Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-K
 
 
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
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
  
75-2275152
(State or other jurisdiction of
incorporation or organization)
  
(IRS Employer
Identification No.)
 
 
 
851 West Cypress Creek Road
Fort Lauderdale, Florida 33309
(Address of principal executive offices, including zip code)
Registrant’s Telephone Number, Including Area Code:
(954) 267-3000
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Common Stock, $.001 Par Value
 
The Nasdaq Stock Market LLC
(Title of each class)
 
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes  x    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    o  No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in 12b-2 of the Exchange Act.
x  Large accelerated filer
  
o    Accelerated filer
o   Non-accelerated filer (Do not check if a smaller
       reporting company)
  
o    Smaller reporting company
 
o    Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
The aggregate market value of Common Stock held by non-affiliates of the registrant computed by reference to the price of the registrant’s Common Stock as of the last business day of the registrant’s most recently completed second fiscal quarter (based on the last reported sale price on The Nasdaq Global Select Market as of such date) was $10,801,319,391. As of February 9, 2018 there were 136,150,856 shares of the registrant’s Common Stock, $.001 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2017. Portions of such definitive proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K.
 


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CITRIX SYSTEMS, INC.
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
Part I:
 
 
 
 
Item 1
 
Item 1A.
 
Item 1B.
 
Item 2
 
Item 3
 
Item 4
Part II:
 
 
 
 
Item 5
 
Item 6
 
Item 7
 
Item 7A.
 
Item 8
 
Item 9
 
Item 9A.
 
Item 9B.
Part III:
 
 
 
 
Item 10
 
Item 11
 
Item 12
 
Item 13
 
Item 14
Part IV:
 
 
 
 
Item 15
 
Item 16

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PART I
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such actual results to differ materially from those set forth in these forward-looking statements are included in Part I, Item 1A “Risk Factors” beginning on page 12.
ITEM 1. BUSINESS
Business Overview
Citrix is a Delaware corporation incorporated on April 17, 1989.
Our mission is to power a world where people, organizations and things are securely connected and accessible to make the extraordinary possible. We help customers reimagine the future of work by providing a comprehensive secure
digital workspace that unifies the apps, data and services people need to be productive, and simplifies IT’s ability to adopt
and manage complex cloud environments.
Digital transformation is occurring in every industry at a rapid pace. Businesses today are adopting cloud services and software as a service, or SaaS, apps on a broad basis. Many businesses are juggling multiple cloud providers and dozens of new SaaS apps. Yet, we believe many organizations are expected to have a majority of their workloads still running on-premises in five years. This combination of increased complexity with mobility and new workstyles results in a fragmented user experience, an increase in security risks, and IT teams challenged to properly manage the technology needs of organizations.
As a result of this convergence of cloud, legacy systems, and newer technologies, including artificial intelligence and machine learning, organizations are now seeking to adopt multi-cloud, hybrid-cloud strategies for their IT infrastructure, so that they can provide flexibility to navigate all systems and security to address ever-expanding attack surfaces, all without sacrificing experience for their end users.
As we continue to pursue our mission to power a world where people, organizations and things are securely connected and accessible, we are focused on three strategic initiatives. First, we are accelerating our move to a subscription-based business model and to offer all of our solutions from the cloud to give organizations flexibility in how they work. Second, we are unifying our portfolio to simplify user and IT experience. Finally, to help meet the expected demands of the future, we are expanding our networking capabilities to provide a secure digital perimeter and broader analytics services.
We market and license our solutions through multiple channels worldwide, including selling through resellers and direct over the Web. Our partner community comprises thousands of value-added resellers, or VARs known as Citrix Solution Advisors, value-added distributors, or VADs, systems integrators, or SIs, independent software vendors, or ISVs, original equipment manufacturers, or OEMs and Citrix Service Providers, or CSPs.
Separation of GoTo Business
On January 31, 2017, we completed the separation and subsequent merger of the GoTo family of service offerings of our wholly-owned subsidiary, GetGo, Inc., or GetGo, to LogMeIn, Inc., or LogMeIn, pursuant to a pro rata distribution to our stockholders of 100% of the shares of common stock of GetGo, pursuant to a Reverse Morris Trust, or RMT, transaction. The GoTo family of service offerings consisted of GoToMeeting, GoToWebinar, GoToTraining, GoToMyPC, GoToAssist, Grasshopper and OpenVoice, or collectively the GoTo Business, and had historically been part of our GoTo Business segment. As a result, the consolidated financial statements included in this Annual Report on Form 10-K and related financial information reflect the GoTo Business operations, assets and liabilities, and cash flows as discontinued operations for all periods presented. See Note 3 to our consolidated financial statements included in this Annual Report on Form 10-K for further information.
Subscription Model Transition
In 2017, we announced our intent to transition to a subscription-based business model, and we began offering our customers the option to purchase our solutions as a subscription, whereby a fee is paid for continuous access to our software or the right to use our software and receive support for a specified period. We expect our transition to a subscription-based business model to provide financial and operational benefits to Citrix: increasing customer life-time-value, expanding our customer use-cases and innovation opportunities, and extending the use of Citrix services to securely deliver a broader array of applications, including Web, SaaS apps and services.

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Products and Services
We are enabling the future of work by delivering digital workspace, networking, and analytics solutions that help customers drive innovation and be productive anytime, anywhere. Our unified, contextual and secure digital workspace enables customers to deliver and manage the apps, desktops, data and devices users need. Our customers can realize the full benefits of hybrid- and multi-cloud environments while simplifying management and overcoming security challenges. Our solutions and services target customers of all sizes, from small businesses to large global enterprises. From time to time, we may evaluate the naming and/or classification of our product groupings in order to appropriately reflect the current state of the business.
Our secure digital workspace technologies are available as cloud services and can be managed as hybrid and multi-cloud environments. Our cloud-based services enable our customers to provide a flexible way to manage their applications and data. This cloud-based approach is designed to provide reduced infrastructure, centralized control and SaaS-style updates resulting in lower administration cost and complexity. These services include XenApp and XenDesktop service, XenMobile service, ShareFile service and NetScaler Gateway service and are available as an integrated service or as individual services scaled to meet our customers’ business needs.
We offer perpetual, subscription-based and on-premise subscription software licenses for our solutions, along with annual subscriptions for software updates, technical support and SaaS. Perpetual licenses allow our customers to use the version of software initially purchased into perpetuity, while on-premise subscription licenses are limited to a specified period of time. Software maintenance subscriptions, or Customer Success Services, give customers the right to upgrade to new software versions if and when any updates are delivered during the subscription term. Perpetual license software comes primarily in electronic-based forms. We also offer on-premise subscription licenses to service providers through the Citrix Service Provider program, which are invoiced on a monthly basis or based on reported license usage. Our services delivered via the cloud are accessed over the Internet for usage during the subscription period. Our hardware appliances come pre-loaded with software for which customers can purchase perpetual licenses and annual support and maintenance.
Workspace Services
Application Virtualization and VDI
Our Application Virtualization and VDI solutions give employees the freedom to work from anywhere while cutting IT costs, securely delivering Windows, Linux, Web and SaaS apps, plus full virtual desktops to any device.
XenDesktop is a fully-integrated, cloud-enabled desktop virtualization solution that gives customers the flexibility to deliver desktops and applications as a service - from any cloud, on-premises datacenters or both. XenDesktop includes HDX technologies to give users a high-definition experience - even when using multimedia, real-time voice and video collaboration, USB devices and 3D graphics content - while consuming less bandwidth than competing solutions. XenDesktop is available in multiple editions designed for different requirements, from simple VDI-only deployments to sophisticated, enterprise-class desktop and application delivery services that can meet the needs of everything from basic call center environments to high-powered graphics workstations. In XenDesktop Enterprise and Platinum editions, customers also receive XenApp to manage and mobilize Windows applications.
XenApp is a widely deployed solution that allows Windows applications to be delivered as services to Android and iOS mobile devices, Macs, PCs and thin clients from any cloud, on-premises datacenter or both. XenApp enables people to work better by running applications in the security of the data center, or cloud, and using HDX technologies to deliver a superior user experience to any device, anywhere. XenApp optimizes the application experience for smartphones, tablets and touchscreen laptops, providing intuitive touch capabilities for the latest generation of devices. Keeping applications under the centralized control of IT administrators enhances data security and reduces the costs of managing applications on every PC. XenApp runs on all current versions of Microsoft Windows Server and tightly integrates with Microsoft Azure, the Microsoft Desktop Optimization Pack, Microsoft App-V, and Microsoft System Center. Our joint solution with Microsoft lowers the cost of delivering and maintaining Windows applications for all users in the enterprise.
Enterprise Mobility Management
Increasingly, for many employees, mobile devices are their workspaces. Our XenMobile solutions are designed to increase productivity and security with mobile device management, or MDM, mobile application management, or MAM, mobile content management, or MCM, secure network gateway, and enterprise-grade mobile apps in one comprehensive solution.
XenMobile provides unified endpoint management for a secure digital workspace allowing IT to meet mobile device

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security and compliance requirements for "bring your own device" programs and corporate devices while enabling user productivity. As part of a workspace, XenMobile centralizes the management of mobile devices, traditional desktops, laptops and Internet of Things, or IoT, through a single platform. XenMobile directly integrates with Microsoft EMS/Intune to extend the mobility and device management capabilities.
Citrix Workspace
We offer customers the opportunity to acquire our mobility, desktop and app solutions through a single comprehensive integrated offering, Citrix Workspace, which includes our XenApp, XenDesktop, XenMobile, ShareFile and NetScaler products. Citrix Workspace securely delivers the apps, desktops, branch networking and WAN, enterprise mobility management and data people need for business productivity. We offer one of the industry’s most complete and integrated digital workspaces that is streamlined for IT control and easily accessible for users.
Citrix Workspace delivers a unified user experience for any app or desktop on any device, including tablets, smartphones, PCs, Macs or thin clients. IT can securely deliver content over low-bandwidth high-latency WANs, highly variable 3G/4G mobile networks or a reliable corporate LAN to improve end-user experience while offering enterprise-grade security to data and applications. Citrix Workspace provides a unified, flexible solution that can streamline device, application and desktop deployment and lifecycle management to reduce IT costs. Citrix Workspace offers choice of device, cloud and network and can be deployed on-premises, via the cloud or as a hosted service.
Networking
Our Networking products allow organizations to deliver apps and data with the security, reliability, and speed trusted by thousands of customers worldwide.
NetScaler ADC is a software-defined application delivery controller, or ADC, and load balancer designed to improve application performance and reliability for mobile, remote and branch users; allow customers to transition their infrastructure to an app-driven, software-defined network; eliminate multiple remote access solutions for improved security; and consolidate data centers for greater efficiency. Additionally, we extend the platform with best-of-breed web application firewall, or WAF, capabilities that protects web applications and sites from both known and unknown attacks, including application-layer and zero-day threats.
NetScaler SD-WAN increases the security, performance and reliability of traditional enterprise applications, SaaS applications and virtual desktops for remote users. It is an integrated platform that can help customers effectively and economically increase WAN throughput while accelerating enterprise applications and ensuring the performance and availability of mission critical applications through a hybrid WAN architecture.
Content Collaboration
Our Content Collaboration offering meets the collaboration and mobility needs of users, with scalable data security requirements for small business to the enterprise.
ShareFile is a secure, cloud-based file sharing and storage solution built for mobile business, giving users enterprise-class data services across all corporate and personal mobile devices, while maintaining total IT control. ShareFile protects data throughout the storage and transfer process, using up to 256-bit encryption and SSL or Transport Layer Security, or TLS encryption protocols for transfer and 256-bit encryption for files at rest on ShareFile servers. Password protection and granular access to folders and files stored with ShareFile ensure that data remains in control of the company. With ShareFile Enterprise, organizations can manage their data on-premises in customer managed StorageZones, select Citrix managed secure cloud options or create a mix of both to meet the needs for data sovereignty, compliance, performance and costs. Additionally, ShareFile supports e-signature, feedback and approval workflows that help businesses adopt the mobile, digital office.
License Updates and Maintenance
Designed to prevent business downtime, we offer technical support that provides anytime access to expertise, plus product version updates and upgrades. We provide several support options for customers and partners to choose from.
Customer Success Services for our software solutions, which gives customers a choice of tiered support offerings that combine the elements of product version upgrades, guidance, enablement, support and proactive monitoring to help our customers and our partners fully realize their business goals and get the most out of their Citrix investments. Additionally, customers may upgrade to receive personalized support from a dedicated team led by an assigned account manager. Fees associated with this offering are recognized ratably over the term of the contract.

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Hardware Maintenance for our Networking products, which gives customers a choice of tiered support offerings that includes technical support, latest software upgrades, and replacement of malfunctioning appliances to minimize organizational downtime. Additionally, dedicated account management is available as an add-on to the program for an even higher level of service. Fees associated with this offering are recognized ratably over the term of the contract.
Professional Services
We provide a portfolio of professional services to our business partners and customers to manage the quality of implementation, operation and support of our solutions. These services are available for additional fees paid on an annual or transactional basis.
Citrix Consulting helps guide the successful implementation of Citrix technologies and solutions through the use of proven methodologies, tools and leading practices. Citrix Consulting focuses on strategic engagements with enterprise customers who have complex, mission-critical, or large-scale Citrix deployments. These engagements are typically fee-based engagements for the most challenging projects in scope and complexity, requiring consultants who are qualified with project methodology and Citrix expertise. Citrix Consulting is also responsible for the development of best practice knowledge that is disseminated to businesses with which we have a business relationship and end-users through training and written documentation. Leveraging these best practices enables our integration resellers to provide more complex systems, reach new buyers within existing customer organizations and provide more sophisticated system proposals to prospective customers.
Product Training & Certification helps enable our customers and partners to be successful with Citrix and achieve their business objectives faster. Authorized Citrix training is available when and how it is needed. Traditional or virtual instructor-led training offerings feature Citrix Certified Instructors delivering training in a classroom or remote setting at one of our Citrix Authorized Learning Centers, or CALCs, worldwide. CALCs are staffed with instructors that have been certified by us and teach their students using Citrix-developed courseware. Self-Paced Online offerings, available to students 24 hours a day, seven days a week, provide technically robust course content without an instructor and include hands-on practice via virtual labs. Certifications validate key skills and are available for administrators, engineers, architects and sales professionals.
Technology
Our solutions are based on a full range of core proprietary technologies and certain industry-standard open source technologies.
Citrix HDX Technologies is a family of innovations that optimize the end-to-end user experience in virtual desktop and virtual application environments. These technologies incorporate our ICA protocol, which consists of server- and client-side technology that allows graphical user interfaces to be transmitted securely over any network, and includes optimizations for multimedia, unified communications, high-end graphics and mobile networks which work together to provide a high-definition user experience across a wide array of applications, devices and networks.
NetScaler nCore Technology is an architecture that enables execution of multiple packet engines in parallel. nCore technology allows the distribution of packet flows across multiple central processing unit cores to achieve efficient, high-performance parallel processing across multiple packet engines. The architecture incorporates innovations in flow distribution and state sharing and provides for efficient execution across packet engines.
XenMobile is our foundational technology that delivers a holistic mobile computing platform for enterprises. Its main components include MDM, MAM, MCM, UEM, end-to-end security and a set of mobile productivity apps including secure email, corporate app store, Web browsing, data sharing, secure note taking and document editing on a host of mobile platforms including iOS, Android and Windows mobile.
Innovation is a core Citrix competency. We have many additional unique innovations that are important enablers of our continued leadership in application virtualization, VDI and networking.
Customers
We believe that the primary IT buyers involved in decision-making related to our solutions are the following:
Strategic IT Executives including chief information officers, chief technology officers, chief information security officers and vice presidents of infrastructure, who have responsibility for ensuring that IT services are enablers to business initiatives and are delivered with the best performance, availability, security and cost.

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Desktop Operations Managers who are responsible for managing Windows Desktop environments including corporate help desks.
IT Infrastructure Managers who are responsible for managing and delivering Windows-based applications.
Directors of Messaging and Mobility, who are, respectively, responsible for messaging technologies and defining mobile strategies and solutions for securing and managing mobile devices including their content and applications.
Network Architects who are responsible for delivering Web-based applications who have primary responsibility for the WAN infrastructure for all applications.
Server Operations Managers who are responsible for specifying datacenter systems and managing daily operations.
Individuals and prosumers, who are responsible for choosing personal solutions and helping small businesses select simple-to-use computing solutions.
Small business owners who are responsible for choosing the systems needed to support their business goals, such as SaaS.
Chief technology officer and engineering department (managers and architects, among others) for telecommunications service providers.
Line of business and functional executives that determine the need for our cloud and subscription-based offerings at certain enterprises.
Chief information officer and engineering departments within service providers, using our solutions to deliver desktops and applications as hosted cloud services.
The IT buyers for our solutions include a wide variety of industries including those in financial services, technology, healthcare, education, government and telecom.
Technology Relationships
We have a number of technology relationships in place to accelerate the development of existing and future solutions and our go-to-market initiatives. These relationships include cross-licensing, OEM, resell, joint reference architectures, and other arrangements that result in better solutions for our customers.
Microsoft
For over 25 years, Citrix and Microsoft have maintained a strategic partnership spanning product development, go-to-market initiatives and partner development, with the goal of helping customers to enable secure delivery of applications and data on any device, wherever they go. Over the past two years, the two companies have expanded that collaboration to help our joint customers make the transition from delivering apps and desktops using an on-premises IT infrastructure approach to a hybrid and cloud IT infrastructure model. Citrix and Microsoft are offering services that enable customers to deploy Windows 10 desktops on the Microsoft Azure cloud platform, services to deploy apps directly on Azure, and smart tools to simplify the deployment of new workspaces. In addition, the partnership is extending to Citrix mobility and network management products and services that complement Microsoft Enterprise Mobility + Security (EMS) and provide comprehensive security and value for Citrix and Microsoft customers. This next-generation model encompasses not just the Microsoft platform but extends to enable customers to leverage other platforms to deliver the best experiences through Citrix and Microsoft technologies.
Nutanix
Citrix and Nutanix have a joint secure and scalable hyper-converged infrastructure solution that delivers a strong user experience and value while reducing infrastructure complexity. Nutanix extended their solution and announced InstantOn for our cloud solutions. This solution enables fast, easy delivery of secure digital workspaces for today’s hybrid cloud world. By combining Nutanix scale-as-you-grow architecture with the cloud simplicity of XenApp and XenDesktop Service, customers can reduce ongoing costs, alleviate infrastructure complexity, and deliver high-performance access to applications and desktops to every user.
Google
We expanded our multi-year partnership with Google to help deliver secure, cloud-based applications to enterprise customers, to help organizations solve their requirements for secure digital workspaces and to seamlessly and confidently accelerate their secure cloud transformation. We continue to build on our successful partnership to deliver secure, virtual business applications to Chrome OS and Android devices, in addition to extending ShareFile connectors and workflows to Google G-Suite and Drive. With Citrix Workspace solutions and NetScaler CPX running workloads on Google Cloud Platform, we are bringing cloud delivery of applications and desktops to enterprise customers who are increasingly looking to public and hybrid clouds to address competitive demands and to solve business challenges.


