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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 0-27084
CITRIX SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2275152
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6400 NW 6TH WAY
FORT LAUDERDALE, FLORIDA 33309
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (954) 267-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of March 12, 2001 (based on the last reported sale price on The
Nasdaq National Market as of such date) was $3,650,239,491. As of March 12, 2001
there were 185,408,990 shares of the registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required pursuant to Part III of this report is
incorporated by reference from the Company's definitive proxy statement,
relating to the annual meeting of stockholders to be held in May 2001, pursuant
to Regulation 14A to be filed with the Securities and Exchange Commission.
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ITEM 1. BUSINESS
GENERAL
Citrix Systems, Inc. ("Citrix" or the "Company") is a leading supplier of
application delivery and management software and services that enable the
effective and efficient enterprise-wide deployment and management of
applications, including those designed for Microsoft Corporation ("Microsoft")
Windows(R) operating systems and UNIX(R) operating systems. The Company's
products permit organizations to deploy and manage applications without regard
to location, network connection, or type of client hardware platform. These
products utilize the Company's Independent Computing Architecture ("ICA(R)"),
which allows an application's graphical user interface to be displayed on a
client while its logic is executed on a server, thereby providing a manageable
and bandwidth-efficient solution. The Company was incorporated in April 1989,
and shipped its initial products in 1991.
INDUSTRY BACKGROUND
New information technologies and the Internet have enabled enterprises to
provide their employees with broad access to business-critical information,
including sales, technical, human resources, vendor and supplier information.
Because of their many diverse end-user requirements, enterprises have made
significant investments in information systems infrastructure, frequently
incorporating a variety of software operating environments, computing platforms
and communications protocols. Business-critical enterprise applications and
personal productivity tools typically have been supplied by a variety of
vendors, often resulting in incompatible systems and applications within and
among company locations. As a result of this proliferation of technology, demand
has increased for systems that offer users a standard interface, transparent
communications and the ability to deliver enterprise and personal productivity
applications to local and remote enterprise users via secure networks including
the Internet. Companies are faced with significant challenges associated with
speeding web-based delivery of corporate applications and content or broadly
deploying applications across the enterprise, including:
- Internet and eBusiness Initiatives. Although there has been global
adoption of the Internet by enterprises and application service providers
("ASPs"), many organizations may lack the ability to aggregate existing
business applications such as 32-bit Windows applications or existing
UNIX applications into web-browser based corporate portals, intranets,
extranets, and e-business infrastructures that may not natively support
these applications and securely deploy these applications via the
Internet.
- Mixed Application Environments. The vast majority of businesses today
operate in an environment where mixed applications of all types may be
resident. Since many organizations may have a mixture of 32-bit Windows
applications and UNIX-based applications, the need to provide consistent,
managed, and secure application delivery and management is a critical
part of corporate computing.
- Platform Diversity. In addition to managing applications based upon
Microsoft Windows operating systems or UNIX operating systems such as Sun
Solaris, HP-UX, or IBM-AIX, (collectively, "UNIX Operating Systems")
computing systems within an enterprise may include a variety of Windows
desktops and laptops, DOS systems, UNIX workstations, X-Terminals,
Macintosh systems, Pocket PCs, personal digital assistants ("PDAs") and
OS/2 workstations that do not support access to the native Windows or
UNIX applications.
- Client Diversity. Many organizations require simpler, relatively
low-cost devices, such as PDAs, information kiosks and fixed function
terminals for certain enterprise applications, but these devices
currently cannot be effectively utilized because full Windows support is
generally not available.
- Remote Users. The diversity of network connection types, protocols and
transmission speeds limit the ability of organizations to deploy Windows,
UNIX, Java(TM) and web-based applications on a cost-effective and
efficient basis among remote users such as mobile workers, telecommuters
and branch office personnel.
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- Extended Enterprise. The extension of enterprise information systems to
suppliers, distributors, customers and prospects creates application
deployment issues that are outside the control of information systems
managers, such as the quality, performance and security of the network
connection, the client platform involved and the technical expertise of
the external user.
The Company believes that these challenges have impeded effective
deployment of enterprise applications to many essential user communities.
THE CITRIX SOLUTION
The Company develops, markets, sells and supports comprehensive application
delivery and management software that enables the effective and efficient
enterprise-wide deployment and management of applications, including those
designed for Microsoft Windows(R) operating systems and UNIX Operating Systems.
The Company's products enable organizations to deploy and manage certain
applications without regard to location or type of client hardware platforms.
These products operate by executing the applications on a multi-user Windows
NT(R), Windows 2000 or UNIX server and provide end-users access to the server
from a variety of client platforms through the Company's ICA protocol. This
approach minimizes the memory and processing requirements of the client system,
resulting in a highly scaleable, secure and bandwidth-efficient solution for
deployment and management of enterprise applications across a range of platforms
and network environments.
The Company's products enable the broad deployment of Windows or UNIX
applications in a variety of environments, including:
- The Internet, accessed through widely-available browser technologies or
corporate portal technologies;
- Emerging information appliances, such as hand-held wireless devices,
PDAs, information kiosks, Windows-based terminals and network computers;
- Low-bandwidth connections, such as dial-up, wide area networks ("WAN")
and wireless; and
- Intel and non-Intel based platforms, such as 486 and Pentium computers
and laptops, which are not capable of running the applications locally,
UNIX workstations, Java applications, X-Terminals and Macintosh systems.
To address deployment in these diverse environments, the Company has
developed four key technologies: (i) ICA, (ii) multi-user Windows NT and Windows
2000 extensions developed under a source code license from Microsoft, (iii)
NFuse(TM) application portal software, and (iv) MetaFrame for UNIX technologies.
ICA. The Company's ICA technology enables the separation of an
application's graphical user interface from the application logic, allowing the
user interface to be displayed on a client while the application logic itself is
executed on a server. This distributed architecture allows 16- and 32-bit
Windows, Java or UNIX applications to run remotely over a wide range of
connection speeds, including low-bandwidth connections.
Multi-User Windows NT and Windows 2000 Extensions. The Company's
multi-user Windows NT and Windows 2000 extensions allow multiple users to share
an application server, with each user receiving a "virtual" Windows environment
through a dedicated ICA session. The systems management and security extensions
are fully integrated with the standard Windows NT and Windows 2000
administrative features, allowing for consistent and integrated multi-user
server management facilities. These extensions were developed under source code
license and strategic alliance agreements with Microsoft and licensed back to
Microsoft under the terms of a development agreement with Microsoft as described
below in "Strategic Relationships."
NFuse. The Company's NFuse application portal software gives companies the
power to securely integrate and publish interactive applications into any
standard web browser. With NFuse, businesses can enhance the computing
experience of employees, customers and vendors by aggregating personalized
content and application access based upon a user ID or profile while maintaining
the security, performance and scalability when deploying applications over the
web.
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MetaFrame for UNIX. MetaFrame for UNIX is comprised of technologies that
enable businesses to deliver and manage UNIX applications from a web browser,
application portal, or a wide variety of client platforms via the Citrix ICA
protocol. This can be achieved with minimal bandwidth requirements, with no need
to connect via the less efficient X.11 protocol, and no dependence upon
X-terminal client software.
PRODUCTS AND SERVICES
The Company's products and services consist of the following:
Application Servers. The Application Servers product line consists
primarily of MetaFrame(TM) products. MetaFrame software is an enhancement to
Microsoft Windows NT Server 4.0, Terminal Server Edition and Windows 2000
servers (collectively, "Windows Server Operating Systems") and UNIX Operating
Systems products. MetaFrame is system software that incorporates the Company's
ICA protocol and extends the base Windows Server Operating Systems or UNIX
Operating Systems with additional client and server functionality, including
support for heterogeneous computing environments, enterprise-class end-to-end
management and the ability to easily deploy applications via the Internet. The
Company's MetaFrame software, in conjunction with Windows Server Operating
Systems or UNIX Operating Systems, delivers a comprehensive application delivery
and management solution for the entire enterprise. The MetaFrame products, in
conjunction with Windows Server Operating Systems or UNIX Operating Systems,
enable organizations to better deploy, manage and access applications across the
extended enterprise to a variety of client devices, operating platforms or
network connections, including low bandwidth environments.
The Company's products enable the deployment and management of business
applications in large-scale Windows, non-Windows and heterogeneous environments.
MetaFrame software incorporates the Company's ICA technology, which allows for
the deployment in a bandwidth-efficient manner of enterprise applications with
the necessary scalability, performance and reliability. These deployments often
involve complex applications running on multiple servers and supporting numerous
clients. In addition, the Company offers additional user license packs to
increase the number of users who can access MetaFrame software.
MetaFrame for Windows first shipped in June 1998. MetaFrame for UNIX -- Sun
Solaris first shipped in March 2000, and MetaFrame for UNIX -- HP-UX and IBM-AIX
first shipped in September 2000. The Company distributes its software as
packaged product and through electronic licensing. Application Servers
constituted approximately 71% of the Company's revenues in 2000, 74% in 1999,
and 69% in 1998. To date, a significant majority of Application Servers revenue
was related to MetaFrame software for Windows Server Operating Systems.
In February 2001, the Company announced the launch of the MetaFrame XP(TM)
product family, the Company's new application serving and management platform
release optimized for Windows 2000 and future Microsoft platforms. MetaFrame XP
is designed to support large-scale application serving implementations with as
many as 100,000 users on 1,000 or more servers. With this new platform release,
the Company is offering MetaFrame XP using a "connection-based" licensing model,
where the price will be stated as a "cost per concurrent connection" regardless
of server configuration.
Management Products. Management Products primarily consist of enhancements
to the Application Servers product line, which incorporates into the MetaFrame
products sophisticated management tools, such as application publishing
services, help desk support features, support for desktop peripherals and other
features which permit the centralized management and support of server-based
applications. The Company markets the following Management Products:
- Load Balancing Services. The Company's Load Balancing system provides
true application-based load balancing and enterprise scalability.
- Resource Management Services. The Company's Resource Management system
provides the means to monitor and manage critical system resources.
- Installation Management Services. The Company's Installation Management
Services provides the means to easily package applications for
installation on MetaFrame servers across the enterprise.
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- Extranet. The Company's Extranet product provides the means to create
secure, encrypted and authenticated virtual private networks (VPN)
ensuring secure application delivery via public networks.
Collectively, these products accounted for approximately 12% of the
Company's revenues in 2000, 10% in 1999 and 5% in 1998.
Computing Appliances Products. The Company licenses Application Servers
clients and servers to manufacturers of computing appliances who add value to
these products, and in some cases, remarket these products under their own brand
names. Computing Appliances Products accounted for approximately 1% of the
Company's revenues in 2000, 2% in 1999 and 9% in 1998.
Services and Other Revenue. Services and Other Revenue consists primarily
of consulting in the delivery of implementation services and systems integration
solutions as well as customer support. Services and other revenue accounted for
approximately 7% of the Company's revenues in 2000, 4% in 1999, and 4% in 1998.
Citrix's solution can be applied in numerous computing situations, such as:
Remote Computing. The Company's products are used to deploy applications
across the enterprise whose scale, performance, reliability and security
requirements are more demanding than those associated with simple remote access.
The remote computing market includes dial-in remote access for large field
workforces and branch office locations and deployment of applications over an
enterprise WAN. Without the use of MetaFrame software, remote deployment of
these applications can be slow and expensive because LAN applications typically
require a substantial amount of memory and fast processors on the desktop and
relatively high-speed communication bandwidth.
Web Computing. As use of the Internet and corporate intranets continues to
increase, companies often need to integrate web technologies and Windows
applications. The Company's MetaFrame application server software and NFuse
application portal product provide web-based access to standard and custom
developed Windows or UNIX applications, and content via the Internet, extranet,
or intranet when used in conjunction with a web server. For example, using the
Company's products, an organization could add secure interactive access to an
application directly from a web page without developing any new programs or
changing the existing application program or database.
Terminals. The Company has licensed its ICA technology to companies such
as IBM, Acer, Sun, QNX, Wyse Technology and Boundless Technologies to enable the
development of low-cost terminals. In addition, the Company intends to continue
to develop strategic relationships and work with key strategic partners to
deploy Windows applications on point of sale terminals and information kiosks.
The Company believes that its line of application server products, when coupled
with these new devices, will provide an effective alternative to character-based
implementations and will capitalize on existing Windows applications, tools and
development facilities.
Hand-held PCs, PDAs and Information Appliances. Many device manufacturers,
including Psion, Compaq, Motorola, Sharp, Fujitsu, Hitachi, Hewlett Packard, and
Symbol Technologies, are shipping low cost portable devices that offer features
such as extended battery life and wireless connectivity to remote servers.
However, the latest generation of Windows applications and Windows development
tools require substantial memory, processing power and communications bandwidth
for adequate performance, which may limit the functionality of these wireless
devices. Incorporating the Company's technology into these devices will enable
them to more effectively utilize the latest generation of Windows applications.
To date, the Company has licensed technology to Compaq, Motorola, IBM, Sharp,
Symbol Technologies, Telxon Corporation, Psion Software PLC and others for
incorporation into certain devices.
UNIX, X-Terminal, DOS and Macintosh Support for Windows. Windows operating
systems caused major changes in the Windows application software market at the
time they were introduced. As independent software vendors moved to develop
applications that capitalized on the new features of the Windows 95, Windows 98,
Windows NT and Windows 2000 operating systems organizations upgraded client
systems in order to run these applications. However, many organizations employed
a heterogeneous mix of computing
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platforms, including DOS systems, Windows 3.x systems, UNIX workstations, Java
devices, X-Terminals and Macintosh computers, which are incapable of running
such applications. The Company's family of products can deliver Windows 32-bit
applications or UNIX applications running on the server, to most types of
network-attached client systems, including DOS, Windows 3.x, Windows for
Workgroups, Windows 95 and 98, Windows NT, Windows 2000, Windows CE, OS/2, UNIX,
Java and Macintosh systems.
TARGET MARKETS
Corporate Customers. The Company's primary market for its products and
services is large and medium-sized enterprises that require the ability to
securely deploy, manage, and access business applications across the extended
enterprise. The Company's products and technology extend the functionality of
the operating system by providing enterprise application management for
increased scalability, deployment and simplified application support,
Web-enablement of applications, and universal application access to users. The
Company has experienced increased market acceptance by larger enterprise
customers requiring larger scale deployments.
Application Service Providers. The rising cost of licensing and the
complexity of systems administration have given rise to ASPs. ASPs function as
virtual "computing utility companies" whereby businesses or consumers can access
applications from a central location. The ability for ASPs to rapidly deliver
such applications over the Internet and other networks, wired to wireless, is
limited by bandwidth requirements, user device capabilities, and a system that
is scalable, reliable and secure. The Company's products and technologies allow
ASPs to deliver the largest number of applications to the broadest array of
computing devices with minimum bandwidth requirements. The advanced
manageability and security features of the Company's products and technologies
enable ASPs to meet the demands for scalability, reliability and security.
STRATEGIC RELATIONSHIPS
The Company has entered into a number of strategic relationships to develop
its existing and future product lines, develop markets for the application of
its technology and broaden deployment and acceptance of ICA as an emerging
industry standard technology for distributed Windows and non-Windows
applications.
Microsoft. Since inception, the Company has had a number of license
agreements with Microsoft, including licenses relating to Microsoft OS/2,
Windows 3.x, Windows for Workgroups, Windows NT, Windows CE and Internet
Explorer. These agreements have provided the Company with access to certain
Microsoft source and object code, technical support and other materials. The
license agreements had an initial term that expired in September 1994 and was
subsequently extended until September 2001. In July 1996, the Company entered
into a license, development and marketing agreement with Microsoft relating to
the inclusion of ICA as an embedded component in future versions of Windows 95,
Windows 98, Windows NT, Windows 2000 and Internet Explorer for Windows. Pursuant
to this agreement, as amended, the Company licenses its ICA technology to
Microsoft, royalty-free. Microsoft agreed to make commercially reasonable
efforts to include this technology in the above Microsoft Windows family of
products.
In May 1997, the Company entered into a five year joint license,
development and marketing agreement with Microsoft, as amended (the "Development
Agreement"), pursuant to which the Company licensed its multi-user Windows NT
extensions to Microsoft for inclusion in future versions of Windows NT server
software. Pursuant to the Development Agreement, the Company's multi-user
Windows NT extensions technology was incorporated into Microsoft's NT Terminal
Server, which was released in July 1998, and Windows 2000 Server, which was
released in February 2000. Additionally, Microsoft's obligation to endorse only
the Company's ICA protocol as the preferred way to provide multi-user Windows
access for devices other than Windows client devices expired in November 1999.
Microsoft may now market or endorse other methods to provide multi-user Windows
access to non-Windows client devices, which compete with products of the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors Which May
Affect Future Results."
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Additional Strategic Relationships. As of December 31, 2000, the Company
has entered into approximately 150 ICA license agreements. Currently, more than
200 different devices incorporate Citrix ICA, ranging from Linux terminals to
information appliances, such as wireless phones and handheld devices. ICA
licensees include IBM, Compaq, Hewlett Packard, Motorola, Samsung, Hitachi and
Sharp, among others.
RESEARCH AND DEVELOPMENT
The Company focuses its research and development efforts on developing new
products and core technologies for its markets and further enhancing the
functionality, reliability, performance and flexibility of existing products.
The Company solicits extensive input concerning product development from users,
both directly and indirectly through its channel partners.
The Company believes that its software development team and core
technologies represent a significant competitive advantage for the Company. The
software development team includes a number of key members from the engineering
team that developed the original version of OS/2 at IBM. This team has been
involved in the development of system software products utilizing Windows NT
technology and UNIX.
During 2000, 1999 and 1998, the Company incurred research and development
expenses of approximately $50.6 million, $37.4 million and $22.9 million,
respectively.
SALES, MARKETING AND SUPPORT
The Company markets its products through multiple indirect channels
worldwide, including distributors, value-added resellers, system integrators and
original equipment manufacturers (OEM) licensees, as well as through a direct
sales force. The Company provides training and certification to integrators,
value-added resellers and consultants for a full-range of MetaFrame-based
application deployment and management solutions and services through its Citrix
Solutions Network(TM) ("CSN") program.
As of December 31, 2000, the Company had relationships with approximately
90 distributors and approximately 7,500 CSN Providers worldwide. A number of the
Company's strategic partners and OEM licensees provide additional indirect sales
channels for the Company's products under either a Citrix brand or private brand
name.
In September 1998, the Company officially launched the Citrix Business
Alliance(TM) ("CBA"), a coalition of industry-leading companies from across the
technology spectrum who work closely with the Company to design and market
complementary solutions for the Company and CBA customers. By the end of 2000,
CBA membership had grown to more than 625 members, including key hardware,
software, global and regional consulting partners. A sampling of the Company's
membership includes Compaq, IBM, Hewlett Packard, Siebel Systems, PeopleSoft,
SAP AG, Computer Associates, BMC Software, JD Edwards and National
Semiconductor.
The Company's sales and marketing organization actively supports its
distributors and resellers. The Company's marketing department provides
training, sales event support, sales collateral, advertising, direct mail and
public relations coverage to its indirect channels to aid in market development
and in attracting new customers. The Company's sales organization consists of
field-based systems sales engineers and corporate sales professionals.
Additional sales personnel, including those based in Fort Lauderdale, Florida;
New York, New York; Atlanta, Georgia; Chicago, Illinois; San Mateo, California;
Toronto, Canada; London, England; Munich, Germany; Schaffhausen, Switzerland;
Paris, France; Amsterdam, Netherlands; Copenhagen, Denmark; Milan, Italy;
Madrid, Spain; Sydney, Australia; Melbourne, Australia; Singapore; Tokyo, Japan;
Hong Kong; Bangalore, India; Sao Paolo, Brazil and Mexico City, Mexico, support
these field personnel. These additional sales personnel recruit prospective
customers, provide technical advice with respect to the Company's products and
work closely with key distributors and resellers of the Company's products. The
Company plans to hire additional direct sales personnel to market its products
to large corporate enterprise accounts.
The Company provides most of its distributors with product return rights
for stock balancing. Stock balancing rights permit distributors to return
products to the Company for credit, within specified limits and
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subject to ordering an equal dollar amount of other Citrix products. Although
the Company believes that it has adequate reserves to cover product returns,
there can be no assurance that the Company will not experience significant
returns in the future or that such reserves will be adequate. The Company also
provides most of its distributors with price protection rights. Price protection
rights require that the Company grant retroactive price adjustments for
inventories of Citrix products held by distributors if the Company lowers its
prices for such products. In the event that the Company determines to reduce its
prices, it will establish a reserve to cover exposure to distributor inventory.
