Citrix 2009 Annual Report Download - page 48

used a dividend yield of zero in the option pricing model. We are required to estimate forfeitures at the time of
grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use
historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for
those awards that are expected to vest. All stock-based payment awards that vest based on service, including
those with graded vesting schedules, are amortized on a straight-line basis over the requisite service periods of
the awards, which are generally the vesting periods. We issue non-vested stock units and non-vested stock with
performance goals to certain senior members of management. The number of non-vested stock units or
non-vested stock underlying each award may be determined based on a range of attainment within defined
performance goals. We are required to estimate the attainment that will be achieved related to the defined
performance goals and number of non-vested stock units or non-vested stock that will ultimately be awarded in
order to recognize compensation expense over the vesting period. If our initial estimates of performance goal
attainment change, the related expense may fluctuate from quarter to quarter based on those estimates and if the
performance goals are not met, no compensation cost will be recognized and any previously recognized
compensation cost will be reversed. As of December 31, 2009, there was $105.9 million of total unrecognized
compensation cost related to options, non-vested stock and non-vested stock units. That cost is expected to be
recognized over a weighted-average period of 1.43 years.
If factors change and we employ different assumptions for estimating stock-based compensation expense in
future periods or if we decide to use a different valuation model, the stock-based compensation expense we
recognize in future periods may differ significantly from what we have recorded in the current period and could
materially affect our operating income, net income and earnings per share. This may result in a lack of
consistency in future periods and materially affect the fair value estimate of stock-based payments. It may also
result in a lack of comparability with other companies that use different models, methods and assumptions. The
Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that
have no vesting restrictions and are fully transferable. These characteristics are not present in our option grants.
Existing valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable
measures of the fair values of our stock-based compensation. Consequently, there is a risk that our estimates of
the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to the
actual values realized upon the exercise, expiration, early termination or forfeiture of those stock-based payments
in the future. Certain stock-based payments, such as employee stock options, may expire with little or no intrinsic
value compared to the fair values originally estimated on the grant date and reported in our financial statements.
Alternatively, the value realized from these instruments may be significantly higher than the fair values originally
estimated on the grant date and reported in our financial statements. There is currently no market-based
mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from
these valuation models, nor is there a means to compare and adjust the estimates to actual values. See Notes 2
and 7 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended
December 31, 2009 for further information regarding our adoption of the authoritative guidance for stock-based
compensation.
Valuation and Classification of Investments
Effective January 1, 2008, we adopted the authoritative guidance for fair value measurements for financial
assets and financial liabilities. The authoritative guidance, which, among other things, 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 investments are carried at fair value and in determining
their fair value 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: the fair value hierarchy gives the highest priority to unadjusted quoted prices in
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