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Additional Relationships
Our partners continue to expand their focus on the broad range of our solutions. We have continued to invest in our Global System Integrator partnerships, with organizations including IBM, DXC, and Fujitsu, that have multiple offerings in the market with Citrix Workspace and Citrix Networking solutions. We extended our 20+ year alliance with Hewlett Packard Enterprise and entered into a three-year strategic partnership agreement to extend our leadership in the secure delivery of apps and data by building innovative solutions and services leveraging the full Citrix software stack and our cloud solution. We launched a partnership with Samsung to deliver secure access to digital workspaces, bringing enterprise apps and data to any Samsung DeX enabled mobile device. We also have established relationships with Intel and NVIDIA that complement the benefits provided by our solutions. Supporting our customers and a multi-cloud strategy, we expanded our partnership with Amazon Workspace Services and in 2017, announced support for Citrix customers utilizing Oracle Cloud Infrastructure.
Through our Citrix Ready program, we help customers find Citrix-compatible products for their organization. The program is trusted by customers, providing them choice and confidence when identifying and choosing Citrix verified partner products critical to solving their business needs. The Citrix Ready partner community is highly active and takes advantage of numerous programs to incorporate our solutions and technologies into their solutions, including Citrix Receiver, HDX, XenDesktop, XenApp, NetScaler, ShareFile, XenMobile and our cloud solution. Our Citrix Receiver and HDX technologies are often included with thin clients, industry-standard servers and mobile devices, such as Apple's iPhone and iPad, Windows Mobile, and Google Android and Chrome devices.
Research and Development
We focus our research and development efforts on developing new solutions and core technologies in our core markets and to further enhancing the functionality, reliability, performance and flexibility of existing solutions. We solicit extensive feedback concerning product development from customers, both directly from and indirectly through our channel distributors.
We believe that our software development teams and our core technologies represent a significant competitive advantage for us. Included in the software development teams are individuals focused on research activities that include prototyping ways to integrate emerging technologies and standards into our product offerings, such as emerging Web services technologies, management standards and Microsoft's newest technologies. Many groups within the software development teams have expertise in Extensible Markup Language, or XML, based software development, integration of acquired technology, multi-tier Web-based application development and deployment, SSL secure access, hypervisor technologies, cloud technologies, networking technologies and building SaaS. We incurred research and development expenses of approximately $415.8 million in 2017, $395.4 million in 2016 and $481.0 million in 2015.
Sales, Marketing and Services
We market and license our solutions through multiple channels worldwide, including selling through resellers and direct over the Web. Our partner community comprises thousands of value-added resellers known as Citrix Solution Advisors, VADs, SIs, ISVs, OEMs, and CSPs. Distribution channels are managed by our worldwide sales and services organization. Partners receive training and certification opportunities to support our portfolio of solutions and services.
We reward our partners that identify new business, and provide sales expertise, services delivery, customer education, technical implementation and support of our portfolio of solutions through our incentive program. We continue to focus on increasing the productivity of our existing partners, and building capacity through targeted recruitment, introducing programs to increase partner mindshare, limit channel conflict and increase partner loyalty to us.
As we lead with the cloud, we have been cultivating a global base of technology partners within our Citrix Service Provider, or CSP, program. Our CSP program provides subscription-based services in which the CSP partners host software services to their end users. Our CSP partners, consisting of managed service providers, ISVs, hosting providers and telcos, among others, license our desktop, application, networking and enterprise mobility management solutions on a monthly consumption basis. With our software, these partners then create differentiated offers of their own, consisting of cloud-hosted applications and cloud-hosted desktops, which they manage for various customers, ranging from SMBs to enterprise IT. Besides supplying technology, we are actively engaged in assisting these partners in developing their hosted businesses either within their respective data centers or leveraging public cloud infrastructure by supplying business and marketing assistance.
Engagement with SIs and ISVs continues to be a substantial part of our strategic roadmap within large enterprise and government markets. Our integrator partnerships include organizations such as Atos, Accenture, Avanade, Capgemini, Dimension Data, DXC, Fujitsu, IBM Global Services, TCS and Wipro, who all deliver consultancy or global offerings powered by the Citrix Workspace. The ISV program maintains a strong representation across targeted industry verticals including

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healthcare, financial services and telecommunications. Members in the ISV program include Allscripts, Cerner Corporation, Epic Systems Corporation and McKesson Corporation, among several others. For all of our channels, we regularly take actions to improve the effectiveness of our partner programs and further strengthen our channel relationships through management of non-performing partners, recruitment of partners with expertise in selling into new markets and forming additional strategic global and national partnerships.
Our corporate marketing organization provides sales and industry event support, digital and social marketing, sales enablement tools and collateral, advertising, direct mail, industry analyst relations and public relations coverage to market our solutions. Our efforts in marketing are focused on generating leads for our sales organization and our indirect channels to acquire net new accounts and expand our presence with existing customers. Our partner development organization actively supports our partners to improve their commitment and capabilities with Citrix solutions. Our customer sales organization consists of field-based sales engineers and corporate sales professionals who work directly with our largest customers, and coordinate integration services provided by our partners. Additional sales personnel, working in central locations and in the field, provide support including recruitment of prospective partners and technical training with respect to our solutions.
In fiscal year 2017 and 2016, two distributors, Ingram Micro and Arrow, accounted for 13% and 12%, respectively, of our total net revenues. In fiscal year 2015, two distributors, Ingram Micro and Arrow, accounted for 13% and 11%, respectively, of our total net revenues. Our distributor arrangements with Ingram Micro and Arrow consist of several non-exclusive, independently negotiated agreements with its subsidiaries, each of which covers different countries or regions. See “Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” and Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 for information regarding our revenue recognition policy.
International revenues (sales outside the United States) accounted for approximately 46.3% of our net revenues for the year ended December 31, 2017, 46.3% of our net revenues for the year ended December 31, 2016 and 48.7% of our net revenues for the year ended December 31, 2015. For detailed information on our international revenues, please refer to Note 12 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017.
Segment Revenue
We previously organized our operations into two reportable segments. As a result of the separation of the GoTo Business, formerly a reportable segment, on January 31, 2017, we re-evaluated our operating segments and determined that we have one reportable segment. Our chief operating decision maker, or CODM, reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Our Chief Executive Officer is the CODM. The results of the GoTo Business, formerly a reportable segment, are accounted for as discontinued operations in our consolidated statement of income for all periods presented. See Note 12 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017.
Operations
For our Networking products, which include NetScaler ADC, we use independent contractors to provide a redundant source of manufacture and assembly capabilities. Independent contractors provide us with the flexibility needed to meet our product quality and delivery requirements. We have manufacturing relationships that we enter into in the ordinary course of business, primarily with Flextronics under which we have subcontracted the majority of our hardware manufacturing activity, generally on a purchase order basis. These third-party contract manufacturers also provide final test, warehousing and shipping services. This subcontracting activity extends from prototypes to full production and includes activities such as material procurement, final assembly, test, control, shipment to our customers and repairs. Together with our contract manufacturers, we design, specify and monitor the tests that are required to meet internal and external quality standards. Our contract manufacturers manufacture our products based on forecasted demand for our solutions. Each of the contract manufacturers procures components necessary to assemble the products in our forecast and test the products according to our specifications. We are dual-sourced on our components, however, in some instances, those sources may be located in the same geographic area. Accordingly, if a natural disaster occurred in one of those areas, we may need to seek additional sources. Products are then shipped to our distributors, VARs or end-users. If the products go unsold for specified periods of time, we may incur carrying charges or obsolete material charges for products ordered to meet our forecast or customer orders. In 2017, we did not experience any material difficulties or significant delays in the manufacture and assembly of our products.
We are responsible for all purchasing, inventory, scheduling, order processing and accounting functions related to our operations. For our software products, production, warehousing and shipping are performed by our independent contractors Hewlett Packard Enterprise, Ireland and Digital River. Master software, development of user manuals, packaging designs, initial product quality control and testing are primarily performed at our facilities. In some cases, independent contractors also duplicate master software, print documentation and package and assemble products to our specifications.

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While it is generally our practice to promptly ship product upon receipt of properly finalized purchase orders, we sometimes have orders that have not shipped upon receipt of a purchase order. Although the amount of such product or license orders may vary, the amount, if any, of such orders at the end of a fiscal year is not material to our business. We do not believe that backlog, as of any particular date, is a reliable indicator of future performance.
We believe that our fourth quarter revenues and expenses are affected by a number of seasonal factors, including the lapse of many corporations' fiscal year budgets and an increase in amounts paid pursuant to our sales compensation plans due to compensation plan accelerators that are often triggered in the fourth quarter. We believe that these seasonal factors are common within our industry. Such factors historically have resulted in first quarter revenues in any year being lower than the immediately preceding fourth quarter. We expect this trend to continue through the first quarter of 2018. In addition, our European operations generally generate lower revenues in the summer months because of the generally reduced economic activity in Europe during the summer. This seasonal factor also typically results in higher fourth quarter revenues on a sequential basis.
Competition
We sell our solutions in intensely competitive markets. Some of our competitors and potential competitors have significantly greater financial, technical, sales and marketing and other resources than we do. As the markets for our solutions and services continue to develop, additional companies, including those with significant market presence in the computer appliances, software, cloud services 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. See “Technology Relationships” and Part I-Item 1A entitled “Risk Factors” included in this Annual Report on Form 10-K for the year ended December 31, 2017.
Workspace Services
Our Application Virtualization and VDI solutions are based on an alternative technology platform, the success of which will depend on organizations and customers perceiving technological, operational and security benefits and cost savings associated with adopting desktop and application virtualization solutions. We differentiate our platform from basic virtualization solutions with robust security, flexibility and end user experience to enable IT to deliver Windows apps and desktops for better business outcomes. Our primary competition in this market is the existing IT desktop management practice of manually configuring physical desktops, which is time-consuming, expensive and subject to inconsistency. We also face numerous competitors that provide automation of these processes and alternative approaches, including VMware's Horizon product and the emergence of virtual applications and desktop delivery from public and private cloud services, including Amazon Web Service’s product Amazon WorkSpaces. Also, there continues to be an increase in the number of alternatives to Windows-based applications and Windows operating system powered desktops, particularly in SaaS-delivered applications and mobile devices such as smartphones and tablets. We believe XenApp and XenDesktop give us a competitive advantage by providing customers multiple ways to virtualize and deliver desktops and/or apps with a single integrated virtualization system and delivering a higher performance user experience, more robust security and the flexibility for people to use any device and IT to use any infrastructure, public or private clouds, hyper-converged, traditional servers and storage, or combinations of each.
Our Enterprise Mobility Management product line, XenMobile, competes with companies including AirWatch by VMware, MobileIron, Good Technology by BlackBerry and many other competitors. We believe we differentiate ourselves from these competitors by providing the most complete solution on the market, with MDM, MAM and superior core mobile productivity applications, including secure mobile email, calendar, browser, notes and more, along with integration with Microsoft's mobility management platform, EMS. Our apps feature unique workflow integrations designed to make people work better, a significant advantage over competitors that do not focus on the end user experience and either have basic applications or rely on third parties for their mobile apps and can drive similar integrations.
We also see competition from competitors that are combining mobile and desktop technologies. We believe our solution, Citrix Workspace, is the best solution available today that can securely deliver a secure digital workspace - with any Windows, Web, SaaS and native mobile applications, data and virtual desktops - to any device, anywhere. For example, VMware offers the VMware Workspace Suite and more recently introduced VMware Workspace ONE. We expect other vendors to follow suit. We offer market-leading technologies for every component of the Citrix Workspace. Furthermore, we believe that our end-user experience is a competitive edge when compared to the alternative solutions due to the integration, intuitiveness and self-service features of our offerings.

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Networking
Our NetScaler ADC products compete against other established competitors, including F5 Networks, Inc., Dell, Inc., KEMP Technologies, Inc., Fortinet Inc., Radware, A10 Networks, Broadcom, Array Networks, Inc., AVI Networks, Inc. and Amazon Web Services. The ADC segment also includes a number of emerging start-up and open source-based competitors, such as HA PROXY Technologies, LLC. and NGINX, Inc. We continue to enhance NetScaler ADC’s feature capability and invest in go-to-market resources to market NetScaler ADC to our existing customer base and new potential customers as well as expanding into telco and cloud provider markets.
Our NetScaler SD-WAN product competes against both traditional WAN optimization and infrastructure vendors, such as Riverbed, Cisco, Silver Peak and Blue Coat, and managed service providers.
Content Collaboration
In the content collaboration space, our ShareFile product's direct competition includes Dropbox, Box, Syncplicity, Egnyte, Inc., BlackBerry's Watchdox, Accellion, Microsoft and Google, as well as legacy solutions such as traditional file transfer protocol, or FTP. Many of these competitors have strong brand recognition through consumer and free versions of their solutions. However, we believe our ShareFile product offers a superior solution for businesses as it is built specifically for the needs of the business. Furthermore, we believe that our strong reputation in certain vertical segments, along with ShareFile's integration with our other solutions, such as Citrix Receiver and XenMobile, and our unique ability to store data on-premise or in the Cloud, are key differentiators.
Proprietary Technology
Our success is dependent upon certain proprietary technologies and core intellectual property. We have been awarded numerous domestic and foreign patents and have numerous pending patent applications in the United States and foreign countries. Our technology is also protected under copyright laws. Additionally, we rely on trade secret protection and confidentiality and proprietary information agreements to protect our proprietary technology. We have established proprietary trademark rights in markets across the globe, and own hundreds of U.S. and foreign trademark registrations and pending registration applications for marks such as Citrix, NetScaler ADC, NetScaler SD-WAN, ShareFile, Xen, XenApp, XenDesktop, XenServer, XenMobile and many others. While our competitive position could be affected by our ability to protect our proprietary information, we believe that because of the rapid pace of technological change in the industry, factors such as the technical expertise, knowledge and innovative skill of our management and technical personnel, our technology relationships, name recognition, the timeliness and quality of support services provided by us and our ability to rapidly develop, enhance and market software solutions could be more significant in maintaining our competitive position. See Part I-Item 1A entitled “Risk Factors” included in this Annual Report on Form 10-K for the year ended December 31, 2017.
Available Information
Our Internet address is http://www.citrix.com. We make available, free of charge, on or through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. The information on our website is not part of this Annual Report on Form 10-K for the year ended December 31, 2017.
Employees
As of December 31, 2017, we had approximately 7,500 employees. In October 2017, we announced a strategic restructuring program which contributed to a reduction in headcount when comparing the 2017 fiscal year to the 2016 fiscal year. We believe our relations with employees are good. In certain countries outside the United States, our relations with employees are governed by labor regulations that provide for specific terms of employment between our company and our employees.

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ITEM 1A. RISK FACTORS
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 contain “forward-looking” information that involves risks and uncertainties. In particular, statements contained in this Annual Report on Form 10-K for the year ended December 31, 2017, and in the documents incorporated by reference into this Annual Report on Form 10-K for the year ended December 31, 2017, that are not historical facts, including, but not limited to, statements concerning our strategy and operational and growth initiatives, our transition to a subscription-based business model, product development and offerings of solutions and services, market positioning, distribution and sales channels, our partners and other strategic or technology relationships, financial information and results of operations for future periods, competition, seasonal factors, stock-based compensation, licensing and subscription renewal programs, international operations and expansion, investment transactions and valuations of investments and derivative instruments, restructuring charges, reinvestment or repatriation of foreign earnings, fluctuations in foreign exchange rates, tax estimates and other matters, stock repurchases, our debt, changes in accounting rules or guidance, changes in domestic and foreign economic conditions, delays or reductions in technology purchases, liquidity, litigation matters and intellectual property matters, constitute forward-looking statements and are made under the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are neither promises nor guarantees. Our actual results of operations and financial condition could vary materially 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 Annual Report on Form 10-K for the year ended December 31, 2017, in the documents incorporated by reference into this Annual Report on Form 10-K 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. We caution readers not to place undue reliance on any forward-looking statements, which only speak as of the date made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY

Our transition from a perpetual licenses to a subscription-based business model and from on-premises software to cloud-delivered services is subject to numerous risks and uncertainties.
The focus of our business model is shifting away from sales of perpetual licenses to sales of subscriptions. Additionally, we expect our customers will increasingly rely on our cloud-delivered services instead of on-premises deployments. This transition may give rise to a number of risks, including the following:
we may not be able to implement effective go-to-market strategies and train or properly incentivize our sales team and channel partners in order to effectively market our subscription offerings;
we may be unsuccessful in maintaining our target pricing, adoption and renewal rates;
we may select solution prices that are not optimal and could negatively affect our sales or earnings;
risks related to the timing of revenue recognition and potential reductions in cash flows in the near term;
we may incur costs at a higher than forecasted rate as we expand our cloud-delivered services thereby decreasing our gross margins;
we may not be able to meet customer demand or solution requirements for cloud-delivered services;
customer concerns regarding changes to pricing, service availability, and security; and
our cloud-delivered services are primarily operated through third party data centers, which we do not control and which may be vulnerable to damage, interruption and cyber-related risks.
 Our subscription-based business model and expansion of our cloud-delivered services may also require a considerable investment in resources, including technical, financial, legal, sales, information technology and operation systems. Market acceptance of such offerings is affected by a variety of factors, including but not limited to: security, reliability, scalability, customization, performance, current license terms, customer preference, customer concerns with entrusting a third party to store and manage their data, public concerns regarding privacy and the enactment of restrictive laws or regulations.
In addition, the metrics we use to gauge the status of our business may evolve over the course of the transition as significant trends emerge. If we are unable to successfully establish our subscription-based business model or expand our cloud-delivered services, and navigate our transition in light of the foregoing risks and uncertainties, our business, results of operations and financial condition could be negatively impacted.
Our business could be adversely impacted by conditions affecting the information technology market.
The markets for our solutions and services are characterized by:
rapid technological change;

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evolving industry standards;
fluctuations in customer demand;
changing customer business models and increasingly sophisticated customer needs; and
frequent new product and service introductions and enhancements.
The demand for our solutions and services depends substantially upon the general demand for business-related computer appliances 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. Moreover, the purchase of our solutions and services is often discretionary and may involve a significant commitment of capital and other resources. U.S. economic forecasts for the information technology, or IT, sector are uncertain and continue to highlight an industry in transition from legacy platforms to mobile, cloud, data analytics and social solutions. If our current and prospective customers cut costs, they may significantly reduce their information technology expenditures. Additionally, if our current and prospective customers shift their IT spending more rapidly towards newer technologies and solutions as mobile, cloud, data analytics and social platforms evolve, the demand for our solutions and services most aligned with legacy platforms (such as our desktop virtualization solutions) could decrease. Fluctuations in the demand for our solutions and services could have a material adverse effect on our business, results of operations and financial condition.
We face intense competition, which could result in customer loss, fewer customer orders and reduced revenues and margins.
We sell our solutions and services in intensely competitive markets. Some of our competitors and potential competitors have significantly greater financial, technical, sales and marketing and other resources than we do. We compete based on our ability to offer to our customers the most current and desired product and services features. We expect that competition will continue to be intense, and there is a risk that our competitors’ products may be less costly, more heavily discounted or free, provide better performance or include additional features when compared to our solutions. Additionally, there is a risk that our solutions may become outdated or that our market share may erode. Further, the announcement of the release, and the actual release, of new solutions incorporating similar features to our solutions could cause our existing and potential customers to postpone or cancel plans to license certain of our existing and future product and service offerings. Existing or new solutions and services that provide alternatives to our solutions and services could materially impact our ability to compete in these markets. As the markets for our solutions and services, especially those solutions in early stages of development, continue to develop, additional companies, including companies with significant market presence in the computer hardware, software, cloud, networking, mobile, data sharing and related industries, could enter, or increase their footprint in, 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 expect to continue to face additional competition as new participants enter our markets and as our current competitors seek to increase market share. Further, we may see new and increased competition in different geographic regions. The generally low barriers to entry in certain of our businesses increase the potential for challenges from new industry competitors, whether small and medium sized businesses or larger, more established companies. Smaller companies new to our market may have more flexibility to develop on more agile platforms and have greater ability to adapt their strategies and cost structures, which may give them a competitive advantage with our current or prospective customers. We may also experience increased competition from new types of solutions as the options for Workspace Services, Networking products and Content Collaboration (formerly Data) offerings increase. Further, as our industry evolves and if our company grows, companies with which we have strategic alliances may become competitors in other product areas, or our current competitors may enter into new strategic relationships with new or existing competitors, all of which may further increase the competitive pressures we face.
A significant portion of our revenues historically has come from our Application Virtualization and VDI solutions and our Networking products, and decreases in sales for these solutions could adversely affect our results of operations and financial condition.
A significant portion of our revenues has historically come from our Application Virtualization and VDI solutions and Networking products. We continue to anticipate that sales of these solutions and products and related enhancements and upgrades will constitute a majority of our revenue for the near future. Declines and variability in sales of certain of these solutions and products could occur as a result of:
new competitive product releases and updates to existing products delivered as on premises solutions, especially cloud-based products;
industry trend to focus on the secure delivery of applications on mobile devices;
introduction of new or alternative technologies, products or service offerings by third parties;
termination or reduction of our product offerings and enhancements;

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potential market saturation;
failure to enter new markets;
price and product competition resulting from rapid and frequent technological changes and customer needs;
general economic conditions;
complexities and cost in implementation;
failure to deliver satisfactory technical support;
dissatisfied customers; or
lack of commercial success of our technology relationships.
We have experienced increased competition in the Application Virtualization and VDI business from directly competing solutions, alternative products and products on new platforms. For example, Amazon Web Services provides Amazon WorkSpaces and VMware provides Horizon, both of which compete with these offerings among numerous other competitors. Also, there continues to be an increase in the number of alternatives to Windows operating system powered desktops, in particular mobile devices such as smartphones and tablets. Users may increasingly turn to these devices to perform functions that would have been traditionally performed on desktops and laptops, which in turn may reduce the market for our Application Virtualization and VDI solutions. Further, increased use of certain SaaS applications may result in customers relying less on Windows applications. If sales of our Application Virtualization and VDI solutions decline as a result of these or other factors, our revenue would decrease and our results of operations and financial condition would be adversely affected.
Similarly, we have experienced increased competition for our Networking products, including our core Netscaler ADC solution. For example, there are an increasing number of alternatives to traditional ADC solutions, enabling our customers to build internal solutions, rely on open source technology or leverage cloud-based offerings. In addition, our Networking business generates a substantial portion of its revenues from a limited number of customers. As a result, if our Networking business loses certain customers or one or more such customers significantly decreases its orders, our business, results of operations and financial condition could be adversely affected.
Recent changes in our support offerings could adversely impact our business.
We recently redefined our support offerings with the introduction of Citrix Customer Success Services and our customers are migrating to this new service offering. While this offering provides greater benefits to our customers, it results in a price increase. If customers do not adopt Customer Success Services, we may be unable to recoup or realize a reasonable return on our investment in this new service, which could adversely affect our business, results of operations and financial condition.

In order to be successful, we must attract, engage, retain and integrate key employees and have adequate succession plans in place, and failure to do so could have an adverse effect on our ability to manage our business.
Our success depends, in large part, on our ability to attract, engage, retain, and integrate qualified executives and other key employees throughout all areas of our business. Identifying, developing internally or hiring externally, training and retaining highly-skilled managerial, technical, sales and services, finance and marketing personnel are critical to our future, and competition for experienced employees can be intense. In order to attract and retain executives and other key employees in a competitive marketplace, we must provide a competitive compensation package, including cash- and equity-based compensation. If we do not obtain the stockholder approval needed to continue granting equity compensation in a competitive manner, our ability to attract, retain, and motivate executives and key employees could be weakened. Failure to successfully hire executives and key employees or the loss of any executives and key employees could have a significant impact on our operations. Competition for qualified personnel in our industry is intense because of the limited number of people available with the necessary technical skills and understanding of solutions in our industry. The loss of services of any key personnel, the inability to retain and attract qualified personnel in the future or delays in hiring may harm our business and results of operations.
Effective succession planning is also important to our long-term success. We recently experienced significant changes in our senior management team, including the appointment of David J. Henshall as our President and Chief Executive Officer in July 2017 and Mark Ferrer as our Executive Vice President and Chief Revenue Officer in October 2017. Further, we recently announced the appointment of Andrew Del Matto as our Executive Vice President and Chief Financial Officer, effective February 19, 2018. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. Further, changes in our management team may be disruptive to our business, and any failure to successfully integrate key new hires or promoted employees could adversely affect our business and results of operations.


