Citrix 2009 Annual Report Download - page 49

active markets for identical assets or liabilities, described as Level 1, and the lowest priority to valuation
techniques using unobservable inputs, described as Level 3. 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 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 amortized cost of an 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 amortized cost, and our intent to 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. 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 4 and 5 to our consolidated financial
statements and “Liquidity and Capital Resources” for more information on our investments and fair value
measurements.
Product Related Technology Assets
We have acquired our product related technology assets from our business combinations and other third
party agreements. In applying purchase accounting, we allocate a portion of purchase price of acquired
companies to the product related technology 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 acquired. Such 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. Unanticipated events and circumstances may occur which may affect the accuracy or validity of
such assumptions, estimates or actual results.
We review acquired product related technology assets for impairment on a periodic basis by comparing the
estimated net realizable value to the unamortized cost of the technology. The recoverability of these technologies
is primarily dependent upon our ability to commercialize products utilizing these technologies. The estimated net
realizable value of the purchased technology is based on the estimated undiscounted future cash flows derived
from such technology. Our assumptions about future revenues and expenses require significant judgment
associated with the forecast of the performance of our products. Actual revenues and costs could vary
significantly from these forecasted amounts. As of December 31, 2009, the estimated undiscounted future cash
flows expected from product related technology assets from these acquisitions is sufficient to recover their
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