Citrix 2007 Annual Report Download - page 91

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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Advertising Costs
The Company expenses advertising costs as incurred. The Company has advertising agreements with, and
purchases advertising from, online media providers to advertise its online services products. The Company also
has cooperative advertising agreements with certain distributors and resellers whereby the Company will
reimburse distributors and resellers for qualified advertising of Citrix products. Reimbursement is made once the
distributor, reseller or provider provides substantiation of Company estimates the impact of these expenses and
recognizes them at the time of product sales as a reduction of net revenue or as a component of sales, marketing
and support expenses in the accompanying consolidated statements of income. The total costs the Company
recognized related to advertising was approximately $64.0 million, $54.2 million and $38.8 million, during the
years ended December 31, 2007, 2006 and 2005, respectively.
Income Taxes
On January 1, 2007, the Company adopted the provisions of FASB Interpretation (“FIN”) No. 48,
Accounting for Uncertainty in Income Taxes. As a result of the implementation of FIN No. 48, the Company
recognized approximately a $12.4 million increase in the liability for unrecognized tax benefits, which was
accounted for as a reduction to the January 1, 2007 balance of retained earnings.
The Company and one or more of its subsidiaries is subject to United States, (“U.S.”) federal income taxes
in the U.S., as well as income taxes of multiple state and foreign jurisdictions. With few exceptions, the
Company is no longer subject to U.S. federal, state and local, or non- U.S. income tax examinations by tax
authorities for years prior to 2004. The Internal Revenue Service commenced an examination of the Company’s
U.S. federal income tax returns for 2004 and 2005 in the third quarter of 2006.
The Company is required to estimate its income taxes in each of the jurisdictions in which it operates as part
of the process of preparing its consolidated financial statements. SFAS No. 109, Accounting for Income Taxes,
requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence,
it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company
reviews deferred tax assets periodically for recoverability and makes estimates and judgments regarding the
expected geographic sources of taxable income, gains from investments, as well as tax planning strategies in
assessing the need for a valuation allowance.
In the ordinary course of global business, there are transactions for which the ultimate tax outcome is
uncertain, thus judgment is required in determining the worldwide provision for income taxes. The Company
provides for income taxes on transactions based on its estimate of the probable liability. The Company adjusts its
provision as appropriate for changes that impact its 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 the Company operates, it is possible that its estimates of its tax liability and the
realizability of its deferred tax assets could change in the future, which may result in additional tax liabilities and
adversely affect the Company’s results of operations, financial condition and cash flows.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Significant estimates made by management include
the provision for doubtful accounts receivable, the provision to reduce obsolete or excess inventory to market, the
provision for estimated returns for stock balancing and price protection rights, as well as sales allowances, the
F-17