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Industry volatility and consolidation may result in increased competition.
The industry has been volatile and there has been a trend toward industry consolidation in our markets for several years. We expect this trend to continue, especially in light of the increased availability of domestic cash resulting from the Tax Cuts and Jobs Act. In addition, we expect companies will attempt to strengthen or hold their market positions in an evolving and volatile industry. For example, some of our competitors have made acquisitions or entered into partnerships or other strategic relationships to offer a more comprehensive solution than they had previously offered. Further, some companies are making plans or may be under pressure by stockholders to divest businesses and such divestitures may result in stronger competition. Additionally, as IT companies attempt to strengthen or maintain their market positions in the evolving workspace services, networking and data sharing markets, these companies continue to seek to deliver comprehensive IT solutions to end users and combine enterprise-level hardware and software solutions that may compete with our Workspace Services and Networking and Content Collaboration solutions. These consolidators or potential consolidators may have significantly greater financial, technical and other resources and brand loyalty than we do, and may be better positioned to acquire and offer complementary solutions and services. The companies resulting from these possible combinations may create more compelling product and service offerings and be able to offer greater pricing flexibility or sales and marketing support for such offerings than we can. These heightened competitive pressures could result in a loss of customers or a reduction in our revenues or revenue growth rates, all of which could adversely affect our business, results of operations and financial condition.
Actual or perceived security vulnerabilities in our solutions and services or cyberattacks on our networks could have a material adverse impact on our business, results of operations and financial condition.
Use of our solutions and services may involve the transmission and/or storage of data, including in certain instances customers' business, financial and personally identifiable information. Thus, maintaining the security of our solutions, computer networks and data storage resources is important as security breaches could result in product or service vulnerabilities and loss of and/or unauthorized access to confidential information. We devote significant resources to addressing security vulnerabilities in our solutions and services through our efforts to engineer more secure solutions and services, enhance security and reliability features in our solutions and services, deploy security updates to address security vulnerabilities and seek to respond to known security incidents in sufficient time to minimize any potential adverse impact. Despite our efforts to build secure solutions, from time to time, we experience attacks and other cyber-threats. These attacks can seek to exploit, among other things, known or unknown vulnerabilities in technology included in our solutions and services. For example, in January 2018, vulnerabilities in certain microprocessors were publicly announced under the names Spectre and Meltdown. These vulnerabilities, despite our mitigation efforts, could render our internal systems, solutions and services susceptible to a cyberattack.
As we discover vulnerabilities in our solutions or underlying technology, our operations and our customers could be exposed to risk until such vulnerabilities are addressed. In addition, to the extent we are diverting our resources to address and mitigate these vulnerabilities, it may hinder our ability to deliver and support our solutions and customers in a timely manner. As a more general matter, unauthorized parties may attempt to misappropriate or compromise our confidential information or that of third parties, create system disruptions, product or service vulnerabilities or cause shutdowns. These perpetrators of cyberattacks also may be able to develop and deploy viruses, worms, malware and other malicious software programs that directly or indirectly, for example, through a vendor or other third-party, attack our solutions, services or networks, or otherwise exploit any security vulnerabilities of our solutions, services and networks. Because techniques used by these perpetrators to sabotage or obtain unauthorized access to our systems change frequently and generally are not recognized until long after being launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. We can make no assurance that we will be able to detect, prevent, timely and adequately address, or mitigate the negative effects of cyberattacks or other security breaches.
A breach of our security measures as a result of third-party action, malware, employee error, malfeasance or otherwise could result in (among other consequences):
interruption in the delivery of our cloud services;
negative publicity and harm to our reputation or brand, which could lead some customers to seek to cancel subscriptions, stop using certain of our solutions or services, reduce or delay future purchases of our solutions or services, or use competing solutions or services;
individual and/or class action lawsuits, which could result in financial judgments against us or the payment of settlement amounts, which would cause us to incur legal fees and costs;
regulatory enforcement action under the General Data Protection Regulation or other legal authority, which could result in significant fines and/or penalties or other sanctions and which would cause us to incur legal fees and costs; and/or
in the event that we or one of our customers were the victim of a cyberattack or other security breach, additional costs associated with responding to such breach, such as investigative and remediation costs, and the costs of providing data

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owners or others with notice of the breach, legal fees, costs of any additional fraud detection activities required by such customers' credit card issuers, and costs incurred by credit card issuers associated with the compromise and additional monitoring of systems for further fraudulent activity.
Any of these actions could materially adversely impact our business, results of operations and financial condition.
Regulation of privacy and data security may adversely affect sales of our solutions and result in increased compliance costs.
We believe increased regulation is likely with respect to the solicitation, collection, processing or use of personal, financial and consumer information as regulatory authorities around the world are considering a number of legislative and regulatory proposals concerning data protection, privacy and data security. This includes the Global Data Protection Regulation, or GDPR, a new European Union-wide legal framework to govern data collection, use and sharing and related consumer privacy rights, which is expected to take effect in 2018. The GDPR includes significant penalties for non-compliance. In addition, the interpretation and application of consumer and data protection laws and industry standards in the United States, Europe and elsewhere are often uncertain and in flux. The application of existing laws to cloud-based solutions is particularly uncertain and cloud-based solutions may be subject to further regulation, the impact of which cannot be fully understood at this time. Moreover, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data and privacy practices. For example, although the GDPR will apply across the European Union without a need for local implementing legislation, local data protection authorities will still have the ability to interpret the GDPR through so-called opening clauses, which permit region-specific data protection legislation and have the potential to create inconsistencies on a country-by-country basis. In addition to the possibility of fines, application of these laws in a manner inconsistent with our data and privacy practices could result in an order requiring that we change our data and privacy practices, which could have an adverse effect on our business and results of operations. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business. Also, any new regulation, or interpretation of existing regulation, imposing greater fees or taxes or restricting information exchange over the Web, could result in a decline in the use and adversely affect sales of our solutions and our results of operations. Finally, as a technology vendor, our customers will expect that we can demonstrate compliance with current data privacy and security regulation, and our inability to do so may adversely impact sales of our solutions and services to certain customers, particularly customers in highly-regulated industries.
Our solutions could contain errors that could delay the release of new products or that 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 or acquired products, 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, which may have a material adverse effect on our business, financial condition and results of operations.
Certain of our offerings have sales cycles which are long and/or unpredictable which could cause significant variability and unpredictability in our revenue and operating results for any particular period.
Generally, a substantial portion of our large and medium-sized customers implement our Workspace Services solutions on a departmental or enterprise-wide basis. We have a long sales cycle for these departmental or 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 solutions and services;
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.
Our long sales cycle for these solutions makes it difficult to predict when these sales will occur, and we may not be able to sustain these sales on a predictable basis. In addition, the long sales cycle for these solutions makes 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

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particular period, and large projects with significant IT components may fail to meet our customers’ business requirements or be canceled before delivery, which likewise could adversely affect our revenue and operating results for any particular period.
Overall, the timing of our revenue is difficult to predict. Our quarterly sales have historically reflected an uneven pattern in which a disproportionate percentage of a quarter’s total sales occur in the last month, weeks and days of each quarter. In addition, our business is subject to seasonal fluctuations and such fluctuations are generally most significant in our fourth fiscal quarter, which we believe is due to the impact on revenue from the availability (or lack thereof) in our customers’ fiscal year budgets and an increase in expenses resulting from amounts paid pursuant to our sales compensation plans as performance milestones are often triggered in the fourth quarter. We believe that these seasonal factors are common within our industry. In addition, our European operations generally generate lower revenues in the summer months because of the generally reduced economic activity in Europe during the summer.
Our success depends on our ability to attract and retain and further access large enterprise customers.
We must retain and continue to expand our ability to reach and access large enterprise customers by adding effective value-added distributors, or VADs, system integrators, or SIs, and other partners, as well as expanding our direct sales teams and 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 purchase of multiple years of subscription and maintenance up-front and generally have longer sales cycles. By allowing these customers to purchase multiple years of subscription or maintenance up-front and by granting special pricing, such as bundled pricing or discounts, to these large customers, we may have to defer recognition of some or all of the revenue from such sales. This deferral, compounded with the longer sales cycles, could reduce our revenues and operating profits for a given reporting period and make revenues difficult to predict.
Changes to our licensing or subscription renewal programs, or bundling of our solutions, could negatively impact the timing of our recognition of revenue.
We continually re-evaluate our licensing programs and subscription renewal programs, including specific license models, delivery methods, and terms and conditions, to market our current and future solutions and services. We could implement new licensing programs and subscription renewal programs, including promotional trade-up programs or offering specified enhancements to our current and future product and service lines. Such changes could result in deferring revenue recognition until the specified enhancement is delivered or at the end of the contract term as opposed to upon the initial shipment or licensing of our software product. We could implement different licensing models in certain circumstances, for which we would recognize licensing fees over a longer period, including offering additional solutions in a SaaS model. Changes to our licensing programs and subscription renewal programs, including the timing of the release of enhancements, upgrades, maintenance releases, the term of the contract, discounts, promotions, auto-renewals and other factors, could impact the timing of the recognition of revenue for our solutions, related enhancements and services and could adversely affect our operating results and financial condition.
Further, we may be required to defer the recognition of revenue that we receive from the sale of certain bundled solutions if we have not established vendor specific objective evidence, or VSOE, for the undelivered elements in the arrangement in accordance with generally accepted accounting principles in the United States, or GAAP. A delay in the recognition of revenue from sales of these bundled solutions may cause fluctuations in our quarterly financial results and may adversely affect our operating margins. Similarly, companies that we acquire may operate with different cost and margin structures, which could further cause fluctuations in our operating results and adversely affect our operating margins. Moreover, if our quarterly financial results or our predictions of future financial results fail to meet the expectations of securities analysts and investors, our stock price could be negatively affected.
Sales and renewals of our license updates and maintenance solutions constitute a large portion of our deferred revenue.
We anticipate that sales and renewals of our license updates and maintenance solutions will continue to constitute a substantial portion of our deferred revenue. Our ability to continue to generate both recognized and deferred revenue from our license updates and maintenance solutions will depend on our customers continuing to perceive value in automatic delivery of our software upgrades and enhancements. Further, our customers are migrating to our new maintenance service offering, Citrix Customer Success Services. While this offering provides greater benefits to our customers, it results in a price increase. We may experience a decrease in renewal rate due to the price increase and perceived value of Customer Success Services offerings. Additionally, a decrease in demand for our license updates and maintenance solutions could occur as a result of a decrease in demand for our Workspace Services, Networking and Content Collaboration solutions. If our customers do not continue to purchase our license updates and maintenance solutions, our deferred revenue would decrease significantly and our results of operations and financial condition would be adversely affected.

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We recently implemented a restructuring program, which we cannot guarantee will achieve its intended result.
We recently implemented a restructuring program, which we cannot guarantee will achieve its intended result. In October 2017, we announced the implementation of a restructuring program designed to increase our strategic focus and operational efficiency. It is anticipated that the aggregate total pre-tax restructuring charges for this program, which primarily relate to employee severance arrangements and consolidation of leased facilities, will be in the range of $60.0 million to $100.0 million. We cannot guarantee that we will achieve or sustain the targeted benefits under this restructuring program, or that the benefits, even if achieved, will be adequate to meet our long-term profitability expectations. Risks associated with this restructuring program also include additional unexpected costs, adverse effects on employee morale and the failure to meet operational and growth targets due to the loss of employees or outsourcing of roles, any of which may impair our ability to achieve anticipated results of operations or otherwise harm our business.
Adverse changes in general global economic conditions could adversely affect our operating results.
As a globally operated company, we are subject to the risks arising from adverse changes in global economic and market conditions. Economic uncertainty and volatility in our significant geographic locations may adversely affect sales of our solutions and services and may result in longer sales cycles, slower adoption of technologies and increased price competition. For example, if the U.S. or the European Union countries were to experience an economic downturn, these adverse economic conditions could contribute to a decline in our customers’ spending on our solutions and services. Additionally, in response to economic uncertainty, we expect that many governmental organizations that are current or prospective customers for our solutions and services would cutback spending significantly, which would reduce the amount of government spending on IT and demand for our solutions and services from government organizations. Adverse economic conditions also may negatively impact our ability to obtain payment for outstanding debts owed to us by our customers or other parties with whom we do business.
Our international presence subjects us to additional risks that could harm our business.
We conduct significant sales and customer support, development and engineering operations in countries outside of the United States. During the year ended December 31, 2017, we derived 46.3% of our revenues from sales outside the United States. Potential growth and profitability could require us to further expand our international operations. To successfully maintain and expand international sales, we may need to establish additional foreign operations, hire additional personnel and recruit additional international resellers. Our international operations are subject to a variety of risks, which could adversely affect the results of our international operations. These risks include:
compliance with foreign regulatory and market requirements;
variability of foreign economic, political, labor conditions and global policy uncertainty (including the impact of the proposed exit of the United Kingdom from the European Union, commonly referred to as “Brexit”);
changing restrictions imposed by regulatory requirements, tariffs or other trade barriers or by U.S. export laws;
regional data privacy laws that apply to the transmission of our customers’ data across international borders;
health or similar issues such as pandemic or epidemic;
difficulties in staffing and managing international operations;
longer accounts receivable payment cycles;
potentially adverse tax consequences;
difficulties in enforcing and protecting intellectual property rights;
compliance with the Foreign Corrupt Practices Act, including potential violations by acts of agents or other intermediaries;
burdens of complying with a wide variety of foreign laws; and
as we generate cash flow in non-U.S. jurisdictions, if required, we may experience difficulty transferring such funds to the U.S. in a tax efficient manner.
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 results of operations.
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 solutions and services. Our distributors generally sell through resellers. Our distributor and reseller base is relatively concentrated. We maintain and periodically revise our sales incentive programs for our independent distributors and resellers, and such program revisions may adversely impact our results of operations. Changes to our sales incentive programs can result from a number of factors, including our transition to a subscription-based business model. Our competitors may in some cases be effective in providing

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incentives to current or potential distributors and resellers to favor their products or to prevent or reduce sales of our solutions. The loss of or reduction in sales to our distributors or resellers could materially reduce our revenues. 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, defaults or terminations could have a material adverse effect on our business, results of operations and financial condition.
We are in the process of diversifying our base of channel relationships by adding and training more channel partners with abilities to reach larger enterprise customers and additional mid-market customers and to sell our newer solutions and services. We are also in the process of building relationships with new types of channel partners, such as systems integrators and service providers. In addition to this diversification of our partner base, we will need to maintain a healthy mix of channel members who service smaller customers. We may need to add and remove distribution partners to maintain customer satisfaction, support a steady adoption rate of our solutions, and align with our transition to a subscription-based business model, which could increase our operating expenses and adversely impact our go-to-market effectiveness. Through our Citrix Partner Network and other programs, we are currently investing, and intend to continue to invest, significant resources to develop these channels, which could adversely impact our results of operations if such channels do not result in increased revenues.
Our Networking business could suffer if there are any interruptions or delays in the supply of hardware or hardware components from our third-party sources.
We rely on a concentrated number of third-party suppliers, who provide hardware or hardware components for our Networking products, and contract manufacturers. If we are required to change suppliers, there could be a delay in the supply of our hardware or hardware components and our ability to meet the demands of our customers could be adversely affected, which could cause the loss of Networking sales and existing or potential customers and delayed revenue recognition and adversely affect our results of operations. While we have not, to date, experienced any material difficulties or delays in the manufacture and assembly of our Networking products, our suppliers may encounter problems during manufacturing due to a variety of reasons, including failure to follow specific protocols and procedures, failure to comply with applicable regulations, or the need to implement costly or time-consuming protocols to comply with applicable regulations (including regulations related to conflict minerals), equipment malfunction, natural disasters and environmental factors, any of which could delay or impede their ability to meet our demand.
We are exposed to fluctuations in foreign currency exchange rates, which could adversely affect our future operating results.
Our results of operations are subject to fluctuations in exchange rates, which could adversely affect our future revenue and overall operating results. In order to minimize volatility in earnings associated with fluctuations in the value of foreign currency relative to the U.S. dollar, we use financial instruments to hedge our exposure to foreign currencies as we deem appropriate for a portion of our expenses, which are denominated in the local currency of our foreign subsidiaries. We generally initiate our hedging of currency exchange risks one year in advance of anticipated foreign currency expenses for those currencies to which we have the greatest exposure. When the dollar is weak, foreign currency denominated expenses will be higher, and these higher expenses will be partially offset by the gains realized from our hedging contracts. If the dollar is strong, foreign currency denominated expenses will be lower. These lower expenses will in turn be partially offset by the losses incurred from our hedging contracts. There is a risk that there will be fluctuations in foreign currency exchange rates beyond the one year timeframe for which we hedge our risk and there is no guarantee that we will accurately forecast the expenses we are hedging. Further, a substantial portion of our overseas assets and liabilities are denominated in local currencies. To protect against fluctuations in earnings caused by changes in currency exchange rates when remeasuring our balance sheet, we utilize foreign exchange forward contracts to hedge our exposure to this potential volatility. There is no assurance that our hedging strategies will be effective. In addition, as a result of entering into these contracts with counterparties who are unrelated to us, the risk of a counterparty default exists in fulfilling the hedge contract. Should there be a counterparty default, we could be unable to recover anticipated net gains from the transactions.
RISKS RELATED TO ACQUISITIONS, STRATEGIC RELATIONSHIPS AND DIVESTITURES
Acquisitions and divestitures present many risks, and we may not realize the financial and strategic goals we anticipate.
In recent years, we have addressed the development of new solutions and services and enhancements to existing solutions and services through acquisitions of other companies, product lines and/or technologies. However, acquisitions, including those of high-technology companies, are inherently risky. We cannot provide any assurance that any of our acquisitions or future

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acquisitions will be successful in helping us reach our financial and strategic goals. The risks we commonly encounter in undertaking, managing and integrating acquisitions are:
an uncertain revenue and earnings stream from the acquired company, which could dilute our earnings;
difficulties and delays integrating the personnel, operations, technologies, solutions and systems of the acquired companies;
undetected errors or unauthorized use of a third-party’s code in solutions of the acquired companies;
our ongoing business may be disrupted and our management’s attention may be diverted by acquisition, transition or integration activities;
challenges with implementing adequate and appropriate controls, procedures and policies in the acquired business;
difficulties managing or integrating an acquired company’s technologies or lines of business;
potential difficulties in completing projects associated with purchased in-process research and development;
entry into markets in which we have no or limited direct prior experience and where competitors have stronger market positions and which are highly competitive;
the potential loss of key employees of the acquired company;
potential difficulties integrating the acquired solutions and services into our sales channel;
assuming pre-existing contractual relationships of an acquired company that we would not have otherwise entered into, the termination or modification of which may be costly or disruptive to our business;
being subject to unfavorable revenue recognition or other accounting treatment as a result of an acquired company’s practices; and
intellectual property claims or disputes.
Our failure to successfully integrate acquired companies due to these or other factors could have a material adverse effect on our business, results of operations and financial condition.
Any future divestitures we make may also involve risks and uncertainties. Any such divestitures could result in disruption to other parts of our business, potential loss of employees or customers, exposure to unanticipated liabilities or result in ongoing obligations and liabilities to us following any such divestiture. For example, in connection with a divestiture, we may enter into transition services agreements or other strategic relationships, including long-term services arrangements, or agree to provide certain indemnities to the purchaser in any such transaction, which may result in additional expense. Further, if we do not realize the expected benefits or synergies of such transactions, our operating results and financial conditions could be adversely affected.
If we determine that any of our goodwill or intangible assets, including technology purchased in acquisitions, are impaired, we would be required to take a charge to earnings, which could have a material adverse effect on our results of operations.
We have a significant amount of goodwill and other intangible assets, such as product related intangible assets, from our acquisitions. We do not amortize goodwill and intangible assets that are deemed to have indefinite lives. However, we do amortize certain product related technologies, trademarks, patents and other intangibles and we periodically evaluate them for impairment. We review goodwill for impairment annually, or sooner if events or changes in circumstances indicate that the carrying amount could exceed fair value, at the reporting unit level, which for us also represents our operating segments. Significant judgments are required to estimate the fair value of our goodwill and intangible assets, including estimating future cash flows, determining appropriate discount rates, estimating the applicable tax rates, foreign exchange rates and interest rates, projecting the future industry trends and market conditions, and making other assumptions. Although we believe the assumptions, judgments and estimates we have made have been reasonable and appropriate, different assumptions, judgments and estimates, materially affect our results of operations. Changes in these estimates and assumptions, including changes in our reporting structure, could materially affect our determinations of fair value. In addition, due to uncertain market conditions and potential changes in our strategy and product portfolio, it is possible that the forecasts we use to support our goodwill and other intangible assets could change in the future, which could result in non-cash charges that would adversely affect our results of operations and financial condition. Also, we may make divestitures of businesses in the future. If we determine that any of the intangible assets associated with our acquisitions is impaired or goodwill is impaired, then we would be required to reduce the value of those assets or to write them off completely by taking a charge to current earnings. If we are required to write down or write off all or a portion of those assets, or if financial analysts or investors believe we may need to take such action in the future, our stock price and operating results could be materially and adversely affected.
Our inability to maintain or develop our strategic and technology relationships could adversely affect our business.
We have several strategic and technology relationships with large and complex organizations, such as Microsoft, and other companies with which we work to offer complementary solutions and services. We depend on the companies with which we have strategic relationships to successfully test our solutions, to incorporate our technology into their products and to market and sell those solutions. There can be no assurance we will realize the expected benefits from these strategic

