CITRIX SYSTEMS INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


(Mark One)

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended March 31, 2003

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from _______ to _______

Commission File Number 0-27084

CITRIX SYSTEMS, INC.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		75-2275152 (IRS Employer Identification No.)


851 West Cypress Creek Road Fort Lauderdale, Florida (Address of principal executive offices)		33309 (Zip Code)

Registrant’s Telephone Number, Including Area Code: (954) 267-3000

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

As of May 7, 2003 there were 165,317,671 shares of the registrant’s Common Stock, $.001 par value per share, outstanding.

TABLE OF CONTENTS


PART I: FINANCIAL INFORMATION
	ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets (Unaudited)
Condensed Consolidated Statements of Income (Unaudited)
Condensed Consolidated Statements of Cash Flows (Unaudited)
Notes to Condensed Consolidated Financial Statements
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE
CERTIFICATIONS
CERTIFICATIONS
EXHIBIT INDEX
CEO CERTIFICATION
VICE PRESIDENT & CFO CERTIFICATION

CITRIX SYSTEMS, INC.

Form 10-Q
For the Quarterly Period Ended March 31, 2002

CONTENTS


		Page
		Number

PART I:	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets:
	March 31, 2003 and December 31, 2002.	3

	Condensed Consolidated Statements of Income:
	Three Months ended March 31, 2003 and 2002.	4

	Condensed Consolidated Statements of Cash Flows:
	Three Months ended March 31, 2003 and 2002.	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative & Qualitative Disclosure about Market Risk	48

Item 4.	Controls and Procedures	48

PART II:	OTHER INFORMATION

Item 1.	Legal Proceedings	49

Item 2.	Changes in Securities and Use of Proceeds	49

Item 6.	Exhibits and Reports on Form 8-K	49

	Signature	50

	Certifications	51

PART I: FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Citrix Systems, Inc.

Condensed Consolidated Balance Sheets
(Unaudited)


				March 31,			December 31,
				2003			2002

				(In thousands)
Assets

Current assets:
	Cash and cash equivalents			$	151,819		$	142,700
	Short-term investments				250,641			77,213
	Accounts receivable, net of allowances of $12,767 and $16,538 at March 31, 2003 and December 31, 2002, respectively				68,733			69,471
	Other prepaids and current assets				41,385			36,400
	Current portion of deferred tax assets				49,152			49,515

		Total current assets			561,730			375,299
Long-term investments					320,177			499,491
Property and equipment, net					73,053			76,534
Goodwill, net					152,364			152,364
Other intangible assets, net					28,579			30,849
Long-term portion of deferred tax assets					5,300			5,587
Other assets					12,570			21,407

				$	1,153,773		$	1,161,531


Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable and accrued expenses			$	95,327		$	92,926
	Current portion of deferred revenues				102,768			95,963
	Convertible subordinated debentures				338,004			—

			Total current liabilities		536,099			188,889
Long-term portion of deferred revenues					7,931			8,028
Convertible subordinated debentures					—			333,549

Commitments and contingencies

Put warrants					4,423			7,340
Common stock subject to repurchase					—			9,135

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; 198,507 and 197,426 issued at March 31, 2003 and December 31, 2002, respectively				199			197
	Additional paid-in capital				607,321			595,959
	Retained earnings				550,127			519,797
	Accumulated other comprehensive income				4,543			3,833

					1,162,190			1,119,786

	Less— common stock in treasury, at cost (33,462 and 29,290 shares at March 31, 2003 and December 31, 2002, respectively)				(556,870	)		(505,196	)

			Total stockholders’ equity		605,320			614,590

				$	1,153,773		$	1,161,531

See accompanying notes

Citrix Systems, Inc.

Condensed Consolidated Statements of Income
(Unaudited)


			Three Months Ended March 31,

			2003			2002

			(In thousands, except per share
			information)
Revenues:
	Revenues		$	143,491		$	132,438
	Other revenues			—			9,872

		Total net revenues		143,491			142,310
Cost of revenues (excluding amortization, presented separately below)				4,731			4,752

Gross margin				138,760			137,558

Operating expenses:
	Research and development			15,125			18,849
	Sales, marketing and support			61,711			61,199
	General and administrative			21,022			23,237
	Amortization of intangible assets			2,974			3,331

		Total operating expenses		100,832			106,616

Income from operations				37,928			30,942
Interest income				5,663			7,324
Interest expense				(4,549	)		(4,608	)
Other income, net				346			126

Income before income taxes				39,388			33,784
Income taxes				9,059			7,095

Net income			$	30,329		$	26,689


Earnings per common share:
	Basic earnings per share		$	0.18		$	0.14

	Weighted average shares outstanding			167,300			184,174


Earnings per common share—assuming dilution:
	Diluted earnings per share		$	0.18		$	0.14

	Weighted average shares outstanding			170,402			187,465

See accompanying notes

Citrix Systems, Inc.

Condensed Consolidated Statements of Cash Flows
(Unaudited)


				Three Months Ended March 31,

				2003			2002

				(In thousands)
OPERATING ACTIVITIES
Net income				$	30,329		$	26,689
Adjustments to reconcile net income to net cash provided by operating activities:
	Amortization of intangible assets				2,974			3,331
	Depreciation and amortization of property and equipment				7,178			8,665
	Provision for doubtful accounts				625			65
	(Recovery of) provision for product returns				(451	)		4,678
	Provision for inventory reserves				199			74
	Tax benefit related to the exercise of non-statutory stock options and disqualifying dispositions of incentive stock options				2,745			5,255
	Accretion of original issue discount and amortization of financing cost				4,545			4,525
	Other non-cash items				47			42

			Total adjustments to reconcile net income to net cash provided by operating activities		17,862			26,635
	Changes in operating assets and liabilities:
		Accounts receivable			564			(19,215	)
		Prepaid expenses and other current assets			4,508			(5,096	)
		Other assets			1,174			1,326
		Deferred tax assets			358			(256	)
		Accounts payable and accrued expenses			(2,093	)		(211	)
		Deferred revenues			6,707			(1,971	)

			Total changes in operating assets and liabilities		11,218			(25,423	)

Net cash provided by operating activities					59,409			27,901

INVESTING ACTIVITIES
Purchases of investments					(40,255	)		(30,715	)
Proceeds from sales and maturities of investments					46,850			20,983
Purchases of property and equipment					(1,402	)		(8,218	)
Cash paid for licensing agreement					(372	)		—
Cash paid for acquisitions					—			(10,680	)

Net cash provided by (used in) investing activities					4,821			(28,630	)

FINANCING ACTIVITIES
Proceeds from issuance of common stock					4,409			1,727
Cash paid under stock repurchase programs					(60,170	)		(52,605	)
Cash paid to repurchase convertible subordinated debentures					—			(5,075	)
Proceeds from sale of put warrants					655			1,564
Other					(5	)		(5	)

Net cash used in financing activities					(55,111	)		(54,394	)


Change in cash and cash equivalents					9,119			(55,123	)
Cash and cash equivalents at beginning of period					142,700			139,693

Cash and cash equivalents at end of period				$	151,819		$	84,570

See accompanying notes

Citrix Systems, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)
March 31, 2003

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. All adjustments, which, in the opinion of management, are considered necessary for a fair presentation of the results of operations for the periods shown, are of a normal recurring nature and have been reflected in the unaudited condensed consolidated financial statements. The results of operations for the periods presented are not necessarily indicative of the results expected for the full year or for any future period. The information included in these unaudited condensed consolidated financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report and the consolidated financial statements and accompanying notes included in the Citrix Systems, Inc. (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2002.

Certain reclassifications have been made for consistent presentation.

2. Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. While the Company believes that such estimates are fair when considered in conjunction with the condensed consolidated financial position and results of operations taken as a whole, the actual amount of such estimates, when known, will vary from these estimates.

Cash and Investments

The Company generally invests its cash and cash equivalents in investment grade, highly liquid securities to allow for flexibility in the event of immediate cash needs. Short and long-term investments primarily consist of interest bearing securities.

At March 31, 2003, approximately $63 million in investment securities were pledged as collateral for specified obligations under the Company’s synthetic lease. In addition, at March 31, 2003, approximately $109 million in investment securities were pledged as collateral for the Company’s credit default contracts and interest rate swap agreements. The Company maintains the ability to manage the composition of the pledged investments and investment earnings are available for operating purposes. Accordingly, these securities are not reflected as restricted investments in the accompanying condensed consolidated balance sheets (see Note 7).

Citrix Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2003

In December 2000, the Company invested $158.1 million in a trust managed by an investment advisor. The purpose of the trust is to maintain sufficient liquidity in the event that the Company’s convertible subordinated zero coupon debentures are redeemed in March 2004. The investment in the trust matures on March 22, 2004, and therefore, the investment is classified as short-term in the March 31, 2003 condensed consolidated balance sheet to reflect the maturity within one year of the balance sheet date. The trust’s assets primarily consist of AAA-rated zero-coupon corporate securities. The trust entered into a credit risk swap agreement with the investment advisor, which effectively increased the yield on the trust’s assets and for which value the trust assumed the credit risk of ten investment-grade companies. The effective yield of the trust, including the credit risk swap agreement, is 6.72% and the principal balance will accrete to $195 million in March 2004. The investment in the trust and the underlying investments and swap are recorded as held-to-maturity zero-coupon corporate securities in the condensed consolidated financial statements. The Company does not recognize changes in the fair value of the held-to-maturity investment unless a decline in the fair value of the trust is other-than-temporary, in which case it would recognize a loss in earnings. The Company’s investment is at risk to the extent that one of the underlying corporate securities has a credit event that may include bankruptcy, dissolution, or insolvency of the issuers. There have been no losses associated with the trust’s underlying corporate securities.

In addition, the Company has invested in other instruments that are at risk to the extent that the entities issuing the underlying corporate securities have credit events above specified amounts that result in a loss to the counterparty. There have been no credit events associated with the entities issuing the underlying corporate securities.

Revenue Recognition

The Company markets and licenses software products through value-added resellers, channel distributors, system integrators and independent software vendors, managed by the Company’s worldwide sales force. The Company’s software licenses are generally perpetual, and are delivered by means of traditional packaged products and electronically, typically under volume-based licensing programs. The Company’s packaged products are typically purchased by medium and small-sized businesses with fewer locations and the software license is delivered with the packaged product.

Volume-based license arrangements are used with more complex multi-server environments typically found in larger business enterprises that deploy the Company’s products on a department or enterprise-wide basis, which could require differences in product features and functionality at various customer locations. The end-customer license agreement with enterprise customers is typically customized based on these factors. Once the Company receives a purchase order from the channel distributor, the volume-based licenses are electronically delivered to the customer with “software activation keys” that enable the feature configuration ordered by the end-customer. Depending on the size of the enterprise, software may be delivered indirectly by the channel distributor or directly by the Company pursuant to a purchase order from the channel distributor.

Revenue is recognized when it is 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

Citrix Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2003

SOP 98-4 and SOP 98-9) and related interpretations, Software Revenue Recognition. The Company recognizes revenue when all of the following criteria are met: persuasive evidence of the arrangement exists; delivery has occurred and the Company has no remaining obligations; the fee is fixed or determinable; and collectibility is probable. The Company defines these four criteria as follows:

• Persuasive evidence of the arrangement exists. The Company recognizes revenue on packaged product upon shipment to distributors and resellers. For packaged product sales, it is the Company’s customary practice to require a purchase order from distributors who have previously negotiated a master packaged product distribution or resale agreement. For volume-based licensing, the Company typically requires a purchase order from the distributor or reseller and an executed standard software license agreement from the end-customer. The Company requires a purchase order for training and services.

• Delivery has occurred and the Company has no remaining obligations. The Company’s standard delivery method is free-on-board shipping point. Consequently, it considers delivery of packaged product to have occurred when the products are shipped to distributors pursuant to an agreement and purchase order. The Company considers delivery of licenses under electronic licensing agreements to have occurred when the related products are shipped and the end-customer has been electronically provided with the licenses that include the activation keys that allow the end-customer to take immediate possession of the software. For training and service revenue recognition, the Company fulfills its obligation when the services are performed.

• The fee is fixed or determinable. In the normal course of business, the Company does not provide end-customers the right to a refund of any portion of their license fees or extended payment terms. When the Company sells its software products separately, vendor specific objective evidence (“VSOE”) is determined by the price charged for each product. In software arrangements that include the 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 based on VSOE. If management cannot objectively determine the fair value of each undelivered element based on VSOE, revenue recognition is deferred until all elements are delivered, all services have been performed, or until fair value can be objectively determined.

• Collectibility is probable. The Company determines collectibility on a customer-by-customer basis. The Company typically sells to distributors or resellers for whom there are histories of successful collection. New customers are subject to a credit review process that evaluates the customers’ financial position and ultimately their ability to pay. Customers are subject to an ongoing credit review process. If the Company determines from the outset of an arrangement that collectibility is not probable, revenue recognition is deferred until customer payment is received and the other parameters of revenue recognition described above have been achieved. Management’s judgment is required in assessing the probability of collection, which is generally based on evaluation of customer specific information, historical experience and economic market conditions. If market conditions decline, or, if the financial

Citrix Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2003

condition of distributors or end-customers deteriorates, the Company may be unable to determine that collectibility is probable, and it could be required to defer the recognition of revenues until the Company receives customer payment.

For certain software products that are only sold bundled with PCS, the Company allocates revenue to the delivered software product using the residual method. Generally, the Company uses the residual method when it is unable to identify VSOE of fair value for the product. Therefore, the Company allocates discounts inherent in the arrangement entirely to the software product and the portion of the fee initially allocated to PCS and deferred is generally higher than in arrangements with established VSOE for the software product. Concurrent with future product releases and in response to changes in customer demand, it is likely that the Company will offer additional products that are only sold bundled with PCS. Therefore, the use of the residual method will become more prevalent, which would impact the timing of revenue recognition since more of the sales proceeds would be allocated to the PCS portion of the arrangement and recognized over the PCS period. The Company also sells PCS separately and it determines VSOE by the renewal price charged. The Company bases technical service and PCS revenues from customer maintenance fees for ongoing customer support and product updates and upgrades 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 to 24 months. The Company includes technical service revenues in net revenues in the condensed consolidated statements of income.

