and qualify as
effective fair value hedges, the gain or loss on the derivative
instrument as well as the offsetting gain or loss on the
hedged item attributable to the hedged risk is recognized
in current earnings as interest income (expense) during
the period of the change in fair values. Derivatives not
designated as hedging instruments are adjusted to fair
value through earnings as other (expense) income in the
period the changes in fair value occur. The application of
the provisions of SFAS No. 133 could impact the volatility
of earnings.
The Company formally documents all relationships
between hedging instruments and hedged items, as
well as its risk-management objective and strategy for
undertaking various hedge transactions. This process
includes attributing all derivatives that are designated as
cash flow hedges to floating rate assets or liabilities or
forecasted transactions and attributing all derivatives that
are designated as fair value hedges to fixed rate assets or
liabilities. The Company also formally assesses, both at the
inception of the hedge and on an ongoing basis, whether
each derivative is highly effective in offsetting changes in
cash flows or fair value of the hedged item. Fluctuations in
the value of the derivative instruments are generally offset
by changes in the hedged item; however, if it is determined
that a derivative is not highly effective as a hedge or if
a derivative ceases to be a highly effective hedge, the
Company will discontinue hedge accounting prospectively
for the affected derivative.
Advertising Expense
The Company expenses advertising costs as incurred. The
Company has cooperative advertising agreements with
certain distributors and resellers whereby the Company will
reimburse distributors and resellers for qualified advertising
of Citrix products. The Company also has advertising
agreements with, and purchases advertising from, online
media providers to advertise its online services products.
Reimbursement is made once the distributor, reseller or
provider provides substantiation of qualified expenditures.
The Company estimates the impact of these expenses and
recognizes them at the time of product sales as a reduction
of net revenue or as a component of sales, marketing
and support expenses in the accompanying consolidated
statements of income. The Company recognized
advertising expenses of approximately $54.2 million,
$38.8 million and $35.2 million, during the years ended
December 31, 2006, 2005 and 2004, respectively.
Income Taxes
The Company estimates income taxes based on rates
in effect in each of the jurisdictions in which it operates.
Deferred income tax assets and liabilities are determined
based upon differences between the financial statement
and income tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the
differences are expected to reverse. The realization of
deferred tax assets is based on historical tax positions
and expectations about future taxable income. Valuation
allowances are recorded related to deferred tax assets
based on the “more likely than not” criteria of SFAS
No. 109, Accounting for Income Taxes .
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the
United States requires management to make estimates
and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying
notes. Significant estimates made by management include
the provision for doubtful accounts receivable, provision for
estimated returns for stock balancing and price protection
rights, as well as other sales allowances, the assumptions
used in the valuation of stock-based awards, the valuation
of the Company’s goodwill, net realizable value of core and
product technology, the provision for vacant facility costs,
the provision for income taxes and the amortization and
depreciation periods for intangible and long-lived assets.
While the Company believes that such estimates are fair
when considered in conjunction with the consolidated
financial position and results of operations taken as a
whole, the actual amounts of such estimates, when known,
will vary from these estimates.