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relationships or that they will continue in the future. If successful, these relationships may be mutually beneficial and result in industry growth. However, such relationships carry an element of risk because, in most cases, we must compete in some business areas with a company with which we have a strategic relationship and, at the same time, cooperate with that company in other business areas. Also, if these companies fail to perform or if these relationships fail to materialize as expected, we could suffer delays in product development, reduced sales or other operational difficulties and our business, results of operations and financial condition could be materially adversely affected.
The separation of our GoTo Business and the subsequent merger of GetGo, Inc. could result in substantial tax liability.
In January 2017, we closed the divestiture of the GoTo Business via a “Reverse Morris Trust” transaction pursuant to which a wholly-owned subsidiary of LogMeIn, Inc. merged with and into GetGo, Inc., with GetGo surviving the merger and becoming a wholly-owned subsidiary of LogMeIn, Inc. The Reverse Morris Trust transaction was structured to qualify as tax-free to Citrix and its shareholders. We obtained an opinion of outside counsel that, for U.S. federal income tax purposes, the separation of the GoTo Business qualified, for both the company and our stockholders, as tax-free, and the subsequent merger of GetGo with a wholly-owned subsidiary of LogMeIn would not render the separation of the GoTo Business taxable to Citrix and its shareholders. The opinion of outside counsel was based, among other things, on various factual assumptions we have authorized and representations we, GetGo and LogMeIn have made to outside counsel. If any of these assumptions or representations are, or become, inaccurate or incomplete, reliance on the opinion may be affected. An opinion of outside counsel represents their legal judgment but is not binding on the Internal Revenue Service, or IRS, or any court. Accordingly, there can be no assurance that the IRS will not challenge the conclusions reflected in the opinions or that a court would not sustain such a challenge. If the separation or certain internal transactions undertaken in anticipation of the separation are determined to be taxable for U.S. federal income tax purposes, we and/or our stockholders that are subject to U.S. federal income tax could incur significant U.S. federal income tax liabilities.
RISKS RELATED TO INTELLECTUAL PROPERTY AND BRAND RECOGNITION
Our efforts to protect our intellectual property may not be successful, which could materially and adversely affect our business.
We rely primarily on a combination of copyright, trademark, patent and trade secret laws, confidentiality procedures and contractual provisions to protect our source code, innovations and other intellectual property, all of which offer only limited protection. The loss of any material trade secret, trademark, tradename, patent or copyright could have a material adverse effect on our business. Despite our precautions, it could be possible for unauthorized third parties to infringe our intellectual property rights or misappropriate, copy, disclose or reverse engineer our proprietary information, including certain portions of our solutions or to otherwise obtain and use our proprietary source code. We may seek to protect our intellectual property through offensive litigation, which may be costly, trigger counter suits and may be unsuccessful. In addition, our ability to monitor and control such misappropriation or infringement is uncertain, particularly in countries outside of the United States. If we cannot protect our intellectual property from infringement and our proprietary source code against unauthorized copying, disclosure or use, loss of our market share could result, including as a result of unauthorized third parties’ development of solutions and technologies similar to or better than ours.
The scope of our patent protection may be affected by changes in legal precedent and patent office interpretation of these precedents. Further, 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 of protection we seek, if at all; and if issued, may not provide any meaningful protection or competitive advantage.
Our ability to protect our proprietary rights could be affected by differences in international law and the 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 solutions under “click-to-accept” license agreements that are not signed by licensees and through electronic enterprise customer licensing arrangements that are delivered electronically, all of which could be unenforceable under the laws of many foreign jurisdictions in which we license our solutions. Moreover, with respect to the various confidentiality, license or other agreements we utilize with third parties related to their use of our solutions and technologies, there is no guarantee that such parties will abide by the terms of such agreements.

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Our solutions and services, including solutions obtained through acquisitions, could infringe third-party intellectual property rights, which could result in material litigation costs.
We are routinely subject to patent infringement claims and may in the future be subject to an increased number of claims, including claims alleging the unauthorized use of a third-party’s code in our solutions. This may occur for a variety of reasons, including:
the expansion of our product lines through product development and acquisitions;
the volume of patent infringement litigation commenced by non-practicing entities;
an increase in the number of competitors in our industry segments and the resulting increase in the number of related solutions and services and the overlap in the functionality of those solutions and services;
an increase in the number of our competitors and third parties that use their own intellectual property rights to limit our freedom to operate and exploit our solutions, or to otherwise block us from taking full advantage of our markets;
our solutions and services may rely on the technology of others and, therefore, require us to obtain intellectual property licenses from third parties in order for us to commercialize our solutions or services and we may not be able to obtain or continue to obtain licenses from these third parties on reasonable terms; and
the unauthorized or improperly licensed use of third-party code in our solutions.
Further, responding to any infringement claim, regardless of its validity or merit, could result in costly litigation. Further, intellectual property litigation could compel us to do one or more of the following:
pay damages (including the potential for treble damages), license fees or royalties (including royalties for past periods) to the party claiming infringement;
cease selling solutions or services that use the challenged intellectual property;
obtain a license from the owner of the asserted intellectual property to sell or use the relevant technology, which license may not be available on reasonable terms, or at all; or
redesign the challenged technology, which could be time consuming and costly, or not be accomplished.
If we were compelled to take any of these actions, our business, results of operations or financial condition may be adversely impacted.
Our use of “open source” software could negatively impact our ability to sell our solutions and subject us to possible litigation.
The solutions or technologies acquired, licensed or developed by us may incorporate so-called “open source” software, and we may incorporate open source software into other solutions in the future. Such open source software is generally licensed by its authors or other third parties under open source licenses, including, for example, the GNU General Public License, the GNU Lesser General Public License, “Apache-style” licenses, “Berkeley Software Distribution,” “BSD-style” licenses, and other open source licenses. Even though we attempt to monitor our use of open source software in an effort to avoid subjecting our solutions to conditions we do not intend, it is possible that not all instances of our open source code usage are properly reviewed. Further, although we believe that we have complied with our obligations under the various applicable licenses for open source software that we use such that we have not triggered any of these conditions, there is little or no legal precedent governing the interpretation or enforcement of many of the terms of these types of licenses. If an author or other third party that distributes open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations. If our defenses were not successful, we could be subject to significant damages, enjoined from the distribution of our solutions that contained open source software, and required to comply with the terms of the applicable license, which could disrupt the distribution and sale of some of our solutions. In addition, if we combine our proprietary software with open source software in an unintended manner, under some open source licenses we could be required to publicly release the source code of our proprietary software, offer our solutions that use the open source software for no cost, make available source code for modifications or derivative works we create based upon incorporating or using the open source software, and/or license such modifications or derivative works under the terms of the particular open source license.
In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide technology support, maintenance, warranties or assurance of title or controls on the origin of the software.
If we lose access to third-party licenses, releases of our solutions could be delayed.
We believe that we will continue to rely, in part, on third-party licenses to enhance and differentiate our solutions. Third-party licensing arrangements are subject to a number of risks and uncertainties, including:

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undetected errors or unauthorized use of another person’s code in the third party’s software;
disagreement over the scope of the license and other key terms, such as royalties payable and indemnification protection;
infringement actions brought by third-parties;
that third parties will create solutions that directly compete with our solutions; and
termination or expiration of the license.
If we lose or are unable to maintain any of these third-party licenses or are required to modify software obtained under third-party licenses, it could delay the release of our solutions. Any delays could have a material adverse effect on our business, results of operations and financial condition.
Our business depends on maintaining and protecting the strength of our collection of brands.
The Citrix product and service brands that we have developed have significantly contributed to the success of our business. Maintaining and enhancing the Citrix product and service brands is critical to expanding our base of customers and partners. We may be subject to reputational risks and our brand loyalty may decline if others adopt the same or confusingly similar marks in an effort to misappropriate and profit on our brand name and do not provide the same level of quality as is delivered by our solutions and services. Also, others may rely on false comparative advertising and customers or potential customers could be influenced by false advertising. Additionally, we may be unable to use some of our brands in certain countries or unable to secure trademark rights in certain jurisdictions where we do business. In order to police, maintain, enhance and protect our brands, we may be required to make substantial investments that may not be successful. If we fail to police, maintain, enhance and protect the Citrix brands, if we incur excessive expenses in this effort or if customers or potential customers are confused by others’ trademarks, our business, operating results, and financial condition may be materially and adversely affected.
RISKS RELATED TO OUR COMMON STOCK, OUR DEBT AND EXTERNAL FACTORS
Servicing our debt will require a significant amount of cash, which could adversely affect our business, financial condition and results of operations. We may not have sufficient cash flow from our business to make payments on our debt, settle conversions of our Convertible Notes or repurchase our Convertible Notes or 2027 Notes upon certain events.
We have aggregate indebtedness of approximately $2.13 billion that we have incurred in connection with the issuance of our unsecured senior notes due December 1, 2027, or the 2027 Notes, and our 0.500% Convertible Notes due 2019, or the Convertible Notes, and under our Credit Agreement, and we may incur additional indebtedness in the future. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, depends on our future performance, which is subject to general economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, reducing capital expenditures, restructuring debt or obtaining additional equity or debt financing on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to sell assets, restructure our indebtedness or obtain additional equity or debt financing on terms that are acceptable to us or at all, which could result in a default on our debt obligations. See “Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” and Note 13 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 for information regarding our 2027 Notes, our Convertible Notes and our Credit Facility.
In addition, holders of our Convertible Notes have the right to require us to repurchase their Convertible Notes upon the occurrence of a fundamental change at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any. If a change in control repurchase event occurs with respect to the 2027 Notes, we will be required, subject to certain exceptions, to offer to repurchase the 2027 Notes at a repurchase price equal to 101% of the principal amount of the 2027 Notes repurchased, plus accrued and unpaid interest, if any. Further, upon conversion of the Convertible Notes, we will be required to make cash payments for each $1,000 in principal amount of Convertible Notes converted of at least the lesser of $1,000 and the sum of the daily conversion values thereunder. In such events, we may not have enough available cash or be able to obtain financing to repurchase the Convertible Notes or 2027 Notes or make cash payments upon conversion of the Convertible Notes. In addition, our ability to repurchase the Convertible Notes or 2027 Notes or to pay cash upon conversion of the Convertible Notes may be limited by law, by regulatory authority or by agreements governing our other indebtedness.
Further, we are required to comply with the covenants set forth in the indenture governing the Convertible Notes, the indenture governing the 2027 Notes and the Credit Agreement. In particular, the Credit Agreement requires us to maintain certain leverage and interest ratios and contains various affirmative and negative covenants, including covenants that limit or

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restrict our ability to grant liens, merge or consolidate, dispose of all or substantially all of our assets, change our business or incur subsidiary indebtedness. The indenture governing our 2027 Notes contains covenants limiting our ability and the ability of our subsidiaries to create certain liens, enter into certain sale and leaseback transactions, and consolidate or merge with, or sell, assign, convey, lease, transfer or otherwise dispose of all or substantially all of our assets, taken as a whole, to, another person. If we fail to comply with these covenants or any other provision of the agreements governing our indebtedness and do not obtain a waiver from the lenders or noteholders, then, subject to applicable cure periods, our outstanding indebtedness may be declared immediately due and payable. Additionally, a default under an indenture or the Credit Agreement could lead to a default under the other agreements governing our current and any future indebtedness. If the repayment of the related indebtedness were to be accelerated, we may not have enough available cash or be able to obtain financing to repay the indebtedness. 
Our indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences. For example, it could:
make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry and competitive conditions and adverse changes in government regulation;
limit our flexibility in planning for, or reacting to, changes in our business and our industry;
place us at a disadvantage compared to our competitors who have less debt; and
limit our ability to borrow additional amounts to fund acquisitions, for working capital and for other general corporate purposes.
Any of these factors could materially and adversely affect our business, financial condition and results of operations. In addition, if we incur additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase. Also, changes by any rating agency to our credit rating may negatively impact the value and liquidity of both our debt and equity securities, as well as the potential costs associated with any potential refinancing of our indebtedness. Downgrades in our credit rating could also restrict our ability to obtain additional financing in the future and could affect the terms of any such financing.
The conditional conversion feature of our Convertible Notes, if triggered, may adversely affect our financial condition and operating results.
In the event the conditional conversion feature of our Convertible Notes is triggered, holders of the Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Notes, we would be required to settle the principal amount in cash and the remaining amount, if any, in shares of our common stock or a combination of cash and shares of our common stock, at our election. Our payment of cash upon settlement of conversion of the Convertible Notes could adversely affect our liquidity. In addition, even if holders do not elect to convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which would result in a material reduction in our net working capital.
The accounting method for convertible debt securities that may be settled in cash, such as the Convertible Notes, could have a material effect on our reported financial results.
Under FASB Accounting Standards Codification 470-20, Debt with Conversion and Other Options, or ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments (such as the Convertible Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the Convertible Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet, and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of the Convertible Notes, which will result in non-cash charges to interest expense in our consolidated statement of income. As a result, we will report lower net income in our financial results as reported in accordance with U.S. GAAP because ASC 470-20 will require interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results.
In addition, under certain circumstances, convertible debt instruments (such as the Convertible Notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the Convertible Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the Convertible Notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the Convertible Notes, then our diluted earnings per share

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would be adversely affected. Moreover, the warrants that we issued in connection with the pricing of the Convertible Notes would need to be included in the number of diluted shares reported if our stock price increases above the relevant exercise price on an average basis during the applicable period, which would negatively impact our diluted earnings per share.
Our portfolios of liquid securities and strategic investments may lose value or become impaired.
Our investment portfolio consists of agency securities, corporate securities, money market funds, municipal securities, government securities and commercial paper. Although we follow an established investment policy and seek to minimize the credit risk associated with investments by investing primarily in investment grade, highly liquid securities and by limiting exposure to any one issuer depending on credit quality, we cannot give assurances that the assets in our investment portfolio will not lose value, become impaired, or suffer from illiquidity.
Changes in our tax rates or our exposure to additional income tax liabilities could affect our operating results and financial condition.
Our future effective tax rates could be favorably or unfavorably affected by changes in the valuation of our deferred tax assets and liabilities, the geographic mix of our revenue, or by changes in tax laws or their interpretation. Significant judgment is required in determining our worldwide provision for income taxes. In addition, we are subject to the continuous examination of our income tax returns by tax authorities, including the IRS. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance, however, that the outcomes from these continuous examinations will not have an adverse effect on our operating results and financial condition. Additionally, we need to comply with the recently enacted Tax Cuts and Jobs Act of 2017, or the 2017 Tax Act, as well as new, evolving or revised tax laws and regulations globally, and any changes in the application or interpretation of these regulations may have an adverse effect on our business or on our results of operations.
The 2017 Tax Act significantly revised the U.S. tax code by, in part but not limited to, reducing the U.S. corporate tax rate from 35% to 21% and imposing a mandatory one-time transition tax on certain un-repatriated earnings of foreign subsidiaries. The SEC staff acknowledged the challenges companies face incorporating the effects of tax reform by their financial reporting deadlines. In response, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118, or SAB 118, to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete accounting for certain income tax effects of the 2017 Tax Act. As of December 31, 2017, we recorded a provisional income tax charge of $64.8 million for the re-measurement of our U.S. deferred tax assets and liabilities because of the federal corporate maximum tax rate reduction. We also recorded a provisional income tax charge of $364.6 million for the transition tax on deemed repatriation of deferred foreign income. The provisional amounts recorded are based on our current interpretation and understanding of the 2017 Tax Act, are judgmental and may change as we receive additional clarification and implementation guidance. We will continue to gather and evaluate the income tax impact of the 2017 Tax Act. Changes to these provisional amounts or any of our other estimates regarding taxes could result in material charges or credits in future reporting periods.
There can be no assurance that we will continue to repurchase stock or that we will repurchase stock at favorable prices.
From time to time, our Board of Directors authorizes additional share repurchase authority under our ongoing stock repurchase program, including, most recently, a $1.7 billion increase in repurchase authority in November 2017. The amount and timing of stock repurchases are subject to capital availability and our determination that stock repurchases are in the best interest of our stockholders and are in compliance with all respective laws and our agreements applicable to repurchases of stock. Our ability to repurchase stock will depend upon, among other factors, our cash balances and potential future capital requirements for strategic transactions, debt service, capital expenditures, working capital and other general corporate purposes, as well as our results of operations, financial condition and other factors that we may deem relevant. A reduction in, or the completion of, our stock repurchase program could have a negative effect on our stock price. We can provide no assurance that we will repurchase stock at favorable prices, if at all.
Our stock price could be volatile, particularly during times of economic uncertainty and volatility in domestic and international stock markets, and you could lose the value of your investment.
Our stock price has been volatile and has fluctuated significantly in the past. The trading price of our stock is likely to continue to be volatile and subject to fluctuations in the future. Your investment in our stock could lose some or all of its 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;
rumors, announcements, or press articles regarding our or our competitors’ operations, management, organization, financial condition, or financial statements; and
other events or factors, many of which are beyond our control.

25


The stock market in general, The Nasdaq Global Select Market, and the market for software companies and technology companies in particular, have experienced extreme price and volume fluctuations. These fluctuations have often been unrelated or disproportionate to operating performance. These fluctuations may continue in the future and this could materially and adversely affect the market price of our stock, regardless of operating performance.
Changes or modifications in financial accounting standards may have a material adverse impact on our reported results of operations or financial condition.
A change or modification in accounting policies can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective, including the potential impact of the adoption and implementation of the accounting standard update on revenue recognition issued in May 2014 by the Financial Accounting Standards Board. Under the new standard, we will recognize term license revenues upfront at time of delivery rather than ratably over the related contract period. We expect revenue recognition related to perpetual software, hardware, cloud offerings and professional services to remain substantially unchanged. Additionally, under the new standard, we will capitalize and amortize certain direct costs, such as commissions, over the expected customer life rather than expensing them as incurred. While the adoption of the new standard does not change the cash flows received from our contracts with customers, its adoption could have a material adverse effect on our financial position or results of operations. Refer to Note 18 in the notes to our consolidated financial statements included in this Annual Report on Form 10-K for additional information on the new standard and its potential impact on us. New pronouncements and varying interpretations of existing pronouncements have occurred with frequency and may occur in the future. Changes to existing rules, or changes to the interpretations of existing rules, could lead to changes in our accounting practices, and such changes could materially adversely affect our reported financial results or the way we conduct our business.
Natural disasters or other unanticipated catastrophes that result in a disruption of our operations could negatively impact our results of operations.
Our worldwide operations are dependent on our network infrastructure, internal technology systems and website. Significant portions of our computer equipment, intellectual property resources and personnel, including critical resources dedicated to research and development and administrative support functions are presently located at our corporate headquarters in Fort Lauderdale, Florida, an area of the country that is particularly prone to hurricanes, and at our various locations in California, an area of the country that is particularly prone to earthquakes. We also have operations in various domestic and international locations that expose us to additional diverse risks. The occurrence of natural disasters, such as hurricanes, floods or earthquakes, or other unanticipated catastrophes, such as telecommunications failures, cyber-attacks, fires or terrorist attacks, at any of the locations in which we or our key partners, suppliers and customers do business, could cause interruptions in our operations. For example, hurricanes have passed through southern Florida causing extensive damage to the region. In addition, even in the absence of direct damage to our operations, large disasters, terrorist attacks or other casualty events could have a significant impact on our partners’, suppliers’ and customers’ businesses, which in turn could result in a negative impact on our results of operations. Extensive or multiple disruptions in our operations, or our partners’, suppliers’ or customers’ businesses, due to natural disasters or other unanticipated catastrophes could have a material adverse effect on our results of operations.

26



ITEM 1B. UNRESOLVED STAFF COMMENTS
We have received no written comments regarding our periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of our 2017 fiscal year that remain unresolved.
ITEM 2. PROPERTIES
We lease and sublease office space in the Americas, which is comprised of the United States, Canada and Latin America, EMEA, which is comprised of Europe, the Middle East and Africa, and APJ, which is comprised of Asia-Pacific and Japan. The following table presents the location and square footage of our leased office space as of December 31, 2017:
 
 
Square footage
Americas
 
831,809

EMEA
 
238,609

APJ
 
616,563

Total
 
1,686,981

In addition, we own land and buildings in Fort Lauderdale, Florida with approximately 317,000 square feet of office space used for our corporate headquarters and approximately 41,000 square feet of office space in Chalfont St. Peter, United Kingdom.
We believe that our existing facilities are adequate for our current needs. As additional space is needed in the future, we believe that suitable space will be available in the required locations on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
Due to the nature of our business, we are subject to patent infringement claims, including current suits against us or one or more of our wholly-owned subsidiaries alleging infringement by various Citrix products and services, or the other matters. We believe that we have meritorious defenses to the allegations made in our pending cases and intend to vigorously defend these lawsuits; however, we are unable currently to determine the ultimate outcome of these or similar matters or the potential exposure to loss, if any. In addition, we are a defendant in various litigation matters generally arising out of the normal course of business. Although it is difficult to predict the ultimate outcomes of these cases, we believe that it is not reasonably possible that the ultimate outcomes will materially and adversely affect our business, financial position, results of operations or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

27


PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Price Range of Common Stock and Dividend Policy
Our common stock is currently traded on The Nasdaq Global Select Market under the symbol CTXS. The following table sets forth the high and low sales prices for our common stock as reported on The Nasdaq Global Select Market for the periods indicated, as adjusted to the nearest cent.
 