The majority of the Company's services and support activities are related
to software and network integration issues. Using the Company's own "shadowing"
technology, support representatives are able to troubleshoot user issues
remotely from Citrix call centers located in the United States, Ireland and
Australia. The Company also provides technical advice to channel and strategic
partners, who are utilized as first line support for their customers.
Additionally, users can choose from a comprehensive fee-based support program
ranging from one-time incident charges to an annual support agreement covering
multiple sites and servers. Training for resellers is provided at the Company's
Citrix Authorized Learning Centers ("CALCs"), which include a number of the
world's leading IT training organizations. CALCs are staffed with Citrix
Certified Instructors, who teach Citrix-developed courseware. In addition, the
Company provides technical advice through its on-line services, quarterly
Solution Search CD-ROM and fax services.
OPERATIONS
The Company controls all purchasing, inventory, scheduling, order
processing and accounting functions related to its operations. Production,
warehousing and fulfillment are performed by independent contractors on a
purchase order basis in the United States and in Ireland. Shipping is primarily
performed at the locations of the independent contractors, although limited
shipments are made from the Company's facilities. Master software diskettes,
development of user manuals, packaging designs, initial product quality control
and testing are performed at the Company's facilities. The independent
contractors duplicate diskettes and CD-ROMs, print documentation, and package
and assemble product to the Company's specifications. To date, the Company has
not experienced any material difficulties or delays in the manufacture and
assembly of its products.
The Company has identified and evaluated alternative manufacturing vendors
and believes that such alternative vendors are capable of producing the
requisite quality and volumes at competitive prices. However, if difficulties
and delays were to be encountered, and transition to an alternate manufacturer
was not completed promptly, the Company's business, results of operations, and
financial condition could be materially adversely affected.
The Company generally ships products upon receipt of an order. As a result,
the Company does not have significant backlog at any given time, and does not
consider backlog to be a significant indicator of future performance.
COMPETITION
The Company believes that companies, including Microsoft, have entered or
will enter the market with solutions that involve a similar approach to the
Company's multi-user application server. In particular, GraphOn Corporation and
Santa Cruz Operation market products that claim to have functions similar to
those found in MetaFrame, and Microsoft includes as a component of Windows
Server Operating Systems its Remote Desktop Protocol (RDP), which has certain
capabilities of the Company's ICA protocol. See "--Strategic Relationships" and
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Certain Factors Which May Affect Future Results." Additionally,
the announcement of the release, and the actual release, of products competitive
to the Company's existing and future product lines, could cause existing and
potential customers of the Company to postpone or cancel plans to license
certain of the Company's existing and future product offerings, which would
adversely impact the Company's business, results of operations, and financial
condition.
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In addition, alternative products exist for web applications in the
internet software market that directly or indirectly compete with the Company's
products. Existing or new products that extend internet software to provide
database access or interactive computing can materially impact the Company's
ability to sell its products in this market. Competitors in this market include
Microsoft, AOL Time Warner, and other makers of web server application and
browser software. As markets for the Company's products continue to develop,
additional companies, including companies with significant market presence in
the computer hardware, software and networking industries, may enter the markets
in which the Company competes and further intensify competition. These
competitors and other potential competitors may have significantly greater
financial, technical, sales, marketing, support and other resources than the
Company. There can be no assurance that the Company will be able to establish
and maintain a market position in the face of increased competition. Although
the Company believes that price has historically been a less significant
competitive factor than product performance, reliability and functionality, the
Company believes that price competition may become more significant in the
future. The Company may not be able to maintain its historic prices, and an
inability to do so could adversely affect the Company's business, results of
operations and financial condition.
PROPRIETARY TECHNOLOGY
The Company's success is heavily dependent upon proprietary technology. The
Company has filed patent applications in the United States and foreign
countries. A number of patents have been issued domestically and in foreign
countries, while other patent applications are currently pending. The Company
also takes steps to protect its technology under copyright laws. However, patent
protection and existing copyright laws afford only limited protection for the
Company's technology. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to the same extent, as do the laws of
the United States. Accordingly, the Company also relies on trade secret
protection and confidentiality and proprietary information agreements to protect
its proprietary technology. The loss of any material trade secret, trademark,
trade name or copyright could have a material adverse effect on the Company.
There can be no assurance that the Company's efforts to protect its proprietary
technology rights will be successful. Despite the Company's precautions, it may
be possible for unauthorized third parties to copy certain portions of the
Company's products or to obtain and use information that the Company regards as
proprietary. A significant portion of the Company's sales is derived from the
licensing of Company packaged products under "shrink wrap" license agreements
that are not signed by licensees and electronic licensing agreements, which may
be unenforceable under the laws of certain foreign jurisdictions. Although the
Company does not believe that its products infringe on the rights of third
parties, there can be no assurance that third parties will not assert
infringement claims against the Company in the future or that any such assertion
will not result in costly litigation or require the Company to obtain a license
to proprietary technology rights of such parties. In addition, there can be no
assurance that such licenses will be available on reasonable terms or at all.
While the Company's competitive position may be affected by its ability to
protect its proprietary information, the Company believes that because of the
rapid pace of technological change in the industry, factors such as the
technical expertise, knowledge and innovative skill of the Company's management
and technical personnel, its strategic relationships, name recognition, the
timeliness and quality of support services provided by the Company and its
ability to rapidly develop, enhance and market software products may be more
significant in maintaining the Company's competitive position.
EMPLOYEES
As of December 31, 2000, the Company had approximately 1,400 employees. The
Company's relations with its French employees are governed by certain labor
regulations in the region. The Company believes its relations with employees are
good.
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ITEM 2. PROPERTIES
The Company's corporate offices are located in Fort Lauderdale, Florida.
The corporate offices consist of leased and subleased office space in various
buildings totaling approximately 257,000 square feet. To consolidate certain of
the Company's corporate offices and to accommodate the Company's projected
growth, the Company entered into a lease agreement for approximately 140,000
square feet of space in Fort Lauderdale beginning in the second quarter of 2001.
Upon occupancy of this new facility, the Company plans to sublease certain of
the space in the various buildings for the remainder of their respective lease
terms. In addition, the Company leases approximately 68,000 square feet of
office space in other locations in the United States and Canada.
The Company leases and subleases a total of approximately 154,000 square
feet of office space in various other facilities in Europe, Latin America and
the Asia Pacific region. The Company has entered into an agreement to lease
approximately 43,000 square feet of office space in the United Kingdom beginning
in the second quarter of 2001. In addition, the Company has entered into an
agreement to purchase land and buildings in the United Kingdom with
approximately 41,000 square feet of office space for a total purchase
consideration of approximately $22 million.
ITEM 3. LEGAL PROCEEDINGS
In June 2000, the Company and certain of its officers and directors were
named as defendants in several securities class action lawsuits filed in the
United States District Court for the Southern District of Florida on behalf of
purchasers of the Company's Common Stock during the period October 20, 1999 to
June 9, 2000 ("class period"). These actions have been consolidated as In Re
Citrix Systems, Inc. Securities Litigation. These lawsuits generally allege
that, during the class period, the defendants made misstatements to the
investing public about the Company's financial condition and prospects. The
complaint seeks unspecified damages and other relief. Although the Company
believes that the plaintiffs' claims lack merit and intends to vigorously defend
the lawsuits, there can be no assurance that the outcome of this matter will not
have a material adverse effect on the financial condition of the Company.
In September 2000, a shareholder filed a claim in the Court of Chancery of
the State of Delaware against the Company and nine of its officers and directors
alleging breach of fiduciary duty by failing to disclose all material
information concerning the Company's financial condition at the time of the
proxy solicitation. The complaint seeks unspecified damages. By order of the
court in January 2001, the action was conditionally stayed. The Company believes
the plaintiff's claim lacks merit and should the action ultimately proceed in
Delaware court or elsewhere, the Company intends to vigorously defend the
lawsuit. In February 2001, the plaintiff filed a motion with the court for award
of attorney's fees and litigation costs in the amount of $2,000,000 and $60,000,
respectively. While the Company is unable to determine the ultimate outcome of
these matters, the Company believes the plaintiff's motion lacks merit and
intends to vigorously defend it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is currently traded on The Nasdaq National
Market under the symbol "CTXS." The following table sets forth the high and low
closing prices for the Company's Common Stock as reported on The Nasdaq National
Market for the periods indicated, as adjusted to the nearest 1/16 to reflect the
two-for-one stock split in the form of a stock dividend declared on March 1,
1999 and paid on March 25, 1999 to holders of record of the Company's Common
Stock on March 17, 1999, and the two-for-one stock split in the form of a stock
dividend declared on January 19, 2000 and paid on February 16, 2000 to holders
of record of the Company's Common Stock on January 31, 2000. Such information
reflects inter-dealer prices, without retail markup, markdown or commission and
may not represent actual transactions.
HIGH LOW
---- ---
YEAR ENDED DECEMBER 31, 2001:
First quarter (through March 12, 2001).................... $ 36 5/8 $19 11/16
YEAR ENDED DECEMBER 31, 2000:
Fourth quarter............................................ $ 30 7/8 $17 1/8
Third quarter............................................. $ 23 3/4 $14 5/16
Second quarter............................................ $ 83 11/16 $18 7/16
First quarter............................................. $118 9/16 $52 1/2
YEAR ENDED DECEMBER 31, 1999:
Fourth quarter............................................ $ 64 5/8 $29 9/16
Third quarter............................................. $ 34 5/8 $22 3/4
Second quarter............................................ $ 28 11/16 $14 11/16
First quarter............................................. $ 25 5/8 $17
On March 12, 2001, the last reported sale price of the Common Stock on The
Nasdaq National Market was $19 11/16 per share. As of March 12, 2001, there were
approximately 1,128 holders of record of the Common Stock.
The Company currently intends to retain any earnings for use in its
business and does not anticipate paying any cash dividends on its capital stock
in the foreseeable future.
In connection with the Company's stock repurchase program, in October 2000,
the Board of Directors approved a program authorizing the Company to sell put
warrants that entitle the holder of each warrant to sell to the Company,
generally by physical delivery, one share of the Company's Common Stock at a
specified price. As of December 31, 2000, the Company sold 1.3 million put
warrants at an average strike price of $26.17, expiring on various dates between
January and March 2001, and received proceeds of $4.9 million. Put warrants are
typically exercisable three months after the date of sale. As of December 31,
2000, the Company has a total potential repurchase obligation of approximately
$34.0 million associated with the outstanding put warrants. The issuance of
these securities is exempt from registration under Section 4(2) of the
Securities Act of 1933.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF INCOME DATA:
Net revenues....................................... $ 470,446 $ 403,285 $248,636 $123,933 $ 44,527
Cost of revenues (excluding amortization presented
separately below)................................ 29,054 14,579 16,682 12,304 5,099
---------- ---------- -------- -------- --------
Gross margin....................................... 441,392 388,706 231,954 111,629 39,428
Operating expenses:
Research and development......................... 50,622 37,363 22,858 6,948 3,843
Sales, marketing and support..................... 180,384 121,302 74,855 35,352 13,741
General and administrative....................... 58,685 37,757 20,131 10,651 4,126
Amortization of intangible assets................ 30,395 18,480 10,190 -- --
In-process research and development.............. -- 2,300 18,416 3,950 --
Write-down of technology(a)...................... 9,081 -- -- -- --
---------- ---------- -------- -------- --------
Total operating expenses....................... 329,167 217,202 146,450 56,901 21,710
---------- ---------- -------- -------- --------
Income from operations............................. 112,225 171,504 85,504 54,728 17,718
Interest and other income.......................... 39,781 23,843 10,043 9,903 4,545
Interest expense................................... (16,989) (12,622) (75) (9) --
---------- ---------- -------- -------- --------
Income before income taxes......................... 135,017 182,725 95,472 64,622 22,263
Income taxes....................................... 40,505 65,781 34,370 23,264 3,562
---------- ---------- -------- -------- --------
Net income......................................... $ 94,512 $ 116,944 $ 61,102 $ 41,358 $ 18,701
========== ========== ======== ======== ========
Diluted earnings per share(b)...................... $ 0.47 $ 0.61 $ 0.33 $ 0.24 $ 0.11
========== ========== ======== ======== ========
Diluted weighted-average shares outstanding(b)..... 199,731 192,566 182,594 174,524 163,620
========== ========== ======== ======== ========
DECEMBER 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- -------- -------- --------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................... $ 427,344 $ 433,249 $158,900 $222,916 $139,778
Total assets............................. 1,112,573 1,037,857 431,380 282,668 149,580
Long term debt, capital lease obligations
and put warrants....................... 346,229 313,940 48 8 8
Stockholders' equity..................... 592,875 533,070 297,454 196,848 141,851
- ---------------
(a) In the fourth quarter of 2000, the Company recorded impairment write-downs
of previously acquired core technology of $9.1 million, as further discussed
in "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Results of Operations."
(b) Diluted earnings per share and diluted weighted-average shares outstanding
have been adjusted to reflect the two-for-one stock split in the form of a
stock dividend declared on May 17, 1996 and paid on June 4, 1996 to holders
of record of the Company's Common Stock on May 28, 1996; the three-for-two
stock split in the form of a stock dividend declared on January 25, 1998 and
paid on February 20, 1998 to holders of record of the Company's Common Stock
on February 12, 1998; the two-for-one stock split in the form of a stock
dividend declared on March 1, 1999 and paid on March 25, 1999 to holders of
record of the Company's Common Stock on March 17, 1999; and the two-for-one
stock split in the form of a stock dividend declared on January 19, 2000 and
paid on February 16, 2000 to holders of record of the Company's Common Stock
on January 31, 2000.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company develops, markets, sells and supports comprehensive delivery
and management software that enables effective and efficient deployment and
management of enterprise applications, including those designed for Microsoft
Windows(R) operating systems and UNIX(R) operating systems. The Company's
Application Servers product line, which comprises the largest source of the
Company's revenue, primarily consists of the MetaFrame(TM) products and related
options. The MetaFrame products, which began shipping in the second quarter of
1998, permit organizations to deploy and manage applications without regard to
location, network connection or type of client hardware platforms.
On May 9, 1997, the Company and Microsoft entered into a License,
Development and Marketing Agreement, as amended (the "Development Agreement"),
which provides for the licensing to Microsoft of certain of the Company's
multi-user software enhancements to Microsoft's Windows NT Server and for the
cooperation between the parties for the development of certain future multi-user
versions of Microsoft Windows NT Server, Terminal Server Edition and Microsoft
Windows 2000 (collectively, "Windows Server Operating Systems"). The Development
Agreement also provides for each party to develop its own enhancements to the
jointly developed products, which may provide access to Windows Server Operating
Systems base platforms from a wide variety of computing devices. In June 1998,
the Company released its MetaFrame product, a Company-developed enhancement that
implements the Independent Computing Architecture (ICA(R)) on the Windows Server
Operating Systems. In addition, Microsoft and the Company have agreed to engage
in certain joint marketing efforts to promote the use of Windows Server
Operating Systems-based multi-user software and the Company's ICA protocol.
Pursuant to the terms of the Development Agreement, in May 1997, the Company
received $75 million as a non-refundable royalty payment for engineering and
support services to be rendered by the Company. Under the terms of the
Development Agreement, as amended, the Company received additional payments
totaling $100 million. No additional payments are due pursuant to the
Development Agreement.
As a result of the Development Agreement, the Company continues to support
the Microsoft Windows NT platform, but the MetaFrame products and later releases
no longer directly incorporate Windows NT technology. For example, the Company's
MetaFrame for UNIX products enable the deployment and management of applications
designed for UNIX operating systems such as Sun Solaris, HP-UX, or IBM-AIX
(collectively, "UNIX Operating Systems.") The Company plans to continue
developing enhancements to its MetaFrame products and expects that these
products and associated options will constitute a majority of its revenues for
the foreseeable future.
Revenue is recognized when earned. The Company's revenue recognition
policies are in compliance with the American Institute of Certified Public
Accountants Statement of Position ("SOP") 97-2 (as amended by SOP 98-4 and SOP
98-9) and related interpretations, "Software Revenue Recognition." Product
revenues are recognized upon shipment of the software product only if no
significant Company obligations remain, the fee is fixed or determinable, and
collection of the resulting receivable is deemed probable. The initial fee of
$75 million relating to the Development Agreement is being recognized ratably
over the five-year term of the contract, which began in May 1997. The additional
$100 million received pursuant to the Development Agreement, as amended, is
being recognized ratably over the remaining term of the contract, effective
April 1998. In the case of non-cancelable product licensing arrangements under
which certain Original Equipment Manufacturers ("OEMs") have software
reproduction rights, initial recognition of revenue also requires delivery and
customer acceptance of the product master or first copy. Subsequent recognition
of revenues is based upon reported royalties from the OEMs. Revenue from
packaged product sales to distributors and resellers is recorded when related
products are shipped. The Company also distributes software through electronic
licensing. These revenues are recognized when the customer is provided with the
activation keys that allow the customer to take immediate possession of the
software pursuant to an agreement or purchase order. In software arrangements
that include rights to multiple software products, post-contract customer
support ("PCS"), and/or other services, the Company allocates the total
arrangement fee among each
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14
deliverable based on the relative fair value of each of the deliverables
determined based on vendor-specific objective evidence ("VSOE"). The Company
sells software and PCS separately and VSOE is determined by the price charged
when each element is sold separately. Product returns and sales allowances,
including stock rotations, are estimated and provided for at the time of sale.
Non-recurring engineering fees are recognized ratably as the work is performed.
Revenues from training and consulting are recognized when the services are
performed. Service and subscription revenues from customer maintenance fees for
ongoing customer support and product updates and upgrades are based on the price
charged or derived value of the undelivered elements and are recognized ratably
over the term of the contract, which is typically twelve to twenty-four months.
Service revenues are included in net revenues on the face of the consolidated
statements of income.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). The Company adopted the provisions of SAB 101 in October 2000. SAB 101
does not supersede the software industry specific revenue recognition guidance,
but provides current interpretations of software revenue recognition
requirements. The adoption of SAB 101 did not have a significant effect on the
Company's financial position or results of operations.
The Company has acquired and licensed technology related to its strategic
objectives. In February 1998, June 1998, July 1998 and July 1999, the Company
completed the acquisitions of Insignia Solutions, plc for approximately $17.5
million, APM Limited for approximately $40.4 million, VDOnet Corporation Limited
for approximately $7.9 million, and ViewSoft, Inc. for approximately $33.5
million, respectively.
In January 1998, the Company licensed certain software technology from
EPiCON, Inc., for approximately $8.0 million payable in cash. In December 1999,
the Company amended its license agreement with EPiCON to allow the Company
access to additional software technology and to extend the exclusive license
term for an additional $4.0 million, payable in equal installments upon
completion of project phases, of which $1.3 million was paid in cash at the
amendment date, $1.3 million was paid in 2000, and the remainder is expected to
be paid in 2001.
In February 2000, the Company acquired all of the operating assets of the
Innovex Group, Inc ("Innovex") for approximately $47.8 million in cash, of which
$28.7 million was paid at the closing date, and the balance is payable, in equal
installments, 18 and 24 months after the closing date contingent upon future
events, as defined in the acquisition agreement.
These acquisitions and the licensing arrangement were accounted for under
the purchase method of accounting in accordance with Accounting Principles Board
Opinion No. 16, "Accounting for Business Combinations." The Company allocated
the cost of the acquisitions to the assets acquired and the liabilities assumed
based on their estimated fair values. Except for Innovex, the acquired
intangible assets included in-process technology projects, among other assets,
which were related to research and development that had not reached
technological feasibility and for which there was no alternative future use.
The following discussion relating to the individual financial statement
captions, the Company's overall financial performance, operations and financial
position should be read in conjunction with the factors and events described in
"-- Overview" and "-- Certain Factors Which May Affect Future Results" which may
impact the Company's future performance and financial position.
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RESULTS OF OPERATIONS
The following table sets forth statement of income data of the Company
expressed as a percentage of net revenues and as a percentage of change from
period-to-period for the periods indicated:
2000 1999
YEAR ENDED DECEMBER 31, COMPARED COMPARED
----------------------- TO TO
2000 1999 1998 1999 1998
----- ----- ----- -------- --------
Net revenues.................................. 100.0% 100.0% 100.0% 16.7% 62.2%
Cost of revenues (excluding amortization
presented separately below)................. 6.2 3.6 6.7 99.3 (12.6)
----- ----- -----
Gross margin.................................. 93.8 96.4 93.3 13.6 67.6
Operating expenses:
Research and development.................... 10.8 9.3 9.2 35.5 63.5
Sales, marketing and support................ 38.3 30.1 30.1 48.7 62.0
General and administrative.................. 12.5 9.4 8.1 55.4 87.6
Amortization of intangible assets........... 6.5 4.6 4.1 64.5 81.4
In-process research and development......... -- 0.5 7.4 * *
Write-down of technology.................... 1.9 -- -- * *
----- ----- -----
Total operating expenses................. 70.0 53.9 58.9 51.5 48.3
----- ----- -----
Income from operations........................ 23.8 42.5 34.4 (34.6) 100.6
Interest and other income..................... 8.5 5.9 4.0 66.8 138.9
Interest expense.............................. (3.6) (3.1) -- 34.6 *
----- ----- -----
Income before income taxes.................... 28.7 45.3 38.4 (26.1) 91.4
Income taxes.................................. 8.6 16.3 13.8 (38.4) 91.4
----- ----- -----
Net income.................................... 20.1% 29.0% 24.6% (19.2) 91.4
===== ===== =====
- ---------------
* not meaningful.