In the normal course of business, the Company does not permit product returns, but it does provide most of its distributors and value added resellers with stock balancing and price protection rights. Stock balancing rights permit distributors to return products to the Company, subject to ordering an equal dollar amount of products. Price protection rights require that the Company grant retroactive price adjustments for inventories of products held by distributors or resellers if it lowers prices for such products. The Company establishes provisions for estimated returns for stock balancing and price protection rights, as well as other sales allowances, concurrently with the recognition of revenue. The provisions are established based upon consideration of a variety of factors, including, among other things, recent and historical return rates for both specific products and distributors, estimated distributor inventory levels by product, the impact of any new product releases and projected economic conditions. Actual product returns for stock balancing and price protection provisions incurred are, however, dependent upon future events, including the amount of stock balancing activity by distributors and the level of distributor inventories at the time of any price adjustments. The Company continually monitors the factors that influence the pricing of its products and distributor inventory levels and makes adjustments to these provisions when it believes actual returns and other allowances could differ from established reserves. The Company’s ability to recognize revenues upon shipment to distributors is predicated on its ability to reliably estimate future product returns and rotation. If actual return experience or changes in market condition impairs the Company’s ability to estimate returns and rotation, it would be required to defer the recognition of revenue until the delivery of the product to the end-user customer. Allowances for estimated product returns amounted to approximately $6.7 million at March 31, 2003 and $10.5 million at December 31, 2002. The Company has not reduced and has no current plans to reduce its prices for inventory currently held by distributors or resellers. Accordingly, there were no reserves required for price protection at March 31, 2003 or December 31, 2002. The Company records estimated reductions to revenue for customer programs and incentive offerings including volume-based incentives. If market conditions were to decline,

Citrix Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2003

the Company could take actions to increase its customer incentive offerings, which could possibly result in an incremental reduction to revenue at the time the incentive is offered.

In May 1997, the Company entered into a five-year joint license, development and marketing agreement with Microsoft, which expired in May 2002. The Company recognized revenue from the Microsoft Development Agreement ratably over the five-year term of the contract in other revenues in the accompanying condensed consolidated statements of income.

Accounting for Stock-Based Compensation

The Company’s stock option program is a broad based, long-term retention program that is intended to attract and reward talented employees and align stockholder and employee interest. The number and frequency of stock option grants are based on competitive practices, operating results of the Company, and other factors. All employees are eligible to participate in the stock option program.

Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, 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 account for such transactions by applying the intrinsic value method of accounting under Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, but are required to disclose in a note to the consolidated financial statements pro forma net income and per share amounts as if a company had applied the methods prescribed by SFAS No. 123.

The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans, stock options granted to employees and non-employee directors and has complied with the disclosure requirements of SFAS No. 123. Except for non-employee directors, the Company has not granted any options to non-employees. At March 31, 2003, the Company has four stock-based employee compensation plans. The Company has elected to follow APB Opinion No. 25 because the alternative fair value accounting provided for under SFAS No. 123 requires use of option valuation models, including the Black-Scholes model, that were developed for use with traded options that have no vesting restrictions and are fully transferable, as opposed to employee stock options, which are typically non-transferable and last up to ten years. Currently, management believes there is not one agreed upon option valuation method that is comparable among all reporting companies. Specifically, the Black-Scholes model requires the input of highly subjective assumptions, including assumptions related to the expected stock price volatility over the expected life of the option. Because the Company’s stock-based awards to employees have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing pricing models do not necessarily provide a reliable single measure of the fair value of its stock-based awards to employees. Since the Black-Scholes model is based on statistical expectations, the calculation can result in substantial earnings volatility that may not agree, as to timing or amount, with the actual gain or loss accrued or realized by the option holder.

Citrix Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2003

Had compensation cost for the Company’s four stock-based compensation plans been determined based on the fair value on the grant dates for grants under those plans consistent with SFAS No. 123, the Company’s cash flows would have remained unchanged, however net income and earnings per share would have been reduced to the pro forma amounts indicated below:


		Three Months Ended			Three Months Ended
		March 31, 2003			March 31, 2002

		(In thousands, except per share information)
Net income (loss):
	As reported	$	30,329		$	26,689

	Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(24,085	)		(34,074	)

	Pro forma	$	6,244		$	(7,385	)

Basic earnings (loss) per share:
	As reported	$	0.18		$	0.14

	Pro forma	$	0.04		$	(0.04	)

Diluted earnings (loss) per share:
	As reported	$	0.18		$	0.14

	Pro forma	$	0.04		$	(0.04	)

For purposes of the pro forma calculations, the fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model, assuming no expected dividends and the following assumptions:


	Stock options granted during the

	Three months ended		Three months ended
	March 31, 2003		March 31, 2002

Expected volatility factor		0.68		0.69
Approximate risk free interest rate		3.0%		4.0%
Expected lives	4.70 years		4.60 years

3. Earnings Per Share

Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise of stock options (calculated using the treasury stock method) and put warrants (calculated using the reverse treasury stock method). Certain shares under the Company’s stock option program, certain put options under the Company’s stock repurchase programs and common stock potentially issuable upon conversion of the Company’s convertible subordinated debentures were excluded from the computation of diluted earnings per share due to their anti-dilutive effect for the respective periods.

Citrix Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2003

The following table sets forth the computation of basic and diluted earnings per share:


			Three Months Ended March 31,

			2003		2002

Numerator:
	Net income		$	30,329	$	26,689

Denominator:
	Denominator for basic earnings per share — weighted-average shares			167,300		184,174
	Effect of dilutive securities:
		Put warrants		1		—
		Employee stock options		3,101		3,291

	Dilutive potential common shares			3,102		3,291

	Denominator for diluted earnings per share — weighted-average shares			170,402		187,465

Basic earnings per share			$	0.18	$	0.14

Diluted earnings per share			$	0.18	$	0.14

Anti-dilutive weighted shares				48,366		49,592

4. Goodwill and Other Intangible Assets

Goodwill. There were no changes in the carrying amount of goodwill for the three months ended March 31, 2003. Substantially all of the Company’s goodwill at March 31, 2003 was associated with the Americas reportable segment.

Intangible Assets. Intangible assets are recorded at cost, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, generally one to five years. Intangible assets consist of the following (in thousands):


		March 31,				December 31,
		2003				2002

		Gross Carrying		Accumulated		Gross Carrying		Accumulated
		Amount		Amortization		Amount		Amortization

Amortized intangible assets:
	Core and product technologies	$	82,057	$	54,929	$	81,686	$	52,056
	Other	$	8,793	$	7,342	$	8,460	$	7,241

		$	90,850	$	62,271	$	90,146	$	59,297

Citrix Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2003

Amortization expense for the three months ended March 31, 2003 and 2002 was $3.0 million and $3.3 million, respectively. Estimated future amortization expense is as follows:


Year ending December 31,	(In thousands)

2003	$	11,725
2004		9,002
2005		7,708
2006		2,182
2007		232

5. 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 could redeem the Debentures on or after March 22, 2004. Holders could require the Company to repurchase the Debentures, on fixed dates and at set redemption prices (equal to the issue price plus accrued original issue discount), beginning on March 22, 2004. Accordingly the Debentures and the associated deferred debt issuance costs are classified as a current liability and current asset, respectively, in the March 31, 2003 condensed consolidated balance sheet.

6. Segment Information

The Company operates in a single market consisting of the design, development, marketing, sales and support of access infrastructure software and services for enterprise applications. The Company’s revenues are derived from sales in the Americas, Europe, the Middle East and Africa (“EMEA”) and Asia-Pacific regions. These three geographic regions constitute the Company’s reportable segments.

The Company does not engage in intercompany revenue transfers between segments. The Company’s management evaluates performance based primarily on revenues in the geographic locations in which the Company operates. Segment profit for each segment includes certain sales, marketing, general and administrative 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 research and development costs, amortization of intangible assets, interest, corporate expenses and income taxes. Corporate expenses are comprised primarily of corporate marketing costs, operations and certain general and administrative expenses, which are separately managed. Accounting policies of the segments are the same as the Company’s consolidated accounting policies.

Citrix Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2003

Net revenues and segment profit, classified by the major geographic areas in which the Company operates, are as follows:


				Three Months Ended March 31,

				2003			2002

				(In thousands)
Net revenues:
	Americas (1)			$	67,676		$	69,828
	EMEA (2)				61,845			51,049
	Asia-Pacific				13,970			11,561
	Other (3)				—			9,872

	Consolidated			$	143,491		$	142,310


Segment profit:
	Americas (1)			$	33,012		$	36,848
	EMEA (2)				38,822			28,902
	Asia-Pacific				7,516			4,546
	Other (3)				—			9,872
	Unallocated expenses (4):
		Amortization of intangible assets			(2,974	)		(3,331	)
		Research and development			(15,125	)		(18,849	)
		Net interest and other income			1,460			2,842
		Other corporate expenses			(23,323	)		(27,046	)

			Consolidated income before income taxes	$	39,388		$	33,784

(1)		The Americas segment is comprised of the United States, Canada and Latin America.

(2)		Defined as Europe, the Middle East and Africa

(3)		Represents royalty fees in connection with the Microsoft Development Agreement, which expired in May 2002.

(4)		Represents expenses presented to management on a consolidated basis only and not allocated to the geographic operating segments.

The Company also tracks revenue according to the following three categories: License Revenue, Technical Services Revenue and Royalty Revenue, but does not track expenses by these categories. As a result, these revenue categories do not constitute segments in accordance with SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. Additional information regarding revenue by categories is as follows:


			Three Months Ended March 31,

			2003		2002

			(In thousands)
Revenue:
	License revenue		$	132,114	$	121,725
	Technical services revenue			11,377		10,713
	Royalty revenue			—		9,872

		Net revenues	$	143,491	$	142,310

7. Derivative Financial Instruments

In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and its

Citrix Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2003

related interpretations and amendments, the Company records derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value. Derivatives not designated as hedging instruments, if any, are adjusted to fair value through earnings as other income (expense) in the current period. For derivatives that are designated as and qualify as effective cash flow hedges, the portion of gain or loss on the derivative instrument effective at offsetting changes in the hedged item is reported as a component of accumulated other comprehensive income and reclassified into earnings as operating income (expense) when the hedged transaction affects earnings. For derivative instruments that are designated as and qualify as effective fair value hedges, the gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item attributable to the hedged risk is recognized in current earnings as interest income (expense) during the period of the change in fair values. The application of the provisions of SFAS No. 133 could impact the volatility of earnings.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes attributing all derivatives that are designated as cash flow hedges to floating rate assets or liabilities or forecasted transactions and attributing all derivatives that are designated as fair value hedges to fixed rate assets or liabilities. The Company also formally assesses, both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in cash flows or fair value of the hedged item. Fluctuations in the value of the derivative instruments are generally offset by changes in the hedged item; however, if it is determined that a derivative is not highly effective as a hedge or if a derivative ceases to be a highly effective hedge, the Company will discontinue hedge accounting prospectively for the affected derivative.

Cash Flow Hedges. A substantial portion of the Company’s anticipated overseas expense and capital purchasing activities are transacted in local currencies. 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 that uses forward foreign exchange contracts to reduce a portion of its exposure to these potential changes. The terms of such instruments, and the hedging transactions to which they relate, generally do not exceed 12 months. Principal currencies hedged are Euros, British pounds sterling, Australian dollars, Swiss francs and Japanese yen. The Company may choose not to hedge certain foreign exchange transaction exposures due to immateriality, prohibitive economic cost of hedging particular exposures, and availability of appropriate hedging instruments. At March 31, 2003 and December 31, 2002, the Company had in place foreign currency forward sale contracts with a notional amount of $45.4 million and $48.9 million, respectively, and foreign currency forward purchase contracts with a notional amount of $122.2 million and $128.4 million, respectively. The aggregate net fair value of these contracts at March 31, 2003 and December 31, 2002 were recorded as assets of $3.8 million and $3.6 million, respectively.

Fair Value Hedges. The Company uses derivatives to hedge against the change in fair value of certain of its available-for-sale securities due to changes in interest rates. The Company is a party to 12 interest rate swap agreements with an aggregate notional amount of $208.0 million related to 12 specific available-for-sale securities. The swaps qualify for the short-cut method of accounting and expire on various dates through November 2007. Each of the instruments swap the fixed rate interest on the underlying investments for a variable rate based on the London Interbank Offered Rate, or LIBOR, plus a specified margin. Changes in the fair value of the derivatives are

Citrix Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2003

recorded in earnings along with related designated changes in the value of the underlying investments.

Derivatives Not Designated as Hedges. The Company utilizes credit default contracts for investment purposes that either do not qualify or are not designated for hedge accounting treatment under SFAS No. 133. Accordingly, changes in the fair value of these contracts are recorded in other expense, net, if any. Under the terms of these contracts, the Company assumes the default risk, above a certain threshold, of a portfolio of specified high credit quality referenced issuers in exchange for a fixed yield that is recorded in interest income. In the event of default by underlying referenced issuers above specified amounts, the Company will pay the counterparty an amount equivalent to its loss, not to exceed the notional value of the contract. The primary risk associated with these transactions is the default risk of the underlying issuers. The risk levels of these instruments are equivalent to “AAA” and “Super AAA” single securities. The purpose of the credit default contracts is to provide additional yield on certain of the Company’s underlying available-for-sale investments.

The Company’s two credit default contracts, entered into during December 2002, have an aggregate notional amount of $100.0 million that expire in December 2007. The Company has pledged approximately $105 million of investment securities as collateral for these contracts. The Company maintains the ability to manage the composition of the pledged investments and investment earnings are available for operating purposes. Accordingly, these securities are not reflected as restricted investments in the accompanying condensed consolidated balance sheets. The fixed yield earned on these contracts was not material at March 31, 2003 or December 31, 2002, and is included in interest income in the accompanying condensed consolidated statements of income. For the quarter ended March 31, 2003, there was no change in fair value of these credit default contracts and there were no credit events related to the underlying reference issuers.

