Citrix 2007 Annual Report Download - page 58

Other Expense, Net
Year Ended December 31, 2007
Compared to
2006
2006
Compared to
20052007 2006 2005
(In thousands)
Other expense, net ........................... $(466) $(546) $(506) $ 80 $ (40)
Other expense, net is primarily comprised of remeasurement and foreign currency transaction gains (losses),
other-than-temporary declines in the value of our equity investments and debt instruments and realized gains
(losses) on the sale of available-for-sale investments. Other expense, net remained relatively flat when comparing
2007 to 2006 and when comparing 2006 to 2005.
Income Taxes
On October 22, 2004, the American Jobs Creation Act, or the AJCA, was signed into law. The AJCA
provided for an 85% dividends received deduction on dividend distributions of foreign earnings to a U.S.
taxpayer, if certain conditions are met. During the second quarter of fiscal 2005, we completed our evaluation of
the effects of the repatriation provision of the AJCA and our Chief Executive Officer and Board of Directors
approved our dividend reinvestment plan, or DRP, under the AJCA. During 2005, we repatriated approximately
$503.0 million of certain foreign earnings, of which $500.0 million qualified for the 85% dividends received
deduction. During 2005, we recorded an estimated tax provision of approximately $24.4 million related to the
repatriation. Additionally, during 2005, we recorded the reversal of approximately $8.8 million for income taxes
on certain foreign earnings for which a deferred tax liability had been previously recorded.
We maintain certain operational and administrative processes in overseas subsidiaries and its foreign
earnings are taxed at lower foreign tax rates. Other than the one-time repatriation provision under the AJCA
described above, we do not expect to remit earnings from our foreign subsidiaries.
We establish tax reserves when, despite our belief that our tax return positions are fully supportable, certain
of these positions may be challenged. While it is often difficult to predict whether we will prevail, we believe
that our tax reserves reflect the probable outcome of known contingencies. As such, included in our effective tax
rate for the year ended December 31, 2007 is the reduction of approximately $11.0 million in tax reserves related
to the expiration of a statute of limitations for the 2003 tax year partially offset by an additional tax reserve of
approximately $1.4 million related to uncertainties arising in 2007.
In 2007, our effective tax rate decreased to approximately (3.5%) from 25.5% when comparing the three
months ended December 31, 2007 to the three months ended December 31, 2006 and decreased to 14.5% from
24.7% when comparing the twelve months ended December 31, 2007 to the twelve months ended December 31,
2006, primarily due to the reduction in tax reserves for uncertain tax positions related to prior years. In 2006, our
effective tax rate decreased to approximately 24.7% from 26.2% primarily due to the tax impact of the dividend
repatriated under the AJCA in 2005 partially offset by the tax effects of our adoption of SFAS No. 123R. Our
effective tax rate may fluctuate throughout 2008 based on a number of factors including variations in estimated
taxable income in our geographic locations, completed and potential acquisitions, the effects of FASB
Interpretation, or FIN, No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB
Statement No. 109, and the effects of SFAS No. 123R and changes in statutory tax rates, among others.
Liquidity and Capital Resources
During 2007, we generated positive operating cash flows of $424.1 million. These cash flows related
primarily to net income of $214.5 million, adjusted for, among other things, non-cash charges including
depreciation and amortization of $85.2 million, stock-based compensation expense of $65.5 million and the tax
effect of stock-based compensation of $15.5 million. These cash inflows are partially offset by an operating cash
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