Net Revenues. Net revenues are presented below in five categories:
Application Servers, Management Products, Computing Appliances Products,
Microsoft Royalties and Services and Other Revenue. Application Servers revenue
primarily represents fees related to the licensing of the Company's MetaFrame
products, subscriptions for product support, updates and upgrades and additional
user licenses. Management Products consist of Load Balancing Services, Resource
Management Services and other options. Computing Appliances Products revenue
consists of license fees and royalties from OEMs who are granted a license to
incorporate and/or market the Company's multi-user technologies in their own
product offerings. Microsoft Royalties represent fees recognized in connection
with the Development Agreement. Services and Other Revenue consist primarily of
consulting in the delivery of implementation services and systems integration
solutions, as well as customer support.
The increase in net revenues in 2000 was primarily attributable to an
increase in Application Servers revenue resulting from an increase in the number
of MetaFrame licenses sold. This increase was partially offset by a decrease in
revenue from the WinFrame product line. WinFrame is Windows application server
software based on Windows NT 3.51. The Company expects that sales of
MetaFrame-based products will continue to make up a large percentage of net
revenues. The increase in net revenues in 2000 was also due to an increase in
the volume of shipments of Management Products, specifically, Load Balancing
Services and Resource Management Services, and to a lesser extent an increase in
Services revenue due mainly to additional consulting revenue resulting from the
Innovex acquisition. The Company anticipates that revenue from the Development
Agreement with Microsoft will account for a decreasing percentage of net
revenues. Net revenues from Computing Appliances Products declined in 2000 due
to decreased volume of licensing to OEMs.
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16
The increase in net revenues in 1999 was primarily attributable to
increases in the volume of shipments of the Company's MetaFrame products and
associated additional user licenses, which began shipping in June 1998, while
sales of the WinFrame products and associated additional user licenses
decreased. To a lesser extent, the increase in net revenues in 1999 was due to
an increase in revenue related to the Development Agreement with Microsoft and
increases in the volume of shipments of Management Products, primarily due to
higher sales levels of the Load Balancing Services product as end users
implemented larger scale MetaFrame solutions. Net revenues of Computing
Appliances Products declined in 1999 due to decreased volume of licensing to
OEMs.
An analysis of the Company's net revenues is presented below:
YEAR ENDED DECEMBER 31, REVENUE REVENUE
----------------------- GROWTH GROWTH
2000 1999 1998 1999 TO 2000 1998 TO 1999
----- ----- ----- ------------ ------------
Application Servers....................... 71.4% 74.2% 69.4% 12.2% 73.5%
Management Products....................... 12.3 9.5 4.8 50.8 222.6
Computing Appliances Products............. 1.0 2.4 8.8 (49.4) (55.2)
Microsoft Royalties....................... 8.5 9.9 12.8 0.2 25.5
Services and Other Revenue................ 6.8 4.0 4.2 100.3 49.3
----- ----- -----
Net Revenues.............................. 100.0% 100.0% 100.0% 16.7 62.2
===== ===== =====
International and Segment Revenues. International revenues (sales outside
of the United States) accounted for approximately 40.3%, 38.7% and 31.6% of net
revenues for the years ended December 31, 2000, 1999 and 1998, respectively. For
additional information on the breakdown of international revenues, please refer
to Note 12 to the Company's Consolidated Financial Statements appearing in Item
8 of this Annual Report. The increase in international revenues as a percentage
of net revenues was primarily due to the Company's increased sales and marketing
efforts and continued demand for the Company's products in Europe and Asia. The
Company anticipates that international revenues will account for an increasing
percentage of net revenues in the future.
An analysis of geographic segment net revenue is presented below:
YEAR ENDED DECEMBER 31, REVENUE REVENUE
----------------------- GROWTH GROWTH
2000 1999 1998 1999 TO 2000 1998 TO 1999
----- ----- ----- ------------ ------------
Americas.................................. 52.8% 53.0% 57.1% 16.3% 50.5%
EMEA...................................... 33.7 32.1 25.8 22.4 101.9
Asia Pacific.............................. 5.0 5.0 4.3 16.2 87.3
Other..................................... 8.5 9.9 12.8 0.2 25.5
----- ----- -----
Consolidated net revenues................. 100.0% 100.0% 100.0% 16.7 62.2
===== ===== =====
The increase in net revenues in 2000 and 1999 was primarily attributable to
greater sales and marketing efforts and continued demand for the Company's
products in the Americas and Europe, Middle East & Africa ("EMEA") regions and
larger scale MetaFrame implementations in these regions. The EMEA revenue
increase in 1999 was also due to the opening and expansion of additional sales
offices in that region.
The Company expects to continue investing in international markets and
expanding its international operations by establishing additional foreign
operations, hiring personnel, expanding its international sales force and adding
new third party channel partners. International revenues may fluctuate in future
periods as a result of difficulties in staffing, dependence on an independent
distribution channel, competition, variability of foreign economic and political
conditions and changing restrictions imposed by regulatory requirements,
localized product release timing and related issues of marketing such products
in foreign countries.
Cost of Revenues. Cost of revenues consisted primarily of the cost of
royalties, product media and duplication, manuals, packaging materials and
shipping expense. All development costs incurred in connection with the
Development Agreement are expensed as incurred and are reported as cost of
revenues. The
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Company's cost of revenues exclude amortization of core technology. Cost of
revenues also consists of compensation and other personnel-related costs for
consulting services.
Gross Margin. The decrease in gross margin as a percent of net revenues
from 1999 to 2000 was primarily due to reserves for obsolete inventory on hand
and the impact of the consulting services business which has a lower gross
profit margin as a percentage of net revenue than that associated with the sale
of software licenses. The inventory reserved for obsolescence was destroyed in
2000. This decrease was slightly offset by an increase in sales of electronic
licenses, which have a higher gross margin versus traditional packaged product
as a percentage of product revenue. The Company anticipates gross margin as a
percentage of net revenues will increase from current levels but will remain
below historical levels as the Company increases its consulting services
offering.
The increase in gross margin as a percent of net revenues from 1998 to 1999
was primarily due to increases in sales of the MetaFrame product and related
user licenses. The MetaFrame products have a relatively high gross margin
contribution as the MetaFrame products bear less royalties than those associated
with the WinFrame products. Gross margin related to the Development Agreement
increased from 1998 to 1999 due primarily to an increase in revenue related to
the Development Agreement as well as a decrease in related engineering and
support expenses which resulted from the maturity level of the MetaFrame
product. The overall increase in gross margin as a percentage of net revenues
for 1999 was partially offset by an increase in inventory reserves.
Research and Development Expenses. Research and development expenses
consisted primarily of personnel-related costs. All development costs included
in the research and development of software products and enhancements to
existing products have been expensed as incurred except for certain intangible
assets related to the acquisitions and licensed technology described herein.
Increases in research and development expenses in 2000 and 1999 resulted
primarily from additional staffing, associated salaries and related expenses
required to expand and enhance the Company's product lines.
Sales, Marketing and Support Expenses. The increase in sales, marketing
and support expenses in 2000 and 1999 resulted primarily from increased
headcount levels of sales, services and marketing staff and associated salaries,
commissions and expenses in order to increase the Company's sales, consulting
and marketing efforts. The increase was also due to higher levels of promotional
activities and marketing programs directed at customer and business partner
acquisition and retention, and additional advertising activities related to
specific product lines and corporate branding. Promotional activities include
various demand generation programs as well as direct mail campaigns, programs
directed at resellers and trade shows.
General and Administrative Expenses. Increases in general and
administrative expenses in 2000 and 1999 resulted primarily from increased
staff, associated salaries and related expenses necessary to support overall
increases in the scope of the Company's operations. The increase in 2000 was
also due to an increase in legal fees relating to litigation and general
corporate matters.
Amortization of Intangible Assets. The increases in amortization of
goodwill and identifiable intangible assets in 2000 and 1999 are primarily due
to the acquisition of APM Ltd. in June 1998, VDOnet Corporation Ltd. in July
1998, and ViewSoft, Inc. in July 1999. These acquisitions resulted in additional
goodwill and identifiable intangible assets of approximately $30.5 million, $5.6
million and $31.1 million, respectively, at their respective date of
acquisition. Additionally, for 2000, the increase was also due to the
acquisition of Innovex in February 2000 which resulted in additional goodwill
and identifiable intangible assets of approximately $26.7 million. As of
December 31, 2000, the Company had net goodwill and identifiable intangible
assets of $43.3 million, associated with these transactions, remaining to be
amortized over three to four years following the acquisitions. The Company
anticipates that amortization of goodwill and identifiable intangible assets
will decrease from 2000 levels due to the write-downs of core technology
recorded in the fourth quarter of 2000 (see further discussion under
"-- Write-Down of Technology.")
In-Process Research and Development. In 1999, the Company completed the
acquisition of certain in-process software technologies from ViewSoft, in which
it allocated $2.3 million of the purchase price to IPR&D. During 1998, the
Company completed acquisitions and a licensing of certain in-process software
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technologies in which it allocated a portion of the purchase price to IPR&D. The
Company allocated $2.7 million, $10.7 million and $2.4 million in 1998 for IPR&D
related to the Insignia, APM and VDOnet acquisitions, respectively, and $2.6
million in 1998 for IPR&D related to the licensing agreement with EPiCON.
Since the respective dates of acquisition and licensing, the Company has
used some of the acquired in-process technology to develop new product offerings
and enhancements, which have or will become part of the Company's suite of
products when completed. For projects completed, such as those associated with
the EPiCON and Insignia transactions, functionality included in products using
the acquired in-process technology have been introduced at various times
following the respective transaction dates of the acquired assets and licensing.
Acquired technology associated with the APM and VDOnet acquisitions were written
down in the fourth quarter of 2000, as further discussed below under
"-- Write-Down of Technology." The Company currently expects to complete the
development of the remaining projects associated with the ViewSoft acquisition
in 2001. Upon completion, the Company intends to offer the related products to
its customers.
The nature of the efforts required to develop and integrate the acquired
in-process technology into commercially viable products or features and
functionalities within the Company's suite of existing products principally
relate to the completion of all planning, designing and testing activities that
are necessary to establish that the products can be produced to meet design
requirements, including functions, features and technical performance
requirements. The Company currently expects that products utilizing the
remaining acquired in-process technology will be successfully developed, but
there can be no assurance that commercial viability of any of these products
will be achieved. Furthermore, future developments in the software industry,
particularly in the server-based computing environment, changes in technology,
changes in other products and offerings or other developments may cause the
Company to alter or abandon product plans.
Failure to complete the development of the ViewSoft project in its
entirety, or in a timely manner, could have a material adverse impact on the
Company's financial condition and results of operations. No assurance can be
given that actual revenues and operating profit attributable to acquired
in-process research and development will not deviate from the projections used
to initially value such technology when acquired. Ongoing operations and
financial results for acquired assets and licensed technology, and the Company
as a whole, are subject to a variety of factors, which may not have been known
or estimable at the date of such transactions.
A description of the in-process research and development and the estimates
made by the Company for each of the APM, VDOnet and ViewSoft transactions is
summarized below. All of the acquired projects were targeted for the
server-based computing market.
APM
The in-process research and development acquired in the APM acquisition
consisted primarily of one significant research and development project. The
project is a Windows NT-based application server for Java applications. At the
date of the acquisition, APM was shipping a Java application server solution
that allowed an enterprise user to access Java-applets from the Internet and
execute these applets outside the corporate firewall in a server-based computing
configuration in a fashion that was transparent to the enterprise user. APM was
in the process of modifying its software product to incorporate changes
necessary for it to interface with Java 2.0, which was a major new release that
included major rewrites to the Java desktop. Following the acquisition, the
Company planned on continuing the process of incorporating changes necessary to
interface with Java 2.0, and in addition, planned on further developing the
software product into an application server for Java 2.0 that would operate in a
MetaFrame server environment.
The Company estimated this project was less than 45% complete at the date
of acquisition. The aggregate value assigned to the in-process research and
development was $10.7 million. In the second quarter of 2000, management changed
the Java application server to a Java Performance Pack product, which adds
performance enhancements and management tools to other Citrix products.
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At the time of the acquisition, it was anticipated that there was a growing
need and momentum in the market to develop and run Java client applications.
Since the acquisition, the market has not developed as anticipated. As a result,
the Company has no current plans to further develop this technology.
VDONET
The in-process research and development acquired in the VDOnet acquisition
consisted primarily of one significant research and development project, ICA
Video Services. This project allows video applications and applications
containing video to be viewed on an ICA client, and was targeted for the
server-based computing market. At the date of the acquisition, VDOnet was
shipping a client server video streaming product that was not operational in a
Windows NT or in a MetaFrame environment. VDOnet was in the process of modifying
its software to be operational in a Windows NT environment. In addition, VDOnet
was developing enhancements that would provide for a live camera feed and
multicast, which was intended to direct a video stream to multiple client
devices simultaneously. The Company estimates this project was less than 65%
complete at the date of acquisition. The aggregate value assigned to the
in-process research and development was $2.4 million.
Following the acquisition, the Company continued the process of modifying
the VDOnet software to be operational in a Windows NT environment. Subsequent
development efforts resulted in the VideoFrame 1.0 product, which was shipped in
the third quarter of 1999, but has resulted in few sales to end users. Since the
acquisition, the Company explored alternative uses for the acquired technology.
These uses related primarily to delivering video applications in a server-based
computing environment and video streaming with ICA devices. Currently, the
Company has no plans to further develop this technology.
VIEWSOFT
The in-process research and development acquired in the ViewSoft
acquisition consisted primarily of one significant research and development
project, ViewSoft Internet 4.0. This project enables multi-tier, Web-based
application development and deployment. At the date of the valuation, ViewSoft
was in development with this product. The product was intended to operate in the
multi-tier web application market and was not intended to operate in a MetaFrame
environment. The Company is currently exploring the use of the product for the
development of portal-ware applets.
The Company estimated this project was approximately 85% complete at the
date of acquisition. The aggregate value assigned to in-process research and
development was $2.3 million. The remaining efforts to complete the project
relate primarily to applet development, on-going stress testing and, to a lesser
extent, bug fixes and documentation. The research and development risks
associated with this project relate primarily to potential product limitations
revealed during testing.
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The actual and estimated costs to complete and completion dates of the
in-process and core technology acquired for each acquisition are as follows:
APM VDONET VIEWSOFT
---------- ---------- ----------
(IN THOUSANDS)
Date Acquired.................................. June 1998 July 1998 July 1999
Cost Incurred to Date.......................... $4,275 $4,230 $4,370
Estimated Cost to Complete..................... -- -- 4,988
---------- ---------- ----------
Total Estimated Project Cost................... $4,275 $4,230 $9,358
========== ========== ==========
Estimated Cost to Complete at Date of
Valuation.................................... $4,000 $ 200 $ 660
========== ========== ==========
Estimated Completion Date at Date of
Valuation.................................... First Second Fourth
Quarter of Quarter of Quarter of
1999 1999 1999
Estimated Completion Date...................... N/A N/A Third
Quarter of
2001
The estimated completion date of the ViewSoft project has been delayed from
the originally anticipated completion date due to increases in project scope, a
longer testing period and transition of the development team. The Company is
currently unable to determine the impact of such delays on its business, future
results of operations and financial condition. There can be no assurance that
the Company will not incur additional charges in subsequent periods to reflect
costs associated with completing this project or that the Company will be
successful in its efforts to integrate and further develop this technology.
Write-Down of Technology. The Company periodically reviews its goodwill
and other intangible assets to determine if any impairment exists. In June 1998,
the Company completed its acquisition of APM Ltd. The acquired core technology
consisted primarily of a Java software product that would operate in a MetaFrame
server environment. At the time of acquisition, it was anticipated that there
was a growing need and momentum in the market to develop and run Java client
applications. Since the acquisition, the market has not developed as
anticipated. In the second quarter of 2000, management changed the Java
application server to a Java Performance Pack product, which adds performance
enhancements and management tools to other Citrix products. By the fourth
quarter of 2000, the Company had developed a Java Performance Pack and was
assessing the market demand for this technology. As of December 31, 2000, the
Company did not believe that there were sufficient projected cash flows to
support the net book value of the core technology associated with the APM
acquisition. In addition, the Company determined that there was no alternative
future use for the acquired technology. As a result, the Company recorded a
write-down of $7.3 million, representing the net book value of the APM core
technology as of December 31, 2000.
In July 1998, the Company completed its acquisition of VDOnet Corporation
Ltd. The acquired core technology consisted primarily of the ICA Video Services
project which allowed video applications and applications containing videos to
be viewed on an ICA client. Subsequent development efforts resulted in the
VideoFrame 1.0 product, which was shipped in the third quarter of 1999, but has
resulted in few sales to end users. Since the acquisition, the Company has
explored alternative uses for the acquired technology. By the third quarter of
2000, the Company was exploring uses related primarily to delivering video
applications in a server-based computing environment and video streaming with
ICA devices. In the fourth quarter of 2000, the Company reviewed potential
modifications to its cash flow projections based on alternative uses for the
technology. As a result of its evaluation, the Company did not believe that
there were sufficient projected cash flows to support the carrying value of the
core technology. As a result, the Company recorded a write-down of $1.8 million,
representing the net book value of the VDOnet core technology as of December 31,
2000.
Interest and Other Income. The increase in interest and other income in
2000 was primarily due to the full year effect of interest earned on the
invested net proceeds from the issuance of the zero coupon convertible
subordinated debentures (the "Debentures") in March 1999 and interest earned
from the increase in cash from operations. In addition, other income increased
as the Company changed the composition of its
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investment portfolio in the fourth quarter of 2000 from tax-exempt and taxable
to predominantly taxable securities. The increase in interest and other income
in 1999 was primarily due to interest earned on the invested net proceeds from
the issuance of Debentures in March 1999. The Company may acquire or make
investments in companies it believes are related to its strategic objectives.
Such investments will reduce the Company's cash and/or investment balances and
therefore may reduce interest income.
Interest Expense. The increases in interest expense in 2000 and 1999 were
primarily due to interest related to the Debentures issued in March 1999.
Income Taxes. In July 1999, the Company changed its organizational
structure whereby it moved certain operational and administrative processes to
overseas subsidiaries. The restructuring resulted in foreign earnings being
taxed at lower foreign tax rates. In 2000, the Company determined that foreign
earnings will be permanently reinvested overseas in order to fund the Company's
growth in overseas markets. As a result of these organizational changes, the
Company's effective tax rate amounted to 30% in 2000, as compared to 36% in 1999
and 1998.
LIQUIDITY AND CAPITAL RESOURCES
During 2000, the Company generated positive operating cash flows of $243.2
million related primarily to net income of $94.5 million, adjusted for non-cash
items including tax benefits from the exercise of non-statutory stock options
and disqualifying dispositions of incentive stock options of $63.9 million,
depreciation and amortization expenses of $50.2 million, and provisions for
product returns and inventory obsolescence of $34.8 million primarily due to
stock rotations and the overall increase in the Company's revenues. These cash
inflows were partially offset by an aggregate decrease in cash flow from
operating assets and liabilities of $26.6 million. Cash used in investing
activities of $1.8 million for 2000 related primarily to the expenditure of
$43.5 million for the purchase of computer equipment, leasehold improvements and
office equipment to support the Company's growth and expansion, and net cash
paid for acquisitions, primarily the Innovex Group, of $30.1 million, partially
offset by cash inflows from the net sale of investments totaling $73.2 million.
Cash used in financing activities of $82.6 million related primarily to the
expenditure of $157.9 million for stock repurchase programs, partially offset by
$70.5 million from the issuance of common stock under the Company's stock option
and employee stock purchase plans and $4.9 million generated from premiums
charged in the sale of put warrants.