 
High
 
Low
Year Ended December 31, 2017:
 
 
 
 
Fourth quarter
 
$
88.98

 
$
77.50

Third quarter
 
$
83.00

 
$
73.33

Second quarter
 
$
87.95

 
$
77.22

First quarter
 
$
87.99

 
$
70.24

Year Ended December 31, 2016:
 
 
 
 
Fourth quarter
 
$
75.26

 
$
66.26

Third quarter
 
$
72.89

 
$
63.99

Second quarter
 
$
73.30

 
$
62.10

First quarter
 
$
64.47

 
$
49.61

On February 9, 2018, the last reported sale price of our common stock on The Nasdaq Global Select Market was $85.75 per share. As of February 9, 2018, there were 500 holders of record of our common stock.
We currently intend to retain any earnings for use in our business, for investment in acquisitions and to repurchase shares of our common stock. Historically, we have not paid any cash dividends on our capital stock, however, we continuously reassess our capital allocation strategy, and evaluate a variety of options, including share repurchases and dividends, as a means to return capital to our stockholders.  
Issuer Purchases of Equity Securities
Our Board of Directors has authorized an ongoing stock repurchase program with a total repurchase authority granted to us of $8.5 billion, of which $500.0 million was approved in January 2017 and an additional $1.7 billion was approved in November 2017. We may use the approved dollar authority to repurchase stock at any time until the approved amount is exhausted. The objective of the stock repurchase program is to improve stockholders’ returns. At December 31, 2017, approximately $1.43 billion was available to repurchase common stock pursuant to the stock repurchase program. All shares repurchased are recorded as treasury stock.
The following table shows the monthly activity related to our stock repurchase program for the quarter ended December 31, 2017.
 
 
Total Number
of Shares
Purchased (1)
 
Average
Price Paid
per Share
 
Total Number
of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs
 
Approximate dollar value of Shares that may yet be
Purchased under the
Plans or Programs
(in thousands)(2)
October 1, 2017 through October 31, 2017
 
19,097

 
$
79.43

 

 
$
329,049

November 1, 2017 through November 30, 2017
 
7,160,577

 
$
84.12

 
7,132,668

 
$
1,429,049

December 1, 2017 through December 31, 2017
 
56,839

 
$
88.28

 

 
$
1,429,049

Total
 
7,236,513

 
$
84.14

 
7,132,668

 
$
1,429,049

 
(1)
Represents approximately 7.1 million shares from the ASR agreement described below and 103,845 shares withheld from restricted stock units that vested in the fourth quarter of 2017 to satisfy minimum tax withholding obligations that arose on the vesting of restricted stock units.
(2)
Shares withheld from restricted stock units and stock awards that vested to satisfy minimum tax withholding obligations that arose on the vesting of awards do not deplete the dollar amount available for purchases under the repurchase program.

28


In November 2017, our board of directors authorized us to repurchase up to an additional $1.7 billion of our common stock, for a total repurchase authorization in excess of $2.0 billion, of which we used $750.0 million to purchase shares of our common stock through our Accelerated Share Repurchase ("ASR") agreement with Citibank (the "ASR Counterparty"). We paid $750.0 million to the ASR Counterparty under the ASR agreement and received approximately 7.1 million shares of our common stock from the ASR Counterparty, which represents 80 percent of the value of the shares to be repurchased pursuant to the ASR Agreement. The total number of shares of common stock that we will repurchase under the ASR Agreement will be based on the average of the daily volume-weighted average prices of our common stock during the term of the ASR Agreement, less a discount. Final settlement of the ASR agreement was completed in January 2018 and we received delivery of an additional 1,371,495 shares of our common stock. See Note 9 to our consolidated financial statements for detailed information on the ASR.
In February 2018, we entered into an ASR transaction with Goldman Sachs & Co. LLC (“Dealer”) to pay an aggregate of $750.0 million in exchange for the delivery of approximately 6.5 million shares of our common stock based on current market prices. The purchase price per share under the ASR is subject to adjustment and is expected to equal the volume-weighted average price of our common stock during the term of the ASR, less a discount. The exact number of shares repurchased pursuant to the ASR will be determined based on such purchase price. The ASR transaction is expected to be completed by the end of April 2018. The ASR was entered into pursuant to our existing share repurchase program. After taking into account the additional $750.0 million shares repurchased pursuant to this ASR, we will have approximately $500.0 million of remaining share repurchase authorization available.
Securities Authorized for Issuance Under Equity Compensation Plans
Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report on Form 10-K.




29


ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data is derived from our consolidated financial statements. This data should be read in conjunction with the consolidated financial statements and notes thereto, and with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
 
Year Ended December 31,
 
 
2017
 
2016(a)
 
2015(a)
 
2014(a)
 
2013(a)
 
 
(In thousands, except per share data)
Consolidated Statements of Income Data:
 
 
 
 
 
 
 
 
 
 
Net revenues
 
$
2,824,686

 
$
2,736,080

 
$
2,646,154

 
$
2,563,064

 
$
2,918,434

Cost of net revenues(b)
 
439,646

 
404,889

 
474,040

 
493,706

 
502,795

Gross margin
 
2,385,040

 
2,331,191

 
2,172,114

 
2,069,358

 
2,415,639

Operating expenses(c)
 
1,814,043

 
1,771,027

 
1,969,322

 
1,894,438

 
2,034,922

Income from operations
 
570,997

 
560,164

 
202,792

 
174,920

 
380,717

Interest income
 
27,808

 
16,686

 
11,675

 
9,421

 
8,194

Interest expense
 
(51,609
)
 
(44,949
)
 
(44,153
)
 
(28,332
)
 
(128
)
Other income (expense), net
 
3,150

 
(4,131
)
 
(5,730
)
 
(7,694
)
 
(893
)
Income from continuing operations before income taxes
 
550,346

 
527,770

 
164,584

 
148,315

 
387,890

Income tax expense (benefit)
 
528,361

 
57,915

 
(50,549
)
 
(18,904
)
 
48,367

Income from continuing operations
 
21,985

 
469,855

 
215,133

 
167,219

 
339,523

(Loss) income from discontinued operations, net of income tax expense
 
(42,704
)
 
66,257

 
104,228

 
84,504

 

Net (loss) income
 
$
(20,719
)
 
$
536,112

 
$
319,361

 
$
251,723

 
$
339,523

Diluted (loss) earnings per share:
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
0.14

 
2.99

 
1.34

 
0.98

 
1.80

(Loss) income from discontinued operations
 
(0.27
)
 
0.42

 
0.65

 
0.49

 

Diluted net (loss) earnings per share
 
$
(0.13
)
 
$
3.41

 
$
1.99

 
$
1.47

 
$
1.80

Weighted average shares outstanding - diluted
 
155,503

 
157,084

 
160,362

 
171,270

 
188,245

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
2017
 
2016
 
2015
 
2014
 
2013(a)
 
 
(In thousands)
Consolidated Balance Sheet Data(d):
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
5,820,176

 
$
6,390,227

 
$
5,467,517

 
$
5,512,007

 
$
5,212,249

Total equity
 
992,461

 
2,608,727

 
1,973,446

 
2,173,645

 
3,319,807

(a)
The selected financial data for fiscal years ending December 31, 2016, 2015 and 2014 has been adjusted to be presented on a continuing operations basis. The selected financial data for fiscal year 2013 has not been so adjusted. Refer to Note 3 Discontinued Operations in our Consolidated Financial Statements for additional information.
(b)
Cost of net revenues includes amortization and impairment of product related intangible assets of $65.7 million, $55.4 million, $127.3 million, $142.2 million, and $97.9 million in 2017, 2016, 2015, 2014 and 2013, respectively.
(c)
Operating expenses includes amortization and impairment of other intangible assets of $17.2 million, $15.1 million, $97.5 million, $41.9 million, and $41.7 million in 2017, 2016, 2015, 2014 and 2013, respectively. Operating expenses also include restructuring charges of $72.4 million, $67.4 million, $98.7 million and $14.1 million in 2017, 2016, 2015 and 2014, respectively. No restructuring charges were incurred in 2013.
(d)
Balance Sheet amounts at December 31, 2017 exclude GoTo Business balances as a result of the separation of the GoTo Business in January 2017. Balance Sheet amounts prior to 2017 include amounts for the GoTo Business. Refer to Note 3 Discontinued Operations in our Consolidated Financial Statements for additional information.






30


ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Citrix aims to power a world where people, organizations and things are securely connected and accessible to make the extraordinary possible. We help customers reimagine the future of work by providing a comprehensive secure
digital workspace that unifies the apps, data and services people need to be productive, and simplifies IT’s ability to adopt
and manage complex cloud environments.
We market and license our solutions through multiple channels worldwide, including selling through resellers and direct over the Web. Our partner community comprises thousands of value-added resellers, or VARs known as Citrix Solution Advisors, value-added distributors, or VADs, systems integrators, or SIs, independent software vendors, or ISVs, original equipment manufacturers, or OEMs and Citrix Service Providers, or CSPs.
We are a Delaware corporation incorporated on April 17, 1989.
Executive Summary
Our solutions mobilize desktops, apps and data to help our customers drive value. We continue driving innovation in the datacenter with our solutions across both physical and software defined networking platforms while powering some of the world’s largest clouds and giving enterprises the capabilities to combine best-in-class application networking services on a single, consolidated footprint.
On January 31, 2017, we completed the spin-off of our GoTo Business (the “Spin-off”) and subsequent merger of that business with LogMeIn. In connection with the Spin-off, we distributed approximately 26.9 million shares of GetGo common stock to our stockholders of record as of the close of business on January 20, 2017. We delivered the shares of GetGo common stock to our transfer agent, who held such shares for the benefit of our stockholders. Immediately thereafter, Merger Sub was merged with and into GetGo, with GetGo continuing as a wholly owned subsidiary of LogMeIn (the “Merger”). As a result of the Merger, each share of GetGo common stock was converted into the right to receive one share of LogMeIn common stock. As a result of these transactions, our stockholders received approximately 26.9 million shares of LogMeIn common stock in the aggregate, or 0.171844291 of a share of LogMeIn common stock for each share of Citrix common stock held of record by our stockholders as of the close of business on January 20, 2017. No fractional shares of LogMeIn were issued, and our stockholders instead received cash in lieu of any fractional shares. The consolidated financial statements included in this Annual Report on Form 10-K and related financial information reflect the GoTo Business operations, assets and liabilities, and cash flows as discontinued operations for all periods presented. See Note 3 to our consolidated financial statements included in this Annual Report on Form 10-K for further information.
The distribution of the shares of GetGo common stock to our stockholders also resulted in an adjustment to the conversion rate for our 0.500% Convertible Notes due 2019 (the “Convertible Notes”) under the terms of the related indenture. As a result of this adjustment, the conversion rate for the Convertible Notes in effect as of the opening of business on February 1, 2017 was 13.9061 shares of our common stock per $1,000 principal amount of Convertible Notes.
On July 7, 2017, our Board of Directors appointed David J. Henshall as President and Chief Executive Officer of Citrix, effective as of July 10, 2017. Mr. Henshall succeeded Kirill Tatarinov who stepped down from his roles as President and Chief Executive Officer and director of Citrix on July 7, 2017. Mr. Henshall was also elected to our Board of Directors, effective as of July 10, 2017. In connection with Mr. Henshall’s appointment, Mark M. Coyle, Senior Vice President, Finance, was appointed interim Chief Financial Officer. Further, we recently announced the appointment of Andrew Del Matto as our Executive Vice President and Chief Financial Officer, effective February 19, 2018. In July 2017, our Board also formed an Operations and Capital Committee that has worked with our management team and advises our Board of Directors on opportunities to drive margin expansion and return capital to stockholders.
On October 4, 2017, we announced a restructuring program to support our initiatives intended to accelerate our transformation to a cloud-based subscription business, increase strategic focus, and improve operational efficiency. The program includes, among other things, the elimination of full-time positions and facilities consolidation. We currently expect to record in the aggregate approximately $60.0 million to $100.0 million in pre-tax restructuring charges associated with this program. Included in these pre-tax charges are approximately $55.0 million to $70.0 million related to employee severance arrangements and approximately $5.0 million to $30.0 million related to the consolidation of leased facilities and other charges associated with the program.
On November 13, 2017, we announced that our Board approved an increase of an additional $1.7 billion to our existing share repurchase program. Additionally, on November 15, 2017, we issued $750.0 million of unsecured senior notes due

31


December 1, 2027 (the "2027 Notes"). The net proceeds from this offering were approximately $741.0 million, after deducting the underwriting discount and estimated offering expenses payable by us. Net proceeds from this offering were used to repurchase $750.0 million of shares of our common stock through an ASR program.
On February 2, 2018, we entered into an ASR transaction with Goldman Sachs & Co. LLC (“Dealer”) to pay an aggregate of $750.0 million in exchange for the delivery of approximately 6.5 million shares of our common stock based on current market prices. The purchase price per share under the ASR is subject to adjustment and is expected to equal the volume-weighted average price of our common stock during the term of the ASR, less a discount. The exact number of shares repurchased pursuant to the ASR will be determined based on such purchase price. The ASR transaction is expected to be completed by the end of April 2018. The ASR was entered into pursuant to our existing share repurchase program. After taking into account the additional $750.0 million shares repurchased pursuant to this ASR, we will have approximately $500.0 million of remaining share repurchase authorization available.
On February 6, 2018, we acquired all of the issued and outstanding securities of Cedexis, Inc. (“Cedexis”) whose solution is a real-time data driven service for dynamically optimizing the flow of traffic across public clouds, data centers that provides a dynamic and reliable way to route and manage Internet performance for customers moving towards hybrid and multi-cloud deployments. The total preliminary cash consideration for this transaction was approximately $66.5 million, net of $6.2 million cash acquired.
During the year ended December 31, 2017, we accelerated our innovation in the cloud, with the introduction of new services, features and capabilities in our cloud solution to build out a comprehensive secure digital workspace. We are seeing an increasing shift in the way customers are purchasing our solutions, evolving towards a more subscription-based business model. We expect our transition to a subscription-based business model to provide financial and operational benefits to Citrix, including by increasing customer life-time-value, expanding our customer use-cases and innovation opportunities, and extending the use of Citrix services to securely deliver a broader array of applications, including Web, SaaS apps and services.
During the year ended December 31, 2017, we continued to report our revenues in four groupings: (1) product and license; (2) license updates and maintenance; (3) professional services; and (4) software as a service. Beginning in the first quarter of fiscal year 2018, we plan to adjust our groupings for reporting revenue to align with our subscription-based business model transition as follows: (1) product and license revenue from perpetual product offerings; (2) support and services revenue for perpetual product and license offerings; and (3) subscription revenue, which will include revenue from our ratable cloud services offerings and on-premise subscriptions as well as revenue from our CSP offerings.
Summary of Results
For the year ended December 31, 2017 compared to the year ended December 31, 2016, we delivered the following financial performance:
Product and license revenue decreased 2.9% to $857.3 million;
Software as a service revenue increased 30.5% to $175.8 million;
License updates and maintenance revenue increased 4.6% to $1.7 billion;
Professional services revenue increased 0.4% to $131.7 million;
Gross margin as a percentage of revenue decreased 0.8% to 84.4%;
Operating income increased 1.9% to $571.0 million; and
Diluted earnings per share from continuing operations decreased 95.3% to $0.14.
The decrease in our Product and licenses revenue was primarily driven by lower overall sales of our Networking products. Our Software as a service revenues increased due to increased sales of our Content Collaboration offerings and our Workspace Services offerings delivered via the cloud. The increase in License updates and maintenance revenue was primarily due to increased sales of software maintenance revenues across our Workspace Services and Networking products, partially offset by a decrease in our Subscription Advantage product, which has reached end of sale, and our technical support as customers continue to migrate to our new software maintenance solutions. Professional services revenue remained consistent when comparing 2017 to 2016. We currently expect total revenue to increase when comparing the first quarter of 2018 to the first quarter of 2017. In addition, when comparing the 2018 fiscal year to the 2017 fiscal year, we currently expect total revenue to increase. Gross margin remained consistent when comparing 2017 to 2016. The increase in operating income when comparing 2017 to 2016 was primarily due to an increase in revenues. The decrease in diluted earnings per share when comparing 2017 to 2016 was primarily due to an increase in tax expense due to charges related to the estimated impact from the enactment of the Tax Cuts and Jobs Act (the "2017 Tax Act”) that was signed on December 22, 2017.

32


2017 Business Combination
On January 3, 2017, we acquired all of the issued and outstanding securities of Unidesk Corporation (“Unidesk” or the "2017 Business Combination"). We acquired Unidesk to enhance our application management and delivery offerings. The total cash consideration for this transaction was $60.4 million, net of $2.7 million of cash acquired. Transaction costs associated with the acquisition were not significant.
We have included the effect of the Unidesk acquisition in our results of operations prospectively from the date of acquisition.
2016 Business Combination
On September 7, 2016, we acquired all of the issued and outstanding securities of a privately-held company. The acquisition provides a software solution that cuts the cost of desktop and application virtualization and delivers workspace performance by accelerating desktop logon and application response times for any Microsoft Windows-based environment. The total cash consideration for this transaction was approximately $11.5 million, net of $0.8 million cash acquired. Transaction costs associated with the acquisition were not significant. The assets related to this acquisition primarily include $8.2 million of product technology identifiable intangible assets with a four year life and goodwill of $4.7 million.
2016 Asset Acquisition
On January 8, 2016, we acquired certain monitoring technology assets from a privately-held company for total cash consideration of $23.6 million. The acquisition provides a monitoring solution for Citrix's solutions as it relates to Microsoft Windows applications and desktop delivery. The identifiable intangible assets acquired related primarily to product technologies.
2016 Divestiture
On February 29, 2016, we sold our CloudPlatform and CloudPortal Business Manager solutions to Persistent Telecom Solutions, Inc. The agreement included contingent consideration in the form of an earnout provision based on revenue for a period of five years following the closing date. Any income associated with the contingent consideration will be recognized if the earnout provisions are met. No earnout provisions were met during the years ended December 31, 2017 and December 31, 2016. Therefore, no income was recognized during the years ended December 31, 2017 and 2016, respectively.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations are based upon our 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.
We believe that the accounting policies described below are critical to understanding our business, results of operations and financial condition because they involve more significant judgments and estimates used in the preparation of our consolidated financial statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our consolidated financial statements. We have discussed the development, selection and application of our critical accounting policies with the Audit Committee of our Board of Directors and our independent auditors, and our Audit Committee has reviewed our disclosure relating to our critical accounting policies and estimates in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 describes the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements.

33


Revenue Recognition
We recognize revenue when it is earned and when all of the following criteria are met: persuasive evidence of the arrangement exists; delivery has occurred or the service has been provided and we have no remaining obligations; the fee is fixed or determinable; and collectability is probable. We define these four criteria as follows:
Persuasive evidence of the arrangement exists. Evidence of an arrangement generally consists of a purchase order issued pursuant to the terms and conditions of a distributor, reseller or end user agreement. For SaaS, we generally require the customer or the reseller to electronically accept the terms of an online services agreement or execute a contract.
Delivery has occurred and we have no remaining obligations. We consider delivery of licenses under electronic licensing agreements to have occurred when the related products are shipped and the end-user has been electronically provided the software activation keys that allow the end-user to take immediate possession of the product. For hardware appliance sales, our standard delivery method is free-on-board shipping point. Consequently, we consider delivery of appliances to have occurred when the products are shipped pursuant to an agreement and purchase order. For SaaS, delivery occurs upon providing the users with their login id and password. For product training and consulting services, we fulfill our obligation when the services are performed. For license updates and maintenance, we assume that our obligation is satisfied ratably over the respective terms of the agreements, which are typically 12 to 24 months. For SaaS, we assume that our obligation is satisfied ratably over the respective terms of the agreements, which are typically 12 months.
The fee is fixed or determinable. In the normal course of business, we do not provide customers with the right to a refund of any portion of their license fees or extended payment terms. The fees are considered fixed or determinable upon establishment of an arrangement that contains the final terms of the sale including description, quantity and price of each product or service purchased. For SaaS, the fee is considered fixed or determinable if it is not subject to refund or adjustment.
Collectability is probable. We assess collectability based primarily on the creditworthiness of the customer. Management’s judgment is required in assessing the probability of collection, which is generally based on an evaluation of customer specific information, historical experience and economic market conditions. If we determine from the outset of an arrangement that collectability is not probable, revenue recognition is deferred until customer payment is received and the other parameters of revenue recognition described above have been achieved.
The majority of our product and license revenue consists of revenue from the sale of software solutions. Software sales generally include a perpetual license to our software and are subject to the industry specific software revenue recognition guidance. In accordance with this guidance, we allocate revenue to license updates related to our software and any other undelivered elements of the arrangement based on VSOE of fair value of each element and such amounts are deferred until the applicable delivery criteria and other revenue recognition criteria described above have been met. The balance of the revenues, net of any discounts inherent in the arrangement, is recognized at the outset of the arrangement using the residual method as the product licenses are delivered. If management cannot objectively determine the fair value of each undelivered element based on VSOE of fair value, revenue recognition is deferred until all elements are delivered, all services have been performed, or until fair value can be objectively determined. We also make certain judgments to record estimated reductions to revenue for customer programs and incentive offerings including volume-based incentives, at the time sales are recorded.
For hardware appliance and software transactions, the arrangement consideration is allocated to stand-alone software deliverables as a group and the non-software deliverables based on the relative selling prices of using the selling price hierarchy in the revenue recognition guidance. The selling price hierarchy for a deliverable is based on its VSOE if available, third-party evidence, or TPE, if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available. We then recognize revenue on each deliverable in accordance with our policies for product and service revenue recognition. VSOE of selling price is based on the price charged when the element is sold separately. In determining VSOE, we require that a substantial majority of the selling prices fall within a reasonable range based on historical discounting trends for specific solutions and services. TPE of selling price is established by evaluating competitor solutions or services in stand-alone sales to similarly situated customers. However, as our solutions contain a significant element of proprietary technology and our solutions offer substantially different features and functionality, the comparable pricing of solutions with similar functionality typically cannot be obtained. Additionally, as we are unable to reliably determine what competitors products’ selling prices are on a stand-alone basis, we are not typically able to determine TPE. The estimate of selling price is established considering multiple factors including, but not limited to, pricing practices in different geographies and through different sales channels and competitor pricing strategies.
For our non-software transactions, we allocate the arrangement consideration based on the relative selling price of the deliverables. For our hardware appliances, we use ESP as our selling price. For our support and services, we generally use