The ineffectiveness of hedges on existing derivative instruments for the quarter ended March 31, 2003, was not material. As of March 31, 2003, the Company has $6.2 million of derivative assets and $6.5 million of derivative liabilities, representing the fair values of the Company’s outstanding derivative instruments, which are recorded in other current assets and accrued expenses in the accompanying condensed consolidated balance sheets, respectively.

The change in net unrealized derivative gains (losses) recognized in other comprehensive income includes unrealized gains (losses) that arose from changes in market value of derivatives that were held during the period, and gains (losses) that were previously unrealized, but have been recognized in current period net income due to termination or maturities of derivative contracts. This reclassification has no effect on total comprehensive income or stockholders’ equity.

Citrix Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2003

The following table presents these components of other comprehensive income, net of tax:


		Three Months Ended March 31,

		2003			2002

		(In thousands)
Unrealized gains on derivative instruments		$	3,762		$	37
Reclassification of realized gains			(3,512	)		(84	)

	Increase (decrease) in net unrealized derivative gains recognized in other comprehensive income (loss)	$	250		$	(47	)

8. Comprehensive Income

Comprehensive income is comprised of two components, net income and other comprehensive income. Other comprehensive income refers to amounts that under accounting principles generally accepted in the United States are recorded as an element of stockholders’ equity but are excluded from net income because these transactions or events were attributed to changes from non-owner sources. The Company’s other comprehensive income is comprised of changes in fair value of derivatives designated and effective as cash flow hedges and unrealized gains and losses, net of taxes, on available-for-sale marketable securities. The components of comprehensive income, net of tax, are as follows:


			Three Months Ended March 31,

			2003		2002

			(In thousands)
Net income			$	30,329	$	26,689
Other comprehensive income:
	Change in unrealized gain (loss) on available-for-sale securities			460		(206	)
	Change in unrealized gain (loss) on derivative instruments			250		(47	)

		Comprehensive income	$	31,039	$	26,436

The components of accumulated other comprehensive income, net of tax, are as follows:


		March 31, 2003		December 31, 2002

		(In thousands)
Unrealized gain on available-for-sale securities, net of taxes		$	781	$	321
Unrealized gain on derivative instruments, net of taxes			3,762		3,512

	Accumulated other comprehensive income	$	4,543	$	3,833

9. Income Taxes

The Company maintains certain operational and administrative processes in overseas subsidiaries. As a result, foreign earnings are taxed at lower foreign tax rates. The Company does not expect to remit earnings from its foreign subsidiaries. The Company’s effective tax rate increased to 23% for the three months ended March 31, 2003 from 21% for the same period in the prior year, primarily due to an increase in anticipated profitability in the Americas geographic segment, which is taxed at a higher rate and to a lesser extent, a decrease in tax credits generated during the quarter.

Citrix Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2003

10. Stock Repurchase Programs

The Company’s Board of Directors has authorized a total of $600 million of repurchase authority under the Company’s stock repurchase program, the objective of which is to manage actual and anticipated dilution. All shares repurchased are recorded as treasury stock.

The Company is authorized to make open market purchases paid out of general corporate funds. During the quarter ended March 31, 2003, the Company purchased 1,425,000 shares of outstanding Common Stock on the open market for approximately $17.7 million (at an average per share price of $12.39).

From time to time, the Company enters into arrangements with financial institutions as part of the stock repurchase program in order to lower the Company’s average cost to acquire shares. These arrangements are described below.

During 2002, the Company entered into an agreement, as amended, with a large financial institution in a private transaction to purchase up to 3.8 million shares of the Company’s Common Stock at various times through February 2003. Pursuant to the terms of the agreement, $25 million was paid to this institution during the third quarter of 2002. During 2002, the Company received 2,655,469 shares under this agreement with a total value of $18.5 million. The agreement matured in February 2003, and the Company received 390,830 additional shares with a total value of $6.5 million.

During 2002, the Company entered into a private structured stock repurchase transaction with a large financial institution. Under the terms of the agreement, and in exchange for an up front payment of $25 million, the Company was entitled to receive approximately 2.2 million shares of its Common Stock or a predetermined cash amount at expiration of the agreement. Upon expiration of this agreement in March 2003, the Company received approximately 2.2 million shares of its Common Stock. During 2003, the Company entered into a similar transaction with the same financial institution. In exchange for an up front payment of $15 million, the Company is entitled to receive approximately 1.5 million shares of its Common Stock or a predetermined cash amount at the expiration of the agreement in June 2003 dependent upon the closing price of the Company’s Common Stock at maturity.

In December 2002, the Company entered into an agreement with a large financial institution requiring that such institution sell to the Company up to 1,560,000 shares of the Company’s Common Stock at fixed prices if the Company’s Common Stock traded at designated levels between December 16, 2002 and January 23, 2003. As of December 31, 2002, the Company had a potential remaining repurchase obligation associated with this agreement of approximately $9.1 million, which was classified as common stock subject to repurchase in the consolidated balance sheet. During January 2003, this agreement expired and no shares were repurchased.

During the first quarter of 2003, the Company entered into a private structured stock repurchase agreement with a large financial institution. Pursuant to the terms of the agreement an aggregate of $25 million was paid up front to this institution, with the ultimate number of shares repurchased dependent on market conditions. The

Citrix Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2003

agreement requires that repurchased shares be delivered to the Company upon expiration of the agreement during June 2003.

The Company sells 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. During the quarter ended March 31, 2003, the Company sold 450,000 put warrants at an average exercise price of $12.57 and received premium proceeds of approximately $0.7 million. During the quarter ended March 31, 2003, the Company paid $2.5 million for the purchase of 200,000 shares upon the exercise of outstanding put warrants, while 750,000 put warrants expired unexercised. As of March 31, 2003, 450,000 put warrants were outstanding, with exercise prices ranging from $11.82 to $13.05, and expire on various dates in April and May 2003. As of March 31, 2003, the Company has a total potential repurchase obligation of approximately $5.7 million associated with outstanding put warrants, of which $4.4 million is classified as a put warrant obligation in the accompanying condensed consolidated balance sheet. The remaining $1.3 million of outstanding put warrants permit a net-share settlement at the Company’s option and are not recorded as a put warrant obligation in the condensed consolidated balance sheet. The outstanding put warrants classified as a put warrant obligation on the condensed consolidated balance sheet will be reclassified to stockholders’ equity when each warrant is exercised or when it expires. Under the terms of certain put warrant agreements, the Company must maintain certain levels of cash and investment balances. As of March 31, 2003, the Company was in compliance with the required levels.

11. Legal Proceedings

In February 2002, a stockholder filed a complaint in the Court of Chancery of the State of Delaware against the Company and certain of its current and former officers and directors. The parties have agreed to a non-monetary settlement of the action not involving the validity of the 2000 Director and Officer Stock Option and Incentive Plan. The settlement is subject to approval by the court. A hearing on the approval of the settlement has not yet been scheduled.

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, result of operations or cash flows.

12. Commitments

In April 2002, the Company entered into a synthetic lease with a substantive lessor totaling approximately $61.0 million for its corporate headquarters office space in Fort Lauderdale, Florida. The synthetic lease represents a form of off-balance sheet financing under which an unrelated third party lessor funded 100% of the costs of acquiring the property and leases the asset to the Company. The synthetic lease qualifies as an operating lease for accounting purposes and as a financing lease for tax purposes. The Company does not include the property or the lease debt as an asset or a liability on its condensed consolidated balance sheet. Consequently, payments are made pursuant to the lease as operating expenses in the Company’s condensed consolidated statements of income. The Company entered into the synthetic lease in order to lease its headquarters properties under more favorable terms

Citrix Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2003

than under its previous lease arrangements.

The initial term of the synthetic lease is seven years. Upon approval by the lessor, the Company can renew the lease twice for additional two-year periods. The lease payments vary based on LIBOR plus a margin. At any time during the lease term, the Company has the option to sublease the property and upon thirty-days’ written notice, the Company has the option to purchase the property for an amount representing the original property cost and transaction fees of approximately $61.0 million plus any lease breakage costs and outstanding amounts owed. Upon at least 180 days notice prior to the termination of the initial lease term, the Company has the option to remarket the property for sale to a third party. If the Company chooses not to purchase the property at the end of the lease term, it has guaranteed a residual value to the lessor of approximately $51.9 million and possession of the buildings will be returned to the lessor. If the fair value of the building were to decline below $51.9 million, the Company would have to make up the difference under its residual value guarantee, which could have a material adverse effect on the Company’s results of operations and financial condition.

The synthetic lease includes certain financial covenants including a requirement for the Company to maintain a pledged balance of approximately $63.0 million in cash and/or investment securities as collateral. The Company manages the composition of the pledged investments and investment earnings are available for operating purposes. Additionally, the Company must maintain a minimum cash and investment balance of $100.0 million, excluding the Company’s Debentures, collateralized investments and equity investments, as of the end of each fiscal quarter. As of March 31, 2003, the Company had approximately $112.2 million in cash and investments in excess of those required levels. The synthetic lease includes non-financial covenants including the maintenance of the properties and adequate insurance, prompt delivery of financial statements to the lender of the lessor and prompt payment of taxes associated with the properties. As of March 31, 2003, the Company was in compliance with all material provisions of the arrangement.

During 2002, the Company took actions to consolidate certain of its offices, including the exit of certain leased office space and the abandonment of certain leasehold improvements. Lease obligations related to these existing operating leases continue until 2018 with a total remaining obligation of approximately $29.7 million, of which $5.5 million, net of anticipated sublease income, was accrued for as of March 31, 2003, and is reflected in accrued expenses in the condensed consolidated financial statements. In calculating this accrual, the Company made estimates, based on market information, including the estimated vacancy periods and sublease rates and opportunities. If actual circumstances prove to be different than management has estimated, the total charges for these vacant facilities could be significantly higher.

13. Recent Accounting Pronouncements

SFAS No. 143, Accounting for Asset Retirement Obligations, establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS No. 143 is effective in fiscal years beginning after June 15, 2002, with early adoption permitted. The Company adopted SFAS No. 143 on January 1, 2003. There was no material impact on the Company’s consolidated

Citrix Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2003

financial position, results of operations or cash flows as a result of the adoption.

In July 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 nullifies the guidance previously provided under Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” Among other things, SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred as opposed to when there is commitment to a restructuring plan as set forth under the nullified guidance. The Company adopted SFAS No. 146 on January 1, 2003 and there was no material impact from adoption on its financial position, results of operations or cash flows.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This statement also amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The Company adopted SFAS No. 148 and there was no material impact on its financial position, results of operations or cash flows from adoption.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 30, 2003, for hedging relationships designated after June 30, 2003, and to certain preexisting contracts. The Company will adopt SFAS No. 149 on a prospective basis at its effective date. The Company is assessing the impact that SFAS No. 149 may have on its financial statements.

In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. FIN No. 45 also clarifies requirements for the recognition of guarantees at the onset of an arrangement. The initial recognition and measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN No. 45 are effective for interim or annual financial statements after December 15, 2002. The Company had no impact on its financial position, results of operations or cash flows as a result of this adoption.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities, which addresses consolidation by a business of variable interest entities in which it is the primary beneficiary. FIN No. 46 is effective immediately for certain disclosure requirements and for variable interest entities created after January 1, 2003, and in the first fiscal year or interim period beginning after June 15, 2003 for all other variable interest entities. The Company is currently in the process of determining the effects, if any, on its financial position, results of operations and cash flows that will result from the adoption of FIN No. 46.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We develop, market, license and support access infrastructure software and services that enable effective and efficient enterprise-wide deployment and management of applications and information, including those designed for Microsoft Windows operating systems, for UNIX operating systems, such as Sun Solaris, HP-UX or IBM-AIX, or collectively UNIX operating systems, and for Web-based information systems. Our largest source of revenue is the MetaFrame XPTM Presentation Server products. Our MetaFrame products, which we began shipping in the second quarter of 1998, permit organizations to provide access to Windows based, Web-based, and UNIX applications without regard to location, network connection or type of client hardware platforms. We market and license our products through multiple channels such as value-added resellers, distributors, system integrators and independent software vendors, managed by our worldwide sales force. We also promote our products through relationships with a wide variety of industry participants, including Microsoft Corporation.

Revenue Recognition

The accounting related to revenue recognition in the software industry is complex and affected by interpretations of the rules and an understanding of industry practices, both of which are subject to change. As a result, revenue recognition accounting rules require us to make significant judgments. In addition, our judgment is required in assessing the probability of collection, which is generally based on evaluation of customer specific information, historical collection experience and economic market conditions.

We market and license software products through value-added resellers, channel distributors, system integrators and independent software vendors, managed by our worldwide sales force. Our software licenses are generally perpetual, and are delivered by means of traditional packaged products and electronically, typically under volume-based licensing programs. Our packaged products are typically purchased by medium and small-sized businesses with fewer locations and the software license is delivered with the packaged product.

Volume-based license arrangements are used with more complex multi-server environments typically found in larger business enterprises that deploy our products on a department or enterprise-wide basis, which could require differences in product features and functionality at various customer locations. The end-customer license agreement with enterprise customers is typically customized based on these factors. Once we receive a purchase order from the channel distributor, the volume-based licenses are electronically delivered to the customer with “software activation keys” that enable the feature configuration ordered by the end-customer. Depending on the size of the enterprise, software may be delivered indirectly by the channel distributor or directly by us pursuant to a purchase order from the channel distributor.

We recognize revenue when it is earned. Our revenue recognition policies are in compliance with the American Institute of Certified Public Accountants Statement of Position, or SOP, 97-2 (as amended by SOP 98-4 and SOP 98-9) and related interpretations, Software Revenue Recognition. We recognize revenue when all of the following criteria are met: persuasive evidence of the arrangement exists; delivery has occurred and we have no remaining obligations; the fee is fixed or determinable; and collectibility is probable. We define these four criteria

as follows:

• Persuasive evidence of the arrangement exists. We recognize revenue on packaged product upon shipment to distributors and resellers. For packaged product sales, it is our customary practice to require a purchase order from distributors who have previously negotiated a master packaged product distribution or resale agreement. For volume-based licensing, we typically require a purchase order from the distributor or reseller and an executed standard software license agreement from the end-customer. We require a purchase order for training and services.