During 1999, cash provided by operating activities of $184.0 million
related primarily to net income of $116.9 million, adjusted for non-cash items
including tax benefits from the exercise of non-statutory stock options and
disqualifying dispositions of incentive stock options of $50.8 million,
depreciation and amortization expenses of $27.6 million and an increase in
accounts payable and other accrued expenses of $25.1 million due to increased
marketing expenses, accrued taxes and royalty fees and provisions for product
returns of $20.9 million primarily due to stock rotation caused by the release
of MetaFrame 1.8 and the overall increase in the Company's revenues. These cash
inflows were partially offset by increases in accounts receivable of $44.0
million due primarily to higher revenue levels and an increase of prepaid
expenses of $32.8 million due primarily to a receivable from estimated tax
payments in excess of the tax liability. Cash used in investing activities of
$457.5 million for 1999 related primarily to the net purchases of investments of
$396.2 million, the net cash paid for the acquisition of ViewSoft of $32.7
million and the expenditure of $26.3 million for the purchase of leasehold
improvements and equipment to support the Company's growth and expansion into
new facilities. Cash provided by financing activities of $362.1 million related
primarily to the net proceeds from the issuance of convertible subordinated
debentures and $70.4 million from the issuance of common stock under the
Company's stock option and employee stock purchase plans.
At December 31, 2000, the Company had $849.2 million in cash and
investments, including $375.0 million in cash and cash equivalents, and $427.3
million of working capital. The Company's cash and cash equivalents are invested
in investment grade, highly liquid securities to minimize interest rate risk and
allow for flexibility in the event of immediate cash needs.
In December 2000, the Company, through a wholly-owned subsidiary, entered
into a forward bond purchase agreement ("Bond Purchase Agreement") with an
investment advisor. Pursuant to the Bond
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Purchase Agreement, the Company will purchase zero coupon bonds ("Forward
Bonds") from the investment advisor at certain scheduled dates pursuant to the
Bond Purchase Agreement. The purchase price of the Forward Bonds will equal the
expected future coupon or principal payment amounts received on six underlying
corporate securities. The corporate securities, which have an aggregate
amortized cost of $158.2 million at December 31, 2000, generally provide for
semi-annual interest payments and mature at various dates between December 2003
and March 2004. The Forward Bonds will mature on March 15, 2004 with an
aggregate maturity value of approximately $195 million. The Bond Purchase
Agreement and the underlying corporate securities are classified as
held-to-maturity, therefore, the Company does not recognize changes in the fair
value of these investments unless a decline in the fair value of the investments
is other than temporary, in which case a loss would be recognized in earnings.
The underlying corporate securities have been pledged as security for the
Company's future obligations to purchase the Forward Bonds.
In December 2000, the Company invested $158.1 million in a trust ("Trust")
held by an investment advisor. The Trust primarily consists of assets which in
turn invest in AAA-rated zero-coupon corporate securities that mature on March
22, 2004 with an aggregate maturity value of approximately $195 million. The
investment advisor entered into a credit risk swap agreement with the Trust
which effectively increased the yield on the trust assets and for which value
the Trust assumed the credit risk of ten specific A-rated or better companies.
The Company records the investment as held-to-maturity zero-coupon corporate
securities. The Company does not recognize changes in the fair market value of
these investments unless a decline in the fair value of the Trust assets is
other than temporary, in which case a loss would be recognized in earnings.
At December 31, 2000, the Company had $37.3 million in accounts receivable,
net of allowances, and $94.7 million of deferred revenues, of which the Company
anticipates $80.6 million will be earned over the next 12 months.
On April 15, 1999, the Board of Directors approved a stock repurchase
program authorizing the repurchase of up to $200 million of the Company's Common
Stock. Purchases will be made from time to time in the open market and paid out
of general corporate funds. As of December 31, 2000, the Company purchased
2,750,000 shares of outstanding Common Stock on the open market at an average
price of $21.04 per share. These shares have been recorded as treasury stock.
On August 8, 2000, the Company entered into an agreement, as amended, with
a counterparty in a private transaction to purchase up to approximately 4.8
million shares of the Company's Common Stock at various times through the third
quarter of 2002. Pursuant to the terms of the agreement, $100 million was paid
to the counterparty in the third quarter of 2000. The ultimate number of shares
repurchased will depend on market conditions. As of December 31, 2000, the
Company received 1,067,108 shares under this agreement at an average price of
$17.00 per share. These shares have been recorded as treasury stock.
In connection with the Company's stock repurchase program, in October 2000,
the Board of Directors approved a program authorizing the Company to sell put
warrants that entitle the holder of each warrant to sell to the Company,
generally by physical delivery, one share of the Company's Common Stock at a
specified price. The Company has engaged in various put warrant transactions
that expire on various dates between January and March 2001 and have exercise
prices ranging from $20.89 to $29.64. As of December 31, 2000, the Company sold
1.3 million put warrants at an average strike price of $26.17 and received
proceeds of $4.9 million. As of December 31, 2000, the Company has a total
potential repurchase obligation of approximately $34.0 million associated with
the outstanding put warrants, of which $15.7 million is classified as a put
warrants obligation on the balance sheet.
In October 2000, the Board of Directors approved a program authorizing the
Company to repurchase up to $25 million of the Debentures in open market
purchases. As of December 31, 2000, none of the Company's Debentures had been
repurchased under this program.
In February 2000, the Company completed its acquisition of all of the
operating assets of Innovex Group, Inc. for approximately $47.8 million, of
which $28.7 million was paid in cash at the closing date. The balance is
payable, in equal installments, 18 and 24 months after the closing date,
contingent upon future events.
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The Company believes existing cash and investments together with cash flow
expected from operations will be sufficient to meet operating and capital
expenditures requirements through 2001. The Company may from time to time seek
to raise additional funds through public or private financings. The Company may
also acquire or make investments in companies it believes are related to its
strategic objectives. Such investments may reduce the Company's available
working capital.
CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS
The Company's operating results and financial condition have varied in the
past and may in the future vary significantly depending on a number of factors.
Except for the historical information in this report, the matters contained in
this report include forward-looking statements that involve risks and
uncertainties. The following factors, among others, could cause actual results
to differ materially from those contained in forward-looking statements made in
this report and presented elsewhere by management from time to time. Such
factors, among others, may have a material adverse effect upon the Company's
business, results of operations and financial condition.
Reliance Upon Strategic Relationship with Microsoft
Microsoft is the leading provider of desktop operating systems. The Company
depends upon the license of key technology from Microsoft, including certain
source and object code licenses and technical support. The Company also depends
upon its strategic alliance agreement with Microsoft pursuant to which the
Company and Microsoft have agreed to cooperate to develop advanced operating
systems and promote Windows application program interfaces. The Company's
relationship with Microsoft is subject to the following risks and uncertainties:
- Competition with Microsoft. Windows Server Operating Systems are, and
future product offerings by Microsoft may be, competitive with the
Company's current MetaFrame products, and any future product offerings by
the Company.
- Expiration of Microsoft's Endorsement of the ICA Protocol. Microsoft's
obligation to endorse only the Company's ICA protocol as the preferred
method to provide multi-user Windows access for devices other than
Windows clients expired in November 1999. Microsoft may now market or
endorse other methods to provide multi-user Windows access to non-Windows
client devices.
- Dependence on Microsoft for Commercialization. The Company's ability to
successfully commercialize certain of its MetaFrame products depends on
Microsoft's ability to market Windows Server Operating Systems products.
The Company does not have control over Microsoft's distributors and
resellers and, to the Company's knowledge, Microsoft's distributors and
resellers are not obligated to purchase products from Microsoft.
- Product Release Delays. There may be delays in the release and shipment
of future versions of Windows Server Operating Systems.
- Termination of Development Agreement Obligations. The Company's
Development Agreement with Microsoft expires in May 2002. Upon
expiration, Microsoft may change its Windows NT, Terminal Server Edition
or Windows 2000 products to render them inoperable with the Company's
MetaFrame product offerings. Further, upon termination of the Development
Agreement, Microsoft may facilitate the ability of third parties to
compete with the Company's MetaFrame products. Finally, future product
offerings by Microsoft do not need to provide for interoperability with
the Company's products. The lack of interoperability between present or
future Microsoft products and the Company's products could cause a
material adverse effect in the Company's business, results of operations
and financial condition.
Dependence Upon Broad-Based Acceptance of ICA Protocol
The Company believes that its success in the markets in which it competes
will depend upon its ability to make ICA protocol a widely accepted standard for
supporting Windows and UNIX applications. If another
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standard emerges or if the Company otherwise fails to achieve wide acceptance of
the ICA protocol as a standard for supporting Windows or UNIX applications, the
Company's business, operating results and financial condition could be
materially adversely affected. Microsoft includes as a component of Windows
Server Operating Systems its Remote Desktop Protocol (RDP), which has certain of
the capabilities of the Company's ICA protocol, and may offer customers a
competitive solution. The Company believes that its success is dependent on its
ability to enhance and differentiate its ICA protocol, and foster broad
acceptance of the ICA protocol based on its performance, scalability,
reliability and enhanced features. In addition, the Company's ability to win
broad market acceptance of its ICA protocol will depend upon the degree of
success achieved by its strategic partners in marketing their respective
platforms, product pricing and customers' assessment of its technical,
managerial service and support expertise. If another standard emerges or if the
Company fails to achieve wide acceptance of the ICA protocol as a standard for
supporting Windows and UNIX applications, the Company's business, operating
results and financial condition could be materially adversely affected.
Dependence Upon Strategic Relationships
In addition to its relationship with Microsoft, the Company has strategic
relationships with IBM, Compaq, Hewlett Packard and others. The Company depends
upon its strategic partners to successfully incorporate the Company's technology
into their products and to market and sell such products. If the Company is
unable to maintain its current strategic relationships or develop additional
strategic relationships, or if any of its key strategic partners are
unsuccessful at incorporating the Company's technology into their products or
marketing or selling such products, the Company's business, operating results
and financial condition could be materially adversely affected.
Competition
The markets in which the Company competes are intensely competitive. Most
of its competitors and potential competitors, including Microsoft, have
significantly greater financial, technical, sales and marketing and other
resources than the Company. The announcement of the release and the actual
release of products competitive with the Company's existing and future product
lines, such as Windows Server Operating Systems and related enhancements, could
cause existing and potential customers of the Company to postpone or cancel
plans to license the Company's products. This would adversely impact the
Company's business, operating results and financial condition. Further, the
Company's ability to market ICA, MetaFrame and other future product offerings
may be affected by Microsoft's licensing and pricing scheme for client devices
implementing the Company's product offerings, which attach to Windows Server
Operating Systems.
In addition, alternative products exist for web applications in the
internet software market that directly or indirectly compete with the Company's
products. Existing or new products that extend internet software to provide
database access or interactive computing can materially impact the Company's
ability to sell its products in this market. As markets for the Company's
products continue to develop, additional companies, including companies with
significant market presence in the computer hardware, software and networking
industries, may enter the markets in which the Company competes and further
intensify competition. Finally, although the Company believes that price has
historically been a less significant competitive factor than product
performance, reliability and functionality, the Company believes that price
competition may become more significant in the future. The Company may not be
able to maintain its historic prices, and any inability to do so could adversely
affect its business, results of operations and financial condition.
Dependence on Proprietary Technology
The Company relies primarily on a combination of copyright, trademark and
trade secret laws, as well as confidentiality procedures and contractual
provisions, to protect its proprietary rights. The Company's efforts to protect
its proprietary technology rights may not be successful. The loss of any
material trade secret, trademark, tradename, or copyright could have a material
adverse effect on the Company. Despite the Company's precautions, it may be
possible for unauthorized third parties to copy certain portions of the
Company's products or to obtain and use information regarded as proprietary. A
significant portion of the
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Company's sales are derived from the licensing of its packaged products under
"shrink wrap" license agreements that are not signed by licensees and electronic
licensing agreements that may be unenforceable under the laws of certain foreign
jurisdictions. In addition, the Company's ability to protect its proprietary
rights may be affected by the following:
- Differences in International Law. The laws of some foreign countries do
not protect the Company's intellectual property to the same extent as do
the laws of the United States and Canada.
- Third Party Infringement Claims. Third parties may assert infringement
claims against the Company in the future. This may result in costly
litigation or require the Company to obtain a license to intellectual
property rights of such third parties. Such licenses may not be available
on reasonable terms or at all.
Product Concentration
The Company anticipates that its MetaFrame product line and related
enhancements will constitute the majority of its revenue for the foreseeable
future. The Company's ability to generate revenue from its MetaFrame product
will depend upon market acceptance of Windows Server Operating Systems and/or
UNIX Operating Systems. Declines in demand for products based on MetaFrame
technology may occur as a result of new competitive product releases, price
competition, new products or updates to existing products, lack of success of
the Company's strategic partners, technological change or other factors.
Dependence on Key Personnel
The Company's success will depend, in large part, upon the services of a
number of key employees. The Company does not have long-term employment
agreements with any of its key personnel. Any officer or employee can terminate
his or her relationship at any time.
The effective management of the Company's anticipated growth will depend,
in a large part, upon the Company's ability to (i) retain its highly skilled
technical, managerial and marketing personnel; and (ii) to attract and maintain
replacements for and additions to such personnel in the future. Competition for
such personnel is intense and may affect the Company's ability to successfully
attract, assimilate or retain sufficiently qualified personnel.
New Products and Technological Change
The markets for the Company's products are relatively new and are
characterized by:
- rapid technological change;
- evolving industry standards;
- changes in end-user requirements; and
- frequent new product introductions and enhancements
These market characteristics will require the Company to continually
enhance its current products and develop and introduce new products to keep pace
with technological developments and respond to evolving end-user requirements.
Additionally, the Company and others may announce new product enhancements or
technologies that could replace or shorten the life cycle of the Company's
existing product offerings.
The Company believes it will incur additional costs and royalties
associated with the development, licensing or acquisition of new technologies or
enhancements to existing products. This will increase the Company's cost of
revenues and operating expenses. The Company cannot currently quantify such
increase with respect to transactions that have not occurred. The Company may
use a substantial portion of its cash and investments to fund these additional
costs.
The Company may need to hire additional personnel to develop new products,
product enhancements and technologies and to fulfill the Company's
responsibilities under the terms of the Development Agreement. If
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the Company is unable to add the necessary staff and resources, future
enhancement and additional features to its existing or future products may be
delayed, which may have a material adverse effect on the Company's business,
results of operations and financial condition.
Potential for Undetected Errors
Despite significant testing by the Company and by current and potential
customers, new products may contain errors after commencement of commercial
shipments. Additionally, the Company's products depend upon certain third party
products, which may contain defects and could reduce the performance of the
Company's products or render them useless. Since the Company's products are
often used in mission-critical applications, errors in the Company's products or
the products of third parties upon which the Company's products rely could give
rise to warranty or other claims by the Company's customers.
Reliance Upon Indirect Distribution Channels and Major Distributors
The Company relies significantly on independent distributors and resellers
for the marketing and distribution of its products. The Company does not control
its distributors and resellers. Additionally, the Company's distributors and
resellers are not obligated to purchase products from the Company and may also
represent other lines of products.
Need to Expand Channels of Distribution
The Company intends to leverage its relationships with hardware and
software vendors and systems integrators to encourage them to recommend or
distribute the Company's products. In addition, an integral part of the
Company's strategy is to expand its ability to reach large enterprise customers
by adding channel partners and expanding its offering of consulting services.
The Company is currently investing, and intends to continue to invest,
significant resources to develop these channels, which could reduce the
Company's profits.
Need to Attract Large Enterprise Customers
The Company intends to expand its ability to reach large enterprise
customers by adding channel partners and expanding its offering of consulting
services. The Company's inability to attract large enterprise customers could
have a material adverse effect on its business, operating results and financial
condition. Additionally, large enterprise customers usually request special
pricing and generally have longer sales cycles, which could negatively impact
the Company's revenues. Further, as the Company attempts to attract large
enterprise customers, it may need to increase corporate branding activities,
which will increase the Company's operating expenses, but may not proportionally
increase its operating revenues.
Maintenance of Growth Rate
The Company's revenue growth rate in 2001 may not approach the levels
attained in recent years. The Company's growth during recent years is largely
attributable to the introduction of MetaFrame for Windows in mid-1998 and
WinFrame in late 1995. To the extent revenue growth continues, the Company
believes that its cost of revenues and certain operating expenses will also
increase. Due to the fixed nature of a significant portion of such expenses,
together with the possibility of slower revenue growth, its income from
operations and cash flows from operating and investing activities may decrease
as a percentage of revenues in 2001.
In-Process Research and Development Valuation
The Company has in the past re-evaluated the amounts charged to in-process
research and development in connection with certain acquisitions and licensing
arrangements. The amount and rate of amortization of such amounts are subject to
a number of risks and uncertainties, including, without limitation, the effects
of any changes in accounting standards or guidance adopted by the staff of the
Securities and Exchange Commission or the accounting profession. Any changes in
accounting standards or guidance adopted by the staff of the Securities and
Exchange Commission, may materially adversely affect future results of
operations through increased amortization expense.
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Role of Mergers and Acquisitions
Acquisitions involve numerous risks, including the following:
- difficulties in integration of the operations, technologies, and products
of the acquired companies;
- the risk of diverting management's attention from normal daily operations
of the business;
- potential difficulties in completing projects associated with purchased
in-process research and development;
- risks of entering markets in which the Company has no or limited direct
prior experience and where competitors in such markets have stronger
market positions;
- the potential loss of key employees of the acquired company; and
- an uncertain sales and earnings stream from the acquired entity, which
may result in unexpected dilution to the Company's earnings.
Mergers and acquisitions of high-technology companies are inherently risky,
and no assurance can be given that the Company's previous or future acquisitions
will be successful and will not have a material adverse affect on the Company's
business, operating results or financial condition. The Company must also focus
on its ability to manage and integrate any such acquisition. Failure to manage
growth effectively and successfully integrate acquired companies could adversely
affect the Company's business and operating results.
Revenue Recognition Process
The Company continually re-evaluates its programs, including specific
license terms and conditions, to market its current and future products and
services. The Company may implement new programs, including offering specified
and unspecified enhancements to its current and future product lines. The
Company may recognize revenues associated with such enhancements after the
initial shipment or licensing of the software product or over the product's life
cycle. The Company has implemented a new licensing model associated with the
release of a new product in 2001. The Company may implement a different
licensing model, in certain circumstances, which would result in the recognition
of licensing fees over a longer period, which may result in decreasing revenue.
The timing of the implementation of such programs, the timing of the release of
such enhancements and other factors will impact the timing of the Company's
recognition of revenues and related expenses associated with its products,
related enhancements and services. As a result of these factors, the Company
currently cannot quantify the impact of the re-evaluation of its programs on its
business, results of operations and financial condition.
Product Returns and Price Reductions
The Company provides certain of its distributors with product return rights
for stock balancing or limited product evaluation. The Company also provides
certain of its distributors with price protection rights. To cover these product
returns and price protections, the Company has established reserves based on its
evaluation of historical trends and current circumstances. These reserves may
not be sufficient to cover product returns and price protections in the future,
in which case the Company's operating results may be adversely affected.
International Operations
The Company's continued growth and profitability will require further
expansion of its international operations. To successfully expand international
sales, the Company must establish additional foreign operations, hire additional
personnel and recruit additional international resellers. Such international
operations are subject to certain risks, such as:
- difficulties in staffing and managing foreign operations;
- dependence on independent distributors and resellers;
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- fluctuations in foreign currency exchange rates;
- compliance with foreign regulatory and market requirements;
- variability of foreign economic and political conditions;
- changing restrictions imposed by regulatory requirements, tariffs or
other trade barriers or by United States export laws;
- costs of localizing products and marketing such products in foreign
countries;
- longer accounts receivable payment cycles;
- potentially adverse tax consequences, including restrictions on
repatriation of earnings;
- difficulties in protecting intellectual property; and
- burdens of complying with a wide variety of foreign laws.
Volatility of Stock Price
The market price for the Company's Common Stock has been volatile and has
fluctuated significantly to date. The trading price of the Common Stock is
likely to continue to be highly volatile and subject to wide fluctuations in
response to factors such as actual or anticipated variations in operating and
financial results, anticipated revenue or earnings growth, analyst reports or
recommendations and other events or factors, many of which are beyond the
Company's control. In addition, the stock market in general, and The Nasdaq
National Market and the market for software companies and technology companies
in particular, have experienced extreme price and volume fluctuations. These
broad market and industry factors may materially and adversely affect the market
price of the Common Stock, regardless of the Company's actual operating
performance. In the past, following periods of volatility in the market price of
a company's securities, securities class-action litigation has often been
instituted against such companies. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which would have
a material adverse effect on the Company's business, financial condition and
results of operations.
Fluctuations in Economic and Market Conditions
The demand for the Company's products depends in part upon the general
demand for computer hardware and software, which fluctuates based on numerous
factors, including capital spending levels and general economic conditions.
