Citrix 2007 Annual Report Download - page 63

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arrangements. We do not materially rely on off-balance sheet arrangements for our liquidity or as capital
resources. For information regarding cash outflows associated with our lease payments see “—Contractual
Obligations.”
The initial term of the synthetic lease is seven years. Upon approval by the lessor, we 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, we have the option to sublease the property and upon thirty days’ written notice, we have
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, we have the option to remarket the property for sale
to a third party. If we choose not to purchase the property at the end of the lease term, we have 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, we evaluate the property for indications of permanent impairment. If an evaluation
were to indicate that the fair value of the property were to decline below $51.9 million, we would be responsible
for the difference under our residual value guarantee, which could have a material adverse effect on our results of
operations and financial condition.
The synthetic lease includes certain financial covenants including a requirement for us to maintain a
restricted cash, cash equivalent or investment balance of approximately $62.8 million as collateral, which is
classified as restricted cash equivalents and investments in our accompanying consolidated balance sheets. We
maintain the ability to manage the composition of restricted investments within certain limits and to withdraw
and use excess investment earnings from the pledged collateral for operating purposes. Additionally, we must
maintain a minimum net cash and investment balance of $100.0 million, excluding our collateralized
investments, equity investments and outstanding debt as of the end of each fiscal quarter. As of December 31,
2007, we had approximately $696.9 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 statements to the administrative agent of the lessor and prompt payment
of taxes associated with the property. As of December 31, 2007, we were in compliance with all material
provisions of the arrangement.
In January 2003, the FASB issued 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), which
replaced FIN No. 46. 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 other types of entities for financial statements for periods ending after March 15, 2004. We determined that
we are not required to consolidate the lessor, the leased facility or the related debt associated with our synthetic
lease in accordance with FIN No. 46 (revised). Accordingly, there was no impact on our 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, we could be required to
consolidate the entity, the leased facility and the associated debt in a future period.
Commitments
Capital expenditures were $85.9 million during 2007, $52.1 million during 2006 and $26.4 million during
2005. During 2007, capital expenditures were primarily related to application and infrastructure delivery to
enable growth and enhance management reporting capabilities and leasehold improvements. During 2006, capital
expenditures were primarily related to the implementation of certain systems to streamline business operations
and enhance management reporting capabilities and leasehold improvements.
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