Citrix 2009 Annual Report Download - page 55

well as the costs related to our Online Services products. Also included in cost of net revenues is amortization of
product related intangible assets.
Cost of product license revenues increased during 2009 when compared to 2008 primarily due to increased
sales of our application networking products which contain hardware components that have a higher cost than
our other software products. Cost of services revenues increased $9.5 million during 2009 compared to 2008
primarily due to an increase in sales of our Online Services products. This increase was partially offset by a
decrease of $2.2 million during 2009 compared to 2008 due to decreases our application virtualization consulting
and educational services. We currently anticipate cost of product license revenues will increase when comparing
the first quarter of 2010 to the first quarter of 2009 consistent with Product License sales.
Cost of product license revenues increased during 2008 when compared to 2007 primarily due to increased
sales of our application networking products which contain hardware components that have a higher cost than
our other software products. Cost of services revenues increased during 2008 compared to 2007 primarily due to
an increase in support and consulting related to our application virtualization and application networking
products of $11.0 million and increases in costs related to increased sales of our Online Services products of
$2.9 million. Amortization of product related intangible assets increased during 2008 as compared to 2007
primarily due to amortization of product related intangible assets acquired in acquisitions.
Gross Margin
Gross margin as a percent of revenue was 88.4% for 2009, 88.9% for 2008 and 90.1% for 2007. The
decrease in gross margin as a percentage of net revenue for all periods presented was primarily due to the
increase in cost of net revenues as discussed above.
Operating Expenses
Foreign Currency Impact on Operating Expenses
A substantial majority of our overseas operating expenses and capital purchasing activities are transacted in
local currencies and are therefore 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, the resulting increase to foreign
currency denominated expenses will be partially offset by the aggregate gain in our hedging contracts. When the
dollar is strong, the resulting decrease to foreign currency denominated expenses will 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, 2009 compared to 2008, our operating expenses were higher when
converted to U.S. dollars, but these higher expenses were partially offset by gains in our hedging programs.
Other Items Impacting Operating Expenses
The Strategic Restructuring Program that we announced in January 2009 included reducing our headcount
by approximately 450 full-time positions and the consolidation of excess facilities. Due to the Strategic
Restructuring Program, compensation and employee related costs across all functional areas including research
and development, sales, marketing and services and general and administrative expenses decreased by
approximately $21.6 million, net of costs related to the Strategic Restructuring Program. These savings were
partially offset by strategic investments in the business during 2009. For more information regarding the
Strategic Restructuring Program, see the Executive Summary above.
In addition, during the first quarter of 2009, we revised our methodology for allocating depreciation and
certain facilities-related costs to more closely align these allocated costs to the employees directly utilizing the
assets and facilities. In the fourth quarter of 2008, we recorded a reduction to operating expenses of
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