Fluctuations in the demand for the Company's products could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's short and long-term investments with various financial
institutions are subject to risks inherent with fluctuations in general economic
and market conditions. Such fluctuations could cause an adverse effect in the
value of such investments and could even result in a total loss of certain of
the Company's investments. A total loss of one or more investments could result
in a material adverse effect in the Company's financial position.
Management of Growth and Higher Operating Expenses
The Company has recently experienced rapid growth in the scope of its
operations, the number of its employees and the geographic area of its
operations. In addition, the Company has completed certain domestic and
international acquisitions. Such growth and assimilation of acquired operations
and personnel of such acquired companies has placed and may continue to place a
significant strain on the Company's managerial, operational and financial
resources. To manage its growth effectively, the Company must continue to
implement and improve additional management and financial systems and controls.
The Company believes that it has made adequate allowances for the costs and
risks associated with these expansions. However, its systems, procedures or
controls may not be adequate to support its current or future operations. In
addition, the Company may not be able to effectively manage this expansion and
still achieve the rapid execution necessary to fully exploit the market
opportunity for its products and services in a timely and cost-effective
28
29
manner. The Company's future operating results will also depend on its ability
to manage its expanding product line, expand its sales and marketing
organizations and expand its support organization commensurate with the
increasing base of its installed product.
The Company plans to increase its professional staff during 2001 as it
expands sales, marketing and support and product development efforts, as well as
associated administrative systems, to support planned growth. As a result of
this planned growth in the size of its staff, the Company believes that it may
require additional domestic and international facilities during 2001. Although
the Company believes that the cost of such additional facilities will not
significantly impact its financial position or results of operations, the
Company anticipates that operating expenses will increase during 2001 as a
result of its planned growth in staff. Such an increase in operating expenses
may reduce its income from operations and cash flows from operating activities
in 2001.
29
30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk includes
"forward-looking statements" that involve risks and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements.
The Company is exposed to financial market risks, including changes in
interest rates and foreign currency exchange rates. To mitigate foreign currency
risk, the Company utilizes derivative financial instruments. The Company does
not use derivative financial instruments for speculative or trading purposes.
All of the potential changes noted below are based on sensitivity analyses
performed on the Company's financial positions at December 31, 2000. Actual
results may differ materially.
The Company maintains a non-trading investment portfolio of investment
grade, highly liquid, debt securities, which limits the amount of credit
exposure to any one issue, issuer, or type of instrument. The securities in the
Company's investment portfolio are not leveraged. The securities classified as
available-for-sale are subject to interest rate risk. The modeling technique
used measures the change in fair values arising from an immediate hypothetical
shift in market interest rates and assumes that ending fair values include
principal plus accrued interest, dividends and reinvestment income. If market
interest rates were to increase by 100 basis points from December 31, 2000 and
1999 levels, the fair value of the portfolio would decline by approximately
$10.4 million and $4.5 million, respectively.
A substantial majority of the Company's overseas expense and capital
purchasing activities are transacted in local currencies, primarily British
Pounds Sterling, Euros, Swiss Francs, and Australian Dollars. To protect against
reductions in value and the volatility of future cash flows caused by changes in
currency exchange rates, the Company has established a hedging program. The
Company uses foreign currency contracts to hedge certain firmly committed and
forecasted foreign currency expenditures. The Company's hedging program reduces,
but does not entirely eliminate, the impact of currency exchange rate movements.
A sensitivity analysis was performed on the Company's hedging portfolio as of
December 31, 2000. This analysis indicated that a hypothetical 10% appreciation
of the U.S. dollar from December 31, 2000 market rates would increase the fair
value of the Company's forward contracts by $5.4 million. Conversely, a
hypothetical 10% depreciation of the U.S. dollar from December 31, 2000 market
rates would decrease the fair value of the Company's forward contracts by $5.4
million. The Company does not anticipate any material adverse impact to its
consolidated financial position, results of operations, or cash flows as a
result of these forward foreign exchange contracts. These estimates are not
necessarily indicative of future performance, and actual results may differ
materially.
ITEM 8. FINANCIAL STATEMENTS AND SCHEDULES
The Company's Financial Statements and related financial statement
schedule, together with the report of independent certified public accountants,
appear at pages F-1 through F-29, respectively, of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters during the Company's two most recent
fiscal years.
30
31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, which proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the Company's fiscal year
ended December 31, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, which proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the Company's fiscal year
ended December 31, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, which proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the Company's fiscal year
ended December 31, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, which proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the Company's fiscal year
ended December 31, 2000.
31
32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)1. CONSOLIDATED FINANCIAL STATEMENTS.
For a list of the consolidated financial information included herein, see
Index on Page F-1.
2. FINANCIAL STATEMENT SCHEDULES.
The following consolidated financial statement schedule is included in Item
8:
Valuation and Qualifying Accounts
3. LIST OF EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1(1) Agreement and Undertaking by and among the Non-Executive
Directors of APM Limited, the Executive Directors of APM
Limited, and Citrix Systems, Inc.
2.2(1) Recommended Offers by Citrix Systems, Inc. for APM Limited
2.3(2) Asset Purchase Agreement dated February 15, 2000 by and
among the Company, Innovex Group, Inc. and certain
stockholders of Innovex
3.1(3) Amended and Restated Certificate of Incorporation of the
Company
3.2(3) Amended and Restated By-laws of the Company
3.3(4) Certificate of Amendment of Amended and Restated Certificate
of Incorporation
4.1(3) Specimen certificate representing the Common Stock
4.2(5) Indenture by and between the Company and State Street Bank
and Trust Company as Trustee dated as of March 22, 1999,
including the form of Debenture.
4.3(5) Form of Debenture (included in Exhibit 4.2).
4.3(5) Registration Rights Agreement by and between the Company and
Credit Suisse First Boston Corporation dated as of March 22,
1999.
10.1(3)* 1989 Stock Option Plan
10.2(4)* Second Amended and Restated 1995 Stock Plan
10.3(3)* 1995 Non-Employee Director Stock Option Plan
10.4* Amended and Restated 1995 Employee Stock Purchase Plan
10.5(6)* Amended and Restated 2000 Director and Officer Stock Option
and Incentive Plan
10.6(3) Microsoft Corporation Source Code Agreement between the
Company and Microsoft Corporation ("Microsoft") dated
November 15, 1989
10.7(3) Amendment No. 1 to the Source Code Agreement between the
Company and Microsoft dated October 1, 1992
10.8(3) License Agreement for Microsoft OS/2 Version Releases 1.x,
2.x between the Company and Microsoft dated August 15, 1990
10.9(3) Amendment No. 1 to the License Agreement between the Company
and Microsoft dated August 15, 1990, Contract No. 5198-0228
dated May 6, 1991
10.10(3) Amendment No. 2 to License Agreement between the Company and
Microsoft for Microsoft OS/2 Version Releases 1.x, 2.x,
dated October 1, 1992
10.11(3) Amendment No. 3 to the License Agreement between the Company
and Microsoft dated August 15, 1990, Contract No. 5198-0228
dated January 1, 1994
10.12(3) Amendment No. 4 to the License Agreement between the Company
and Microsoft dated August 15, 1990, dated January 31, 1995
10.13(3) Strategic Alliance Agreement between the Company and
Microsoft dated December 12, 1991
10.14(3) Form of Indemnification Agreement
32
33
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.15(7) License, Development and Marketing Agreement dated July 9,
1996 between the Company and Microsoft Corporation
10.16(8) License, Development and Marketing Agreement dated May 9,
1997 between the Company and Microsoft Corporation
10.17(9) Amendment No. 1 to License, Development and Marketing
Agreement dated May 9, 1997 between The Company and
Microsoft Corporation
10.18(10) Employment Agreement dated as of January 1, 1999 by and
between the Company and Roger W. Roberts.
10.19 Severance Agreement and General Release dated June 5, 2000
between the Company and Douglas Wheeler.
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney (Included in signature page)
- ---------------
(1) Incorporated herein by reference to the exhibits of the Company's Current
Report on Form 8-K dated as of June 30, 1998.
(2) Incorporated herein by reference to Exhibit 2.3 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
(3) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 33-98542), as amended.
(4) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000.
(5) Incorporated herein by reference to exhibits of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999.
(6) Incorporated herein by reference to Exhibit 10.2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000.
(7) Incorporated herein by reference to Exhibit 10 of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996.
(8) Incorporated herein by reference to Exhibit 10 of the Company's Current
Report on Form 8-K dated as of May 9, 1997.
(9) Incorporated herein by reference to Exhibit 10 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998.
(10) Incorporated herein by reference to Exhibit 10.18 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
* Indicates a management contract or any compensatory plan, contract or
arrangement.
(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K filed by the Company during the fourth
quarter of 2000.
(c) EXHIBITS.
The Company hereby files as part of this Form 10-K the exhibits listed in
Item 14(a)(3) above. Exhibits which are incorporated herein by reference can be
inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C., and at the Commission's regional offices at CitiCorp Center,
500 West Madison Street, Suite 1400, Chicago, IL 60661-2511 and Seven World
Trade Center, Suite 1300, New York, NY 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 29549, at prescribed rates.
(d) FINANCIAL STATEMENT SCHEDULE.
The Company hereby files as part of this Form 10-K the consolidated
financial statement schedule listed in Item 14(a)(2) above, which is attached
hereto.
33
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Fort Lauderdale,
Florida on the 22nd day of March, 2001.
CITRIX SYSTEMS, INC.
By: /s/ MARK B. TEMPLETON
------------------------------------
Mark B. Templeton
President
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Citrix Systems, Inc., hereby
severally constitute and appoint Roger W. Roberts and John P. Cunningham, and
each of them singly, our true and lawful attorneys, with full power to them and
each of them singly, to sign for us in our names in the capacities indicated
below, all amendments to this report, and generally to do all things in our
names and on our behalf in such capacities to enable Citrix Systems, Inc. to
comply with the provisions of the Securities Exchange Act of 1934, as amended,
and all requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated below on the 22nd day of March, 2001.
SIGNATURE TITLE(S)
--------- --------
/s/ ROGER W. ROBERTS Chairman of the Board of Directors and Chief
- --------------------------------------------- Operating Officer
Roger W. Roberts
/s/ MARK B. TEMPLETON President and Director (Principal Executive
- --------------------------------------------- Officer)
Mark B. Templeton
/s/ JOHN P. CUNNINGHAM Chief Financial Officer and Senior Vice
- --------------------------------------------- President of Finance and Administration
John P. Cunningham (Principal Financial Officer)
/s/ DAVID URBANI Vice President, Corporate Controller
- --------------------------------------------- (Principal Accounting Officer)
David Urbani
/s/ KEVIN R. COMPTON Director
- ---------------------------------------------
Kevin R. Compton
/s/ STEPHEN M. DOW Director
- ---------------------------------------------
Stephen M. Dow
/s/ ROBERT N. GOLDMAN Director
- ---------------------------------------------
Robert N. Goldman
/s/ TYRONE F. PIKE Director
- ---------------------------------------------
Tyrone F. Pike
/s/ JOHN W. WHITE Director
- ---------------------------------------------
John W. White
34
35
CITRIX SYSTEMS, INC.
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of Citrix Systems, Inc. are
included in Item 8:
Report of Independent Certified Public Accountants.......... F-2
Consolidated Balance Sheets -- December 31, 2000 and 1999... F-3
Consolidated Statements of Income -- Years ended December
31, 2000, 1999 and 1998................................... F-4
Consolidated Statements of Stockholders' Equity -- Years
ended December 31, 2000, 1999 and 1998.................... F-5
Consolidated Statements of Cash Flows -- Years ended
December 31, 2000, 1999 and 1998.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
The following consolidated financial statement schedule of
Citrix Systems, Inc. is included in
Item 14(a):
Schedule II Valuation and Qualifying Accounts............... F-29
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.
F-1
36
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Citrix Systems, Inc.
We have audited the accompanying consolidated balance sheets of Citrix
Systems, Inc. as of December 31, 2000 and 1999, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 2000. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Citrix Systems,
Inc. at December 31, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
West Palm Beach, Florida
January 17, 2001, except for
Note 17, as to which the
date is March 21, 2001
F-2
37
CITRIX SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
-----------------------
2000 1999
---------- ----------
(IN THOUSANDS, EXCEPT
PAR VALUE)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 375,025 $ 216,116
Short-term investments.................................... 91,612 221,978
Accounts receivable, net of allowances of $10,601 and
$8,242 at 2000 and 1999, respectively.................. 37,299 55,327
Inventories............................................... 4,622 7,731
Prepaid taxes............................................. 26,715 30,394
Other prepaids and current assets......................... 11,493 12,154
Current portion of deferred tax assets.................... 39,965 26,544
---------- ----------
Total current assets................................... 586,731 570,244
Long-term investments....................................... 382,524 325,755
Property and equipment, net................................. 55,559 31,530
Intangible assets, net...................................... 52,339 63,396
Long-term portion of deferred tax assets.................... 18,977 30,197
Other assets, net........................................... 16,443 16,735
---------- ----------
$1,112,573 $1,037,857
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 78,739 $ 69,190
Current portion of deferred revenues...................... 80,648 67,805
---------- ----------
Total current liabilities.............................. 159,387 136,995
Long-term portion of deferred revenues...................... 14,082 53,912
Convertible subordinated debentures......................... 330,497 313,880
Commitments and contingencies
Put warrants................................................ 15,732 --
Stockholders' equity:
Preferred stock at $.01 par value: 5,000 shares
authorized, none issued and outstanding................ -- --
Common stock at $.001 par value: 1,000,000 shares
authorized; 187,872 and 181,093 issued at 2000 and
1999, respectively..................................... 188 181
Additional paid-in capital................................ 351,053 309,321
Retained earnings......................................... 320,617 226,105
Accumulated other comprehensive loss...................... (2,943) (2,537)
---------- ----------
668,915 533,070
Less -- common stock in treasury, at cost (3,817 shares in
2000).................................................. (76,040) --
---------- ----------
Total stockholders' equity............................. 592,875 533,070
---------- ----------
$1,112,573 $1,037,857
========== ==========
See accompanying notes.
F-3
38
CITRIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS, EXCEPT
PER SHARE INFORMATION)
Net revenues:
Revenues.................................................. $430,548 $363,455 $216,901
Other revenues............................................ 39,898 39,830 31,735
-------- -------- --------
Total net revenues..................................... 470,446 403,285 248,636
-------- -------- --------
Cost of revenues:
Cost of revenues (excluding amortization presented
separately below)...................................... 28,483 13,745 13,422
Cost of other revenues.................................... 571 834 3,260
-------- -------- --------
Total cost of revenues................................. 29,054 14,579 16,682
-------- -------- --------
Gross margin................................................ 441,392 388,706 231,954
Operating expenses:
Research and development.................................. 50,622 37,363 22,858
Sales, marketing and support.............................. 180,384 121,302 74,855
General and administrative................................ 58,685 37,757 20,131
Amortization of intangible assets......................... 30,395 18,480 10,190
In-process research and development....................... -- 2,300 18,416
Write-down of technology.................................. 9,081 -- --
-------- -------- --------
Total operating expenses............................... 329,167 217,202 146,450
-------- -------- --------
Income from operations...................................... 112,225 171,504 85,504
Interest and other income................................... 39,781 23,843 10,043
Interest expense............................................ (16,989) (12,622) (75)
-------- -------- --------
Income before income taxes.................................. 135,017 182,725 95,472
Income taxes................................................ 40,505 65,781 34,370
-------- -------- --------
Net income.................................................. $ 94,512 $116,944 $ 61,102
======== ======== ========
Earnings per common share:
Basic earnings per share.................................. $ 0.51 $ 0.66 $ 0.36
======== ======== ========
Weighted average shares outstanding....................... 184,804 176,260 168,473
======== ======== ========
Earnings per common share -- assuming dilution:
Diluted earnings per share................................ $ 0.47 $ 0.61 $ 0.33
======== ======== ========
Weighted average shares outstanding....................... 199,731 192,566 182,594
======== ======== ========
See accompanying notes.
F-4
39
CITRIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED COMMON
COMMON STOCK ADDITIONAL OTHER STOCK IN TOTAL
---------------- PAID-IN RETAINED COMPREHENSIVE TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME AT COST EQUITY
------- ------ ---------- -------- ------------- -------- -------------
(IN THOUSANDS)
Balance at December 31, 1997...... 165,892 $166 $148,623 $ 48,059 $ -- $ -- $196,848
Exercise of stock options......... 5,924 6 14,951 -- -- -- 14,957
Cash in lieu of fractional
shares.......................... -- -- (3) -- -- -- (3)
Common stock issued under employee
stock purchase plan............. 30 -- 376 -- -- -- 376
Tax benefit from employer stock
plans........................... -- -- 24,174 -- -- -- 24,174
Net income........................ -- -- -- 61,102 -- -- 61,102
------- ---- -------- -------- ------- -------- --------
Balance at December 31, 1998...... 171,846 172 188,121 109,161 -- -- 297,454
Exercise of stock options......... 9,220 9 69,753 -- -- -- 69,762
Common stock issued under employee
stock purchase plan............. 27 -- 604 -- -- -- 604
Tax benefit from employer stock
plans........................... -- -- 50,843 -- -- -- 50,843
Unrealized loss on
available-for-sale securities,
net of related taxes............ -- -- -- -- (2,537) -- (2,537)
Net income........................ -- -- -- 116,944 -- -- 116,944
------- ---- -------- -------- ------- -------- --------
Balance at December 31, 1999...... 181,093 181 309,321 226,105 (2,537) -- 533,070
Exercise of stock options......... 6,698 7 69,146 -- -- -- 69,153
Common stock issued under employee
stock purchase plan............. 78 -- 1,262 -- -- -- 1,262
Common stock issued upon debt
conversion...................... 3 -- 73 -- -- -- 73
Tax benefit from employer stock
plans........................... -- -- 63,923 -- -- -- 63,923
Proceeds from sale of put
warrants........................ -- -- 4,870 -- -- -- 4,870
Put warrant obligations........... -- -- (15,732) -- -- -- (15,732)
Repurchase of common stock........ -- -- -- -- -- (76,040) (76,040)
Cash paid in advance for share
repurchase contract, net of
shares received................. -- -- (81,810) -- -- -- (81,810)
Unrealized loss on
available-for-sale securities,
net of related taxes............ -- -- -- -- (406) -- (406)
Net income........................ -- -- -- 94,512 -- -- 94,512
------- ---- -------- -------- ------- -------- --------
Balance at December 31, 2000...... 187,872 $188 $351,053 $320,617 $(2,943) $(76,040) $592,875
======= ==== ======== ======== ======= ======== ========
See accompanying notes.
F-5
40
CITRIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
-----------------------------------
2000 1999 1998
--------- --------- ---------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income.................................................. $ 94,512 $ 116,944 $ 61,102
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 50,248 27,563 15,173
Write-down of technology.................................. 9,081 -- --
Tax benefit related to the exercise of non-statutory stock
options and disqualified dispositions of incentive stock
options................................................. 63,923 50,843 24,174
In-process research and development....................... -- 2,300 18,416
Provision for doubtful accounts........................... 377 584 620
Provision for product returns............................. 27,883 20,879 8,580
Provision for inventory obsolescence...................... 6,932 1,982 417
Accretion of original issue discount and amortization of
financing cost.......................................... 16,911 12,592 --
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable..................................... (8,625) (43,993) (28,924)
Inventories............................................. (3,762) (5,641) (2,216)
Prepaid expenses and other current assets............... 4,614 (32,762) (5,352)
Other assets............................................ (2) (7,277) (91)
Deferred tax assets..................................... (2,200) (14,674) (14,536)
Accounts payable and accrued expenses................... 18,799 25,062 9,339
Deferred revenues....................................... (26,987) 22,970 30,225
Income taxes payable.................................... (8,467) 6,649 2,391
--------- --------- ---------
Net cash provided by operating activities................... 243,237 184,021 119,318
INVESTING ACTIVITIES
Purchases of investments.................................... (569,795) (547,510) (284,793)
Proceeds from sales and maturities of investments........... 642,986 151,284 219,861
Purchases of property and equipment......................... (43,532) (26,313) (11,420)
Cash paid for acquisitions, net of cash acquired............ (30,102) (32,673) (63,549)
Cash paid for licensing agreement........................... (1,333) (2,333) (7,000)
Purchase of trademark....................................... -- -- (250)
--------- --------- ---------
Net cash used in investing activities....................... (1,776) (457,545) (147,151)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock.................. 70,488 70,366 15,329
Net proceeds from issuance of convertible subordinated
debentures................................................ -- 291,920 --
Cash paid under stock repurchase programs................... (157,850) -- --
Proceeds from sale of put warrants.......................... 4,870 -- --
Other....................................................... (60) (192) (31)
--------- --------- ---------
Net cash (used in) provided by financing activities......... (82,552) 362,094 15,298
--------- --------- ---------
Change in cash and cash equivalents......................... 158,909 88,570 (12,535)
Cash and cash equivalents at beginning of year.............. 216,116 127,546 140,081
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 375,025 $ 216,116 $ 127,546
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid income taxes of approximately $9,277, $40,894 and $20,481
in 2000, 1999 and 1998, respectively. Additionally, the Company paid interest of
approximately $23, $7 and $98 during the years ended December 31, 2000, 1999 and
1998, respectively.