34


VSOE as our selling price. When we are unable to establish selling price using VSOE for our support and services, we use ESP in our allocation of arrangement consideration.
Our Content Collaboration (formerly Data) solutions are considered hosted service arrangements per the authoritative guidance; accordingly, fees related to online service agreements are recognized ratably over the contract term. In addition, SaaS revenues may also include set-up fees, which are recognized ratably over the contract term or the expected customer life, whichever is longer. See Notes 2 and 18 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 for further information on our revenue recognition.
Valuation and Classification of Investments
The authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Our available-for-sale investments are measured to fair value on a recurring basis. In addition, we hold investments that are accounted for based on the cost method. These investments are periodically reviewed for impairment and when indicators of impairment exist, are measured to fair value as appropriate on a non-recurring basis. In determining the fair value of our investments we are sometimes required to use various alternative valuation techniques. The authoritative guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.
The authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1, observable inputs such as quoted prices in active markets for identical assets or liabilities, Level 2, inputs, other than quoted prices in active markets, that are observable either directly or indirectly, and Level 3, unobservable inputs in which there is little or no market data, which requires us to develop our own assumptions. Observable inputs are those that market participants would use in pricing the asset or liability that are based on market data obtained from independent sources, such as market quoted prices. When Level 1 observable inputs for our investments are not available to determine their fair value, we must then use other inputs which may include indicative pricing for securities from the same issuer with similar terms, yield curve information, benchmark data, prepayment speeds and credit quality or unobservable inputs that reflect our estimates of the assumptions market participants would use in pricing the investments based on the best information available in the circumstances. When valuation techniques, other than those described as Level 1 are utilized, management must make estimations and judgments in determining the fair value for its investments. The degree to which management’s estimation and judgment is required is generally dependent upon the market pricing available for the investments, the availability of observable inputs, the frequency of trading in the investments and the investment’s complexity. If we make different judgments regarding unobservable inputs, we could potentially reach different conclusions regarding the fair value of our investments.
After we have determined the fair value of our investments, for those that are in an unrealized loss position, we must then determine if the investment is other-than-temporarily impaired. We review our investments quarterly for indicators of other-than-temporary impairment. This determination requires significant judgment and if different judgments are used the classification of the losses related to our investments could differ. In making this judgment, we employ a systematic methodology that considers available quantitative and qualitative evidence in evaluating potential impairment of our investments. If the carrying value of an available-for-sale investment exceeds its fair value, we evaluate, among other factors, general market conditions, the duration and extent to which the fair value is less than carrying value our intent to retain or sell the investment and whether it is more likely than not that we will not be required to sell the investment before the recovery of its amortized cost basis, which may not be until maturity. We also consider specific adverse conditions related to the financial health of and business outlook for the issuer, including industry and sector performance, rating agency actions and changes in credit default swap levels. For our cost method investments, our quarterly review of impairment indicators encompasses the analysis of specific criteria of the entity, such as cash position, financing needs, operational performance, management changes, competition and turnaround potential. If any of the above impairment indicators are present, we further evaluate whether an other-than-temporary impairment should be recorded. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established. See Notes 5 and 6 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 and “Liquidity and Capital Resources” for more information on our investments.
Intangible Assets
We have product related technology assets and other intangible assets from acquisitions and other third party agreements. We allocate the purchase price of intangible assets acquired through third party agreements based on their estimated relative fair values. We allocate a portion of purchase price of acquired companies to the product related technology assets and other intangible assets acquired based on their estimated fair values. We typically engage third party appraisal firms to assist us in determining the fair values and useful lives of product related technology assets and other intangible assets acquired. Such

35


valuations and useful life determinations require us to make significant estimates and assumptions. These estimates are based on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Critical estimates in determining the fair value and useful lives of the product related technology assets include but are not limited to future expected cash flows earned from the product related technology and discount rates applied in determining the present value of those cash flows. Critical estimates in valuing certain other intangible assets include but are not limited to future expected cash flows from customer contracts, customer retention rates, customer lists, distribution agreements, patents, brand awareness and market position, as well as discount rates.
Management's estimates of fair value are based upon assumptions believed to be reasonable. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.
We monitor acquired intangible assets for impairment on a periodic basis by reviewing for indicators of impairment. If an indicator exists we compare the estimated net realizable value to the unamortized cost of the intangible asset. The recoverability of the intangible assets is primarily dependent upon our ability to commercialize solutions utilizing the acquired technologies, retain existing customers and customer contracts, and maintain brand awareness. The estimated net realizable value of the acquired intangible assets is based on the estimated undiscounted future cash flows derived from such intangible assets. Our assumptions about future revenues and expenses require significant judgment associated with the forecast of the performance of our solutions, customer retention rates and ability to secure and maintain our market position. Actual revenues and costs could vary significantly from these forecasted amounts. If these solutions are not ultimately accepted by our customers and distributors, and there is no alternative future use for the technology; or if we fail to retain acquired customers or successfully market acquired brands, we could determine that some or all of the remaining $142.0 million carrying value of our acquired intangible assets is impaired. In the event of impairment, we would record an impairment charge to earnings that could have a material adverse effect on our results of operations.
Goodwill
The excess of the fair value of purchase price over the fair values of the identifiable assets and liabilities from our acquisitions is recorded as goodwill. At December 31, 2017, we had $1.61 billion in goodwill related to our acquisitions. Our revenues are derived from sales of our Workspace Services solutions, Networking products, and related license updates and maintenance, and our Content Collaboration offerings. As part of our continued transformation, effective January 1, 2016, we reorganized a part of our business by creating a new Content Collaboration product grouping. In connection with this change, we performed an assessment of our goodwill reporting units and determined that the reorganization resulted in the identification of two goodwill reporting units (excluding the GoTo Business). Additionally, on January 31, 2017, we completed the Spin-off of the GoTo Business and $380.9 million of the goodwill attributable to the GoTo Business as of December 31, 2016 was distributed to GetGo. As a result of the Spin-off, we performed an assessment of the two remaining goodwill reporting units and determined that they remain unchanged. See Note 12 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 for additional information regarding our reportable segment.
We account for goodwill in accordance with FASB’s authoritative guidance, which requires that goodwill and certain intangible assets are not amortized, but are subject to an annual impairment test. We complete our goodwill and certain intangible assets impairment tests on an annual basis, during the fourth quarter of our fiscal year, or more frequently, if changes in facts and circumstances indicate that an impairment in the value of goodwill and certain intangible assets recorded on our balance sheet may exist.
In the fourth quarter of 2017, we performed a qualitative assessment to determine whether further quantitative impairment testing for goodwill and certain intangible assets is necessary, and we refer to this assessment as the Qualitative Screen. In performing the Qualitative Screen, we are required to make assumptions and judgments including but not limited to the following: the evaluation of macroeconomic conditions as related to our business, industry and market trends, and the overall future financial performance of our reporting units and future opportunities in the markets in which they operate. If after performing the Qualitative Screen impairment indicators are present, we would perform a quantitative impairment test to estimate the fair value of goodwill and certain intangible assets. In doing so, we would estimate future revenue, consider market factors and estimate our future cash flows. Based on these key assumptions, judgments and estimates, we determine whether we need to record an impairment charge to reduce the value of the goodwill and certain intangible assets carried on our balance sheet to its estimated fair value. Assumptions, judgments and estimates about future values are complex and often subjective and can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy or our internal forecasts. Although we believe the assumptions, judgments and estimates we have made have been reasonable and appropriate, different assumptions, judgments and estimates could materially affect our results of operations. As a result of the Qualitative Screen, no further quantitative impairment test was deemed necessary. There was no impairment of goodwill as a result of the annual impairment tests completed during the

36


fourth quarters of 2017 and 2016.
Income Taxes
We are required to estimate our income taxes in each of the jurisdictions in which we operate as part of the process of preparing our consolidated financial statements. At December 31, 2017, we had $152.3 million in net deferred tax assets. The authoritative guidance requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. We review deferred tax assets periodically for recoverability and make estimates and judgments regarding the expected geographic sources of taxable income and gains from investments, as well as tax planning strategies in assessing the need for a valuation allowance. At December 31, 2017, we determined that a $76.8 million valuation allowance relating to deferred tax assets for net operating losses and tax credits was necessary. If the estimates and assumptions used in our determination change in the future, we could be required to revise our estimates of the valuation allowances against our deferred tax assets and adjust our provisions for additional income taxes.
In the ordinary course of global business, there are transactions for which the ultimate tax outcome is uncertain, thus judgment is required in determining the worldwide provision for income taxes. We provide for income taxes on transactions based on our estimate of the probable liability. We adjust our provision as appropriate for changes that impact our underlying judgments. Changes that impact provision estimates include such items as jurisdictional interpretations on tax filing positions based on the results of tax audits and general tax authority rulings. Due to the evolving nature of tax rules combined with the large number of jurisdictions in which we operate, it is possible that our estimates of our tax liability and the realizability of our deferred tax assets could change in the future, which may result in additional tax liabilities and adversely affect our results of operations, financial condition and cash flows.
The 2017 Tax Act significantly revised the U.S. tax code by, in part but not limited to, reducing the U.S. corporate tax rate from 35% to 21% and imposing a mandatory one-time transition tax on certain un-repatriated earnings of foreign subsidiaries. The SEC staff acknowledged the challenges companies face incorporating the effects of tax reform by their financial reporting deadlines. In response, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118, or SAB 118, to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete accounting for certain income tax effects of the 2017 Tax Act. As of December 31, 2017, we recorded a provisional income tax charge of $64.8 million for the re-measurement of our U.S. deferred tax assets and liabilities because of the federal corporate maximum tax rate reduction. We also recorded a provisional income tax charge of $364.6 million for the transition tax on deemed repatriation of deferred foreign income. The provisional amounts recorded are based on our current interpretation and understanding of the 2017 Tax Act, are judgmental and may change as we receive additional clarification and implementation guidance. We will continue to gather and evaluate the income tax impact of the 2017 Tax Act. Changes to these provisional amounts or any of our other estimates regarding taxes could result in material charges or credits in future reporting periods.
Convertible Senior Notes
In April 2014, we completed a private placement of our Convertible Notes due 2019 with a net share settlement feature, meaning that upon conversion, the principal amount will be settled in cash and the remaining amount, if any, will be settled in shares of our common stock or a combination of cash and shares of our common stock, at our election. In accordance with accounting guidance for convertible debt instruments that may be settled in cash or other assets on conversion, we first determine the carrying amount of the liability component by measuring the fair value of a similar liability that does not have an associated equity component. Then we determine the carrying amount of the equity component represented by the embedded conversion option by deducting the fair value of the liability component from the initial proceeds ascribed to the convertible debt instrument as a whole. Debt discount and debt issuance costs are amortized to interest expense using the effective interest method.
As a result of the structure of the RMT transaction with LogMeIn and the notification on October 10, 2016 to noteholders in accordance with the Indenture, the Convertible Notes became convertible until the earlier of (1) the close of business on the business day immediately preceding the ex-dividend date for the distribution of the outstanding shares of GetGo common stock to the Company’s stockholders by way of a pro rata dividend, and (2) the Company’s announcement that such distribution will not take place, even though the Convertible Notes were not otherwise convertible at December 31, 2016. The $1.44 billion Convertible Notes became convertible with the notice to noteholders. Accordingly, as of December 31, 2016, the carrying amount of the Convertible Notes of $1.3 billion was reclassified from Other liabilities to Current liabilities and the difference between the face value and carrying value of $79.5 million was reclassified from stockholders’ equity to temporary equity in the accompanying condensed consolidated balance sheets. The conversion period terminated as of the close of business on January 31, 2017 in connection with the Spin-off. As a result, the Convertible Notes were reclassified to Other liabilities from Current liabilities, and the amount previously recorded as Temporary equity was reclassified to Stockholders' equity.

37


The following discussion relating to the individual financial statement captions, our overall financial performance, operations and financial position should be read in conjunction with the factors and events described in “— Overview” and Part 1 – Item 1A entitled “Risk Factors,” included in this Annual Report on Form 10-K for the year ended December 31, 2017, which could impact our future performance and financial position.



38


Results of Operations
The following table sets forth our consolidated statements of income data and presentation of that data as a percentage of change from year-to-year (in thousands other than percentages):
 
Year Ended December 31,
 
2017 Compared to 2016
 
2016 Compared to 2015
 
2017
 
2016
 
2015
 
 
Revenues:
 
 
 
 
 
 
 
 
 
Product and licenses
$
857,253

 
$
882,898

 
$
873,808

 
(2.9
)%
 
1.0
 %
Software as a service
175,762

 
134,682

 
103,851

 
30.5

 
29.7

License updates and maintenance
1,659,936

 
1,587,271

 
1,521,007

 
4.6

 
4.4

Professional services
131,735

 
131,229

 
147,488

 
0.4

 
(11.0
)
Total net revenues
2,824,686

 
2,736,080

 
2,646,154

 
3.2

 
3.4

Cost of net revenues:
 
 
 
 
 
 
 
 
 
Cost of product and license revenues
123,356

 
121,391

 
118,265

 
1.6

 
2.6

Cost of services and maintenance revenues
250,602

 
228,080

 
228,503

 
9.9

 
(0.2
)
Amortization of product related intangible assets
50,183

 
54,290

 
71,001

 
(7.6
)
 
(23.5
)
Impairment of product related intangible assets
15,505

 
1,128

 
56,271

 
1,274.6

 
(98.0
)
Total cost of net revenues
439,646

 
404,889

 
474,040

 
8.6

 
(14.6
)
Gross margin
2,385,040

 
2,331,191

 
2,172,114

 
2.3

 
7.3

Operating expenses:

 

 
 
 
 
 
 
Research and development
415,801

 
395,373

 
480,957

 
5.2

 
(17.8
)
Sales, marketing and services
1,006,112

 
976,339

 
1,005,802

 
3.0

 
(2.9
)
General and administrative
302,565

 
316,838

 
286,424

 
(4.5
)
 
10.6

Amortization of other intangible assets
14,652

 
15,076

 
30,341

 
(2.8
)
 
(50.3
)
Impairment of other intangible assets
2,538

 

 
67,137

 
100.0

 
(100.0
)
Restructuring
72,375

 
67,401

 
98,661

 
7.4

 
(31.7
)
Total operating expenses
1,814,043

 
1,771,027

 
1,969,322

 
2.4

 
(10.1
)
Income from operations
570,997

 
560,164

 
202,792

 
1.9

 
176.2

Interest income
27,808

 
16,686

 
11,675

 
66.7

 
42.9

Interest expense
(51,609
)
 
(44,949
)
 
(44,153
)
 
14.8

 
1.8

Other income (expense), net
3,150

 
(4,131
)
 
(5,730
)
 
(176.3
)
 
(27.9
)
Income from continuing operations before income taxes
550,346

 
527,770

 
164,584

 
4.3

 
220.7

Income tax expense (benefit)
528,361

 
57,915

 
(50,549
)
 
812.3

 
(214.6
)
Income from continuing operations
$
21,985

 
$
469,855

 
$
215,133

 
(95.3
)
 
118.4

(Loss) income from discontinued operations
(42,704
)
 
66,257

 
104,228

 
(164.5
)
 
(36.4
)
Net (loss) income
$
(20,719
)
 
$
536,112

 
$
319,361

 
(103.9
)%
 
67.9
 %
Revenues
Net revenues include Product and licenses, License updates and maintenance, Professional services and SaaS revenues. Product and licenses primarily represent fees related to the licensing of the following major solutions:
Workspace Services is primarily comprised of our Application Virtualization solutions which include XenDesktop and XenApp, our Enterprise Mobility Management solutions which include XenMobile solutions and Citrix Workspace; and
Networking primarily includes NetScaler ADC and NetScaler SD-WAN.
We offer incentive programs to our VADs and VARs to stimulate demand for our solutions. Product and license revenues associated with these programs are partially offset by these incentives to our VADs and VARs. In addition, our CSP program provides subscription-based services in which the CSP partners host software services to their end users. The fees from the CSP program are recognized based on usage and as the CSP services are provided to their end users.

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License updates and maintenance consists of maintenance and support fees related to the following offerings:
Customer Success Services, which gives customers a choice of tiered support offerings that combine the elements of product version upgrades, guidance, enablement, support and proactive monitoring to help our customers and our partners fully realize their business goals. Fees associated with this offering are recognized ratably over the term of the contract;
Maintenance for our Networking products, which include technical support and hardware and software maintenance, are recognized ratably over the contract term; and
Subscription Advantage program which has been retired and reached end of sale and end of renewal for existing customers. Fees associated with these offerings are being recognized ratably over the remaining term of existing contracts, which was typically 12 to 24 months.
Professional services revenues are comprised of:
Fees from consulting services related to the implementation of our solutions, which are recognized as the services are provided; and
Fees from product training and certification, which are recognized as the services are provided.
Our SaaS revenues, which are recognized ratably over the contractual term, primarily consist of fees related to our Content Collaboration offerings, primarily ShareFile, as well as fees related to our Workspace Services and Networking offerings and products delivered via the cloud.
 
Year Ended December 31,
 
2017 Compared to 2016
 
2016 Compared to 2015
 
2017
 
2016
 
2015
 
 
 
(In thousands)
Revenues:
 
 
 
 
 
 
 
 
 
Product and licenses
$
857,253

 
$
882,898

 
$
873,808

 
$
(25,645
)
 
$
9,090

Software as a Service
175,762

 
134,682

 
103,851

 
41,080

 
30,831

License updates and maintenance
1,659,936

 
1,587,271

 
1,521,007

 
72,665

 
66,264

Professional Services
131,735

 
131,229

 
147,488

 
506

 
(16,259
)
Total net revenues
$
2,824,686

 
$
2,736,080

 
$
2,646,154

 
$
88,606

 
$
89,926

Product and licenses

Product and licenses revenue decreased during 2017 when compared to 2016 primarily due to lower sales of our Networking products of $25.9 million. Product and licenses revenue increased during 2016 when compared to 2015 due to higher overall sales of our Workspace Services solutions of $8.3 million and Networking products of $7.1 million. These increases were partially offset by lower sales of our non-core products of $8.0 million as a result of our product portfolio rationalization. We currently expect Product and licenses revenue to decrease when comparing the first quarter of 2018 to the first quarter of 2017 due to the continued transition to a subscription-based business model as we are offering our customers the option to purchase our solutions as a subscription, whereby a fee is paid for the right to use our software and receive support for a specified period.
Software as a Service
Software as a service revenue increased during 2017 compared to 2016 primarily due to increased sales of our Content Collaboration offerings of $24.4 million and our Workspace Services offerings delivered via the cloud of $15.7 million. Software as a service revenue increased during 2016 compared to 2015 primarily due to increased sales of our Content Collaboration offerings. We currently expect our Software as a Service revenue to increase when comparing the first quarter of 2018 to the first quarter of 2017 as customers continue to shift to our cloud-based solutions.
License updates and maintenance
In October 2016, we announced the launch of Customer Success Services, which replaced Software Maintenance and provides a higher standard of service that empowers customer success whether in the cloud, on-premises or in a hybrid environment through additional services providing expert guidance, proactive monitoring and enablement. In connection with this launch, beginning in 2017, our customers began migrating from the Subscription Advantage and Software Maintenance programs to this new offering.

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License updates and maintenance revenue increased during 2017 compared to 2016 primarily due to an increase in software maintenance revenues of $343.6 million, primarily driven by increased sales of maintenance revenues across our Workspace Services solutions, partially offset by a decrease in our Subscription Advantage product of $259.9 million and our technical support of $30.9 million. License updates and maintenance revenue increased during 2016 compared to 2015 primarily due to an increase in hardware and software maintenance revenues of $291.2 million, primarily driven by increased sales of maintenance revenues across our Workspace Services and Networking products, partially offset by decreases in our Subscription Advantage product of $180.4 million and our technical and premier support of $44.6 million. These results are due to our new Customer Success Services offering discussed above. We currently expect that License updates and maintenance revenue will increase when comparing the first quarter of 2018 to the first quarter of 2017 due to our new Customer Success Services offerings.
Professional services
Professional services revenue remained consistent when comparing 2017 to 2016. The increase in Professional services revenue when comparing 2016 to 2015 was primarily due to increased implementation services and product training and certification related to our Workspace Services solutions. We currently expect Professional services revenue to remain consistent when comparing the first quarter of 2018 to the first quarter of 2017.
Deferred Revenue
Deferred revenues are primarily comprised of License updates and maintenance revenue from maintenance fees, which include software and hardware maintenance, our Subscription Advantage program and technical support. Deferred revenues also include SaaS revenue from our Content Collaboration and cloud-based subscription offerings and Professional services revenue primarily related to our consulting contracts.
Deferred revenues increased approximately $179.9 million as of December 31, 2017 compared to December 31, 2016 primarily due to an increase in sales of our software maintenance offerings of $439.7 million and SaaS of $44.1 million, partially offset by a net decrease in sales of our Subscription Advantage product of $323.6 million. We currently expect deferred revenue to increase in 2018.
While it is generally our practice to promptly ship our products upon receipt of properly finalized purchase orders, we sometimes have product license orders that have not shipped. Although the amount of such product license orders may vary, the amount, if any, of such product license orders at the end of a particular period has not been material to total revenue at the end of any reporting period. We do not believe that backlog, as of any particular date, is a reliable indicator of future performance.
Deferred revenue primarily consists of billings or payments received in advance of revenue recognition and is recognized in our consolidated balance sheet and consolidated statements of income as the revenue recognition criteria are met. Unbilled revenue primarily represents future billings under our subscription agreements that have not been invoiced and, accordingly, are not recorded in accounts receivable and deferred revenue within our financial statements. As of December 31, 2017, we had unbilled revenue of $78.1 million. Deferred revenue and unbilled revenue are influenced by several factors, including new business seasonality within the year, the specific timing, size and duration of customer subscription agreements, varying billing cycles of subscription agreements, and invoice timing. Fluctuations in unbilled revenue may not be a reliable indicator of future performance and the related revenue associated with these contractual commitments.
International Revenues
International revenues (sales outside the United States) accounted for approximately 46.3% of our net revenues for the year ended December 31, 2017, 46.3% of our net revenues for the year ended December 31, 2016 and 48.7% of our net revenues for the year ended December 31, 2015. The change in our international revenues as a percentage of our net revenues for the periods presented is not significant. For detailed information on international revenues, please refer to Note 12 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017.

