Citrix 2006 Annual Report Download - page 98



statements to the administrative agent of the lessor and
prompt payment of taxes associated with the property. As
of December 31, 2006, the Company was in compliance
with all material provisions of the arrangement.
The Company’s synthetic lease contains a number of
affirmative and negative covenants. Because of delays
in filing the Company’s Annual Report on Form 10-K for
the year ended December 31, 2006, its Quarterly Report
on Form 10-Q for the three months ended March 31,
2007 and its Quarterly Report on Form 10-Q for the
three months ended June 30, 2007, the Company was
at risk of breaching the affirmative covenant requiring its
Annual Report on Form 10-K to be provided to the lessor
within 100 days after the end of its fiscal year end and its
Quarterly Reports on Form 10-Q within 55 days after the
end of its fiscal quarters. The Company received waivers
related to these covenant breaches to extend the due
date of its Annual Report on Form 10-K for the year ended
December 31, 2006, its Quarterly Report on Form 10-Q for
the three months ended March 31, 2007 and its Quarterly
Report on Form 10-Q for the three months ended June 30,
2007 until October 31, 2007. The Company provided such
reports to its lessor on September 14, 2007.
In January 2003, the FASB issued FASB Interpretation
(“FIN”) No. 46, Consolidation of Variable Interest Entities,
which addresses the consolidation of variable interest
entities in which an enterprise absorbs a majority of
the entity’s expected losses, receives a majority of the
entity’s expected residual returns, or both, as a result of
ownership, contractual or other financial interests in the
entity. In December 2003, the FASB issued FIN No. 46
(revised). FIN No. 46 (revised) was effective immediately
for certain disclosure requirements and variable interest
entities referred to as special-purpose entities for periods
ending after December 15, 2003 and for all types of
entities for financial statements for periods ending after
March 15, 2004. The Company determined that it was not
required to consolidate the lessor, the leased facility or the
related debt upon the adoption of FIN No. 46 (revised).
Accordingly, there was no impact on its financial position,
results of operations or cash flows from adoption. However,
if the lessor were to change its ownership of the property
or significantly change its ownership of other properties
that it currently holds, the Company could be required to
consolidate the entity, the leased facility and the debt in a
future period.
Office Leases
During 2002 and 2001, the Company took actions to
consolidate certain of its offices, including the exit of certain
leased office space and the abandonment of certain
leasehold improvements. During the third quarter of 2006,
the Company entered into an agreement, which assigned
the operating lease and all remaining liabilities related to
one of the closed offices to a third party. Lease obligations
related to the remaining existing operating lease continues
to 2018 with a total remaining obligation at December 31,
2006 of approximately $8.9 million, of which $1.6 million
was accrued as of December 31, 2006, and is reflected in
accrued expenses and other liabilities in the accompanying
consolidated balance sheets. In calculating this accrual, the
Company made estimates, based on market information,
including the estimated vacancy periods and sublease
rates and opportunities. The Company periodically re-
evaluates its estimates and if actual circumstances prove
to be materially worse than management has estimated,
the total charges for these vacant facilities could be
significantly higher.
Legal Matters
In 2006, the Company was sued in the United States
District Court for the Northern District of Ohio and in
the United States District Court for the Southern District
of Florida, in each case for alleged infringement of U.S.
patents by Citrix Online Division’s GoToMyPC service. The
complaints name Citrix Systems, Inc. and Citrix Online
LLC, a wholly-owned subsidiary of Citrix Systems, Inc.,
as defendants and seek unspecified damages and other
relief. In response, the Company filed answers denying that
GoToMyPC infringes these patents and alleging, among
other things, that the asserted claims of these patents
are invalid. In January 2007, a similar suit naming Citrix
Systems, Inc. was filed in the United States District Court
of the Eastern District of Texas, and the Company has
filed a response denying infringement and alleging that
the asserted patent is invalid. On November 2, 2006, the
court in the Northern District of Ohio held a hearing for the
purpose of construing disputed terms of the claims of the
patent-in-suit, and on March 13, 2007, the court issued a
claim construction ruling. On March 21, 2007, the Company
moved for leave to amend its answer in that case to assert
an affirmative defense and counterclaim of inequitable
conduct, which is a complete defense. On August 28,
2007, the court granted the Company’s motion. On April