See accompanying notes.
F-6
41
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Citrix Systems, Inc. ("Citrix" or the "Company"), a Delaware corporation
founded on April 17, 1989, is a leading supplier of application delivery and
management software and services that enable the effective and efficient
enterprise-wide deployment and management of applications including those
designed for Microsoft Windows(R) operating systems and UNIX(R) operating
systems. The Company's MetaFrame(TM) products, developed under license and
strategic alliance agreements with Microsoft Corporation ("Microsoft"), permit
organizations to deploy and manage applications without regard to location,
network connection, or type of client hardware platforms. The Company markets
its products through multiple indirect channels such as distributors,
value-added resellers and original equipment manufacturers, primarily in the
United States, Europe and Asia-Pacific.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy
The consolidated financial statements of the Company include the accounts
of its wholly-owned subsidiaries, primarily in Europe and Asia-Pacific. All
significant transactions and balances between the Company and its subsidiaries
have been eliminated in consolidation.
Cash and Cash Equivalents
For the purposes of the consolidated statements of cash flows, cash and
cash equivalents include marketable securities which are primarily commercial
paper, government securities, money market funds, and corporate securities with
contractual maturities of three months or less. The Company minimizes its credit
risk associated with cash and cash equivalents by investing in high quality,
investment grade instruments and periodically evaluating the credit quality of
its primary financial institutions.
Investments
Short-term investments at December 31, 2000 primarily consist of government
securities, corporate securities, and commercial paper. Long-term investments at
December 31, 2000 primarily consist of corporate securities, government
securities and strategic investments in equity securities. The Company minimizes
its credit risk associated with investments by investing primarily in high
quality investment grade securities. Investments classified as
available-for-sale are stated at fair value with unrealized gains and losses,
net of taxes, reported in other comprehensive income. Investments classified as
held-to-maturity are stated at amortized cost, therefore, the Company does not
recognize changes in the fair value of these items. The Company's short-term
investments have a maturity at December 31, 2000 of 12 months or less and have
an average contractual maturity of less than 19 months. The Company's long-term
investments have a maturity at December 31, 2000 of one year to three years and
three months with an average contractual maturity of approximately two years and
seven months. From time to time, the Company makes strategic equity investments
that are accounted for under the cost or equity method depending on the extent
of the Company's ownership interest. As of December 31, 2000 and 1999, such
investments were recorded at the lower of cost or estimated net realizable
value. The Company periodically evaluates the carrying value of its investments
to determine if there has been any impairment of value that is
other-than-temporary.
The Company maintains short- and long-term investments with various
financial institutions. These financial institutions are located throughout the
country and the Company's policy is designed to limit exposure to any one
institution. The Company performs periodic evaluations of the relative credit
standing of those financial institutions that are considered in the Company's
investment strategy. The Company does not require collateral on these financial
instruments.
F-7
42
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts Receivable
Substantially all of the Company's accounts receivable are due from
distributors and value-added resellers of microcomputer software. Collateral is
not required. Credit losses and expected product returns are provided for in the
consolidated financial statements and have been within management's
expectations. No significant customer or group of customers within a certain
geographical region represent a significant concentration of credit risk.
Inventories
Inventories, consisting primarily of raw materials, are stated at the lower
of cost (determined by the first-in, first-out method) or market.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets which is
approximately three years for computer equipment, software, office equipment and
furniture, and the lesser of the lease term or five years for leasehold
improvements. Assets under capital lease are amortized over the shorter of the
asset life or the remaining lease term, which on average is approximately 60
months. Amortization of assets under capital leases is included in depreciation
expense. Accumulated amortization of equipment under capital leases approximated
$374,700 and $504,700 at December 31, 2000 and 1999, respectively.
Property and equipment consist of the following:
DECEMBER 31
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
Equipment under capital leases.............................. $ 406 $ 630
Computer equipment and software............................. 59,670 29,163
Property, equipment and furniture........................... 10,937 5,679
Leasehold improvements...................................... 19,915 11,981
-------- --------
90,928 47,453
Less accumulated depreciation and amortization.............. (35,369) (15,923)
-------- --------
$ 55,559 $ 31,530
======== ========
Intangible Assets
Goodwill and other intangible assets are being amortized using the
straight-line method over periods ranging from three to four years. Core
technology and certain specifically identified intangible assets acquired in
previous business combinations are periodically reviewed to determine if any
impairment exists based upon projected undiscounted net cash flows of the
related technology and acquired assets. The Company periodically reviews
goodwill to determine if any impairment exists based upon projected,
undiscounted net cash flows of the Company.
F-8
43
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible assets consist of the following:
DECEMBER 31
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
Core technology............................................. $ 37,650 $ 46,730
Goodwill and other intangibles.............................. 73,900 45,454
-------- --------
111,550 92,184
Less accumulated amortization............................... (59,211) (28,788)
-------- --------
$ 52,339 $ 63,396
======== ========
Revenue Recognition
Revenue is recognized when earned. The Company's revenue recognition
policies are in compliance with the American Institute of Certified Public
Accountants Statement of Position ("SOP") 97-2 (as amended by SOP 98-4 and SOP
98-9) and related interpretations, "Software Revenue Recognition." Product
revenues are recognized upon shipment of the software product only if no
significant Company obligations remain, the fee is fixed or determinable, and
collection of the resulting receivable is deemed probable. In May 1997, the
Company entered into a five year joint license, development and marketing
agreement with Microsoft, as amended (the "Development Agreement,") pursuant to
which the Company licensed its multi-user Windows NT extensions to Microsoft for
inclusion in future versions of Windows NT server software. The initial fee of
$75 million relating to the Development Agreement is being recognized ratably
over the five-year term of the contract, which began in May 1997. The additional
$100 million received pursuant to the Development Agreement, as amended, is
being recognized ratably over the remaining term of the contract, effective
April 1998. In the case of non-cancelable product licensing arrangements under
which certain Original Equipment Manufacturers ("OEMs") have software
reproduction rights, initial recognition of revenue also requires delivery and
customer acceptance of the product master or first copy. Subsequent recognition
of revenues is based upon reported royalties from the OEMs. Revenue from
packaged product sales to distributors and resellers is recorded when related
products are shipped. The Company also distributes software through electronic
licensing. These revenues are recognized when the customer is provided with the
activation keys that allow the customer to take immediate possession of the
software pursuant to an agreement or purchase order. In software arrangements
that include rights to multiple software products, post-contract customer
support ("PCS"), and/or other services, the Company allocates the total
arrangement fee among each deliverable based on the relative fair value of each
of the deliverables determined based on vendor-specific objective evidence
("VSOE"). The Company sells software and PCS separately and VSOE is determined
by the price charged when each element is sold separately. Product returns and
sales allowances, including stock rotations, are estimated and provided for at
the time of sale. Non-recurring engineering fees are recognized ratably as the
work is performed. Revenues from training and consulting are recognized when the
services are performed. Service and subscription revenues from customer
maintenance fees for ongoing customer support and product updates and upgrades
are based on the price charged or derived value of the undelivered elements and
are recognized ratably over the term of the contract, which is typically 12-24
months. Service revenues are included in net revenues on the face of the
consolidated statements of income.
The Company provides most of its distributors with product return rights
for stock balancing and price protection rights. Stock balancing rights permit
distributors to return products to the Company for credit within specified
limits and subject to ordering an equal amount of the Company's products. Price
protection rights require that the Company grant retroactive price adjustments
for inventories of the Company's products held by distributors if the Company
lowers its prices for such products. Allowances for estimated product returns
amounted to approximately $9,170,000 and $6,696,000 at December 31, 2000 and
1999, respectively.
F-9
44
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has not and has no plan to reduce its prices for inventory currently
held by distributors or resellers; accordingly, there are no reserves for price
protection at December 31, 2000 and 1999.
Revenue from consulting, software maintenance, service, and support
arrangements and training programs and materials, which totaled $30,392,000,
$15,750,000 and $10,531,799 for the years ended December 31, 2000, 1999 and
1998, respectively, is recognized when the services are provided. Such items are
included in net revenues. The costs for providing consulting services are
included in cost of sales. The costs of providing training and services are
included in sales, marketing and support expenses.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). The Company adopted the provisions of SAB 101 in October 2000. SAB 101
does not supersede the software industry specific revenue recognition guidance,
but provides current interpretations of software revenue recognition
requirements. The adoption of SAB 101 did not have a significant effect on the
Company's financial position or results of operations.
Foreign Currency
The functional currency of each of the Company's wholly-owned foreign
subsidiaries is the U.S. dollar. Assets and liabilities of the subsidiaries are
remeasured into U.S. dollars at year-end exchange rates, and revenues and
expenses are remeasured at average rates prevailing during the year. Translation
adjustments and foreign currency transaction gains (losses) of approximately
$(121,000), $(745,000), and $19,000 for the years ended December 31, 2000, 1999
and 1998, respectively are included in interest and other income in the
statements of income.
The Company uses forward foreign exchange contracts that are designated to
reduce a portion of its exposure to foreign currency risk from operational
exposures resulting from changes in foreign currency exchange rates. The
Company's accounting policies for these instruments are based on whether the
instruments meet the Company's criteria for designation as hedging transactions.
The criteria the Company uses for designating an instrument as a hedge include
the instrument's effectiveness in risk reduction and one-to-one matching of
derivative instruments to underlying transactions. Gains and losses on currency
forward contracts for which a firm commitment has been attained are deferred and
recognized in income in the same period that the underlying transactions are
settled. Notional amounts outstanding for forward contracts at December 31, 2000
were $53.0 million. The Company's forward contracts are scheduled to expire in
2001. The Company does not use derivative financial instruments for speculative
or trading purposes.
Cost of Revenues
Cost of revenues includes the cost of media, product packaging and
documentation. The costs of providing consulting services are included in cost
of revenues. The Company is a party to licensing agreements with various
entities, which give the Company the right to use certain software object code
in its products or in the development of future products in exchange for the
payment of a fixed fee or certain amounts based upon the sales of the related
product. The licensing agreements have terms ranging from one to five years, and
generally include renewal options. Royalty expense related to these agreements
is included in cost of revenues. All development costs incurred in connection
with the Development Agreement are expensed as incurred as cost of other
revenues. The Company's cost of revenues exclude amortization of core
technology.
Advertising Expense
The Company expenses advertising costs as incurred. The Company 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 or
reseller provides substantiation of qualified expenditures. The Company
estimates the impact of this program and
F-10
45
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
records it at the time of product sale. The Company recognized advertising
expenses of approximately $15,390,000, $12,958,000, and $9,453,000 during the
years ended December 31, 2000, 1999, and 1998, respectively. These amounts are
included in sales, marketing and support expenses.
Income Taxes
Deferred income tax assets and liabilities are determined based upon
differences between the financial statement and income tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. In July 1999, the Company changed its
organizational structure whereby it moved certain operational and administrative
processes to overseas subsidiaries. The restructuring resulted in foreign
earnings being taxed at lower foreign tax rates. These earnings will be
permanently reinvested in order to fund the Company's growth in overseas
markets.
Software Development Costs
Statement of Financial Accounting Standards ("SFAS") No. 86 "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed"
requires software development costs to be capitalized upon the establishment of
technological feasibility. The establishment of technological feasibility and
the ongoing assessment of the recoverability of these costs requires
considerable judgment by management with respect to certain external factors
such as anticipated future revenue, estimated economic life, and changes in
software and hardware technologies. Capitalizable software development costs
have not been significant and have been expensed as incurred.
Business and Other Risks
The Company's operating results and financial condition have varied and may
in the future vary significantly depending on a number of factors. The following
factors may have a material adverse effect upon the Company's business, results
of operations and financial conditions:
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. While the Company believes that
such estimates are fair when considered in conjunction with the consolidated
financial position and results of operations taken as a whole, the actual
amounts of such estimates, when known, will vary from these estimates.
Reliance Upon Strategic Relationship. The party to the Development
Agreement is the leading provider of desktop operating systems. The Company is
dependent upon the license of certain key technology from this party including
certain source and object code licenses, technical support and other materials.
The Company is also dependent on its strategic alliance agreement with this
party, which provides for cooperation in the development of technologies for
advanced operating systems, and the promotion of advanced application program
interfaces. Additionally, this party has significantly greater financial,
technical, sales and marketing and other resources than the Company.
Product Concentration. The Company anticipates that one of its product
technologies and future derivative products and product lines based upon this
technology, if any, will constitute a majority of its revenue for the
foreseeable future. The Company may experience declines in demand for products
based on this technology, whether as a result of new competitive product
releases, price competition, lack of success of its strategic partners,
technological change or other factors.
F-11
46
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounting for Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," defines a fair
value method of accounting for issuance of stock options and other equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. Pursuant to SFAS No. 123,
companies are not required to adopt the fair value method of accounting for
employee stock-based transactions. Companies are permitted to continue to
account for such transactions under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," (APB Opinion 25) but are required to
disclose in a note to the consolidated financial statements pro forma net income
and per share amounts as if the Company had applied the methods prescribed by
SFAS No. 123.
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans and has complied with the disclosure requirements of
SFAS No. 123.
Earnings Per Share
Dilutive common stock equivalents consist of stock options (calculated
using the treasury stock method) and put warrants (calculated using the reverse
treasury stock method). All common share and per share data, except par value
per share, have been retroactively adjusted to reflect the three-for-two stock
split of the Company's Common Stock effective February 20, 1998, the two-for-one
stock split of the Company's Common Stock effective March 25, 1999 and the
two-for-one stock split of the Company's Common Stock effective February 16,
2000, which are further discussed in Note 7. The convertible subordinated
debentures are common stock equivalents but have been excluded from the diluted
earnings per share calculation, as their effect is anti-dilutive.
Software Developed or Obtained for Internal Use
In 1999, the Company adopted Accounting Standards Executive Committee
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The SOP requires the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. These costs
generally include external direct costs of materials and services used in the
project and internal costs such as payroll and benefits of those employees
directly associated with the development of the software. The amount of costs
capitalized in 2000 and 1999 relating to internal use software were $11.3
million and $5.4 million, respectively, consisting principally of software
purchased from and services provided by external vendors. These costs are being
amortized over the estimated useful life of the software developed, which is
generally three years, except for the enterprise resource planning system that
will be amortized over seven years. These costs are included in property and
equipment, net, in the accompanying consolidated balance sheets.
Reclassifications
Certain reclassifications of the prior years' financial statements have
been made to conform to the current year's presentation.
3. ACQUISITIONS AND LICENSED TECHNOLOGY
In February 1998, June 1998, July 1998, and July 1999, the Company
completed the acquisitions of Insignia Solutions, plc for approximately $17.5
million, APM Limited for approximately $40.4 million, VDOnet Corporation Limited
for approximately $7.9 million, and ViewSoft, Inc. for approximately $33.5
million, respectively. A portion of the purchase price for each of these
acquisitions was allocated to in-process research and development ("IPR&D"),
which had not reached technological feasibility and had no
F-12
47
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
alternative future use. The allocations resulted in pre-tax charges to the
Company's operations of approximately $2.7 million in the first quarter of 1998,
$10.7 million in the second quarter of 1998, $2.4 million in the third quarter
of 1998, and $2.3 million in the third quarter of 1999 associated with the
acquisitions of Insignia, APM, VDOnet, and ViewSoft, respectively.
In January 1998, the Company licensed certain in-process software
technology from EPiCON, Inc. for approximately $8.0 million, payable in cash
under a three-year licensing agreement. A portion of the licensing fee was
allocated to in-process research and development, which had no alternative
future use. The allocation resulted in a pre-tax charge of approximately $2.6
million to the Company's operations in the first quarter of 1998. In December
1999, the Company amended its license agreement with EPiCON to allow the Company
access to additional software technology and to extend the exclusive license
term for an additional $4.0 million, of which $1.3 million was paid in cash at
the amendment date.
As of the date of each of the transactions, the Company concluded that the
respective in-process technologies had no alternative future uses after taking
into consideration the potential use of the technologies in different products,
the stage of development and life cycle of each project, resale of the software,
and internal use. The value of the respective purchased IPR&D was expensed at
the time of each of the transactions.
In February 2000, the Company acquired all of the operating assets of the
Innovex Group, Inc. ("Innovex"), a privately owned e-business consulting
services organization specializing in the design, development and implementation
of Web-based solutions and systems integration. The purchase price was
approximately $47.8 million, of which $28.7 million, excluding $275,000 in
transaction costs, was paid at the closing date. The balance is payable in equal
installments 18 and 24 months after the closing date, contingent on future
events, as set forth in the acquisition agreement. Contingent payment to be made
at future dates, if any, will be accounted for primarily as additional purchase
price and amortized over the remaining life of the intangible assets acquired.
Each of the acquisitions was accounted for under the purchase method of
accounting. The consolidated financial statements reflect the operations of the
acquired businesses for the periods after their respective dates of acquisition.
The purchase consideration was allocated to the acquired assets and
liabilities based on fair values as follows:
INSIGNIA EPICON APM VDONET VIEWSOFT INNOVEX
-------- ------- ------- ------- -------- -------
(IN THOUSANDS)
Net assets acquired (net liabilities
assumed)............................... $ 400 $ -- $ (800) $ (100) $ 128 $ 2,259
Purchased identifiable intangibles....... 12,550 9,416 26,900 5,568 2,200 9,908
Purchased in-process research and
development............................ 2,700 2,584 10,700 2,432 2,300 --
Goodwill................................. 1,850 -- 3,600 -- 28,904 16,788
------- ------- ------- ------- ------- -------
Total purchase consideration........ $17,500 $12,000 $40,400 $ 7,900 $33,532 $28,955
======= ======= ======= ======= ======= =======
The acquired core technology in the APM acquisition consisted primarily of
a Java software product that would operate in a MetaFrame server environment. At
the time of acquisition, it was anticipated that there was a growing need and
momentum in the market to develop and run Java client applications. Since the
acquisition, the market has not developed as anticipated. In the second quarter
of 2000, management changed the Java application server to a Java Performance
Pack product, which adds performance enhancements and management tools to other
Citrix products. By the fourth quarter of 2000, the Company had developed a Java
Performance Pack and was assessing the market demand for this technology. As of
December 31, 2000, the Company did not believe that there were sufficient
projected cash flows to support the net book value of the
F-13
48
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
core technology associated with the APM acquisition. In addition, the Company
determined that there was no alternative future use for the acquired technology.
As a result, the Company recorded a write-down of $7.3 million, representing the
net book value of the APM core technology as of December 31, 2000.
The acquired core technology in the VDOnet acquisition consisted primarily
of the ICA Video Services project which allowed video applications and
applications containing videos to be viewed on an ICA client. Subsequent
development efforts resulted in the VideoFrame 1.0 product, which was shipped in
the third quarter of 1999, but has resulted in few sales to end users. Since the
acquisition, the Company has explored alternative uses for the acquired
technology. These uses related primarily to delivering video applications in a
server-based computing environment and video streaming with ICA devices. In the
fourth quarter of 2000, the Company reviewed potential modifications to its cash
flow projections based on alternative uses for the technology. As a result of
its evaluation, the Company did not believe that there were sufficient projected
cash flows to support the carrying value and continued development of the core
technology. As a result, the Company recorded a write-down of $1.8 million,
representing the net book value of the VDOnet core technology as of December 31,
2000.
4. CASH AND INVESTMENTS
The summary of cash and cash equivalents and investments consists of the
following:
DECEMBER 31
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
Cash and cash equivalents:
Cash...................................................... $114,570 $ 36,049
Commercial paper.......................................... 131,248 2,106
Money market funds........................................ 44,157 33,139
Government securities..................................... 85,050 86,196
Corporate securities...................................... -- 58,626
-------- --------
Cash and cash equivalents.............................. $375,025 $216,116
======== ========
Short-term investments:
Commercial paper.......................................... $ 14,078 $ 12,236
Corporate securities...................................... 37,062 49,989
Government securities..................................... 40,472 159,753
-------- --------
Short-term investments................................. $ 91,612 $221,978
======== ========
Long-term investments:
Corporate securities...................................... $334,961 $ 27,801
Government securities..................................... 42,945 292,704
Other..................................................... 4,618 5,250
-------- --------
Long-term investments.................................. $382,524 $325,755
======== ========
The unrealized gain (loss) associated with each individual category of cash
and investments is not significant.