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Cost of Net Revenues
 
Year Ended December 31,
2017 Compared to 2016
 
2016 Compared to 2015
 
2017
 
2016
 
2015
 
 
 
(In thousands)
Cost of product and license revenues
$
123,356

 
$
121,391

 
$
118,265

 
$
1,965

 
$
3,126

Cost of services and maintenance revenues
250,602

 
228,080

 
228,503

 
22,522

 
(423
)
Amortization of product related intangible assets
50,183

 
54,290

 
71,001

 
(4,107
)
 
(16,711
)
Impairment of product related intangible assets
15,505

 
1,128

 
56,271

 
14,377

 
(55,143
)
Total cost of net revenues
$
439,646

 
$
404,889

 
$
474,040

 
$
34,757

 
$
(69,151
)
Cost of product and license revenues consists primarily of hardware, shipping expense, royalties, product media and duplication, manuals and packaging materials. Cost of services and maintenance revenues consists primarily of compensation and other personnel-related costs of providing technical support, consulting, cloud capacity costs, as well as the costs related to providing our SaaS offerings. Also included in Cost of net revenues is amortization of product related intangible assets.
Cost of product and license revenues increased during 2017 when compared to 2016 primarily due to royalties from our Workspace Services solutions. Cost of product and license revenues increased during 2016 when compared to 2015 primarily due to higher sales of our Networking products, some of which contain hardware components that have a higher cost than our software solutions. We currently expect cost of product and license revenues will decrease when comparing the first quarter of 2018 to the first quarter of 2017, consistent with the expected decrease in revenues as noted above.
Cost of services and maintenance revenues increased during 2017 compared to 2016 primarily due to an increase in sales of our software maintenance of $12.8 million from our new Customer Success Services offering, an increase in sales of our Workspace Services offerings delivered via the cloud of $5.1 million, and an increase in sales of our Content Collaboration offerings of $2.8 million. Cost of services and maintenance revenues decreased during 2016 compared to 2015 primarily due to a decrease in implementation services and product training and certification costs of $20.1 million related to our Workspace Services solutions, partially offset by an increase in costs due to higher sales of our Content Collaboration offerings of $17.8 million and support and maintenance costs related to our Workspace Services and Networking products of $1.9 million. We currently expect cost of services and maintenance revenues will increase when comparing the first quarter of 2018 to the first quarter of 2017 consistent with the increase in SaaS revenue and License updates and maintenance revenues as discussed above.
Amortization of product related intangible assets decreased during 2017 as compared to 2016 primarily due to lower amortization of certain intangible assets becoming fully amortized. Amortization of product related intangible assets decreased during 2016 as compared to 2015 primarily due to lower amortization of certain intangible assets becoming fully amortized as a result of impairments during 2015.
Impairment of product related intangible assets increased during 2017 as compared to 2016 primarily due to the impairments of certain acquired intangible assets in 2017. Impairment of product related intangible assets decreased during 2016 as compared to 2015 primarily due to the impairments of certain acquired intangible assets in 2015.
Gross Margin
Gross margin as a percent of revenue was 84.4% for 2017, 85.2% for 2016 and 82.1% for 2015. Gross margin remained consistent when comparing 2017 to 2016. The increase in gross margin as a percentage of net revenue when comparing 2016 to 2015 was primarily due to 2015 including the impairment of certain product related intangible assets.
Operating Expenses
Foreign Currency Impact on Operating Expenses
The functional currency for all of our wholly-owned foreign subsidiaries is the U.S. dollar. A substantial majority of our overseas operating expenses and capital purchasing activities are transacted in local currencies and are therefore subject to fluctuations in foreign currency exchange rates. In order to minimize the impact on our operating results, we generally initiate our hedging of currency exchange risks up to 12 months in advance of anticipated foreign currency expenses. When the dollar is weak, the resulting increase to foreign currency denominated expenses will be partially offset by the gain in our hedging contracts. When the dollar is strong, the resulting decrease to foreign currency denominated expenses will be partially offset by the loss in our hedging contracts. There is a risk that there will be fluctuations in foreign currency exchange rates beyond the timeframe for which we hedge our risk.

42


Research and Development Expenses 
 
Year Ended December 31,
 
2017 Compared to 2016
 
2016 Compared to 2015
 
2017
 
2016
 
2015
 
 
 
(In thousands)
Research and development
$
415,801

 
$
395,373

 
$
480,957

 
$
20,428

 
$
(85,584
)

Research and development expenses consisted primarily of personnel related costs, facility and equipment costs and
cloud capacity costs directly related to our research and development activities. We expensed substantially all development costs included in the research and development of our solutions.
Research and development expenses increased during 2017 as compared to 2016 primarily due to an increase in stock-based compensation of $8.7 million, an increase in compensation and other employee-related costs of $8.6 million, and an increase in cloud capacity costs of $7.1 million. The increase in compensation and other employee-related costs was primarily related to a net increase in headcount prior to the restructuring program announced in October 2017 intended to accelerate the transformation to a cloud-based subscription business, increase strategic focus, and improve operational efficiency. These increases are partially offset by a decrease in facility and equipment costs of $3.7 million.
Research and development expenses decreased during 2016 as compared to 2015 primarily due to a decrease in compensation and employee-related costs mostly related to a net decrease in headcount resulting from restructuring activities
initiated in 2015.
Sales, Marketing and Services Expenses
 
Year Ended December 31,
 
2017 Compared to 2016
 
2016 Compared to 2015
 
2017
 
2016
 
2015
 
 
 
(In thousands)
Sales, marketing and services
$
1,006,112

 
$
976,339

 
$
1,005,802

 
$
29,773

 
$
(29,463
)
Sales, marketing and services expenses consisted primarily of personnel related costs, including sales commissions, pre-sales support, the costs of marketing programs aimed at increasing revenue, such as brand development, advertising, trade shows, public relations and other market development programs and costs related to our facilities, equipment, information systems and cloud capacity that are directly related to our sales, marketing and services activities.
Sales, marketing and services expenses increased during 2017 compared to 2016 primarily due to an increase in compensation and other employee-related costs, including variable compensation of $35.1 million resulting from a net increase in headcount, and an increase in cloud capacity costs of $10.8 million. The increase in compensation and other employee-related costs was primarily related to a net increase in headcount prior to the restructuring program announced in October 2017 intended to accelerate the transformation to a cloud-based subscription business, increase strategic focus, and improve operational efficiency. These increases are partially offset by a decrease in certain facility and depreciation costs of $14.9 million.
Sales, marketing and services expenses decreased during 2016 compared to 2015 primarily due to a decrease in compensation and other employee-related costs of $15.5 million as a result of restructuring initiatives, a decrease in professional services of $12.2 million and a decrease in facilities costs of $7.3 million. These decreases are partially offset by an increase in variable compensation of $13.6 million due to an increase in sales.
General and Administrative Expenses
 
Year Ended December 31,
 
2017 Compared to 2016
 
2016 Compared to 2015
 
2017
 
2016
 
2015
 
 
 
(In thousands)
General and administrative
$
302,565

 
$
316,838

 
$
286,424

 
$
(14,273
)
 
$
30,414

General and administrative expenses consisted primarily of personnel related costs and expenses related to outside consultants assisting with information systems, as well as accounting and legal fees.
General and administrative expenses decreased during 2017 compared to 2016 primarily due to a decrease in compensation and other employee-related costs of $11.5 million and decrease in stock-based compensation of $5.1 million.

43


General and administrative expenses increased during 2016 compared to 2015 primarily due to an increase in stock-based compensation of $21.1 million and an increase in compensation and other employee-related costs of $9.7 million. These increases are partially offset by a decrease in professional fees of $10.0 million primarily due to fees incurred in connection with the operational and strategic review of the business in 2015 and the resulting cost reductions from operational efficiencies in 2016.
Amortization of Other Intangible Assets 
 
Year Ended December 31,
 
2017 Compared to 2016
 
2016 Compared to 2015
 
2017
 
2016
 
2015
 
 
 
(In thousands)
Amortization of other intangible assets
$
14,652

 
$
15,076

 
$
30,341

 
$
(424
)
 
$
(15,265
)
Amortization of other intangible assets consists of amortization of customer relationships, trade names and covenants not to compete primarily related to our acquisitions.
Amortization of other intangible assets remained consistent when comparing 2017 to 2016.
The decrease in Amortization of other intangible assets when comparing 2016 to 2015 was primarily due to lower amortization of certain intangible assets becoming fully amortized as a result of impairments during 2015.
As of December 31, 2017, we had unamortized other identified intangible assets with estimable useful lives in the net amount of $33.9 million. For more information regarding our acquisitions see, “— Overview” and Note 4 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017.
Impairment of Other Intangible Assets 
 
Year Ended December 31,
 
2017 Compared to 2016
 
2016 Compared to 2015
 
2017
 
2016
 
2015
 
 
 
(In thousands)
Impairment of other intangible assets
$
2,538

 
$

 
$
67,137

 
$
2,538

 
$
(67,137
)
Impairment of other intangible assets consists of impairment charges related to customer relationships, trade names and covenants not to compete primarily related to our acquisitions.
The increase in Impairment of other intangible assets when comparing 2017 to 2016 was primarily due to impairments of certain intangible assets related to certain non-core products.
The decrease in Impairment of other intangible assets when comparing 2016 to 2015 was primarily due to impairments of certain intangible assets related to ByteMobile during the third quarter of 2015.
Restructuring Expenses
 
Year Ended December 31,
 
2017 Compared to 2016
 
2016 Compared to 2015
 
2017
 
2016
 
2015
 
 
 
(In thousands)
Restructuring
$
72,375

 
$
67,401

 
$
98,661

 
$
4,974

 
$
(31,260
)

During the year ended December 31, 2017, we incurred costs of $53.7 million related to initiatives intended to accelerate the transformation to a cloud-based subscription business, increase strategic focus, and improve operational efficiency. We currently expect to record in the aggregate approximately $60.0 million to $100.0 million in pre-tax restructuring charges associated with this program. We currently anticipate completing the remainder of the activities related to this program during fiscal year 2018.
During the year ended December 31, 2017, we incurred costs of $8.1 million related to operational initiatives designed to improve our infrastructure scalability and cost saving efficiencies. The charges primarily related to employee severance. Activities related to this program were substantially completed as of the fourth quarter of 2017.

44


During the years ended December 31, 2017, 2016 and 2015, we incurred costs of $1.9 million, $44.5 million and $29.4 million primarily related to our announced plan in November 2015 to simplify our enterprise go-to-market motion and roles while improving coverage, reflect changes in our product focus, and balance resources with demand across our marketing, general and administration areas. The charges are primarily related to employee severance, outplacement, professional service fees, and facility closing costs. The majority of the activities related to this program were substantially completed as of the end of the first quarter of 2016.
During the years ended December 31, 2017, 2016 and 2015, we recorded charges of $8.7 million and $24.0 million and $67.5 million related to our announced plan in January 2015 to increase strategic focus and operational efficiency. The charges primarily related to the severance and other costs directly related to the reduction of our workforce and consolidation of leased facilities. The majority of the activities related to this program were substantially completed by the end of 2015. For more information regarding our restructuring see, “— Overview” and Note 17 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017.
2018 Operating Expense Outlook
When comparing the first quarter of 2018 to the fourth quarter of 2017, we expect operating expenses to increase in Sales, marketing and services, while remaining at consistent levels across the other functional areas.
Interest income
 
Year Ended December 31,
 
2017 Compared to 2016
 
2016 Compared to 2015
 
2017
 
2016
 
2015
 
 
 
(In thousands)
Interest income
$
27,808

 
$
16,686

 
$
11,675

 
$
11,122

 
$
5,011

Interest income primarily consists of interest earned on our cash, cash equivalents and investment balances. Interest income increased during 2017 compared to 2016 primarily due to overall higher average cash, cash equivalents and investment balances and higher yields on investments as a result of an increase in interest rates. Interest income increased during 2016 compared to 2015 primarily due to overall higher average cash, cash equivalents and investment balances and higher yields on investments as a result of an increase in interest rates. See Note 5 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 for investment information.
Interest Expense
 
Year Ended December 31,
 
2017 Compared to 2016
 
2016 Compared to 2015
 
2017
 
2016
 
2015
 
 
 
(In thousands)
Interest expense
$
(51,609
)
 
$
(44,949
)
 
$
(44,153
)
 
$
(6,660
)
 
$
(796
)
Interest expense consists primarily of interest on our 2027 Notes, Convertible Notes and credit facility.
When comparing 2017 and 2016, the increase is primarily due to the issuance of our 2027 Notes in 2017. When comparing 2016 to 2015, the increase in interest expense was not significant. For more information regarding our debt, see Note 13 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017.
Other Income (Expense), net
 
Year Ended December 31,
 
2017 Compared to 2016
 
2016 Compared to 2015
 
2017
 
2016
 
2015
 
 
 
(In thousands)
Other income (expense), net
$
3,150

 
$
(4,131
)
 
$
(5,730
)
 
$
7,281

 
$
1,599

Other income (expense), net is primarily comprised of remeasurement of foreign currency transaction gains (losses), realized losses related to changes in the fair value of our investments that have a decline in fair value considered other-than-temporary and recognized gains (losses) related to our investments, which was not material for all periods presented.
The change in Other income (expense), net when comparing 2017 to 2016 is primarily driven by an increase in net gains on remeasurement and settlements of foreign currency transactions.

45


The change in Other income (expense), net when comparing 2016 to 2015 is primarily driven by a decrease in losses on the remeasurement and settlements of foreign currency transactions of $5.5 million, decrease in impairment charges of $2.2 million recognized on cost method investments and an increase in gains recognized on available for sale investments of $1.4 million. These changes are partially offset by a decrease in gains recognized on cost method investments of $7.0 million.
Income Taxes
We are required to estimate our income taxes in each of the jurisdictions in which we operate as part of the process of preparing our consolidated financial statements. We maintain certain strategic management and operational activities in overseas subsidiaries and our foreign earnings are taxed at rates that are generally lower than in the United States.
On December 22, 2017, President Donald Trump signed the Tax Cuts and Jobs Act (the "2017 Tax Act”) into law effective January 1, 2018. The 2017 Tax Act significantly revised the U.S. tax code by, in part but not limited to: reducing the U.S. corporate maximum tax rate from 35% to 21%, imposing a mandatory one-time transition tax on certain un-repatriated earnings of foreign subsidiaries, modifying executive compensation deduction limitations, and repealing the deduction for domestic production activities. Under Accounting Standards Codification 740, Income Taxes, the Company must recognize the effects of tax law changes in the period in which the new legislation is enacted.
Our effective tax rate generally differs from the U.S. federal statutory rate primarily due to lower tax rates on earnings generated by our foreign operations that are taxed primarily in Switzerland. From time to time, there may be other items that impact the tax rate, such as the items specific to the current period discussed above.
The SEC staff acknowledged the challenges companies face incorporating the effects of tax reform by their financial reporting deadlines. In response, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete accounting for certain income tax effects of the 2017 Tax Act. As of December 31, 2017, the Company recorded a provisional income tax charge of $64.8 million for the re-measurement of its U.S. deferred tax assets and liabilities because of the federal corporate tax rate reduction from 35% to 21%. The Company recorded a provisional income tax charge of $364.6 million for the transition tax on deemed repatriation of deferred foreign income. The Company also accounted for the modified executive compensation deduction limitations pursuant to the 2017 Tax Act as of December 31, 2017.
The provisional amounts recorded are based on the Company’s current interpretation and understanding of the 2017 Tax Act and may change as the Company receives additional clarification and implementation guidance. The Company will continue to gather and evaluate the income tax impact of the 2017 Tax Act. Pursuant to SAB 118, the Company will complete the accounting for the tax effects of all of the provisions of the 2017 Tax Act within the required measurement period not to extend beyond one year from the enactment date.
Our effective tax rate was approximately 96.0% for the year ended December 31, 2017 and 11.0% for the year ended December 31, 2016. The increase in the effective tax rate when comparing the year ended December 31, 2017 to the year ended December 31, 2016 was primarily due to accounting for the estimated tax impact of the 2017 Tax Act and the separation of the GoTo Business.
As of December 31, 2017, our net unrecognized tax benefits totaled approximately $77.8 million as compared to $69.8 million as of December 31, 2016. All amounts included in this balance affect the annual effective tax rate. As of the year ended December 31, 2017, we accrued $2.7 million for the payment of interest on uncertain tax positions.
We and one or more of our subsidiaries are subject to federal income taxes in the United States, as well as income taxes of multiple state and foreign jurisdictions. We are currently not subject to a U.S. federal income tax examination. With few exceptions, we are no longer subject to U.S., federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2014.
In the ordinary course of global business, there are transactions for which the ultimate tax outcome is uncertain; thus judgment is required in determining the worldwide provision for income taxes. We provide for income taxes on transactions based on our estimate of the probable liability. We adjust our provision as appropriate for changes that impact our underlying judgments. Changes that impact provision estimates include such items as jurisdictional interpretations on tax filing positions based on the results of tax audits and general tax authority rulings. Due to the evolving nature of tax rules combined with the large number of jurisdictions in which we operate, it is possible that our estimates of our tax liability and the realizability of our deferred tax assets could change in the future, which may result in additional tax liabilities and adversely affect our results of operations, financial condition and cash flows.
As of December 31, 2017, we had $152.3 million in net deferred tax assets. The authoritative guidance requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not

46


that some portion or all of the deferred tax assets will not be realized. We review deferred tax assets periodically for recoverability and make estimates and judgments regarding the expected geographic sources of taxable income and gains from investments, as well as tax planning strategies in assessing the need for a valuation allowance. As of December 31, 2017, we determined that a $76.8 million valuation allowance relating to deferred tax assets for net operating losses and tax credits was necessary. If the estimates and assumptions used in our determination change in the future, we could be required to revise our estimates of the valuation allowances against our deferred tax assets and adjust our provisions for additional income taxes.
We currently expect our effective tax rate to decrease in 2018 as compared to 2017 due to capturing the provisional impact of the 2017 Tax Act and the separation of the GoTo Business executed in and unique to 2017.
Liquidity and Capital Resources
During 2017, we generated continuing operating cash flows of $964.3 million. These operating cash flows related primarily to net income from continuing operations of $22.0 million, adjusted for, among other things, non-cash charges, depreciation and amortization expenses of $170.0 million, stock-based compensation expense of $165.1 million, deferred income tax expense of $94.2 million, and amortization of debt discount and transaction costs of $38.3 million. Also contributing to these cash inflows was a change in operating assets and liabilities of $470.5 million, net of effects of acquisitions. The change in our net operating assets and liabilities was primarily a result of changes in net income taxes of $318.8 million due to tax reform, and changes in deferred revenue of $174.4 million. Our continuing operations investing activities used $60.0 million of cash consisting primarily of cash paid for net purchases of investments of $86.4 million, cash paid for the purchase of property and equipment of $80.9 million, cash paid for acquisitions of $60.4 million, and cash paid for licensing agreements and technology of $7.4 million. Our continuing operations financing activities used cash of $694.4 million, primarily due to stock repurchases of $1.17 billion, amounts paid for, but not settled under our accelerated stock repurchase program of $150.0 million, cash paid for tax withholding on vested stock awards of $80.0 million, and the transfer of cash to the GoTo Business resulting from the separation of $28.5 million. This financing cash outflow was partially offset by proceeds from the 2027 Notes of $741.0 million, net of issuance costs.
During 2016, we generated continuing operating cash flows of $947.2 million. These operating cash flows related primarily to income from continuing operations of $469.9 million, adjusted for, among other things, non-cash charges, depreciation, and amortization expenses of $178.4 million and stock-based compensation expense of $152.7 million. Also contributing to these cash inflows was a change in operating assets and liabilities of $132.9 million, net of effects of acquisitions. The change in our net operating assets and liabilities was primarily a result of changes in deferred revenue of $142.4 million, and changes in income taxes, net of $42.4 million mostly due to an increase in income taxes payable. These inflows are partially offset by an outflow in accounts receivable of $61.7 million driven by an increase in the receivable balance due to higher bookings. Our continuing operations investing activities used $434.7 million of cash consisting primarily of cash paid for net purchases of investments of $311.6 million, cash paid for the purchase of property and equipment of $85.0 million, cash paid for licensing agreements and technology of $25.9 million, and cash paid for acquisitions of $13.2 million. Our continuing operations financing activities used cash of $38.0 million primarily due to cash paid for tax withholding on vested stock awards of $66.6 million and stock repurchases of $28.7 million. This financing cash outflow was partially offset by proceeds from the issuance of common stock under our employee stock-based compensation plans of $41.2 million and excess tax benefit from stock-based compensation $16.0 million.
Senior Notes
On November 15, 2017, we issued $750.0 million of the 2027 Notes. The 2027 Notes accrue interest at a rate of 4.500% per annum. Interest on the 2027 Notes is due semi-annually on June 1 and December 1 of each year, beginning on June 1, 2018. The net proceeds from this offering were approximately $741.0 million, after deducting the underwriting discount and estimated offering expenses payable by us. Net proceeds from this offering were used to repurchase shares of our common stock through an ASR transaction which we entered into with the ASR Counterparty on November 13, 2017. The 2027 Notes will mature on December 1, 2027, unless redeemed or repurchased in accordance with their terms prior to such date. We may redeem the 2027 Notes at our option at any time in whole or from time to time in part prior to September 1, 2027 at a redemption price equal to the greater of (a) 100% of the aggregate principal amount of the 2027 Notes to be redeemed and (b) the sum of the present values of the remaining scheduled payments under such 2027 Notes, plus in each case, accrued and unpaid interest to, but excluding, the redemption date. Among other terms, under certain circumstances, holders of the 2027 Notes may require us to repurchase their 2027 Notes upon the occurrence of a change of control prior to maturity for cash at a repurchase price equal to 101% of the principal amount of the 2027 Notes to be repurchased plus accrued and unpaid interest to, but excluding, the repurchase date. See Note 13 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 for additional details on the 2027 Notes.


