Citrix 2009 Annual Report Download - page 103

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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Due to the illiquidity in the municipal auction rate securities market caused by failed auctions, the
Company’s valuation technique for certain of its municipal auction rate securities was to measure such securities
at fair value using a discounted cash flow model. In its discounted cash flow model, the Company used several
assumptions to derive a fair value for its investments in municipal auction rate securities, including a discount
rate based on the credit quality of the underlying investments and a factor to further discount the investments for
the illiquidity currently present in the market for these securities. Accordingly, these trading investments are
included in Level 3. Also included in Level 3 is the Put Option. In order to determine the fair value of the Put
Option, the Company measured the differential between the aggregate par value of its auction rate securities and
their fair value as of the reporting date and applied a discount rate that considers both the time period between the
reporting date and the first date the Company is able to exercise its right to put the auction rate securities to UBS
per the terms of the Settlement along with considerations of the credit worthiness of UBS.
During 2008, the Company measured its AIG Capped Floater using indicative pricing for another AIG
security with similar terms (the “Referenced Security”) which had regular trading activity, a Level 2 observation.
During 2009, trading activity in the Referenced Security significantly decreased and other floating rate AIG debt
securities with regular trading activity were too close to their maturities to be used to establish fair value for the
AIG Capped Floater. Therefore, in order to measure the AIG Capped Floater at fair value, the Company used a
discounted cash flow model. The Company then discounted those cash flows at a rate reflecting the market risk
inherent in holding an AIG security with a similar maturity as evidenced by pricing in the markets. Since
utilizing a discounted cash flow model required the Company to make assumptions that were not directly or
indirectly observable regarding the AIG Capped Floater’s fair value during 2009, it was transferred to Level 3
and is included in the table below as a transfer to Level 3.
Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
Put
Option
Long-term
Investments Total
(In thousands)
Balance at December 31, 2008 ....................................... $7,378 $37,919 $45,297
Transfers to Level 3 ................................................ — 45,096 45,096
Proceeds received on Level 3 securities ................................ — (700) (700)
Total realized (losses) gains included in earnings ......................... (1,330) 1,470 140
Balance at December 31, 2009 ....................................... $6,048 $83,785 $89,833
Realized (losses) gains included in earnings for the period are reported in other (expense) income, net.
Additional Disclosures Regarding Fair Value Measurements
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses approximate their fair value due to the short maturity of these items. The Company’s investments
classified as available-for-sale securities are carried at fair value on the accompanying consolidated balance
sheets based primarily on quoted market prices for such financial instruments. See Note 4 for more information
regarding the Company’s available-for-sale investments.
F-23