• Delivery has occurred and we have no remaining obligations. Our standard delivery method is free-on-board shipping point. Consequently, we consider delivery of our packaged product to have occurred when the products are shipped to distributors pursuant to an agreement and purchase order. We consider delivery of licenses under electronic licensing agreements to have occurred when the related products are shipped and the end-customer has been electronically provided with the licenses that include the activation keys that allow the end-customer to take immediate possession of the software. For training and service revenue recognition, we fulfill our obligation when the services are performed.

• The fee is fixed or determinable. In the normal course of business, we do not provide end-customers the right to a refund of any portion of their license fees or extended payment terms. When we sell our software products separately, we determine vendor specific objective evidence, or VSOE, by the price charged for each product. In software arrangements that include the rights to multiple software products, post-contract customer support, or PCS, and/or other services, we allocate the total arrangement fee among each deliverable based on the relative fair value of each of the deliverables based on VSOE. If we cannot objectively determine the fair value of each undelivered element based on VSOE, we defer revenue until all elements are delivered, all services have been performed, or until fair value can be objectively determined.

• Collectibility is probable. We determine collectibility on a customer-by-customer basis. We typically sell to distributors or resellers for whom there are histories of successful collection. New customers are subject to a credit review process that evaluates the customers’ financial position and ultimately their ability to pay. Customers are subject to an ongoing credit review process. If we determine from the outset of an arrangement that collectibility is not probable, we defer revenue recognition until customer payment is received and the other parameters of revenue recognition described above have been achieved. Our judgment is required in assessing the probability of collection, which is generally based on evaluation of customer specific information, historical experience and economic market conditions. If market conditions decline, or, if the financial condition of our distributors or end-customers deteriorates, we may be unable to determine that collectibility is probable, and we could be required to defer the recognition of revenues until we receive customer payment.

For certain software products that are only sold bundled with PCS, we allocate revenue to the delivered software product using the residual method. Under the residual method, we do not sell the software products separately and thus we are generally unable to determine VSOE of fair value for the product. Therefore, we allocate discounts inherent in the arrangement entirely to the software product and the portion of the fee initially allocated to PCS and deferred is generally higher than in arrangements with established VSOE for the software product. Concurrent with future product releases and in response to changes in customer demand, it is likely that we will

offer additional products that are only sold bundled with PCS. Therefore, the use of the residual method will become more prevalent, which would impact the timing of our revenue recognition since more of the sales proceeds would be allocated to the PCS portion of the arrangement and recognized over the PCS period. We also sell PCS separately and we determine VSOE by the renewal price charged. We base technical service and PCS revenues from customer maintenance fees for ongoing customer support and product updates and upgrades 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 to 24 months. We include technical service revenues in net revenues in our condensed consolidated statements of income.

In the normal course of business, we do not permit product returns, but we do provide most of our distributors and value added resellers with stock balancing and price protection rights. Stock balancing rights permit distributors to return products to us, subject to ordering an equal dollar amount of our products. Price protection rights require that we grant retroactive price adjustments for inventories of our products held by distributors or resellers if we lower our prices for such products. We establish provisions for estimated returns for stock balancing and price protection rights, as well as other sales allowances, concurrently with the recognition of revenue. The provisions are established based upon consideration of a variety of factors, including, among other things, recent and historical return rates for both specific products and distributors, estimated distributor inventory levels by product, the impact of any new product releases and projected economic conditions. Actual product returns for stock balancing and price protection provisions incurred are, however, dependent upon future events, including the amount of stock balancing activity by our distributors and the level of distributor inventories at the time of any price adjustments. We continually monitor the factors that influence the pricing of our products and distributor inventory levels and make adjustments to these provisions when we believe actual returns and other allowances could differ from established reserves. Our ability to recognize revenues upon shipment to our distributors is predicated on our ability to reliably estimate future product returns and rotation. If actual return experience or changes in market condition impairs our ability to estimate returns and rotation, we would be required to defer the recognition of revenue until the delivery of the product to the end-user customer. Allowances for estimated product returns amounted to approximately $6.7 million at March 31, 2003 and $10.5 million at December 31, 2002. We have not reduced and have no current plans to reduce our prices for inventory currently held by distributors or resellers. Accordingly, there were no reserves required for price protection at March 31, 2003 or December 31, 2002. We record estimated reductions to revenue for customer programs and incentive offerings including volume-based incentives. If market conditions were to decline, we could take actions to increase our customer incentive offerings and possibly result in an incremental reduction to our revenue at the time the incentive is offered.

Stock-Based Compensation

Our stock option program is a broad based, long-term retention program that is intended to attract and reward talented employees and align stockholder and employee interest. The number and frequency of stock option grants are based on competitive practices, our operating results, and other factors. All employees are eligible to participate in the stock option program.

Statement of Financial Accounting Standards, or SFAS, No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, 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 account for such transactions under Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees, but are required to disclose in a note to the consolidated financial statements pro forma net income and per share amounts as if a company had applied the methods prescribed by SFAS No. 123.

As of March 31, 2003, we had four stock-based compensation plans. We grant stock options for a fixed number of shares to employees with an exercise price equal to or above the fair value of the shares at the date of grant. As discussed above and in note 2 to our condensed consolidated financial statements, we apply the intrinsic value method under APB Opinion No. 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. However, the impact on our consolidated financial statements from the use of options is reflected in the calculation of earnings per share in the form of dilution (see note 3).

The following table (in thousands, except option price) provides information as of March 31, 2003 about the securities authorized for issuance to our employees and directors under our fixed stock compensation plans, consisting of our Amended and Restated 1995 Stock Plan, the Second Amended and Restated 1995 Employee Stock Purchase Plan, the 1995 Non-Employee Director Option Plan and the Second Amended and Restated 2000 Director and Officer Stock Option and Incentive Plan:

(A)

(B)

(C)

Number of securities

Number of

remaining available

securities to be

for future issuance

issued upon

Weighted-average

under equity

exercise of

exercise price of

compensation plans

outstanding

(excluding

options, warrants

securities reflected

Plan

and rights

in column (A))

Equity compensation plans approved by security holders

41,436

24.15

38,278

Equity compensation plans not approved by security holders

—

Total

41,436

24.15

38,278

The following table provides information about stock options granted for fiscal year 2002 and for the quarter ended March 31, 2003 for employees, non-employee directors and for certain executive officers. The stock option data for listed officers relates to our Named Executive Officers. The “Named Executive Officers” represent our Chief Executive Officer and the four other most highly compensated executive officers who received total annual salary and bonus in excess of $100,000 in 2002, as reported in our Proxy Statement dated April 4, 2003 and who are current employees:


	Three Months ended			Year ended
	March 31, 2003			December 31, 2002

Net grants to all employees, non-employee directors and executive officers as a percent of outstanding shares (1) (2)		0.58	%		1.17	%

Grants to Named Executive Officers as a percent of outstanding shares (2)		0.06	%		0.36	%

Grants to Named Executive Officers as a percent of total options granted		4.06	%		6.90	%

Cumulative options held by Named Executive Officers as a percent of total options outstanding (3)		9.68	%		9.48	%

(1)		Net grants represent total options granted during the period net of options forfeited during the period.

(2)		Calculation is based on outstanding shares of common stock as of the beginning of the respective period.

(3)		Calculation is based on total options outstanding as of the end of the respective period.

The following table presents our option activity from December 31, 2001 through March 31, 2003 (in thousands, except weighted-average exercise price):


					Options Outstanding

		Options Available			Number of			Weighted Average
		for Grant			Shares			Exercise Price

Balance at December 31, 2001			21,991			39,596			$	28.92
	Granted at market value		(9,275	)		9,275				9.98
	Granted above market value		(356	)		356				17.92
	Exercised		—			(551	)			6.12
	Forfeited/cancelled		7,455			(7,455	)			30.86
	Additional shares reserved		10,186			N/A				N/A

Balance at December 31, 2002			30,001			41,221				24.51

	Granted at market value		(2,202	)		2,202				12.31
	Granted above market value		(349	)		349				12.00
	Exercised		—			(755	)			3.62
	Forfeited/cancelled		1,581			(1,581	)			23.98
	Additional shares reserved		9,247			N/A				N/A

Balance at March 31, 2003			38,278			41,436				24.15

A summary of our in-the-money and out-of-the-money option information as of March 31, 2003 is as follows (in thousands, except weighted average exercise price):


		Exercisable				Unexercisable				Total

				Weighted				Weighted				Weighted
				Average				Average				Average
		Shares		Exercise Price		Shares		Exercise Price		Shares		Exercise Price

In-the-money			2,862		8.53		7,926		8.32		10,788		8.38
Out-of-the-money (1)			22,038		30.26		8,610		28.28		30,648		29.71

	Total options outstanding		24,900		27.76		16,536		18.71		41,436		24.15

(1)

Out-of-the-money options are those options with an exercise price equal to or above the closing price of $13.16 per share for our common stock at March 31, 2003.

The following table provides information with regard to our stock option grants during the quarter ended March 31, 2003 to the Named Executive Officers:


	Individual Grants (1)

	Number of
	Securities
	Underlying Options		Exercise Price		Expiration
	Granted (#)		($/share)		Date

Mark Templeton		37,500	$	12.00	March 3, 2013
John Burris		17,500	$	12.00	March 3, 2013
Robert Kruger		17,500	$	12.00	March 3, 2013
David Urbani		15,000	$	12.00	March 3, 2013
Stefan Sjostrom		16,000	$	12.00	March 3, 2013

(1)

These options vest over four years at a rate of 25% of the shares underlying the option one year from the date of the grant and at a rate of 2.08% monthly thereafter.

The following table presents certain information regarding option exercises and outstanding options held by Named Executive Officers as of and for the quarter ended March 31, 2003:

Number of Securities

Values of Unexercised

Underlying Unexercised Options

In-the-Money Options at

Shares Acquired on

Value

at March 31, 2003

March 31, 2003 ($)

Exercise (#)

Realized ($)(1)

Exercisable/Unexercisable

Exercisable/Unexercisable (2)

Mark Templeton

—

1,840,313/249,687

$0/$610,500

John Burris

—

314,980/203,270

$0/$417,200

Robert Kruger

—

139,272/254,895

$0/$392,003

David Urbani

—

347,271/351,979

$0/$640,380

Stefan Sjostrom

—

113,501/197,749

$0/$309,620

(1)		Amounts disclosed in this column were calculated based on the difference between the fair market value of our common stock on the date of exercise and the exercise price of the options in accordance with regulations promulgated under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and do not reflect amounts actually received by the named officers.

(2)		Value is based on the difference between the option exercise price and the fair market value at March 31, 2003 ($13.16 per share), multiplied by the number of shares underlying the option.

For further information regarding our stock option plans, see note 2 to our condensed consolidated financial statements.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. We base these estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances, and these estimates form the basis for our judgments concerning the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically evaluate these estimates and judgments based on available information and experience. Actual results could differ from our estimates under different assumptions and conditions. If actual results significantly differ from our estimates, our financial condition and results of operations could be materially impacted. Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” included in our Annual Report on Form 10-K for the year ended December 31, 2002 for further information regarding our critical accounting policies and estimates.

The notes to the consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2002, the unaudited interim condensed consolidated financial statements and the related notes to the unaudited interim condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q and the factors and events described elsewhere in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including in “Certain Factors Which May Affect Future Results,” contain additional information related to our accounting policies and should be read in conjunction with the following discussion and analysis relating to the individual financial statement captions and our overall financial performance, operations and financial position.

Results of Operations

The following table sets forth our condensed consolidated statements of income data and presentation of that data as a percentage of change from period-to-period.


				Three Months Ended March 31,						Increase/(decrease) for the
										Three Months Ended March 31,
				2003			2002			2003 vs. March 31, 2002

Net revenues				$	143,491		$	142,310			0.8	%
Cost of revenues (excluding amortization, presented separately below)					4,731			4,752			(0.4	)

Gross margin					138,760			137,558			0.9
Operating expenses:
	Research and development				15,125			18,849			(19.8	)
	Sales, marketing and support				61,711			61,199			0.8
	General and administrative				21,022			23,237			(9.5	)
	Amortization of intangible assets				2,974			3,331			(10.7	)

		Total operating expenses			100,832			106,616			(5.4	)

Income from operations					37,928			30,942			22.6
Interest income					5,663			7,324			(22.7	)
Interest expense					(4,549	)		(4,608	)		(1.3	)
Other income, net					346			126			174.6

Income before income taxes					39,388			33,784			16.6
Income taxes					9,059			7,095			27.7

			Net income	$	30,329		$	26,689			13.6	%

Net Revenues. Our operations consist of the design, development, marketing and support of access infrastructure software and services that enable effective and efficient enterprise-wide deployment and management of applications and information.

We present net revenues in the following three categories outlined below: License Revenue, Technical Services Revenue, and Royalty Revenue. License Revenue primarily represents fees related to the licensing of our MetaFrame products, Citrix Subscription Advantage (our terminology for PCS), additional user licenses and management products (such as load balancing and resource management products). Technical Services Revenue consists primarily of technical support services, product training and certification, and consulting services related to implementation of our software products. We recognize Technical Services and Citrix Subscription Advantage revenues ratably over the term of the contract, which is typically 12 to 24 months.

In May 1997, we entered into a five-year joint license, development and marketing agreement with Microsoft, which expired in May 2002. We recognized revenue from the Microsoft Development Agreement ratably over the five-year term of the contract in other revenues in the accompanying condensed consolidated statements of income. Royalty Revenue represents the fees recognized in connection with the Microsoft Development Agreement.

With respect to product mix, the modest increase in net revenues for the three months ended March 31, 2003 compared to the three months ended March 31, 2002 was primarily attributable to an increase in License Revenue due mainly to an increase in the number of MetaFrame licenses sold for Windows operating systems primarily due to market acceptance of the our MetaFrame XP presentation servers. This increase was partially offset by a decrease in Royalty Revenue associated with the expiration of the Microsoft Development Agreement in May 2002.

Deferred revenues, primarily related to Citrix Subscription Advantage and Technical Services Revenues, increased approximately $6.7 million as compared to December 31, 2002. This increase was due primarily to increased renewals of Citrix Subscription Advantage.