In December 2000, the Company, through a wholly-owned subsidiary, entered
into a forward bond purchase agreement ("Bond Purchase Agreement") with an
investment advisor. Pursuant to the Bond Purchase Agreement, the Company will
purchase zero coupon bonds ("Forward Bonds") from the investment advisor at
certain scheduled dates pursuant to the Bond Purchase Agreement. The purchase
price of the
F-14
49
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Forward Bonds will equal the expected future coupon or principal payment amounts
received on six underlying corporate securities. The corporate securities, which
have an aggregate amortized cost of $158.2 million at December 31, 2000,
generally provide for semi-annual interest payments and mature at various dates
between December 2003 and March 2004. The Forward Bonds will mature on March 15,
2004 with an aggregate maturity value of approximately $195 million. The Bond
Purchase Agreement and the underlying corporate securities are classified as
held-to-maturity, therefore, the Company does not recognize changes in the fair
value of these investments unless a decline in the fair value of the investments
is other than temporary, in which case a loss would be recognized in earnings.
The underlying corporate securities have been pledged as security for the
Company's future obligations to purchase the Forward Bonds.
In December 2000, the Company invested $158.1 million in a trust ("Trust")
held by an investment advisor. The Trust primarily consists of assets which in
turn invest in AAA-rated zero-coupon corporate securities that mature on March
22, 2004 with an aggregate maturity value of approximately $195 million. The
investment advisor entered into a credit risk swap agreement with the Trust
which effectively increased the yield on the trust assets and for which value
the Trust assumed the credit risk of ten specific A-rated or better companies.
The Company records the investment as held-to-maturity zero-coupon corporate
securities. The Company does not recognize changes in the fair value of these
investments unless a decline in the fair value of the Trust assets is other than
temporary, in which case a loss would be recognized in earnings.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
DECEMBER 31
------------------
2000 1999
------- -------
(IN THOUSANDS)
Accounts payable............................................ $ 7,123 $ 6,518
Accrued compensation and employee benefits.................. 11,857 6,686
Accrued royalties........................................... 2,638 5,423
Accrued cooperative advertising and marketing programs...... 21,034 16,521
Accrued taxes............................................... 19,627 24,434
Other....................................................... 16,460 9,608
------- -------
$78,739 $69,190
======= =======
6. EMPLOYEE STOCK COMPENSATION AND BENEFIT PLANS
Stock Compensation Plans
As of December 31, 2000, the Company has five stock-based compensation
plans, which are described below. The Company grants stock options for a fixed
number of shares to employees with an exercise price equal to the fair value of
the shares at the date of grant. As mentioned in Note 2, the Company applies APB
Opinion 25 and related interpretations in accounting for its plans. Accordingly,
no compensation cost has been recognized for its fixed stock plans and its stock
purchase plan. Had compensation cost for the Company's five stock-based
compensation plans been determined based on the fair value at the grant dates
for grants under
F-15
50
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
those plans consistent with the method of SFAS No. 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
2000 1999 1998
-------- -------- -------
(IN THOUSANDS, EXCEPT
PER SHARE INFORMATION)
Net income (loss)
As reported....................................... $ 94,512 $116,944 $61,102
======== ======== =======
Pro forma......................................... $(38,036) $ 64,069 $39,286
======== ======== =======
Basic earnings (loss) per share
As reported....................................... $ 0.51 $ 0.66 $ 0.36
======== ======== =======
Pro forma......................................... $ (0.21) $ 0.36 $ 0.23
======== ======== =======
Diluted earnings (loss) per share
As reported....................................... $ 0.47 $ 0.61 $ 0.33
======== ======== =======
Pro forma......................................... $ (0.19) $ 0.33 $ 0.22
======== ======== =======
For purposes of the proforma calculations, the fair value of each option is
estimated on the date of the grant using the Black-Scholes option-pricing model
with the following assumptions used:
2000 GRANTS 1999 GRANTS 1998 GRANTS
----------- ----------- -----------
Dividend yield.................................. none none none
Expected volatility factor...................... 0.8 0.6 0.6
Approximate risk free interest rate............. 6.0% 5.5% 5.5%
Expected lives.................................. 4.64 years 4.50 years 4.89 years
The determination of the fair value of all options is based on the
assumptions described in the preceding paragraph, and because additional option
grants are expected to be made each year, the above pro forma disclosures are
not representative of pro forma effects on reported net income or loss for
future years.
Fixed Stock Option Plans
The Company's 1995 Stock Plan (the 1995 Plan) was adopted by the Board on
September 28, 1995 and approved by the Company's stockholders in October 1995.
Under the terms of the 1995 Plan the Company is authorized to grant incentive
stock options (ISOs) and nonqualified stock options (NSOs), make stock awards
and provide the opportunity to purchase stock to employees, directors and
officers and consultants of the Company. The 1995 Plan originally provided for
the issuance of a maximum of 36,000,000 (as adjusted for stock splits) shares of
Common Stock, plus, effective January 1, 1997 and each year thereafter, a number
of shares of Common Stock equal to 5% of the total number of shares of Common
Stock issued and outstanding as of December 31 of the preceding year. An
amendment to the 1995 Plan to increase the authorized shares from 69,945,623 to
80,000,000 was proposed to the stockholders in connection with the stockholders'
annual meeting in May 2000. The amendment did not receive enough votes to pass
at the May 2000 meeting and, due to confusion among the Company's stockholders
resulting from inaccurate information published by a third party, the meeting
was adjourned without closing the polls on the amendment. The meeting was
reconvened on June 2, 2000 and the amendment passed. In July 2000, the 1995 Plan
was further amended by the Board of Directors to remove the ability under the
1995 Plan to re-price options. In September 2000, a lawsuit was filed
challenging the validity of stockholders' approval to the amendment of the 1995
Plan. In December 2000, the Delaware Court of Chancery issued an opinion, in a
case unrelated to the Company, which represented a significant development in
the law concerning the obligations of a company when it adjourns its annual
F-16
51
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
meeting while leaving the polls open on a stockholder vote. In light of this
guidance, the Board of Directors of the Company decided to withdraw the
amendment to the 1995 Plan, which was passed by the stockholders on June 2,
2000. To accomplish this, in January 2001, the Board of Directors approved an
amendment to the 1995 Plan to nullify the increase approved at the stockholders'
annual meeting in May 2000. Under the 1995 Plan, a maximum of 60,000,000 ISOs
may be granted and ISOs must be granted at exercise prices no less than market
value at the date of grant, except for ISOs granted to employees who own more
than 10% of the Company's combined voting power, for which the exercise prices
will be no less than 110% of the market value at the date of grant. NSOs, stock
awards or stock purchases may be granted or authorized, as applicable, at prices
no less than the minimum legal consideration required. ISOs and NSOs expire ten
years from the date of grant. All options are exercisable upon vesting. The
options typically vest over four years at a rate of 25.00% of the shares
underlying the option one year from the date of grant and at a rate of 2.08%
monthly thereafter.
The Company's amended and restated 2000 Director and Officer Stock Option
and Incentive Plan (the 2000 Plan) was originally adopted by the Board of
Directors and approved by the Company's stockholders on May 18, 2000. Under the
terms of the 2000 Plan, the Company is authorized to make stock awards, provide
eligible individuals with the opportunity to purchase stock, grant ISOs and
grant NSOs to officers and directors of the Company. The 2000 Plan provides for
the issuance of up to 4,000,000 shares, plus, effective on January 1, 2001, on
January 1 of each year, a number of shares of Common Stock equal to one-half of
one percent (0.5%) of the total number of shares of Common Stock issued and
outstanding as of December 31 of the preceding year. Notwithstanding the
foregoing, no more than 3,000,000 shares of Common Stock may be issued pursuant
to the exercise of incentive stock options granted under the 2000 Plan. Under
the 2000 Plan, ISOs must be granted at exercise prices no less than market value
at the date of grant, provided however, that if an NSO is expressly granted in
lieu of a reasonable amount of salary or cash bonus, the exercise price may be
equal to or greater than 85% of the fair market value at the date of such grant.
ISOs and NSOs expire ten years from date of grant. All options are exercisable
upon vesting. The options typically vest over four years at a rate of 25% of the
shares underlying the option one year from date of grant and at a rate of 2.08%
monthly thereafter.
The 1995 Non-Employee Director Stock Option Plan (the Director Option Plan)
was adopted by the Board of Directors on September 28, 1995 and approved by the
Company's stockholders in October 1995. The Director Option Plan provides for
the grant of options to purchase a maximum of 3,600,000 (as adjusted for stock
splits) shares of Common Stock of the Company to non-employee directors of the
Company.
Under the Director Option Plan, each director who is not also an employee
of the Company and who is first elected as a director will receive, upon the
date of his or her initial election, an option to purchase 180,000 shares of
Common Stock. Options granted under the Director Option Plan vest at a rate of
33.33% one year from the date of grant and vest at a rate of 2.78% monthly
thereafter. In addition, on each three-year anniversary of such director's first
election to the Board of Directors, such director will receive an additional
option to purchase 180,000 shares of Common Stock, vesting in accordance with
the aforementioned schedule, provided that such director continues to serve on
the Board of Directors at the time of grant. All options granted under the
Director Option Plan have an exercise price equal to the fair market value of
the Common Stock on the date of grant and a term of ten years from the date of
grant. Options are exercisable to the extent vested only while the optionee is
serving as a director of the Company or within 90 days after the optionee ceases
to serve as a director of the Company.
On July 11, 1989, the Company's 1989 Stock Option Plan (the 1989 Plan) as
amended, permitted the Company to grant ISOs and NSOs to purchase up to
25,256,544 (as adjusted for stock splits) shares of the Company's Common Stock.
Under the 1989 Plan, options may be granted at exercise prices no less than
market value at the date of grant. All options are fully exercisable from the
date of grant and are subject to a repurchase option in favor of the Company
which lapses as to 25.00% of the shares underlying the option one year from the
date of grant and as to 2.08% monthly thereafter. If the purchaser of stock
pursuant to the 1989
F-17
52
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Plan is terminated from employment with the Company, the Company has the right
and option to purchase from the employee, at the price paid for the shares by
the employee, the number of unvested shares at the date of termination. No
shares have been repurchased under this Plan. Effective November 1999 no further
options may be granted under this Plan.
A summary of the status and activity of the Company's stock option plans is
as follows:
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------
2000 1999 1998
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ---------- -------- ---------- --------
Outstanding at beginning of
year........................... 42,358,350 $18.28 32,279,324 $ 9.50 22,279,272 $ 4.21
Granted........................ 12,671,582 42.38 21,157,900 26.80 17,213,600 14.02
Exercised...................... (6,692,488) 10.32 (9,221,440) 7.57 (5,923,760) 2.53
Forfeited...................... (5,048,604) 25.65 (1,857,434) 15.99 (1,289,788) 10.28
---------- ---------- ----------
Outstanding at end of year....... 43,288,840 25.67 42,358,350 18.28 32,279,324 9.50
========== ========== ==========
Options exercisable at end of
year........................... 14,364,325 16.49 7,062,760 7.86 6,141,596 3.56
========== ========== ==========
Weighted-average fair value of
options granted during the
year........................... $28.07 $14.37 $ 7.21
Information about stock options outstanding as of December 31, 2000 is as
follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ----------------------------------
WEIGHTED
OPTIONS AVERAGE WEIGHTED OPTIONS WEIGHTED
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE PRICES DECEMBER 31, 2000 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 2000 EXERCISE PRICE
--------------- ----------------- ---------------- -------------- ----------------- --------------
$ 0.02 to $ 14.31 8,952,432 6.51 $ 7.29 5,747,871 $ 6.09
$14.50 to $ 15.69 8,199,015 8.80 $15.49 1,460,302 $15.11
$15.84 to $ 24.38 9,914,095 8.26 $20.54 3,361,796 $20.39
$25.44 to $ 48.44 10,788,173 8.65 $28.97 3,668,598 $28.50
$53.00 to $104.00 5,435,125 9.12 $74.10 125,758 $53.07
---------- ----------
43,288,840 8.20 $25.67 14,364,325 $16.49
========== ==========
Stock Purchase Plan
The 1995 Employee Stock Purchase Plan (the 1995 Purchase Plan) was adopted
by the Board of Directors on September 28, 1995 and approved by the Company's
stockholders in October 1995. The 1995 Purchase Plan provides for the issuance
of a maximum of 9,000,000 shares of Common Stock upon the exercise of
nontransferable options granted to participating employees. All U.S.-based
employees of the Company, whose customary employment is 20 hours or more per
week and more than five months in any calendar year, and employees of certain
international subsidiaries, are eligible to participate in the 1995 Purchase
Plan. In June 2000, the 1995 Purchase Plan was amended to allow employees to
deduct up to 10% of their total cash compensation, up from 5% previously, and to
remove the requirement that employees complete at least one year of employment
to be eligible to participate in the plan. Employees who would immediately after
the grant own 5% or more of the Company's Common Stock, and directors who are
not employees of the Company, may not participate in the 1995 Purchase Plan. To
participate in the 1995 Purchase Plan, an employee must authorize the Company to
deduct an amount (not less than 1% nor more than 10% of a participant's total
cash compensation) from his or her pay during six-month periods (each a Plan
Period).
F-18
53
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The maximum number of shares of Common Stock an employee may purchase in
any Plan Period is 6,000 shares subject to certain other limitations. The
exercise price for the option for each Plan Period is 85% of the lesser of the
market price of the Common Stock on the first or last business day of the Plan
Period. If an employee is not a participant on the last day of the Plan Period,
such employee is not entitled to exercise his or her option, and the amount of
his or her accumulated payroll deductions are refunded. An employee's rights
under the 1995 Purchase Plan terminate upon his or her voluntary withdrawal from
the 1995 Purchase Plan at any time or upon termination of employment. Under the
1995 Purchase Plan, the Company issued 77,781, 27,004 and 30,460 shares in 2000,
1999 and 1998, respectively.
Benefit Plan
The Company maintains a 401(k) benefit plan (the "Plan") allowing eligible
U.S.-based employees to contribute up to 15% of their annual compensation,
limited to an annual maximum amount as set periodically by the Internal Revenue
Service. The Company, at its discretion, may contribute up to $0.50 on each
dollar of employee contribution, limited to a maximum of 6% of the employee's
annual contribution. The Company's matching contributions for 2000 and 1999 were
$1,179,279 and $605,087, respectively. The Company's contributions vest over a
four-year period at 25% per year.
7. CAPITAL STOCK
Common Stock
The Company has reserved for future issuance 60,009,534 shares of Common
Stock for the exercise of stock options outstanding or available for grant and
11,950,594 shares for the conversion of the zero coupon convertible debentures
into Common Stock.
On May 13, 1999, the stockholders approved an increase of authorized Common
Stock from 150,000,000 shares, $0.001 par value per share to 400,000,000 shares,
$0.001 par value per share.
On May 18, 2000, the stockholders approved an increase of authorized Common
Stock from 400,000,000 shares, $0.001 par value per share to 1,000,000,000
shares, $0.001 par value per share.
Stock Repurchase Programs
On April 15, 1999, the Board of Directors approved a stock repurchase
program authorizing the repurchase of up to $200 million of the Company's Common
Stock. Purchases will be made from time to time in the open market and paid out
of general corporate funds. As of December 31, 2000, the Company had purchased
2,750,000 shares of outstanding Common Stock on the open market at a total cost
of $57.9 million. These shares have been recorded as treasury stock.
On August 8, 2000, the Company entered into an agreement, as amended, with
a counterparty in a private transaction to purchase up to approximately 4.8
million shares of the Company's Common Stock at various times through the third
quarter of 2002. Pursuant to the terms of the agreement, $100 million was paid
to the counterparty in the third quarter of 2000. The ultimate number of shares
repurchased will depend on market conditions. As of December 31, 2000 the
Company received 1,067,108 shares under this agreement at a total cost of $18.1
million. These shares have been recorded as treasury stock.
In connection with the Company's stock repurchase program, in October 2000,
the Board of Directors approved a program authorizing the Company to sell put
warrants that entitle the holder of each warrant to sell to the Company,
generally by physical delivery, one share of the Company's Common Stock at a
specified price. As of December 31, 2000, the Company sold 1.3 million put
warrants with exercise prices ranging from $20.89 to $29.64, and expiring on
various dates between January and March 2001, and received premium proceeds of
$4.9 million. As of December 31, 2000, the Company has a total potential
repurchase obligation of
F-19
54
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $34.0 million associated with the outstanding put warrants, of
which $15.7 million is classified as a put warrant obligation on the face of the
balance sheet. The remaining $18.3 million of outstanding put warrants permit a
net-share settlement at the Company's option and do not result in a put warrant
obligation on the balance sheet. The outstanding put warrants classified as a
put warrants obligation on the balance sheet will be reclassified to equity when
the warrant is exercised or expires. Under the terms of the put warrant
agreements, the Company must maintain certain levels of cash and investments
balances. As of December 31, 2000, the Company has approximately $349.2 million
of cash and investments in excess of required levels.
Stock Splits
On May 17, 1996, the Board of Directors declared a two-for-one stock split
in the form of a stock dividend paid on June 4, 1996, to stockholders of record
of the Company's Common Stock on May 28, 1996.
On January 25, 1998, the Board of Directors declared a three-for-two stock
split in the form of a stock dividend paid on February 20, 1998 to stockholders
of record of the Company's Common Stock on February 12, 1998.
On March 1, 1999, the Company announced a two-for-one stock split in the
form of a stock dividend paid on March 25, 1999, to stockholders of record as of
March 17, 1999.
On January 19, 2000, the Company announced a two-for-one stock split in the
form of a stock dividend paid on February 16, 2000, to stockholders of record as
of January 31, 2000.
The number of options issuable and previously granted and their respective
exercise prices under the Company's stock option plans have been proportionately
adjusted to reflect these stock splits. The accompanying consolidated financial
statements have been retroactively restated to reflect these stock splits.
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock,
$0.01 par value per share. The Company has no present plans to issue such
shares.
8. CONVERTIBLE SUBORDINATED DEBENTURES
In March 1999, the Company sold $850 million principal amount at maturity
of its zero coupon convertible subordinated debentures (the "Debentures") due
March 22, 2019 in a private placement. The Debentures were priced with a yield
to maturity of 5.25% and resulted in net proceeds to the Company of
approximately $291.9 million, net of original issue discount and net of debt
issuance costs of $9.6 million. Except under limited circumstances, no interest
will be paid on the Debentures prior to maturity. The Debentures are convertible
at the option of the security holder at any time on or before the maturity date
at a conversion rate of 14.0612 shares of the Company's Common Stock for each
$1,000 principal amount at maturity of Debentures, subject to adjustment in
certain events. The Company may redeem the Debentures on or after March 22,
2004. Holders may require the Company to repurchase the Debentures, at set
redemption prices (equal to the issue price plus accrued original issue
discount) beginning on March 22, 2004. In October 2000, the Board of Directors
approved a program authorizing the Company to repurchase up to $25 million of
the Debentures in open market purchases. As of December 31, 2000, none of the
Company's Debentures had been repurchased under this program. Interest expense
related to the Debentures was $17.0 and $12.6 million in 2000 and 1999,
respectively.
F-20
55
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value of the Company's investments in commercial paper, government
securities, and corporate securities, by contractual maturity, is as follows:
DECEMBER 31
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
Due in less than 1 year..................................... $307,910 $368,906
Due in 1 to 3 years......................................... 61,253 320,505
Due in greater than 3 years................................. 321,423 --
-------- --------
$690,586 $689,411
======== ========
The carrying value of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate their fair value due to the
short maturity of these items. The Company's investments classified as
available-for-sale securities are carried at fair value on the accompanying
Consolidated Balance Sheets, based primarily on quoted market prices for such
financial instruments. The Company's investments associated with the Bond
Purchased Agreement and the Trust are classified as held-to-maturity and are
carried at amortized cost on the accompanying Consolidated Balance Sheets. The
carrying amount of the Company's Debentures at December 31, 2000 and 1999 were
approximately $330.5 and $313.9 million, respectively. The fair value of the
Debentures, based on the quoted market price as of December 31, 2000 and 1999
were approximately $352.7 and $751.8 million, respectively. The fair value of
the underlying securities associated with the Bond Purchase Agreement was
approximately $163.0 million at December 31, 2000. The investments held in the
Trust have an aggregate fair value of $158.4 million at December 31, 2000. The
fair value of the outstanding put warrants was approximately $6.2 million at
December 31, 2000.
10. COMMITMENTS
The Company leases certain office space, equipment and software under
various operating leases. Certain of these leases contain stated escalation
clauses while others contain renewal options.
