Citrix 2007 Annual Report Download - page 44

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comprised of cash paid of $65.1 million and other costs related primarily to direct transaction costs of $2.9
million. As part of the 2006 Acquisitions, we assumed approximately 0.4 million non-vested stock-based awards
upon the closing of the transaction. The sources of funds for consideration paid in these transactions consisted of
available cash and investments. In connection with the 2006 Acquisitions, we allocated $43.7 million to
goodwill, $17.3 million to core and product technology and $3.6 million to other intangible assets. We assigned
all of the goodwill to our Americas segment
2005 Acquisitions
During 2005, we acquired all of the issued and outstanding capital stock of two privately held companies,
NetScaler, Inc. and Teros, Inc., or together, the 2005 Acquisitions, for a total of $172.8 million in cash,
6.6 million shares of our common stock valued at $154.8 million and estimated direct transaction costs of $6.2
million. We also assumed approximately $20.6 million in non-vested stock-based compensation upon the closing
of the NetScaler, Inc., or NetScaler, transaction that was accounted for in accordance with FASB Interpretation
No. 44, Accounting for Certain Transactions Involving Stock Compensation (an Interpretation of APB Opinion
No. 25) and was recorded as deferred compensation in the accompanying 2005 consolidated balance sheet.The
assumed awards had an excess of fair value over intrinsic value of $0.5 million, which is reflected in the total
consideration for the transaction. The 2005 Acquisitions further extended our Citrix Delivery Center products,
which is designed to offer comprehensive solutions across all dimensions of application delivery. The results of
operations of the acquired companies are included as part of our results beginning after their respective dates of
acquisition and revenues from the acquired products are included in our Product License revenue and Technical
Services revenue in the accompanying consolidated statements of income. In connection with the 2005
Acquisitions, we allocated $230.0 million to goodwill, $40.2 million to core technology and $35.8 million to
other intangible assets. We assigned all of the goodwill to our Americas segment.
In-process Research and Development for Acquisitions
The fair values used in determining the purchase price allocation for certain intangible assets for our
acquisitions were based on estimated discounted future cash flows, royalty rates and historical data, among other
information. Purchased in-process research and development, or IPR&D, was expensed immediately upon the
closing of our 2007 Acquisitions in the amount of $9.8 million, our 2006 Acquisitions in the amount of $1.0
million and our 2005 Acquisitions in the amount of $7.0 million, 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 in-process research and
development 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 19%–36%. The rate of return included a factor that takes into account the uncertainty
surrounding the successful development of the IPR&D.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent
liabilities. We base these estimates on our historical experience and on various other assumptions that we believe
to be reasonable under the circumstances, and these estimates form the basis for our judgments concerning the
carrying values of assets and liabilities that are not readily apparent from other sources. We periodically evaluate
these estimates and judgments based on available information and experience. Actual results could differ from
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