An analysis of our net revenues is presented below:


		Three Months Ended				Increase (Decrease) for the
		March 31,				Three Months ended
						March 31, 2003 vs.
		2003		2002		March 31, 2002

License revenue		$	132,114	$	121,725		8.5	%
Technical services revenue			11,377		10,713		6.2
Royalty revenue			—		9,872		(100.0	)

	Net revenues	$	143,491	$	142,310		0.8	%

International And Segment Revenues. International revenues (sales outside of the United States) accounted for approximately 56.1% of net revenues for the three months ended March 31, 2003 and 48.2% of net revenues for the three months ended March 31, 2002. This increase is due to the expiration of the Microsoft Development Agreement in May 2002 as well as increasing demand for our products overseas, particularly in Europe. For detailed information on international revenues, please refer to note 6 to our condensed consolidated financial statements appearing in this report.

An analysis of our geographic segment net revenue as a percentage of net revenue is presented below:


		Three Months Ended						Increase (Decrease) for the
		March 31,						Three Months ended
								March 31, 2003 vs.
		2003			2002			March 31, 2002

Americas (1)			47.2	%		49.1	%		(3.1	)%
EMEA (2)			43.1	%		35.9			21.1
Asia-Pacific			9.7	%		8.1			20.8
Other (3)			—			6.9			(100.0	)

	Net revenues		100.0	%		100.0	%		0.8	%

(1)		Our Americas segment is comprised of the United States, Canada and Latin America.

(2)		Defined as Europe, Middle East and Africa.

(3)		Represents royalty fees earned in connection with the Microsoft Development Agreement, which expired in May 2002.

In terms of the mix of revenues between our geographic segments, the increase in EMEA net revenue is due primarily to an increase in the number of MetaFrame licenses sold. The overall increase in geographic segment revenue was due primarily to the factors mentioned above.

Cost of Revenues. Cost of revenues consisted primarily of the cost of royalties, product media and duplication, manuals, packaging materials and shipping expense. Cost of revenues also consisted of compensation and other personnel-related costs of providing consulting services. We expensed all development costs incurred in connection with the Microsoft Development Agreement as incurred in cost of other revenues. Our cost of revenues excludes amortization of core technology, which is shown as a component of amortization expense in our condensed

consolidated statements of income. There was no significant change in our cost of revenues for the three months ended March 31, 2003 as compared to the three months ended March 31, 2002.

Gross Margin. Gross margin as a percent of revenue was 96.7% for the three months ended March 31, 2003 and 2002. We currently anticipate that in the next 12 months, gross margin as a percentage of net revenues will remain relatively unchanged as compared with current levels. However, gross margin could fluctuate from time to time based on a number of factors attributable to the cost of revenues as described above.

Research and Development Expenses. Research and development expenses consisted primarily of personnel-related costs. We expensed all development costs included in the research and development of software products and enhancements to existing products as incurred except for certain core technologies. Research and development expenses decreased for the three months ended March 31, 2003 compared to the three months ended March 31, 2002, primarily due to severance, relocation and reduced headcount costs associated with the consolidation of our Salt Lake City and Columbia, Maryland development teams into our remaining engineering facilities in Fort Lauderdale, Florida during 2002.

Sales, Marketing and Support Expenses. Sales, marketing and support expenses for the three months ended March 31, 2003 compared to the three months ended March 31, 2002 remained relatively unchanged. Significant activity primarily included an increase in costs incurred for external consultants associated with product training and increases in commissions. These increases were offset by a reduction in marketing program costs due to a refocus in marketing programs spending based on the current operating environment.

General and Administrative Expenses. General and administrative expenses decreased for the three months ended March 31, 2003 as compared to the three months ended March 31, 2002, primarily from a decrease in depreciation expense due to the abandonment of certain leasehold improvements during 2002. This decrease was offset by an increase in legal fees for litigation occurring in the normal course of business and for responding to new regulatory requirements.

Amortization of Intangible Assets. At January 1, 2003, we had unamortized identified intangible assets with estimable useful lives in the amount of $30.8 million, net, which were amortized during the quarter in accordance with the provisions of SFAS No. 142. For the quarter ended March 31, 2003, we recorded $3.0 million in amortization expense related to these assets. Amortization of intangible assets for the three months ended March 31, 2003 as compared to March 31, 2002 was relatively unchanged.

Interest Income. Interest income decreased for the three months ended March 31, 2003 compared to the three months ended March 31, 2002, due primarily to a decrease in interest rates.

Interest Expense. Interest expense remained relatively unchanged for the three months ended March 31, 2003 compared to the three months ended March 31, 2002 and primarily represented non-cash interest and accretion on our convertible subordinated debentures.

Other Income, Net. Other income, net is primarily comprised of remeasurement and foreign currency transaction gains (losses). Other income, net for the three months ended March 31, 2003 compared to the three months ended March 31, 2002, remained relatively unchanged.

Income Taxes. We maintain certain operational and administrative processes in overseas subsidiaries. As a result, foreign earnings are taxed at lower foreign tax rates. We do not expect to remit earnings from our foreign subsidiaries. Our effective tax rate was increased to 23% for the three months ended March 31, 2003 from 21% for the same period in the prior year, primarily due to an increase in anticipated profitability in our Americas geographic segment, which is taxed at a higher rate and to a lesser extent, a decrease in tax credits generated during the quarter.

Liquidity and Capital Resources

During the three months ended March 31, 2003, we generated positive operating cash flows of $59.4 million. These cash flows related primarily to net income of $30.3 million, adjusted for, among other things, tax benefits from the exercise of non-statutory stock options and disqualifying dispositions of incentive stock options of $2.7 million, non-cash charges, including depreciation and amortization expenses of $10.2 million, the accretion of original issue discount and amortization of financing costs on our convertible subordinated debentures of $4.5 million and an aggregate increase in cash flow from our operating assets and liabilities of $11.2 million. Our investing activities provided $4.8 million of cash consisting primarily of the net proceeds, after reinvestment, from sales and maturities of investments of $6.6 million, partially offset by the expenditure of $1.4 million for the purchase of property and equipment. Our financing activities used cash of $55.1 million related primarily to the expenditure of $60.2 million for the stock repurchase program, partially offset by the proceeds received from the issuance of common stock under our employee stock compensation plans and the sale of put warrants of $5.1 million.

During the three months ended March 31, 2002, we generated positive operating cash flows of $27.9 million. These cash flows related primarily to net income of $26.7 million, adjusted for, among other things, tax benefits from the exercise of non-statutory stock options and disqualifying dispositions of incentive stock options of $5.3 million, non-cash charges, including depreciation and amortization expenses of $12.0 million, provisions for product returns of $4.7 million (primarily due to our stock rotation program) and the accretion of original issue discount and amortization of financing costs on our convertible subordinated debentures of $4.5 million. These cash inflows were partially offset by an aggregate decrease in cash flow from our operating assets and liabilities of $25.4 million. Our investing activities used $28.6 million of cash consisting primarily of net cash paid for acquisitions (a contingent payment in connection with the acquisition of Innovex in February 2000) of $10.7 million, the net purchase of investments of $9.7 million and $8.2 million for our purchase of property and equipment. We used $54.4 million in cash in financing activities related primarily to our expenditure of $52.6 million in our stock repurchase program, and $5.1 million in our debenture repurchase program.

Cash and Investments

As of March 31, 2003, we had $722.6 million in cash and investments, including $151.8 million in cash and cash equivalents. In addition, we had $25.6 million in working capital at March 31, 2003 as compared to $186.4 million at December 31, 2002. The decrease in working capital as compared to December 31, 2002, was due primarily to the reclassification of our convertible subordinated debentures as a current liability as of March 31, 2003. See “Liquidity and Capital Resources—Convertible Subordinated Debentures” and note 5 to our condensed consolidated financial statements for further information. The $3.2 million increase in cash and investments as compared to December 31, 2002, was due primarily to positive cash flow from operations offset by continued common stock repurchases and capital expenditures as discussed above. We generally invest our cash and cash equivalents in investment grade, highly liquid securities to allow for flexibility in the event of immediate cash needs. Our short and long-term investments primarily consist of interest bearing securities.

In December 2000, we invested $158.1 million in a trust managed by an investment advisor. The purpose of the trust is to maintain sufficient liquidity in the event that our debentures are redeemed in March 2004. Our investment in the trust matures on March 22, 2004, and comprises all of the trust’s assets. Therefore, the investment is classified as short-term in our March 31, 2003 condensed consolidated balance sheet to reflect the maturity within one year of the balance sheet date. The trust’s assets primarily consist of AAA-rated zero-coupon corporate securities. The trust entered into a credit risk swap agreement with the investment advisor, which effectively increased the yield on the trust’s assets and for which value the trust assumed the credit risk of ten investment-grade companies. The effective yield of the trust, including the credit risk swap agreement, is 6.72% and the principal balance will accrete to $195 million in March 2004. We record our investment in the trust and the underlying investments and swap as held-to-maturity zero-coupon corporate securities in our consolidated financial statements. We do not recognize changes in the fair value of the held-to-maturity investment unless a decline in the fair value of the trust is other-than-temporary, in which case we would recognize a loss in earnings. Our investment is at risk to the extent that one of the underlying corporate securities has a credit event that may include bankruptcy, dissolution, or insolvency of the issuers. There have been no losses associated with the trust’s underlying corporate securities. The amortized cost of our investment in the trust was approximately $183.3 million at March 31, 2003 and $180.4 million at December 31, 2002. At March 31, 2003, the fair value of the trust’s assets was $187.8 million.

In addition, we have invested in other instruments with similar credit risk features. This means that these investments are at risk to the extent that the entities issuing the underlying corporate securities have credit events above specified amounts that result in a loss to the counterparty. There have been no credit events associated with the entities issuing the underlying corporate securities. For more information see notes 2 and 7 to our condensed consolidated financial statements.

Accounts Receivable, Net

At March 31, 2003, we had approximately $68.7 million in accounts receivable, net of allowances. The modest decrease in accounts receivable as compared to December 31, 2002 is primarily attributed to lower sales compared to the fourth quarter of 2002, partially offset by a decrease in allowances due to lower estimated product returns from distributors.

Convertible Subordinated Debentures

In March 1999, we sold $850 million principal amount at maturity of our zero coupon convertible subordinated debentures due in March 2019, in a private placement. The debentures were priced with a yield to maturity of 5.25%. Our net proceeds were approximately $291.9 million, net of original issue discount and net of debt issuance costs of $9.6 million. Except under limited circumstances, we will pay no interest prior to maturity. The security holders can convert the debentures at any time on or before the maturity date at a conversion rate of 14.0612 shares of our common stock for each $1,000 principal amount at maturity of the debentures, subject to adjustment in certain events. We can redeem the debentures on or after March 22, 2004, and the holders of the debentures can require us to repurchase the debentures on fixed dates and at set redemption prices (equal to the issue price plus accrued original issue discount) beginning on March 22, 2004. Accordingly, we classified the debentures as a current liability in our March 31, 2003 condensed consolidated balance sheet to reflect the amount that will be payable on demand within one year of the balance sheet date. We will maintain sufficient liquidity in the event that holders of the debentures require us to redeem or we elect to repurchase the debentures.

In December 2000, we invested $158.1 million in investments accounted for as held-to-maturity corporate securities to maintain sufficient liquidity in the event that our debentures are redeemed in March 2004. Based on the $195.0 million expected maturity value of the investments in March 2004, the proceeds of the investments will be sufficient to fund the redemption of approximately 55% of the debentures, if required. We believe that we will have sufficient cash and investments to fund the redemption of the remaining debentures in 2004, if required.

Stock Repurchase Program

Our board of directors has authorized a total of $600 million of repurchase authority under our stock repurchase program, the objective of which is to manage actual and anticipated dilution. All shares repurchased are recorded as treasury stock.

We are authorized to make open market purchases paid out of general corporate funds. During the quarter ended March 31, 2003, we purchased 1,425,000 shares of outstanding common stock on the open market for approximately $17.7 million (at an average per share price of $12.39).

From time to time, we enter into arrangements with financial institutions as part of our stock repurchase program in order to lower our average cost to acquire shares. These arrangements are described below.

During 2002, we entered into an agreement, as amended, with a large financial institution in a private transaction to purchase up to 3.8 million shares of our common stock at various times through February 2003. Pursuant to the terms of the agreement, we paid $25 million to this institution during the third quarter of 2002. During 2002, we received 2,655,469 shares under this agreement with a total value of $18.5 million. The agreement matured in February 2003, and we received 390,830 additional shares with a total value of $6.5 million.

During 2002, we entered into a private structured stock repurchase transaction with a large financial institution. Under the terms of the agreement, and in exchange for an up front payment of $25 million, we were entitled to receive approximately 2.2 million shares of our common stock or a predetermined cash amount at expiration of the agreement. Upon expiration of this agreement in March 2003, we received approximately 2.2 million shares of our common stock. During 2003, we entered into a similar transaction with the same financial institution. In exchange for an up front payment of $15 million, we are entitled to receive approximately 1.5 million shares of our common stock or a predetermined cash amount at the expiration of the agreement in June 2003 dependent upon the closing price of our common stock at maturity.

In December 2002, we entered into an agreement with a large financial institution requiring that such institution sell to us up to 1,560,000 shares of our common stock at fixed prices if our common stock traded at designated levels between December 16, 2002 and January 23, 2003. As of December 31, 2002, we had a potential remaining repurchase obligation associated with this agreement of approximately $9.1 million, which was classified as common stock subject to repurchase in the consolidated balance sheet. During January 2003, this agreement expired and no shares were repurchased.

During the first quarter of 2003, we entered into a private structured stock repurchase agreement with a large financial institution. Pursuant to the terms of the agreement we paid an aggregate of $25 million up front to this institution, with the ultimate number of shares repurchased dependent on market conditions. The agreement

requires that repurchased shares be delivered to us upon expiration of the agreement during June 2003.

