Citrix 2006 Annual Report Download - page 97

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
Citrix Systems, Inc.  Annual Report
these leases contain stated escalation clauses while others
contain renewal options. The Company recognizes rent
expense on a straight-line basis over the term of the lease,
excluding renewal periods, unless renewal of the lease is
reasonably assured.
Rental expense for the years ended December 31, 2006,
2005 and 2004 totaled approximately $24.9 million, $21.2
million and $18.0 million, respectively. Sublease income
for the years ended December 31, 2006, 2005 and 2004
was approximately $0.7 million, $0.8 million and $1.6
million, respectively. Lease commitments under non-
cancelable operating leases with initial or remaining terms
in excess of one year and sublease income associated
with non-cancelable subleases, including estimated
future payments under the Company’s synthetic lease
arrangement, are as follows:
(In thousands)
Operating
Leases
Sublease
Income
Years ending December 31,
2007 $ 27,080 $ 780
2008 22,464 813
2009 17,873 832
2010 13,422 301
2011 10,214 96
Thereafter 39,749 585
$ 130,802 $ 3,407
Off-Balance Sheet Arrangement
During 2002, the Company became a party to a synthetic
lease arrangement totaling approximately $61.0 million
for its corporate headquarters office space in Fort
Lauderdale, Florida. The synthetic lease represents a form
of off-balance sheet financing under which an unrelated
third party lessor funded 100% of the costs of acquiring
the property and leases the asset to the Company.
The synthetic lease qualifies as an operating lease for
accounting purposes and as a financing lease for tax
purposes. The Company does not include the property
or the related lease debt as an asset or a liability in its
consolidated balance sheets. Consequently, payments
made pursuant to the lease are recorded as operating
expenses in the Company’s consolidated statements of
income. The Company entered into the synthetic lease
in order to lease its headquarters properties under
more favorable terms than under its previous
lease arrangements.
The initial term of the synthetic lease is seven years. Upon
approval by the lessor, the Company can renew the lease
twice for additional two-year periods. The lease payments
vary based on LIBOR plus a margin. At any time during the
lease term, the Company has the option to sublease the
property and upon a thirty-day written notice, the Company
has the option to purchase the property for an amount
representing the original property cost and transaction
fees of approximately $61.0 million plus any lease breakage
costs and outstanding amounts owed. Upon at least 180
days notice prior to the termination of the initial lease term,
the Company has the option to remarket the property
for sale to a third party. If the Company chooses not to
purchase the property at the end of the lease term, it has
guaranteed a residual value to the lessor of approximately
$51.9 million and possession of the buildings will be
returned to the lessor. On a periodic basis, the Company
evaluates the property for indicators of impairment. If an
evaluation were to indicate that fair value of the property
had declined below $51.9 million, the Company would be
responsible for the difference under its residual
value guarantee, which could have a material adverse
effect on the Company’s results of operations and
financial condition.
The synthetic lease includes certain financial covenants
including a requirement for the Company to maintain a
pledged balance of approximately $62.8 million in cash
and/or investment securities as collateral. This amount is
included in restricted cash equivalents and investments
in the accompanying consolidated balance sheets. The
Company maintains the ability to manage the composition
of the restricted investments within certain limits and to
withdraw and use excess investment earnings from the
restricted collateral for operating purposes. Additionally, the
Company must maintain a minimum cash and investment
balance of $100.0 million, excluding the Company’s
collateralized investments, equity investments and
outstanding debt as of the end of each fiscal quarter. As
of December 31, 2006, the Company had approximately
$642.5 million in cash and investments in excess of this
required level. The synthetic lease includes non-financial
covenants, including the maintenance of the property
and adequate insurance, prompt delivery of financial