Rental expense for the years ended December 31, 2000, 1999 and 1998 totaled
approximately $8,707,000, $4,954,000 and $2,787,000 respectively. Lease
commitments under non-cancelable operating leases with remaining terms in excess
of one year are as follows:
(IN THOUSANDS)
Years ending December 31,
2001...................................................... $ 12,510
2002...................................................... 12,368
2003...................................................... 10,755
2004...................................................... 7,513
2005...................................................... 6,274
Thereafter................................................ 57,224
--------
$106,644
========
To consolidate certain of the Company's corporate offices and to
accommodate the Company's projected growth, the Company entered into a lease
agreement for office space at its Corporate headquarters beginning in the second
quarter of 2001. Lease commitments under this lease agreement are included in
the table above. Upon occupancy of this new facility, the Company plans to
sublease the space in certain existing buildings for the remainder of their
respective lease terms.
F-21
56
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
The United States and foreign components of income from continuing
operations before income taxes are as follows:
2000 1999 1998
-------- -------- -------
(IN THOUSANDS)
United States....................................... $ 80,465 $122,131 $93,219
Foreign............................................. 54,552 60,594 2,253
-------- -------- -------
Total.......................................... $135,017 $182,725 $95,472
======== ======== =======
The components of the provision for (benefit from) income taxes are as
follows:
2000 1999 1998
------- -------- --------
(IN THOUSANDS)
Current:
Federal........................................... $29,252 $ 53,060 $ 39,026
Foreign........................................... 3,428 16,782 1,907
State............................................. 1,585 9,256 7,339
------- -------- --------
Total current.................................. 34,265 79,098 48,272
Deferred............................................ 6,240 (13,317) (13,902)
------- -------- --------
Total income tax expense....................... $40,505 $ 65,781 $ 34,370
======= ======== ========
The significant components of the Company's deferred tax assets and
liabilities consisted of the following:
DECEMBER 31
------------------
2000 1999
------- -------
(IN THOUSANDS)
Deferred tax assets:
Acquired technology....................................... $18,362 $ 8,827
Deferred revenue.......................................... 21,549 36,752
Accounts receivable allowances............................ 1,915 2,658
Depreciation and amortization............................. 4,458 7,646
Tax credits............................................... 12,047 8,355
Other..................................................... 9,364 1,256
------- -------
Total deferred tax assets.............................. 67,695 65,494
Deferred tax liabilities:
Foreign earnings.......................................... (8,753) (8,753)
------- -------
Total deferred tax liabilities......................... (8,753) (8,753)
------- -------
Total net deferred tax assets.......................... $58,942 $56,741
======= =======
During the years ended December 31, 2000, 1999, and 1998, the Company
recognized tax benefits related to the exercise of employee stock options in the
amount of $63,923,000, $50,843,000, and $24,174,000, respectively. This benefit
was recorded to additional paid-in capital. In 2000, the tax benefit relating to
the exercise of employee stock options resulted in the Company generating a U.S.
net operating loss for the year. The Company is able to carry back the net
operating loss generated in 2000 and receive a refund of U.S. taxes paid in 1999
and 1998.
F-22
57
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2000, the Company has approximately $35,793,000 of U.S. net
operating loss carryforwards remaining, a substantial portion of which begins to
expire in 2020. The Company will record the benefit of the net operating loss
carryforwards generated from the exercise of employee stock options, through
additional paid-in capital when the net operating loss carryforwards are
utilized. Approximately $5,242,000 of the U.S. net operating loss carryforwards
is limited under Internal Revenue Code section 382.
At December 31, 2000, the Company had research and development tax credit
carryforwards of approximately $8,224,000 that expire beginning in 2018.
Additionally, the Company had foreign tax credit carryforwards of approximately
$3,823,000 at December 31, 2000 that expire beginning in 2003.
Effective January 1, 2000, the Company does not expect to remit earnings
from its foreign subsidiaries. Accordingly, the Company has not provided for
deferred taxes on these earnings pursuant to FAS 109.
A reconciliation of the Company's income taxes to amounts calculated at the
statutory federal rate is as follows:
YEAR ENDED DECEMBER 31
-------------------------------
2000 1999 1998
-------- -------- -------
(IN THOUSANDS)
Federal statutory taxes............................. $ 47,256 $ 63,954 $33,415
State income taxes, net of federal tax benefit...... 5,134 5,378 3,476
Foreign sales corporation benefits.................. -- (2,556) (1,226)
Foreign operations.................................. (19,634) -- --
Interest income..................................... (5,979) (4,555) --
Intangible assets................................... 3,047 8,260 --
Other permanent differences......................... 3,143 5,220 109
Tax credits......................................... 632 (10,981) (2,542)
Other............................................... 6,906 1,061 1,138
-------- -------- -------
$ 40,505 $ 65,781 $34,370
======== ======== =======
12. GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS
The Company operates in a single market consisting of the design,
development, marketing and support of application delivery and management
software and services for enterprise applications. Design, development,
marketing and support operations outside of the United States are conducted
through subsidiaries located primarily in Europe and the Asia Pacific region.
The Company tracks revenue by geography and product category but does not
track expenses or identifiable assets on a product category basis. The Company
does not engage in intercompany transfers between segments. The Company's
management evaluates performance based primarily on revenues in the geographic
locations that the Company operates. Segment profit for each segment includes
sales and marketing expenses directly attributable to the segment and excludes
certain expenses that are managed outside the reportable segments. Costs
excluded from segment profit primarily consist of cost of revenues, research and
development costs, interest, corporate expenses, including income taxes, as well
as non-recurring charges for purchased in-process technology and technology
write-downs, and overhead costs, including rent, utilities, depreciation and
amortization. Corporate expenses are comprised primarily of corporate marketing
costs, operations and other general and administrative expenses, which are
separately managed. Accounting policies of the segments are the same as the
Company's consolidated accounting policies.
During 1999 and 2000, wholly-owned subsidiaries were formed in various
locations within Europe, Middle East and Africa (EMEA) and Asia Pacific,
respectively. These subsidiaries are responsible for sales
F-23
58
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and distribution of the Company's products. Prior to this change, sales in these
geographic segments were classified as export sales from the Americas segment
(see below). For purposes of the presentation of segment information, the sales
previously reported as Americas export sales have been reclassified to the
geographical segments where the sale was made for each of the periods presented.
Net revenues and segment profit, classified by the major geographic area in
which the Company operates, are as follows:
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Net revenues:
Americas......................................... $248,398 $213,575 $141,876
EMEA............................................. 158,645 129,649 64,222
Asia Pacific..................................... 23,505 20,231 10,803
Other(1)......................................... 39,898 39,830 31,735
-------- -------- --------
Consolidated..................................... $470,446 $403,285 $248,636
======== ======== ========
Segment profit:
Americas......................................... $206,984 $174,829 $104,968
EMEA............................................. 123,056 103,811 46,632
Asia Pacific..................................... 10,238 10,834 6,551
Other(1)......................................... 39,898 39,830 31,735
Unallocated expenses(2):
Cost of revenues.............................. (29,054) (14,579) (16,682)
Overhead costs................................ (84,129) (51,721) (28,298)
Research and development...................... (50,622) (37,363) (22,858)
In-process research and development........... -- (2,300) (18,416)
Write-down of technology...................... (9,081) -- --
Net interest.................................. 22,792 11,221 9,968
Other corporate expenses...................... (95,065) (51,837) (18,128)
-------- -------- --------
Consolidated income before income taxes....... $135,017 $182,725 $ 95,472
======== ======== ========
- ---------------
(1) Represents royalty fees in connection with the Development Agreement.
(2) Represents expenses presented to management only on a consolidated basis and
not allocated to the geographic operating segments.
The Americas' identifiable assets accounted for greater than 90% of the
total identifiable assets for all segments as of December 31, 2000, 1999 and
1998.
Export revenue represents shipments of finished goods and services from the
United States to international customers. As of July 1, 1999 and July 1, 2000,
the Company began shipping finished goods to
F-24
59
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
European and Asia Pacific customers, respectively, from its warehouse location
in Europe. Shipments from the United States were as follows:
YEARS ENDED DECEMBER 31
-----------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
EMEA.................................................. $ -- $60,590 $64,130
Asia Pacific.......................................... 11,249 20,202 10,762
Other................................................. 7,274 6,289 2,760
------- ------- -------
$18,523 $87,081 $77,652
======= ======= =======
The Company had net revenue attributed to individual customers in excess of
10% of total net sales as follows:
YEAR ENDED DECEMBER 31
----------------------
2000 1999 1998
---- ---- ----
Customer A.................................................. 13% 13% 11%
Customer B.................................................. 12% 10% 6%
Customer C.................................................. 10% 9% 8%
Additional information regarding revenue by products and services groups is
as follows:
YEAR ENDED DECEMBER 31
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Revenues:
Application Servers.................................. $336,113 $299,510 $172,663
Management Products.................................. 57,952 38,441 11,916
Computing Appliances Products........................ 4,931 9,754 21,776
Microsoft Royalties.................................. 39,898 39,830 31,735
Services and Other Revenue........................... 31,552 15,750 10,546
-------- -------- --------
Net Revenues......................................... $470,446 $403,285 $248,636
======== ======== ========
13. RELATED PARTY TRANSACTIONS
An entity which held a greater than 5% interest in the Company at December
31, 1999 and 1998 is a party to one of the licensing agreements discussed in
Note 2. The Company recognized $0.3 million, $1.9 million and $8.5 million of
royalty expense in cost of revenues in the years ended December 31, 2000, 1999
and 1998, respectively, and has accrued royalties and other accounts payable of
$100,000 and $400,000 at December 31, 2000 and 1999, respectively, in connection
with this agreement. The Company has recognized revenue of approximately $39.9
million, $39.8 million and $31.7 million in 2000, 1999 and 1998, respectively,
in connection with the Development Agreement, as amended, discussed in Note 2.
F-25
60
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
YEAR ENDED DECEMBER 31
----------------------------------
2000 1999 1998
-------- ------------ --------
(IN THOUSANDS, EXCEPT PER
SHARE INFORMATION)
Numerator:
Net income.......................................... $ 94,512 $116,944 $ 61,102
======== ======== ========
Denominator:
Denominator for basic earnings per share -- weighted
average shares................................... 184,804 176,260 168,473
Effect of dilutive securities:
Put warrants..................................... 41 -- --
Employee stock options........................... 14,886 16,306 14,121
-------- -------- --------
Denominator for diluted earnings per
share -- adjusted weighted-average shares........ 199,731 192,566 182,594
======== ======== ========
Basic earnings per share.............................. $ 0.51 $ 0.66 $ 0.36
======== ======== ========
Diluted earnings per share............................ $ 0.47 $ 0.61 $ 0.33
======== ======== ========
15. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June
1999, the FASB issued SFAS 137, "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement 133,"
which amended SFAS 133 to change the effective date to fiscal quarters of fiscal
years beginning after June 15, 2000. In June 2000, the FASB also issued SFAS
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- An Amendment to FASB Statement No. 133." SFAS 138 amends the
accounting and reporting standards of SFAS 133 for certain derivative
instruments and certain hedging activities. SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
133 requires the Company to record all derivatives as either assets or
liabilities in the Consolidated Balance Sheet and measure those instruments at
fair value. It further provides criteria for derivative instruments to be
designated as fair value, cash flow, or foreign currency hedges, and establishes
accounting standards for reporting changes in the fair value of the derivative
instrument. The method of accounting for changes in the fair value depends on
the intended use of the derivative and the resulting designation.
The Company adopted SFAS No. 133 in the first quarter of fiscal 2001 and,
given the Company's current use of derivatives and hedging activities, the
impact to transition to this statement was not material on its consolidated
financial statements. The impact of SFAS 133 on the Company's future financial
statements will depend on a variety of factors, including the future level of
forecasted and actual foreign currency transactions, the extent of the Company's
hedging activities, the types of hedging instruments used and the effectiveness
of such instruments.
16. LEGAL MATTERS
In June 2000, the Company and certain of its officers and directors were
named as defendants in several securities class action lawsuits filed in the
United States District Court for the Southern District of Florida on behalf of
purchasers of the Company's Common Stock during the period October 20, 1999 to
June 9, 2000
F-26
61
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
("class period"). These actions have been consolidated as In Re Citrix Systems,
Inc. Securities Litigation. These lawsuits generally allege that, during the
class period, the defendants made misstatements to the investing public about
the Company's financial condition and prospects. The complaint seeks unspecified
damages and other relief. While the Company is unable to determine the ultimate
outcome of these matters, the Company believes the plaintiffs' claims lack merit
and intends to vigorously defend the lawsuits.
In September 2000, a stockholder filed a claim in the Court of Chancery of
the State of Delaware against the Company and nine of its officers and directors
alleging breach of fiduciary duty by failing to disclose all material
information concerning the Company's financial condition at the time of the
proxy solicitation. The complaint seeks unspecified damages. By order of the
court in January 2001, the action was conditionally stayed. The Company believes
the plaintiff's claim lacks merit and should the action ultimately proceed in
Delaware court or elsewhere, the Company intends to vigorously defend the
lawsuit. In February 2001, the plaintiff filed a motion with the court for award
of attorney's fees and litigation costs in the amount of $2,000,000 and $60,000,
respectively. While the Company is unable to determine the ultimate outcome of
these matters, the Company believes the plaintiff's motion lacks merit and
intends to vigorously defend it.
In addition, the Company is a defendant in various matters of litigation
generally arising out of the normal course of business. Although it is difficult
to predict the ultimate outcome of these cases, management believes, based on
discussions with counsel, that any ultimate liability would not materially
affect the Company's financial position, results of operations, or liquidity.
17. SUBSEQUENT EVENT
On March 21, 2001, the Company announced that it had entered into a
definitive agreement to acquire Sequoia Software Corp. for approximately $184.6
million in an all-cash tender offer. Sequoia Software Corporation is a provider
of XML-pure portal software. The acquisition has been approved by the board of
directors of each company and is subject to customary conditions and approvals.
Holders of a majority of the outstanding shares of Sequoia have agreed to tender
their shares in the tender offer. This acquisition will be accounted for using
the purchase method of accounting and is expected to be completed during the
second quarter of 2001.
F-27
62
SUPPLEMENTAL FINANCIAL INFORMATION
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(b) TOTAL YEAR
-------- -------- -------- ---------- ----------
2000
Net revenues.............................. $127,515 $106,086 $113,491 $123,354 $470,446
Gross margin.............................. 122,386 97,682 104,637 116,687 441,392
Income from operations.................... 49,611 15,902 25,911 20,801 112,225
Net income................................ 38,545 14,973 21,617 19,377 94,512
Basic earnings per common share(a)........ 0.21 0.08 0.12 0.10 0.51
Diluted earnings per common share(a)...... 0.19 0.07 0.11 0.10 0.47
1999
Net revenues.............................. $ 85,039 $ 94,415 $105,780 $118,051 $403,285
Gross margin.............................. 80,517 91,314 102,477 114,398 388,706
Income from operations.................... 37,154 41,120 43,035 50,195 171,504
Net income................................ 25,768 27,785 29,346 34,045 116,944
Basic earnings per common share(a)........ 0.15 0.16 0.17 0.19 0.66
Diluted earnings per common share(a)...... 0.14 0.15 0.15 0.17 0.61
- ---------------
(a) Adjusted to reflect the stock splits as further discussed in Note 7.
(b) In the fourth quarter of 2000, the Company recorded impairment write-downs
of previously acquired core technology of $9.1 million, as further discussed
in Note 3.
F-28
63
CITRIX SYSTEMS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
--------- ---------- ---------- ---------- -------------
(IN THOUSANDS)
2000
Deducted from asset accounts:
Allowance for doubtful
accounts..................... $1,545 $ 377 $ -- $ 491(2) $ 1,431
Allowance for returns........... 6,696 -- 27,883(1) 25,409 9,170
Provision for inventory
obsolescence................. 912 6,932 -- 7,122 722
------ ------ ------- ------- -------
$9,153 $7,309 $27,883 $33,022 $11,323
====== ====== ======= ======= =======
1999
Deducted from asset accounts:
Allowance for doubtful
accounts..................... $1,593 $ 584 $ -- $ 632(2) $ 1,545
Allowance for returns........... 4,641 -- 20,879(1) 18,824 6,696
Provision for inventory
obsolescence................. 402 1,982 -- 1,472 912
------ ------ ------- ------- -------
$6,636 $2,566 $20,879 $20,928 $ 9,153
====== ====== ======= ======= =======
1998
Deducted from asset accounts:
Allowance for doubtful
accounts..................... $1,699 $ 620 $ -- $ 726(2) $ 1,593
Allowance for returns........... 4,599 -- 8,580(1) 8,538 4,641
Provision for inventory
obsolescence................. -- 417 -- 15 402
------ ------ ------- ------- -------
$6,298 $1,037 $ 8,580 $ 9,279 $ 6,636
====== ====== ======= ======= =======
- ---------------
(1) Netted against revenues.
(2) Uncollectible accounts written off, net of recoveries.
F-29
64
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1(1) Agreement and Undertaking by and among the Non-Executive
Directors of APM Limited, the Executive Directors of APM
Limited, and Citrix Systems, Inc.
2.2(1) Recommended Offers by Citrix Systems, Inc. for APM Limited
2.3(2) Asset Purchase Agreement dated February 15, 2000 by and
among the Company, Innovex Group, Inc. and certain
stockholders of Innovex
3.1(3) Amended and Restated Certificate of Incorporation of the
Company
3.2(3) Amended and Restated By-laws of the Company
3.3(4) Certificate of Amendment of Amended and Restated Certificate
of Incorporation
4.1(3) Specimen certificate representing the Common Stock
4.2(5) Indenture by and between the Company and State Street Bank
and Trust Company as Trustee dated as of March 22, 1999,
including the form of Debenture.
4.3(5) Form of Debenture (included in Exhibit 4.2).
4.3(5) Registration Rights Agreement by and between the Company and
Credit Suisse First Boston Corporation dated as of March 22,
1999.
10.1(3)* 1989 Stock Option Plan
10.2(4)* Second Amended and Restated 1995 Stock Plan
10.3(3)* 1995 Non-Employee Director Stock Option Plan
10.4* Amended and Restated 1995 Employee Stock Purchase Plan
10.5(6)* Amended and Restated 2000 Director and Officer Stock Option
and Incentive Plan
10.6(3) Microsoft Corporation Source Code Agreement between the
Company and Microsoft Corporation ("Microsoft") dated
November 15, 1989
10.7(3) Amendment No. 1 to the Source Code Agreement between the
Company and Microsoft dated October 1, 1992
10.8(3) License Agreement for Microsoft OS/2 Version Releases 1.x,
2.x between the Company and Microsoft dated August 15, 1990
10.9(3) Amendment No. 1 to the License Agreement between the Company
and Microsoft dated August 15, 1990, Contract No. 5198-0228
dated May 6, 1991
10.10(3) Amendment No. 2 to License Agreement between the Company and
Microsoft for Microsoft OS/2 Version Releases 1.x, 2.x,
dated October 1, 1992
10.11(3) Amendment No. 3 to the License Agreement between the Company
and Microsoft dated August 15, 1990, Contract No. 5198-0228
dated January 1, 1994
10.12(3) Amendment No. 4 to the License Agreement between the Company
and Microsoft dated August 15, 1990, dated January 31, 1995
10.13(3) Strategic Alliance Agreement between the Company and
Microsoft dated December 12, 1991
10.14(3) Form of Indemnification Agreement
10.15(7) License, Development and Marketing Agreement dated July 9,
1996 between the Company and Microsoft Corporation
10.16(8) License, Development and Marketing Agreement dated May 9,
1997 between the Company and Microsoft Corporation
10.17(9) Amendment No. 1 to License, Development and Marketing
Agreement dated May 9, 1997 between The Company and
Microsoft Corporation
10.18(10) Employment Agreement dated as of January 1, 1999 by and
between the Company and Roger W. Roberts.
65
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.19 Severance Agreement and General Release dated June 5, 2000
between the Company and Douglas Wheeler.
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney (Included in signature page)
- ---------------
(1) Incorporated herein by reference to the exhibits of the Company's Current
Report on Form 8-K dated as of June 30, 1998.
(2) Incorporated herein by reference to Exhibit 2.3 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
(3) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 33-98542), as amended.
(4) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000.
(5) Incorporated herein by reference to exhibits of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999.
(6) Incorporated herein by reference to Exhibit 10.2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000.
(7) Incorporated herein by reference to Exhibit 10 of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996.
(8) Incorporated herein by reference to Exhibit 10 of the Company's Current
Report on Form 8-K dated as of May 9, 1997.
(9) Incorporated herein by reference to Exhibit 10 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998.
(10) Incorporated herein by reference to Exhibit 10.18 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
* Indicates a management contract or any compensatory plan, contract or
arrangement.