We sell put warrants that entitle the holder of each warrant to sell to us, generally by physical delivery, one share of our common stock at a specified price. During the quarter ended March 31, 2003, we sold 450,000 put warrants at an average exercise price of $12.57 and received premium proceeds of approximately $0.7 million. During the quarter ended March 31, 2003, we paid $2.5 million for the purchase of 200,000 shares upon the exercise of outstanding put warrants, while 750,000 put warrants expired unexercised. As of March 31, 2003, 450,000 put warrants were outstanding, with exercise prices ranging from $11.82 to $13.05, and expire on various dates in April and May 2003. As of March 31, 2003, we have a total potential repurchase obligation of approximately $5.7 million associated with outstanding put warrants, of which $4.4 million is classified as a put warrant obligation in our accompanying condensed consolidated balance sheet. The remaining $1.3 million of outstanding put warrants permit a net-share settlement at our option and are not recorded as a put warrant obligation in the condensed consolidated balance sheet. The outstanding put warrants classified as a put warrant obligation in our condensed consolidated balance sheet will be reclassified to stockholders’ equity when each warrant is exercised or when it expires. Under the terms of certain put warrant agreements, we must maintain certain levels of cash and investment balances. As of March 31, 2003, we were in compliance with the required levels.

Commitments

In April 2002, we entered into a synthetic lease with a substantive lessor totaling approximately $61.0 million for our corporate headquarters office space in Fort Lauderdale, Florida. The synthetic lease represents a form of off-balance sheet financing under which an unrelated third party lessor funded 100% of the costs of acquiring the property and leases the asset to us. The synthetic lease qualifies as an operating lease for accounting purposes and as a financing lease for tax purposes. We do not include the property or the lease debt as an asset or a liability on our condensed consolidated balance sheet. Consequently, we include payments made pursuant to the lease as operating expenses in our condensed consolidated statements of income. We entered into the synthetic lease in order to lease our headquarters properties under more favorable terms than under our previous lease arrangements.

The initial term of the synthetic lease is seven years. Upon approval by the lessor, we can renew the lease twice for additional two-year periods. The lease payments vary based on the London Interbank Offered Rate, or LIBOR, plus a margin. At any time during the lease term, we have the option to sublease the property, and upon thirty-days’ written notice, we have the option to purchase the property for an amount representing the original property cost and transaction fees of approximately $61.0 million plus any lease breakage costs and outstanding amounts owed. Upon at least 180 days notice prior to the termination of the initial lease term, we have the option to remarket the property for sale to a third party. If we choose not to purchase the property at the end of the lease term, we have guaranteed a residual value to the lessor of approximately $51.9 million and possession of the buildings will be returned to the lessor. If the fair value of the building were to decline below $51.9 million, we would have to make up the difference under our residual value guarantee, which could have a material adverse effect on our results of operations and financial condition.

The synthetic lease includes certain financial covenants including a requirement for us to maintain a pledged balance of approximately $63.0 million in cash and/or investment securities as collateral. We manage the composition of the pledged investments and investment earnings are available for operating purposes. Additionally, we must maintain a minimum cash and investment balance of $100.0 million, excluding our debentures, collateralized investments and equity investments, as of the end of each fiscal quarter. As of March 31, 2003, we had

approximately $112.2 million in cash and investments in excess of those required levels. The synthetic lease includes non-financial covenants including the maintenance of the properties and adequate insurance, prompt delivery of financial statements to the lender of the lessor and prompt payment of taxes associated with the properties. As of March 31, 2003, we were in compliance with all material provisions of the arrangement.

During 2002, we took actions to consolidate certain of our offices, including the exit of certain leased office space and the abandonment of certain leasehold improvements. Lease obligations related to these existing operating leases continue until 2018 with a total remaining obligation of approximately $29.7 million, of which $5.5 million, net of anticipated sublease income, was accrued for as of March 31, 2003, and is reflected in accrued expenses in our condensed consolidated financial statements. In calculating this accrual, we made estimates, based on market information, including the estimated vacancy periods and sublease rates and opportunities. If actual circumstances prove to be different than management has estimated, the total charges for these vacant facilities could be significantly higher.

During 2003 and 2002, significant portions of our cash inflows were generated by operations. Although we believe existing cash and investments together with cash flow expected from operations will be sufficient to meet operating, debt redemption and capital expenditures requirements for the next 12 months, future operating results and expected cash flow from operations could vary if we experience a decrease in customer demand or a decrease in customer acceptance of future product offerings. We could from time to time seek to raise additional funds through the issuance of debt or equity securities. We continue to search for suitable acquisition candidates and could acquire or make investments in companies we believe are related to our strategic objectives. Such investments could reduce our available working capital. We currently expect that the difficult economic conditions that existed during 2002 will persist in 2003.

Certain Factors Which May Affect Future Results

Our operating results and financial condition have varied in the past and could in the future vary significantly depending on a number of factors. From time to time, information provided by us or statements made by our employees could contain “forward-looking” information that involves risks and uncertainties. In particular, statements contained in this Form 10-Q, and in the documents incorporated by reference into this Form 10-Q, that are not historical facts, including, but not limited to statements concerning new products, product development and offerings, product and price competition, deferred revenues, economic and market conditions, revenue recognition, profits, growth of revenues, technology relationships, reinvestment of foreign earnings, gross margins, goodwill, intangible assets, impairment charges, anticipated operating and capital expenditure requirements, leasing and subleasing activities, acquisitions, debt redemption obligations, stock repurchases, investment transactions, liquidity, working capital, litigation matters, intellectual property matters, distribution channels, stock price, licensing models and potential debt or equity financings constitute forward-looking statements and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are neither promises nor guarantees. Our actual results of operations and financial condition have varied and could in the future vary significantly from those stated in any forward-looking statements. The following factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Form 10-Q, in the documents incorporated by reference into this Form 10-Q or presented elsewhere by our management from time to time. Such factors, among others, could have a material adverse effect upon our business, results of operations and financial condition.

Because of our relationship with Microsoft, our business could be adversely impacted by commercialization, source code access and compatibility risks.

Our relationship with Microsoft is subject to the following risks and uncertainties, some of which could cause a material adverse effect on our business, results of operations and financial condition:

• Successful Commercialization of Microsoft Operating Systems. Our ability to successfully commercialize Citrix MetaFrame access infrastructure is directly related to Microsoft’s ability to market Windows 2000 Servers and Windows Server 2003, or collectively Windows Server Operating Systems, products. We do not have control over Microsoft’s distributors and resellers and, to our knowledge, Microsoft’s distributors and resellers are not obligated to purchase products from Microsoft. Additionally, there could be delays in the release and shipment of future versions of Windows Server Operating Systems.

• Termination of the Microsoft Source Licensing Agreement. In May 2002, we signed an agreement with Microsoft that provides us access to Microsoft Windows Server source code for current and future Microsoft server operating systems, including access to Windows Server 2003 and terminal services source code, during the three year term of the agreement. Microsoft could terminate the current agreement before the expiration of the three-year term for breach and upon our change of control. If Microsoft does terminate the current agreement, our restricted access to source code for current and future Microsoft server operating systems could negatively impact the timing of our release of future products and enhancements.

• Our agreements with Microsoft are short in duration. There can be no assurances that our current agreements with Microsoft will be extended or renewed by Microsoft after their respective expirations. Our failure to renew certain terms of these agreements with Microsoft in a manner favorable to us could negatively impact the timing of our release of future products and enhancements.

• Compatibility. Future product offerings by Microsoft may not provide for compatibility with our products, upon release of such offerings from Microsoft. The lack of compatibility between future Microsoft products and our products could negatively impact the timing of our release of future products and enhancements.

Our business could be adversely impacted by conditions affecting the information technology market in particular.

The demand for our products depends substantially upon the general demand for business-related computer hardware and software, which fluctuates based on numerous factors, including capital spending levels, the spending levels and growth of our current and prospective customers and general economic conditions. Fluctuations in the demand for our products could have a material adverse effect on our business, results of operations and financial condition. In 2002, adverse economic conditions decreased demand for our products and negatively impacted our financial results. If the current trend of decreased and slower informational technology spending continues, it could continue to negatively impact our business, results of operations and financial condition.

Our long sales cycle for enterprise-wide sales could make it difficult to predict our quarterly operating results.

In recent quarters, a growing number of our large and medium-sized customers have decided to implement our volume-based licensing programs on a department or enterprise-wide basis. For convenience, the licenses under these arrangements are electronically delivered to our customers. Our long sales cycle for these large-scale deployments makes it difficult to predict when these sales will occur, and we may not be able to sustain these sales on a predictable basis.

We have a long sales cycle for these enterprise-wide sales because:

• our sales force generally needs to explain and demonstrate the benefits of a large-scale deployment of our product to potential and existing customers prior to sale;

• our service personnel typically spend a significant amount of time assisting potential customers in their testing and evaluation of our product;

• our customers are typically large and medium size organizations that carefully research their technology needs and the many potential projects prior to making capital expenditures for software infrastructure; and

• before making a purchase, our potential customers usually must get approvals from various levels of decision makers within their organizations, and this process can be lengthy.

The continued long sales cycle for these large-scale deployment sales could make it difficult to predict the quarter in which sales will occur. Delays in sales could cause significant variability in our revenue and operating results for any particular period.

Our accounting policies could require us to take an impairment charge to earnings, particularly during difficult economic conditions.

We have adopted accounting policies that could require us to take a charge to earnings related to our acquisition of Sequoia Software Corporation. In July 2001, we adopted SFAS No. 141, Business Combinations, and in January 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets. As a result, we no longer amortize goodwill and intangible assets deemed to have indefinite lives. However, we continue to amortize certain product and core technologies, trademarks, patents and other intangibles. We periodically evaluate our intangible assets, including goodwill, for impairment. If we determine that any of our intangible assets are impaired, we could be required to take a related charge to earnings.

In particular, at March 31, 2003, we had $28.6 million, net, of unamortized identified intangibles with estimable useful lives, of which $22.1 million consists of product and core technology we purchased in the acquisition of Sequoia. We commercialized and currently market the Sequoia technology through our secure access infrastructure software, which includes Citrix MetaFrame Secure Access Manager. However, our channel distributors and entities with which we have technology relationships, customers or prospective customers may not purchase or widely accept our new line of products. If we are unsuccessful in selling this new line of products, we could determine that the value of the purchased technology is impaired in whole or in part and take a charge to earnings. An impairment charge could have a material adverse effect on our results of operations and financial condition.

If we do not develop new products and enhancements to our existing products, we may not be successful.

The markets for our products are characterized by:

• rapid technological change;

• evolving industry standards;

• fluctuations in customer demand;

• changes in customer requirements; and

• frequent new product introductions and enhancements.

Our future success depends on our ability to continually enhance our current products and develop and introduce new products that our customers choose to buy. If we are unable to keep pace with technological developments and customer demands by introducing new products and enhancements, our business, results of operations and financial condition could be adversely affected. Our future success could be hindered by:

• delays in our introduction of new products;

• delays in market acceptance of new products or new releases of our current products; and

• our, or a competitor’s, announcement of new product enhancements or technologies that could replace or shorten the life cycle of our existing product offerings.

For example, we cannot guarantee that our secure access infrastructure software, Citrix MetaFrame Secure Access Manager, will achieve the broad market acceptance by our channel and entities with which we have a technology relationship, customers and prospective customers necessary to generate significant revenue. In addition, we cannot guarantee that we will be able to respond effectively to technological changes or new product announcements by others. If we experience material delays or sales shortfalls with respect to our new products or new releases of our current products, those delays or shortfalls could have a material adverse effect on our business, results of operations and financial condition.

We believe that we could incur additional costs and royalties as we develop, license or buy new technologies or enhancements to our existing products. These added costs and royalties could increase our cost of revenues and operating expenses. However, we cannot currently quantify the costs for such transactions that have not yet occurred. In addition, we may need to use a substantial portion of our cash and investments to fund these additional costs.

We face intense competition, which could result in fewer customer orders and reduced revenues and margins.

We compete in intensely competitive markets. Some of our competitors and potential competitors have significantly greater financial, technical, sales and marketing and other resources than us.

For example, our ability to market the MetaFrame product suite, the MetaFrame Secure Access Manager products and other future product offerings could be affected by Microsoft’s licensing and pricing scheme for client devices, which attach to Windows Server Operating Systems and utilize our products. Further, the announcement of the release, and the actual release, of new Windows based server operating systems or products incorporating similar features to our products could cause our existing and potential customers to postpone or cancel plans to license certain of our existing and future product offerings. Moreover, Microsoft includes its Remote Desktop Protocol, or

RDP, as a component in certain Windows Server Operating Systems, which has certain of the capabilities of our ICA® protocol. RDP could offer customers a competitive solution and allow future Microsoft product offerings to directly compete with our current MetaFrame software suite, and any of our future product offerings, which could adversely impact our business, results of operations and financial condition.

In addition, alternative products for Web applications in the Internet software market directly and indirectly compete with our current products and anticipated future product offerings. Existing or new products that extend Internet software to provide Web-based information access or interactive computing (such as Microsoft Windows Server 2003 products) can materially impact our ability to sell our products in this market. Our competitors in this market include Microsoft, Oracle, Sun Microsystems, and other makers of Web-based server software.

As the markets for our products continue to develop, additional companies, including companies with significant market presence in the computer hardware, software and networking industries could enter the markets in which we compete and further intensify competition. In addition, we believe price competition could become a more significant competitive factor in the future. As a result, we may not be able to maintain our historic prices and margins, which could adversely affect our business, results of operations and financial condition.

We could change our licensing models or the percentage of our revenue represented by deferred revenues could increase, which could negatively impact the timing of our recognition of revenue.

We continually re-evaluate our licensing programs, including specific license models, delivery methods, and terms and conditions, to market our current and future products and services. We could implement new licensing programs, including offering specified and unspecified enhancements to our current and future product and service lines. For example, on October 1, 2002, we implemented new volume-based licensing programs. We could recognize revenues associated with those enhancements after the initial shipment or licensing of the software product or over the product’s life cycle. We could implement different licensing models in certain circumstances, for which we would recognize licensing fees over a longer period, which could decrease our current revenue. For example, we recognize Citrix Subscription Advantage and Technical Services revenues from customer maintenance fees or ongoing customer support ratably over the term of the contract, which is typically 12 to 24 months. Deferred revenues from Citrix Subscription Advantage and Technical Services increased by approximately $6.7 million at March 31, 2003 as compared to December 31, 2002. The timing of the implementation of new licensing programs, the timing of the release of such enhancements and other factors could impact the timing of our recognition of revenues and related expenses associated with our products, related enhancements and services and could adversely affect our operating results and financial condition.

