Citrix 2007 Annual Report Download - page 49

income taxes on transactions based on our estimate of the probable liability. We adjust our provision as
appropriate for changes that impact our underlying judgments. Changes that impact provision estimates include
such items as jurisdictional interpretations on tax filing positions based on the results of tax audits and general
tax authority rulings. Due to the evolving nature of tax rules combined with the large number of jurisdictions in
which we operate, it is possible that our estimates of our tax liability and the realizability of our deferred tax
assets could change in the future, which may result in additional tax liabilities and adversely affect our results of
operations, financial condition and cash flows.
The following discussion relating to the individual financial statement captions, our overall financial
performance, operations and financial position should be read in conjunction with the factors and events
described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Overview” and “Risk Factors,” which could impact our future performance and financial position.
Stock Option Investigation and Related Matters
On November 30, 2006, our Audit Committee commenced a voluntary, independent investigation of our
historical stock option granting practices and related accounting during the period from January 1996 through
December 2006. In addition to the grants management evaluated as part of the Audit Committee’s investigation,
we also evaluated all grants (consisting of two employee new hire grants) in December 1995, which was the
month we completed our initial public offering, and all grants to non-employee directors. This voluntary
investigation was not in response to any governmental investigation, stockholder lawsuit, whistleblower
complaint or inquiries from media organizations. Our Annual Report on Form 10-K for the year ended
December 31, 2006, which was filed on September 7, 2007, contains a description of the Audit Committee’s
investigation, management’s related review, the conclusions of the Audit Committee and management and the
restatement of our consolidated balance sheet as of December 31, 2005 and the related consolidated statements of
income, stockholders’ equity and comprehensive income and cash flows for the years ended December 31, 2005
and 2004, and each of the quarters in the 2006 and 2005 fiscal years, to reflect additional stock-based
compensation expense and related income tax effects for stock option awards granted since December 1995.
Since the beginning of our stock option investigation on November 30, 2006, we have incurred
approximately $12.3 million in professional fees in connection with the investigation. Of the $12.3 million in
investigation related expenses, we incurred approximately $11.3 million during the year ended December 31,
2007.
Results of Operations
Our operations consist of the design, development and marketing of technology solutions that deliver
applications on-demand with high performance, enhanced security and improved total cost of ownership, or
TCO. We market and license our products through multiple channels such as value added resellers, channel
distributors, system integrators, independent software vendors, our Websites and original equipment
manufacturers.
A substantial majority of our overseas operating expenses and capital purchasing activities are transacted in
local currencies and are subject to fluctuations in foreign currency exchange rates. In order to minimize the
impact on our operating results, we generally initiate our hedging of currency exchange risks up to one year in
advance of anticipated foreign currency expenses. When the dollar is weak, foreign currency denominated
expenses will be higher; these higher expenses will be partially offset by the gain in our hedging contracts. If the
dollar is strong, foreign currency denominated expenses will be lower, and our hedging practices will cause these
lower expenses to be partially offset by the aggregate loss in our hedging contracts. There is a risk that there will
be fluctuations in foreign currency exchange rates beyond the one year timeframe for which we hedge our risk.
Due to the generally weaker dollar during the year ended December 31, 2007, our operating expenses benefited
from gains in our hedging programs as compared to the year ended December 31, 2006.
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