47


Credit Facility
On January 7, 2015, we entered into a credit agreement, or the Credit Agreement, with Bank of America, N.A., as Administrative Agent, and the other lenders party thereto from time to time collectively, the Lenders. The Credit Agreement provides for a $250.0 million unsecured revolving credit facility for a term of five years, of which we have drawn and repaid $165.0 million during the year ended December 31, 2017. As of December 31, 2017, there were no outstanding borrowings under this Credit Agreement and the entire $250.0 million credit line remains available for borrowing. We may elect to increase the revolving credit facility by up to $250.0 million if existing or new lenders provide additional revolving commitments in accordance with the terms of the Credit Agreement. The proceeds of borrowings under the Credit Agreement may be used for working capital and general corporate purposes, including acquisitions. Borrowings under the Credit Agreement will bear interest at a rate equal to either (a) a customary London interbank offered rate formula or (b) a customary base rate formula, plus the applicable margin with respect thereto, in each case as set forth in the Credit Agreement.
The Credit Agreement requires us to maintain a consolidated leverage ratio of not more than 3.5:1.0 and a consolidated interest coverage ratio of not less than 3.0:1.0. The Credit Agreement includes customary events of default, with corresponding grace periods in certain circumstances, including, without limitation, payment defaults, cross-defaults, the occurrence of a change of control and bankruptcy-related defaults. The Lenders are entitled to accelerate repayment of the loans under the Credit Agreement upon the occurrence of any of the events of default. In addition, the Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our ability to grant liens, merge or consolidate, dispose of all or substantially all of its assets, change our business and incur subsidiary indebtedness, in each case subject to customary exceptions for a credit facility of this size and type. In addition, the Credit Agreement contains customary representations and warranties. See Note 13 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 for additional details on our Credit Agreement.
Convertible Senior Notes
In April 2014, we completed a private placement of $1.44 billion principal amount of 0.500% Convertible Senior Notes due 2019, or the Convertible Notes. The net proceeds from this offering were approximately $1.42 billion (including the proceeds from the Over-Allotment Option), after deducting the initial purchasers’ discounts and commissions and the offering expenses payable by us. We used approximately $82.6 million of the net proceeds to pay the cost of certain bond hedges entered into in connection with the offering (after such cost was partially offset by the proceeds to us from certain warrant transactions). See Note 13 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 for additional details on the Convertible Notes and the related bond hedges and warrant transactions.
We used the remainder of the net proceeds from the offering and a portion of our existing cash and investments to purchase an aggregate of approximately $1.5 billion of our common stock under our share repurchase program. We used approximately $101.0 million to purchase shares of our common stock from certain purchasers of the Convertible Notes in privately negotiated transactions concurrently with the closing of the offering, and the remaining $1.4 billion to purchase additional shares of our common stock through an accelerated share repurchase transaction in 2014, which we entered into with Citibank, N.A., or Citibank, on April 25, 2014, and which is discussed in further detail in Note 13 to our consolidated financial statements.
The conversion period for the Convertible Notes that commenced on October 10, 2016 in connection with the structure of the RMT transaction with LogMeIn, terminated as of the close of business on January 31, 2017. As a result, the Convertible Notes were reclassified to Other liabilities from Current liabilities and the amount previously recorded as Temporary equity was reclassified to permanent equity as of January 31, 2017. The Distribution also resulted in an adjustment to the conversion rate for the Convertible Notes under the terms of the related indenture. As a result of this adjustment, the conversion rate for the Convertible Notes in effect as of the opening of business on February 1, 2017 was 13.9061 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes, which corresponds to a conversion price of approximately $71.91 per share of common stock. Corresponding adjustments were made to the conversion rates for the Convertible Note Hedge and Warrant Transactions as of the opening of business on February 1, 2017.
Historically, significant portions of our cash inflows were generated by our operations. We currently expect this trend to continue throughout 2017. We believe that our existing cash and investments together with cash flows expected from operations will be sufficient to meet expected operating and capital expenditure requirements for the next 12 months. We continue to search for suitable acquisition candidates and could acquire or make investments in companies we believe are related to our strategic objectives. We could from time to time continue to seek to raise additional funds through the issuance of debt or equity securities for larger acquisitions, potential redemption of our Convertible Notes and for general corporate purposes.


48


Cash, Cash Equivalents and Investments
 
December 31,
 
2017 Compared to 2016
 
2017
 
2016
 
 
(In thousands)
Cash, cash equivalents and investments
$
2,731,974

 
$
2,543,160

 
$
188,814

The increase in cash, cash equivalents and investments at December 31, 2017 as compared to December 31, 2016, is primarily due to cash provided by our operating activities of $964.3 million, proceeds from our 2027 Notes, net of issuance costs of $741.0 million, partially offset by cash paid for stock repurchases of $1.17 billion, purchases of property and equipment of $80.9 million, cash paid for tax withholding on vested stock awards of $80.0 million, cash paid for acquisitions, net of cash acquired, of $60.4 million, transfer of $28.5 million in cash during the first quarter of 2017 to the GoTo Business resulting from the separation, and cash paid for licensing agreements and technology of $7.4 million. As of December 31, 2017, $2.13 billion of the $2.73 billion of cash, cash equivalents and investments was held by our foreign subsidiaries. As a result of the 2017 Tax Act, the cash, cash equivalents and investments held by our foreign subsidiaries can be repatriated without incurring any additional U.S. federal tax. Upon repatriation of these funds, we could be subject to foreign and U.S. State income taxes. The amount of taxes due is dependent on the amount and manner of the repatriation, as well as the locations from which the funds are repatriated and received. 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-term and long-term investments primarily consist of interest-bearing securities.
Accounts Receivable, Net
 
December 31,
 
2017 Compared to 2016
 
2017
 
2016
 
 
(In thousands)
Accounts receivable
$
717,180

 
$
687,089

 
$
30,091

Allowance for returns
(1,225
)
 
(1,994
)
 
769

Allowance for doubtful accounts
(3,420
)
 
(3,889
)
 
469

Accounts receivable, net
$
712,535

 
$
681,206

 
$
31,329

The increase in accounts receivable at December 31, 2017 compared to December 31, 2016 was primarily due to higher sales during the year ended December 31, 2017. The activity in our allowance for returns was comprised primarily of $5.7 million in credits issued for returns recorded during 2017, partially offset by $4.9 million of provisions for returns recorded during 2017. The activity in our allowance for doubtful accounts was comprised primarily of $4.4 million of uncollectible accounts written off, net of recoveries, partially offset by $3.9 million in provisions for doubtful accounts.
From time to time, we could maintain individually significant accounts receivable balances from our distributors or customers, which are comprised of large business enterprises, governments and small and medium-sized businesses. If the financial condition of our distributors or customers deteriorates, our operating results could be adversely affected. At December 31, 2017, one distributor, the Arrow Group, accounted for 14% of gross accounts receivable. At December 31, 2016, two distributors, the Arrow Group and Ingram Micro, accounted for 14% and 10% of gross accounts receivable, respectively. For more information regarding significant customers see Note 12 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017.
Stock Repurchase Program
Our Board of Directors authorized an ongoing stock repurchase program with a total repurchase authority granted to us of $8.5 billion, of which $500.0 million was approved in January 2017 and an additional $1.7 billion was approved in November 2017. We may use the approved dollar authority to repurchase stock at any time until the approved amounts are exhausted. The objective of our stock repurchase program is to improve stockholders’ returns. At December 31, 2017, approximately $1.43 billion was available to repurchase common stock pursuant to the stock repurchase program. All shares repurchased are recorded as treasury stock in our consolidated balance sheets included in this Annual Report on Form 10-K for the year ended December 31, 2017. A portion of the funds used to repurchase stock over the course of the program was provided by net proceeds from the 2027 Notes and Convertible Notes offerings, as well as proceeds from employee stock option exercises and the related tax benefit.
We are authorized to make open market purchases of our common stock using general corporate funds through open market purchases or pursuant to a Rule 10b5-1 plan or in privately negotiated transactions.

49


During the year ended December 31, 2017, we expended approximately $575.0 million on open market purchases under the stock repurchase program, repurchasing 7,384,368 shares of outstanding common stock at an average price of $77.86.
In addition to the repurchases described above, we used the net proceeds from our 2027 Notes offering and existing cash and investments to repurchase an aggregate of approximately $750.0 million of our common stock as authorized under our stock repurchase program. We paid $750.0 million to the ASR Counterparty under the ASR Agreement and received approximately 7.1 million shares of our common stock from the ASR Counterparty, which represents 80 percent of the shares pursuant to the ASR agreement. The total number of shares of common stock that we will repurchase under the ASR Agreement will be based on the average of the daily volume-weighted average prices of our common stock during the term of the ASR Agreement, less a discount. At settlement, the ASR Counterparty may be required to deliver additional shares of our common stock to us or, under certain circumstances, we may be required to deliver shares of our common stock or make a cash payment to the ASR Counterparty. Final settlement of the ASR agreement was completed in January 2018 and we received delivery of an additional 1,371,495 shares of our common stock. See Note 13 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 for detailed information on our 2027 Notes offering and the transactions related thereto.
During the year ended December 31, 2016, we expended approximately $28.7 million on open market purchases, repurchasing 426,300 shares of outstanding common stock at an average price of $67.30.
During the year ended December 31, 2015, we expended approximately $755.7 million on open market purchases, repurchasing 10,716,850 shares of outstanding common stock at an average price of $70.52.
Shares for Tax Withholding
During the years ended December 31, 2017, 2016, and 2015, we withheld 974,501 shares, 830,155 shares and 679,694 shares, respectively, from equity awards that vested. Amounts withheld to satisfy minimum tax withholding obligations that arose on the vesting of equity awards was $80.0 million for 2017, $66.6 million for 2016 and $46.3 million for 2015. These shares are reflected as treasury stock in our consolidated balance sheets included in this Annual Report on Form 10-K for the year ended December 31, 2017.
Contractual Obligations and Off-Balance Sheet Arrangement
Contractual Obligations
We have certain contractual obligations that are recorded as liabilities in our consolidated financial statements. Other items, such as operating lease obligations, are not recognized as liabilities in our consolidated financial statements, but are required to be disclosed in the notes to our consolidated financial statements.
The following table summarizes our significant contractual obligations at December 31, 2017 and the future periods in which such obligations are expected to be settled in cash. Additional details regarding these obligations are provided in the notes to our consolidated financial statements (in thousands):
 
 
Payments due by period
 
 
Total
 
Less than 1 Year
 
1-3 Years
 
3-5 Years
 
More than 5 Years
Operating lease obligations (1)
 
$
340,034

 
$
56,736

 
$
98,077

 
$
70,888

 
$
114,333

Convertible senior notes (2)
 
1,437,483

 

 
1,437,483

 

 

Senior Notes due 2027 (3)
 
750,000

 

 

 

 
750,000

Purchase obligations(4)
 
25,700

 
25,700

 

 

 

Total contractual obligations(5)
 
$
2,553,217

 
$
82,436

 
$
1,535,560

 
$
70,888

 
$
864,333

 
 

(1) 
The amounts in the table above include $76.5 million in exited facility costs related to restructuring activities.
(2) 
During the second quarter of 2014, we completed a private placement of $1.44 billion principal amount of 0.500% Convertible Senior Notes due 2019. The amount above represents the principal balance to be repaid. See Note 13 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 for detailed information on the Convertible Notes offering and the transactions related thereto. 
(3) 
During the fourth quarter of 2017, we completed the issuance of $750.0 million principal amount of 4.500% Senior Notes due 2027. The amount above represents the balance to be repaid. See Note 13 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 for detailed information on the 2027 Notes offering and the transactions related thereto. 

50


(4) 
Purchase obligations represent non-cancelable commitments to purchase inventory ordered before year-end 2018 of approximately $6.3 million and a contingent obligation to purchase inventory of approximately $19.4 million.
(5) 
Total contractual obligations do not include agreements where our commitment is variable in nature or where cancellations without payment provisions exist and excludes $77.8 million of liabilities related to uncertain tax positions recorded in accordance with authoritative guidance, because we could not make reasonably reliable estimates of the period or amount of cash settlement with the respective taxing authorities. See Note 11 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 for further information.
As a result of the 2017 Tax Act, we recorded a provisional income tax charge of $364.6 million for the transition tax on deemed repatriation of deferred foreign income, which is payable up to eight years. See Note 11 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 for further information.
As of December 31, 2017, we did not have any individually material capital lease obligations or other material long-term commitments reflected on our consolidated balance sheets.
Off-Balance Sheet Arrangements
We do not have any special purpose entities or off-balance sheet financing arrangements.

51


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our market risk includes “forward-looking statements” that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The analysis methods we used to assess and mitigate risk discussed below should not be considered projections of future events, gains or losses.
We are exposed to financial market risks, including changes in foreign currency exchange rates and interest rates that could adversely affect our results of operations or financial condition. To mitigate foreign currency risk, we utilize derivative financial instruments. The counterparties to our derivative instruments are major financial institutions. All of the potential changes noted below are based on sensitivity analyses performed on our financial position as of December 31, 2017. Actual results could differ materially.
Discussions of our accounting policies for derivatives and hedging activities are included in Notes 2 and 14 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017.
Exposure to Exchange Rates
A substantial majority of our overseas expense and capital purchasing activities are transacted in local currencies, including Euros, British pounds sterling, Japanese yen, Australian dollars, Swiss francs, Indian rupees, Hong Kong dollars, Canadian dollars, Singapore dollars and Chinese yuan renminbi. To reduce the volatility of future cash flows caused by changes in currency exchange rates, we have established a hedging program. We use foreign currency forward contracts to hedge certain forecasted foreign currency expenditures. Our hedging program significantly reduces, but does not entirely eliminate, the impact of currency exchange rate movements.
At December 31, 2017 and 2016, we had in place foreign currency forward sale contracts with a notional amount of $128.1 million and $113.8 million, respectively, and foreign currency forward purchase contracts with a notional amount of $113.6 million and $152.3 million, respectively. At December 31, 2017, these contracts had an aggregate fair value asset of $1.7 million and at December 31, 2016, these contracts had an aggregate fair value liability of $1.9 million. Based on a hypothetical 10% appreciation of the U.S. dollar from December 31, 2017 market rates, the fair value of our foreign currency forward contracts would increase by $1.3 million. Conversely, a hypothetical 10% depreciation of the U.S. dollar from December 31, 2017 market rates would decrease the fair value of our foreign currency forward contracts by $1.3 million. In these hypothetical movements, foreign operating costs would move in the opposite direction. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. In addition to the direct effects of changes in exchange rates quantified above, changes in exchange rates could also change the dollar value of sales and affect the volume of sales as the prices of our competitors’ products become more or less attractive. We do not anticipate any material adverse impact to our consolidated financial position, results of operations, or cash flows as a result of these foreign exchange forward contracts.
Exposure to Interest Rates
We have interest rate exposures resulting from our interest-based available-for-sale investments. We maintain available-for-sale investments in debt securities and we limit the amount of credit exposure to any one issuer or type of instrument. The securities in our investment portfolio are not leveraged. The securities classified as available-for-sale are subject to interest rate risk. The modeling technique used measures the change in fair values arising from an immediate hypothetical shift in market interest rates and assumes that ending fair values include principal plus accrued interest and reinvestment income. If market interest rates were to increase by 100 basis points from December 31, 2017 and 2016 levels, the fair value of the available-for-sale portfolio would decline by approximately $17.1 million and $19.2 million, respectively. If market interest rates were to decrease by 100 basis points from December 31, 2017 and 2016 levels, the fair value of the available-for-sale portfolio would increase by approximately $17.0 million and $17.8 million, respectively. These amounts are determined by considering the impact of the hypothetical interest rate movements on our available-for-sale and trading investment portfolios. This analysis does not consider the effect of credit risk as a result of the changes in overall economic activity that could exist in such an environment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and related financial statement schedule, together with the report of independent registered certified public accounting firm, appear at pages F-1 through F-43 of this Annual Report on Form 10-K for the year ended December 31, 2017.

52


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with our independent registered certified public accountants on accounting or financial disclosure matters during our two most recent fiscal years.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2017, our management, with the participation of our President and Chief Executive Officer and our Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based upon that evaluation, our President and Chief Executive Officer and our Interim Chief Financial Officer concluded that, as of December 31, 2017, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed in the reports that we file or submit 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 our management, including our President and Chief Executive Officer and our Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the quarter ended December 31, 2017, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a–15(f). Our internal control system was designed to provide reasonable assurance to our management and the Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, our management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, or the COSO criteria. Based on our assessment we believe that, as of December 31, 2017, our internal control over financial reporting is effective based on those criteria. The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by Ernst & Young LLP, an independent registered certified public accounting firm, as stated in their report which appears below.

53


Report of Independent Registered Certified Public Accounting Firm
The Board of Directors and Stockholders of Citrix Systems, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Citrix Systems, Inc.’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Citrix Systems, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) of the Company and our report dated February 16, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Boca Raton, Florida

February 16, 2018


54


ITEM 9B. OTHER INFORMATION

Our policy governing transactions in our securities by our directors, officers and employees permits our officers, directors and certain other persons to enter into trading plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. We have been advised that Robert Calderoni, our Executive Chairman, entered into a new trading plan in the fourth quarter of 2017 in accordance with Rule 10b5-1 and our policy governing transactions in our securities. We undertake no obligation to update or revise the information provided herein, including for revision or termination of an established trading plan.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2017.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2017.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2017.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2017.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2017.

55


PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
1. Consolidated Financial Statements.
For a list of the consolidated financial information included herein, see page F-1.
2. Financial Statement Schedules.
The following consolidated financial statement schedule is included in Item 8:
Valuation and Qualifying Accounts
3. List of Exhibits.
Exhibit No.
 
Description
2.1
 
2.2
 
2.3
 
2.4
 
2.5
 
2.6
 
3.1
 
3.2
 
4.1
 
Specimen certificate representing Common Stock (incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File No. 33-98542), as amended) (P)
4.2
 
4.3
 
4.4
 
4.5
 
4.6
 
10.1*
 
10.2*
 
10.3*
 

56


10.4*
 
10.5*
 
10.6*
 
10.7*
 
10.8*
 
10.9*
 
10.10*
 
10.11*
 
10.12*
 
10.13*
 
10.14*
 
10.15*
 
10.16*
 
10.17*
 
10.18*
 
10.19*
 
10.20*
 
10.21*
 
10.22*
 
10.23*
 
10.24*
 

57


10.25*
 
10.26*
 
10.27*
 
10.28*
 
10.29*
 
10.30*
 
10.31*
 
10.32*†
 

10.33*
 
10.34*
 
10.35*
 
10.36*
 
10.37*
 
10.38*
 
10.39*†
 
10.40*
 
10.41*
 
10.42*
 
10.43*
 
10.44
 

58


10.45
 
10.46
 
10.47
 
10.48
 
10.49
 
10.50
 
10.51
 
10.52
 
10.53
 
12.1†
 
21.1†
 
23.1†
 
24.1
 
31.1†
 
31.2†
 
32.1††
 
101.INS†
 
XBRL Instance Document
101.SCH†
 
XBRL Taxonomy Extension Schema Document
101.CAL†
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF†
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB†
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE†
 
XBRL Taxonomy Extension Presentation Linkbase Document
*
Indicates a management contract or a compensatory plan, contract or arrangement.
**
Schedules (or similar attachments) have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby undertakes to furnish supplementally copies of any of the omitted schedules (or similar attachments) upon request by the SEC.
Filed herewith.
††
Furnished herewith.
(P)
This exhibit has been paper filed and is not subject to the hyperlinking requirements of Item 601 of Regulation S-K.



59


(b) Exhibits.
The Company hereby files as part of this Annual Report on Form 10-K for the year ended December 31, 2017, the exhibits listed in Item 15(a)(3) above. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C., 20549 and at the Commission’s regional offices at 175 W. Jackson Boulevard, Suite 900, Chicago, IL 60604 and 3 World Financial Center, Suite 400, New York, NY 10281-1022.
(c) Financial Statement Schedule.
The Company hereby files as part of this Annual Report on Form 10-K for the year ended December 31, 2017 the consolidated financial statement schedule listed in Item 15(a)(2) above, which is attached hereto.
ITEM 16. FORM 10-K SUMMARY
None.


60



SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Fort Lauderdale, Florida on the 16th day of February, 2018.