As our international sales and operations grow, we could become increasingly subject to additional risks that could harm our business.

We conduct significant sales and customer support operations in countries outside of the United States. For the three months ended March 31, 2003, we derived 56.1% of our revenues from sales outside the United States. Our continued growth and profitability could require us to further expand our international operations. To successfully expand international sales, we must establish additional foreign operations, hire additional personnel and recruit additional international resellers. Our international operations are subject to a variety of risks, which could cause international revenues to fluctuate. These risks include:

• fluctuations in foreign currency exchange rates, including our ability to adequately hedge our foreign exchange risks;

• compliance with foreign regulatory and market requirements;

• variability of foreign economic, political and labor conditions;

• changing restrictions imposed by regulatory requirements, tariffs or other trade barriers or by United States export laws;

• 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.

Our success depends, in part, on our ability to anticipate and address these risks. We cannot guarantee that these or other factors will not adversely affect our business or operating results. In particular, a decrease in demand for software and services in any particular region could adversely affect our future operating results.

Our results are subject to fluctuations in foreign currency exchange rates. Changes in the value of foreign currencies in 2002 relative to the value of the U.S. dollar were generally hedged to minimize adverse impacts on our operating profit. However, since we generally hedge only one year in advance of anticipated foreign currency expenses, operations will be impacted adversely in fiscal 2003. The U.S. dollar weakened during 2002 relative to other currencies. If the value of the U.S. dollar continues to weaken relative to other currencies in which we do business, our results could be adversely affected in 2004 as well when these currencies are remeasured for the purposes of converting them to U.S. dollars for our financial statements.

Sales of our MetaFrame product suite constitutes a substantial majority of our revenue.

We anticipate that sales of our MetaFrame product suite and related enhancements will constitute a substantial majority of our revenue for the foreseeable future. Our ability to continue to generate revenue from our MetaFrame product line will depend on market acceptance of Windows Server Operating Systems and/or UNIX Operating Systems. Declines in demand for our MetaFrame products could occur as a result of:

• new competitive product releases and updates to existing products,

• price competition,

• technological change,

• decreasing or stagnant information technology spending levels,

• general economic conditions, or

• lack of success of entities with which we have a technology relationship.

If our customers do not continue to purchase our MetaFrame products as a result of these or other factors, our revenue would decrease and our results of operations and financial condition would be adversely affected.

Our synthetic lease is an off-balance sheet arrangement that could negatively affect our financial condition and results.

In April 2002, we entered into a seven-year synthetic lease with a substantive lessor for our headquarters office buildings in Fort Lauderdale, Florida. The synthetic lease qualifies for operating lease accounting treatment

under SFAS No. 13, Accounting for Leases, so we do not include the property or the lease debt on our consolidated balance sheet. In January 2003, the Financial Accounting Standards Board, or FASB, issued FASB interpretation No. 46, Consolidation of Variable Interest Entities. As a result of this new guidance, we may be required to include the property and the lease debt in our consolidated financial statements, and as a result we would incur additional depreciation expenses. We are currently in the process of determining the effects, if any, on our financial position, results of operations and cash flows that will result from the adoption of FIN No. 46.

Under the lease, we must maintain a pledged balance of approximately $63 million in cash and/or investment securities with an affiliate of the lessor, serving as collateral agent. We are able to manage the composition of the pledged investments and investment earnings are available for operating purposes. If we default on our commitments under the synthetic lease and cannot remedy the default in a timely manner, the lessor could take the pledged assets and transfer ownership of the real estate to us.

We could purchase the property at any time during the lease term, with thirty days’ written notice, for the original property cost plus transaction fees and lease breakage fees. If we purchase the property, we will be required to add the property to our consolidated balance sheet. At any time during the lease term, we could also re-lease the property or remarket the property for sale to a third party. If we remarket the property for sale to a third party, we could be required to find alternate headquarter facilities on terms that may not be as favorable as the current arrangement. If we elect not to purchase the property at the end of the lease term, we have guaranteed a minimum residual value of approximately $51.9 million to the lessor. Therefore, if the fair value of the property declines below $51.9 million, we would have to make up the difference under our residual value guarantee, which could have a material adverse effect on our results of operations and financial condition. For further information on our synthetic lease, please refer to “Liquidity and Capital Resources” and note 12 to our condensed consolidated financial statements.

Our proprietary rights could offer only limited protection. Our products could infringe third-party intellectual property rights, which could result in material costs.

Our efforts to protect our proprietary rights may not be successful. We rely primarily on a combination of copyright, trademark, patent and trade secret laws, confidentiality procedures and contractual provisions, to protect our proprietary rights. The loss of any material trade secret, trademark, trade name, patent or copyright could have a material adverse effect on our business. Despite our precautions, it could be possible for unauthorized third parties to copy or reverse engineer certain portions of our products or to otherwise obtain and use our proprietary information. If we cannot protect our proprietary technology against unauthorized copying or use, we may not remain competitive. Any patents owned by us could be invalidated, circumvented or challenged. Any of our pending or future patent applications, whether or not being currently challenged, may not be issued with the scope we seek, if at all, and if issued, may not provide any meaningful protection or competitive advantage.

In addition, our ability to protect our proprietary rights could be affected by:

• Differences in International Law; Enforceability of Licenses. The laws of some foreign countries do not protect our intellectual property to the same extent as do the laws of the United States and Canada. For example, we derive a significant portion of our sales from licensing our packaged products under “shrink wrap” license agreements that are not signed by licensees and electronic volume-based licensing agreements that could be unenforceable under the laws of certain foreign jurisdictions.

• Third Party Infringement Claims. As the number of products and competitors in our industry segments increases and the functionality of these products overlap, we could become increasingly subject to infringement claims. Companies and inventors are more frequently seeking to patent software and business methods because of developments in the law that could extend the ability to obtain such patents. As a result, we could receive patent infringement claims. Responding to any infringement claim, regardless of its validity, could result in costly litigation or require us to obtain a license to intellectual property rights of those third parties. Licenses may not be available on reasonable terms or at all. In addition, attention to these claims could divert our management’s time and attention from developing our business. If a successful claim is made against us and we fail to develop or license a substitute technology, our business, results of operations, financial condition or cash flows could be materially adversely affected.

We are subject to risks associated with our technology relationships.

Our business depends on technology relationships. We cannot assure you that those relationships will continue in the future. In addition to our relationship with Microsoft, we rely on technology relationships with IBM, HP, Dell and others. We depend on the entities with which we have technology relationships to successfully test our products, to incorporate our technology into their products and to market and sell those products. We cannot assure you that we will be able to maintain our current technology relationships or to develop additional technology relationships. If any entities in which we have a technology relationship are unable to incorporate our technology into their products or to market or sell those products, our business, operating results and financial condition could be materially adversely affected.

If we lose access to third party licenses, shipments of our products could be delayed.

We believe that we will continue to rely, in part, on third party licenses to enhance and differentiate our products. Third party licensing arrangements are subject to a number of risks and uncertainties, including:

• undetected errors in the third party’s software;

• disagreement over the scope of the license and other key terms, such as royalties payable; and

• infringement actions brought by third party licensees.

If we lose or are unable to maintain any of these third party licenses, it could delay the shipment or release of our products. Any delays could have a material adverse effect on our business, results of operations and financial condition.

Our success depends on our ability to attract and retain large enterprise customers.

We must retain and continue to expand our ability to reach and penetrate large enterprise customers by adding effective channel distributors and expanding our consulting services. Our inability to attract and retain large enterprise customers could have a material adverse effect on our business, results of operations and financial condition. Large enterprise customers usually request special pricing and generally have longer sales cycles, which could negatively impact our revenues. Additionally, as we attempt to attract and penetrate large enterprise customers, we could need to increase corporate branding and marketing activities, which could increase our operating expenses. These efforts may not proportionally increase our operating revenues and could reduce our profits.

Our business could be adversely affected if we are unable to expand and diversify our distribution channels.

We intend to continue to expand our distribution channels by leveraging our relationships with independent hardware and software vendors and system integrators to encourage them to recommend or distribute our products. In addition, an integral part of our strategy is to diversify our base of channel relationships by adding more channel members with abilities to reach larger enterprise customers. This will require additional resources, as we will need to expand our internal sales and service coverage of these customers. If we fail in these efforts and cannot expand or diversify our distribution channels, our business could be adversely affected. In addition to this diversification of our base, we will need to maintain a healthy mix of members who cater to smaller customers. We could need to add and remove distribution members to maintain customer satisfaction and a steady adoption rate of our products, which could increase our operating expenses. We are currently investing, and intend to continue to invest, significant resources to develop these channels, which could reduce our profits.

If we do not generate sufficient cash flow from operations in the future, we may not be able to fund our operations and fulfill our future obligations.

Our ability to generate sufficient cash flow from operations to fund our product development and offerings and make payments on our debt and other obligations depends on a range of economic, competitive and business factors, many of which are outside our control. We cannot assure you that our business will generate sufficient cash flow from operations, or that we will be able to liquidate our investments, sell assets or raise equity when needed or desirable. In December 2000, we invested $158.1 million in a trust managed by an investment advisor in order to maintain sufficient liquidity in the event that our debentures are redeemed in March 2004. If the value of the investments in the trust significantly decreases, the proceeds of the trust combined with our other cash and investments may not be sufficient to fund the redemption of our outstanding debentures in 2004, if required. An inability to fund our operations or fulfill outstanding obligations could have a material adverse effect on our business, financial condition and results of operations. For further information, please refer to “Liquidity and Capital Resources.”

We rely on indirect distribution channels and major distributors that we do not control.

We rely significantly on independent distributors and resellers to market and distribute our products. We do not control our distributors and resellers. Additionally, our distributors and resellers are not obligated to buy our products and could also represent other lines of products. Some of our distributors and resellers maintain inventories of our packaged products for resale to our smaller end-user customers. If distributors and resellers reduce their inventory of our packaged products, our business could be adversely affected. In the quarter ended March 31, 2003 we believe that our distributors and resellers held smaller inventories of packaged products as compared to inventories they held in prior quarters. Further, we could maintain individually significant accounts receivable balances with certain distributors. The financial condition of our distributors could deteriorate and distributors could significantly delay or default on their payment obligations. Any significant delays or defaults could have a material adverse effect on our business, results of operations and financial condition.

Our products could contain errors that could delay the release of new products and may not be detected until after our products are shipped.

Despite significant testing by us and by current and potential customers, our products, especially new products or releases, could contain errors. In some cases, these errors may not be discovered until after commercial shipments have been made. Errors in our products could delay the development or release of new products and could adversely affect market acceptance of our products. Additionally, our products depend on third party products, which could contain defects and could reduce the performance of our products or render them useless. Because our products are often used in mission-critical applications, errors in our products or the products of third parties upon which our products rely could give rise to warranty or other claims by our customers.

Our research and development purchased in acquisitions is subject to certain risks.

In the past we have re-evaluated the amounts charged to in-process research and development in connection with acquisitions and licensing arrangements. The amount and rate of amortization of those amounts are subject to a number of risks and uncertainties. The risks and uncertainties include the effects of any changes in accounting standards or guidance adopted by the SEC or the accounting profession. Any changes in accounting standards or guidance adopted by the SEC could materially adversely affect our future results of operations through increased amortization expense. We cannot assure you that actual revenues and operating profit attributable to acquired in-process research and development will match the projections we used to initially value in-process research and development when we acquired it. Ongoing operations and financial results for acquired assets and licensed technology, and for our business as a whole, are subject to a variety of risks, which we may not have known or been able to estimate at the time of the transactions.

Furthermore, we cannot guarantee that we will succeed in our efforts to integrate and further develop our acquired technologies. In 1999 and 2001, we acquired certain in-process software technologies from ViewSoft and Sequoia. We are currently working on integrating some of the acquired technologies into our anticipated future product offerings and on associated design, development and rework required to integrate the technologies. However, we cannot guarantee we will be successful in our efforts to integrate and further develop these technologies. If we fail to complete the development of our anticipated future product offerings, or if we fail to complete them in a timely manner, our financial condition and results of operations could be materially adversely affected. We cannot currently determine the impact those delays could have on our business, future results of operations and financial condition. We could incur additional charges in later periods to reflect costs associated with completing those projects.

Acquisitions present many risks, and we may not realize the financial and strategic goals we anticipate at the time of an acquisition.

Acquisitions of high-technology companies are inherently risky. We cannot assure anyone that our previous acquisitions, including the purchase of Sequoia, or any future acquisitions will be successful. The risks we commonly encounter are:

• difficulties integrating 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 we have no or limited direct prior experience and where competitors have stronger market positions;

• the potential loss of key employees of the acquired company; and

• an uncertain sales and earnings stream from the acquired company, which could unexpectedly dilute our earnings.

These factors could have a material adverse effect on our business, results of operations and financial condition. We cannot guarantee that the combined company resulting from any acquisition can continue to support the growth achieved by the companies separately. We must also focus on our ability to manage and integrate any acquisition. Our failure to manage growth effectively and successfully integrate acquired companies could adversely affect our business and operating results.

If we lose key personnel or cannot hire enough qualified employees, our ability to manage our business could be adversely affected.

Our success depends, in large part, upon the services of a number of key employees. We do not have long-term employment agreements with any of our key personnel. Any officer or employee can terminate his or her relationship with us at any time. The effective management of our growth, if any, could depend upon our ability to retain our highly skilled technical, managerial, finance and marketing personnel. If any of those employees leave, we will need to attract and retain replacements for them. We could also need to add key personnel in the future. The market for these qualified employees is competitive. We could find it difficult to successfully attract, assimilate or retain sufficiently qualified personnel. Also, we could need to hire additional personnel to develop new products, product enhancements and technologies. If we cannot add the necessary staff and resources, our ability to develop future enhancements and features to our existing or future products could be delayed. Any delays could have a material adverse effect on our business, results of operations and financial condition.

