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CITRIX SYSTEMS (CTXS)
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CITRIX : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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02/16/2018 | 05:02pm CET

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

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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.

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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.

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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

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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

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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

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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
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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
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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     2016 Compared
                                     2017           2016           2015          to 2016           to 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     2016 Compared
                                    2017            2016            2015           to 2016           to 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    2016 Compared
                                      2017          2016          2015           to 2016          to 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.

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Research and Development Expenses

                                       Year Ended December 31,             2017 Compared   2016 Compared
                                  2017           2016           2015          to 2016         to 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    2016 Compared
                                  2017            2016           2015           to 2016          to 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   2016 Compared
                                  2017           2016           2015          to 2016         to 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.

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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 Compared
                                  2017           2016           2015             2016             to 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    2016 Compared
                                     2017              2016            2015          to 2016          to 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 2016 Compared

                                  2017           2016           2015        

to 2016 to 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
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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   2016 Compared
                                  2017           2016           2015          to 2016         to 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    2016 Compared to
                                  2017           2016           2015           to 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    2016 Compared
                                  2017           2016           2015          to 2016          to 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
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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
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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
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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
                                                  2017             2016           to 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          2016        2017 Compared to 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
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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

--------------------------------------------------------------------------------

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