Citrix 2006 Annual Report Download - page 86

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dimensions of application delivery. Revenues from the
acquired products are primarily included in the Company’s
Product License revenue and Technical Services revenue
in the accompanying consolidated statements of income.
In connection with the 2005 Acquisitions, the Company
allocated $230.0 million to goodwill, $40.2 million to
core technology and $35.8 million to other intangible
assets. The Company assigned all of the goodwill to its
Americas segment.
2004 Acquisitions
During 2004, the Company acquired all of the issued and
outstanding capital stock of two privately held companies
Net6, Inc., a leader in providing secure access gateways
and Expertcity.com, Inc., a leader in Web-based desktop
access, as well as, a leader in Web-based meeting and
customer assistance services (the “2004 Acquisitions”).
The consideration for the 2004 Acquisitions was $291.0
million comprised of $161.8 million in cash, $6.1 million
of direct transaction costs and 5.8 million shares of the
Company’s common stock valued at $124.8 million.
The common stock valued at $124.8 million included
$118.0 million related to the initial purchase price and
the remaining balance is primarily related to additional
common stock earned by Expertcity.com, Inc., upon
the achievement of certain revenue and other financial
milestones during 2004 pursuant to the applicable merger
agreement, which were issued in March 2005. The fair
value of the common stock earned as additional purchase
price consideration was recorded as goodwill on the date
earned. In connection with the 2004 Acquisitions, the
Company allocated $195.1 million to goodwill, $38.7 million
to core and product technology and $32.4 million to other
intangible assets. The Company assigned $31.7 million of
the goodwill to its Americas segment and $163.4 million
of the goodwill to its Citrix Online Division. The sources of
funds for consideration paid in these transactions consisted
of available cash and investments and the Company’s
authorized common stock. There is no additional
contingent consideration related to the transactions.
2005 and 2004 Acquisitions Pro Forma Disclosure
The results of operations of the 2005 and 2004 Acquisitions
were included in the Company’s results of operations
beginning after their respective acquisition dates and are
reflected for the full year 2006. The following unaudited pro
forma information combines the consolidated results of
operations of Citrix and the companies that it acquired as if
the acquisitions had occurred at the beginning of fiscal year
2004 (in thousands, except per share data):
December 31,
2005 2004
(Restated) (Restated)
Revenues $฀ 934,039 $ 770,339
Income from operations 168,367 89,498
Net income 141,617 85,023
Per share - basic 0.80 0.48
Per share - diluted 0.77 0.47
Purchase Accounting for Acquisitions
The fair values used in determining the purchase price
allocation for certain intangible assets for the Company’s
acquisitions were based on estimated discounted future
cash flows, royalty rates and historical data, among
other information. Purchased in-process research and
development (“IPR&D”) of $1.0 million, $7.0 million and
$19.1 million was expensed immediately upon the closing
of the 2006 Acquisitions, 2005 Acquisitions and 2004
Acquisitions, respectively, in accordance with FASB
Interpretation No. 4, Applicability of FASB Statement No. 2
to Business Combinations Accounted for by the Purchase
Method, due to the fact that it pertained to technology that
was not currently technologically feasible, meaning it had
not reached the working model stage, did not contain all of
the major functions planned for the product, was not ready
for initial customer testing and had no alternative future
use. The fair value assigned to IPR&D was determined
using the income approach, which includes estimating the
revenue and expenses associated with a project’s sales
cycle and by estimating the amount of after-tax cash flows
attributable to the projects. The future cash flows were
discounted to present value utilizing an appropriate risk-
adjusted rate of return, which ranged from 17% to 25%.
The rate of return included a factor that takes into account
the uncertainty surrounding the successful development of
the IPR&D.