If product returns or price adjustments exceed our reserves, our operating results could be adversely affected.

We provide most of our distributors with product return rights only for the purpose of stock balancing, which generally permit our distributors to return products to us, subject to ordering an equal dollar amount of our products. We also provide price protection rights to most of our distributors. Price protection rights require that we grant retroactive price adjustments for inventories of our products held by distributors if we lower our prices for those products within a specified time period. To cover our exposure to these product returns and price adjustments, we establish reserves based on our evaluation of historical product trends and current marketing plans. However, we cannot assure you that our reserves will be sufficient to cover our future product returns and price adjustments. If we inadequately forecast reserves, our operating results could be adversely affected.

Increased political and social turmoil could adversely impact our business.

Increasing political and social turmoil including the SARS illness and terrorist and military actions, can be expected to put further pressure on economic conditions in the United States and foreign jurisdictions. These conditions make it difficult for us, and our customers, to accurately forecast and plan future business activities and could have a material adverse effect on our business, financial condition and results of operations.

Our stock price could be volatile, and you could lose the value of your investment.

Our stock price has been volatile and has fluctuated significantly to date. The trading price of our stock is likely to continue to be highly volatile and subject to wide fluctuations. Your investment in our stock could lose value. Some of the factors that could significantly affect the market price of our stock include:

• actual or anticipated variations in operating and financial results;

• analyst reports or recommendations;

• changes in interest rates; and

• other events or factors, many of which are beyond our control.

The stock market in general, 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 could materially and adversely affect the market price of our stock, regardless of our actual operating performance.

If we fail to manage our operations and control expenses effectively, our future operating results could be adversely affected.

Historically, the scope of our operations, the number of our employees and the geographic area of our operations have grown rapidly. In addition, we have acquired both domestic and international companies. This growth and the assimilation of acquired operations and their employees could continue to place a significant strain on our managerial, operational and financial resources. To manage our growth, if any, effectively, we need to continue to implement and improve additional management and financial systems and controls. We may not be able to manage the current scope of our operations or future growth effectively and still exploit market opportunities for our products and services in a timely and cost-effective way. Our future operating results could also depend on our ability to manage:

• our expanding product line,

• our marketing and sales organizations, and

• our client support organization as installations of our products increase.

We took steps to reduce operating expenses commencing in the fourth quarter of 2002, however our operating expenses in 2003 could exceed our operating expenses in 2002. An increase in operating expenses could reduce our income from operations and cash flows from operating activities in the future.

Our business and investments could be adversely impacted by unfavorable economic conditions.

General economic and market conditions, and other factors outside our control, could adversely affect our business and impair the value of our investments. Any further downturn in general economic conditions could result in a reduction in demand for our products and services and could harm our business. In addition, an economic downturn could result in an impairment in the value of our investments requiring us to record losses related to such investments. Impairment in the value of these investments may disrupt our ongoing business and distract management. As of March 31, 2003, we had $570.8 million of short and long-term investments with various issuers and financial institutions. In many cases we do not attempt to reduce or eliminate our market exposure on these investments and could incur losses related to the impairment of these investments. Fluctuations in economic and market conditions could adversely affect the value of our investments, and we could lose some of our investment

portfolio. A total loss of an investment could adversely affect our results of operations and financial condition. For further information on these investments, please refer to “Liquidity and Capital Resources.”

Our revenue may not grow, and if we do not successfully manage our expenses, our business could be negatively impacted.

We attribute most of our growth during recent years to the introduction of the MetaFrame software for Windows operating systems in mid-1998. We cannot assure you that the infrastructure software markets, in which we operate, will grow. We cannot assure that the release of our secure access infrastructure software suite, including the MetaFrame Secure Access Manager, or other new products will increase our revenue growth rate.

In addition, to the extent our revenue grows, if at all, we believe that our cost of revenues and certain operating expenses could also increase. We cannot assure you that our operating expenses will be lower than our estimated or actual revenues in any given quarter. If we experience a shortfall in revenue in any given quarter, we likely will not be able to further reduce operating expenses quickly in response. Any significant shortfall in revenue could immediately and adversely affect our results of operations for that quarter. Also, due to the fixed nature of many of our expenses and our current expectation for revenue growth, our income from operations and cash flows from operating and investing activities could be lower than in recent years.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes with respect to the information on Quantitative and Qualitative Disclosures About Market Risk appearing in Part II, Item 7A to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

ITEM 4. CONTROLS AND PROCEDURES

As of a date (the “Evaluation Date”) within ninety days prior to the filing date of this Quarterly Report on Form 10-Q, the Company, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Vice President and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, the Company’s Chief Executive Officer and the Company’s Vice President and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in ensuring that material information relating to the Company (including its consolidated subsidiaries) required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such material information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and the Company’s Vice President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There were no significant changes in the Company’s internal controls or, to the knowledge of the Company, in other factors that could significantly affect the Company’s internal controls subsequent to the Evaluation Date.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

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. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources,” for information regarding the Company’s sale of put warrants during the first quarter of 2003. The issuance of these securities is exempt from registration under Section 4(2) of the Securities Act of 1933.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) There are no exhibits to be filed with this report.

(b) There were no reports on Form 8-K filed by the Company during the first quarter of 2003.

SIGNATURE

Pursuant to the requirements 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 on this 12th day of May 2003.


		CITRIX SYSTEMS, INC.


		By: /s/ DAVID J. HENSHALL

		David J. Henshall Vice President and Chief Financial Officer (Authorized Officer and Principal Financial Officer)

CERTIFICATIONS

I, Mark B. Templeton, certify that:


1.		I have reviewed this quarterly report on Form 10-Q of Citrix Systems, Inc.;

2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


		a)		Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

		b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

		c)		Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


5.		The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):


		a)		All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

		b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


6.		The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: May 12, 2003


		/s/ Mark B. Templeton

		Mark B. Templeton Chief Executive Officer (Principal Executive Officer)

CERTIFICATIONS

I, David J. Henshall, certify that:


1.		I have reviewed this quarterly report on Form 10-Q of Citrix Systems, Inc.;

2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


		a)		Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

		b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

		c)		Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


5.		The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):


		a)		All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

		b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


6.		The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: May 12, 2003


		/s/ David J. Henshall

		David J. Henshall Chief Financial Officer (Principal Financial Officer)

EXHIBIT INDEX


Exhibit No.		Description

99.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	•		Persuasive evidence of the arrangement exists. The Company recognizes revenue on packaged product upon shipment to distributors and resellers. For packaged product sales, it is the Company’s customary practice to require a purchase order from distributors who have previously negotiated a master packaged product distribution or resale agreement. For volume-based licensing, the Company typically requires a purchase order from the distributor or reseller and an executed standard software license agreement from the end-customer. The Company requires a purchase order for training and services.

	•		Delivery has occurred and the Company has no remaining obligations. The Company’s standard delivery method is free-on-board shipping point. Consequently, it considers delivery of packaged product to have occurred when the products are shipped to distributors pursuant to an agreement and purchase order. The Company considers delivery of licenses under electronic licensing agreements to have occurred when the related products are shipped and the end-customer has been electronically provided with the licenses that include the activation keys that allow the end-customer to take immediate possession of the software. For training and service revenue recognition, the Company fulfills its obligation when the services are performed.

	•		The fee is fixed or determinable. In the normal course of business, the Company does not provide end-customers the right to a refund of any portion of their license fees or extended payment terms. When the Company sells its software products separately, vendor specific objective evidence (“VSOE”) is determined by the price charged for each product. In software arrangements that include the 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 based on VSOE. If management cannot objectively determine the fair value of each undelivered element based on VSOE, revenue recognition is deferred until all elements are delivered, all services have been performed, or until fair value can be objectively determined.

	•		Collectibility is probable. The Company determines collectibility on a customer-by-customer basis. The Company typically sells to distributors or resellers for whom there are histories of successful collection. New customers are subject to a credit review process that evaluates the customers’ financial position and ultimately their ability to pay. Customers are subject to an ongoing credit review process. If the Company determines from the outset of an arrangement that collectibility is not probable, revenue recognition is deferred until customer payment is received and the other parameters of revenue recognition described above have been achieved. Management’s judgment is required in assessing the probability of collection, which is generally based on evaluation of customer specific information, historical experience and economic market conditions. If market conditions decline, or, if the financial

	•		Persuasive evidence of the arrangement exists. We recognize revenue on packaged product upon shipment to distributors and resellers. For packaged product sales, it is our customary practice to require a purchase order from distributors who have previously negotiated a master packaged product distribution or resale agreement. For volume-based licensing, we typically require a purchase order from the distributor or reseller and an executed standard software license agreement from the end-customer. We require a purchase order for training and services.

	•		Delivery has occurred and we have no remaining obligations. Our standard delivery method is free-on-board shipping point. Consequently, we consider delivery of our packaged product to have occurred when the products are shipped to distributors pursuant to an agreement and purchase order. We consider delivery of licenses under electronic licensing agreements to have occurred when the related products are shipped and the end-customer has been electronically provided with the licenses that include the activation keys that allow the end-customer to take immediate possession of the software. For training and service revenue recognition, we fulfill our obligation when the services are performed.

	•		The fee is fixed or determinable. In the normal course of business, we do not provide end-customers the right to a refund of any portion of their license fees or extended payment terms. When we sell our software products separately, we determine vendor specific objective evidence, or VSOE, by the price charged for each product. In software arrangements that include the rights to multiple software products, post-contract customer support, or PCS, and/or other services, we allocate the total arrangement fee among each deliverable based on the relative fair value of each of the deliverables based on VSOE. If we cannot objectively determine the fair value of each undelivered element based on VSOE, we defer revenue until all elements are delivered, all services have been performed, or until fair value can be objectively determined.

	•		Collectibility is probable. We determine collectibility on a customer-by-customer basis. We typically sell to distributors or resellers for whom there are histories of successful collection. New customers are subject to a credit review process that evaluates the customers’ financial position and ultimately their ability to pay. Customers are subject to an ongoing credit review process. If we determine from the outset of an arrangement that collectibility is not probable, we defer revenue recognition until customer payment is received and the other parameters of revenue recognition described above have been achieved. Our judgment is required in assessing the probability of collection, which is generally based on evaluation of customer specific information, historical experience and economic market conditions. If market conditions decline, or, if the financial condition of our distributors or end-customers deteriorates, we may be unable to determine that collectibility is probable, and we could be required to defer the recognition of revenues until we receive customer payment.

	•		Successful Commercialization of Microsoft Operating Systems. Our ability to successfully commercialize Citrix MetaFrame access infrastructure is directly related to Microsoft’s ability to market Windows 2000 Servers and Windows Server 2003, or collectively Windows Server Operating Systems, products. We do not have control over Microsoft’s distributors and resellers and, to our knowledge, Microsoft’s distributors and resellers are not obligated to purchase products from Microsoft. Additionally, there could be delays in the release and shipment of future versions of Windows Server Operating Systems.

	•		Termination of the Microsoft Source Licensing Agreement. In May 2002, we signed an agreement with Microsoft that provides us access to Microsoft Windows Server source code for current and future Microsoft server operating systems, including access to Windows Server 2003 and terminal services source code, during the three year term of the agreement. Microsoft could terminate the current agreement before the expiration of the three-year term for breach and upon our change of control. If Microsoft does terminate the current agreement, our restricted access to source code for current and future Microsoft server operating systems could negatively impact the timing of our release of future products and enhancements.

	•		Our agreements with Microsoft are short in duration. There can be no assurances that our current agreements with Microsoft will be extended or renewed by Microsoft after their respective expirations. Our failure to renew certain terms of these agreements with Microsoft in a manner favorable to us could negatively impact the timing of our release of future products and enhancements.

	•		Compatibility. Future product offerings by Microsoft may not provide for compatibility with our products, upon release of such offerings from Microsoft. The lack of compatibility between future Microsoft products and our products could negatively impact the timing of our release of future products and enhancements.

	•		our sales force generally needs to explain and demonstrate the benefits of a large-scale deployment of our product to potential and existing customers prior to sale;

	•		our service personnel typically spend a significant amount of time assisting potential customers in their testing and evaluation of our product;

	•		our customers are typically large and medium size organizations that carefully research their technology needs and the many potential projects prior to making capital expenditures for software infrastructure; and

	•		before making a purchase, our potential customers usually must get approvals from various levels of decision makers within their organizations, and this process can be lengthy.

	•		rapid technological change;

	•		evolving industry standards;

	•		fluctuations in customer demand;

	•		changes in customer requirements; and

	•		frequent new product introductions and enhancements.

	•		delays in our introduction of new products;

	•		delays in market acceptance of new products or new releases of our current products; and

	•		our, or a competitor’s, announcement of new product enhancements or technologies that could replace or shorten the life cycle of our existing product offerings.

	•		fluctuations in foreign currency exchange rates, including our ability to adequately hedge our foreign exchange risks;

	•		compliance with foreign regulatory and market requirements;

	•		variability of foreign economic, political and labor conditions;

	•		changing restrictions imposed by regulatory requirements, tariffs or other trade barriers or by United States export laws;

	•		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.

	•		new competitive product releases and updates to existing products,

	•		price competition,

	•		technological change,

	•		decreasing or stagnant information technology spending levels,

	•		general economic conditions, or

	•		lack of success of entities with which we have a technology relationship.

	•		undetected errors in the third party’s software;

	•		disagreement over the scope of the license and other key terms, such as royalties payable; and

	•		infringement actions brought by third party licensees.

	•		difficulties integrating 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 we have no or limited direct prior experience and where competitors have stronger market positions;

	•		the potential loss of key employees of the acquired company; and

	•		an uncertain sales and earnings stream from the acquired company, which could unexpectedly dilute our earnings.

	•		actual or anticipated variations in operating and financial results;

	•		analyst reports or recommendations;

	•		changes in interest rates; and

	•		other events or factors, many of which are beyond our control.

	•		our expanding product line,

	•		our marketing and sales organizations, and

	•		our client support organization as installations of our products increase.