Citrix 2009 Annual Report Download - page 63

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to make additional adjustments to the carrying value of the securities in our investment portfolio and recognize
additional impairment charges for declines in fair value that are determined to be other-than-temporary.
Trading Investments
As of December 31, 2009, we held municipal auction rate securities, of which substantially all were triple-A
rated, with an aggregate par value of approximately $44.8 million, whose underlying assets are generally student
loans that are substantially backed by the federal government under the Federal Family Education Loan Program
through investment accounts managed by UBS Financial Services, Inc., or UBS. The market for municipal auction
rate securities in our portfolio began experiencing auction failures in 2008 and there have been no successful
auctions for the securities held in our portfolio since the failures began. In November 2008, we formally accepted
the terms of a settlement from UBS, or the Settlement. Upon accepting the terms of the Settlement, we received an
enforceable, non-transferable right, or the Put Option, that enables us to sell our auction rate securities back to UBS
during the period between June 30, 2010 and July 2, 2012 at par value. Accordingly, we recorded the fair value of
the Put Option in other assets in our financial statements and contemporaneously made the fair value election as
permitted by the authoritative guidance which states that companies may elect the fair value option for eligible
financial assets.Therefore, we record changes in the fair value of the Put Option in earnings. During the year ended
December 31, 2009, we recorded a gain of $1.5 million related to our investments in auction rate securities and a
corresponding loss of $1.3 million related to the Put Option, both of which are included in other income (expense),
net, in our consolidated statements of income.
Fair Value Measurements
On 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, establishes a
consistent framework for measuring fair value and expands disclosure for each major asset and liability category
measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price,
representing the amount that would either be received to sell an asset or be paid to transfer a liability in an
orderly transaction between market participants. As such, fair value is a market-based measurement that should
be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis
for considering such assumptions, the 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 the 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 require the reporting
entity to develop its own assumptions.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
We measure our cash flow hedges at fair value based on indicative prices in active markets and we generally
measure our investments in available-for-sale securities at fair value based on quoted prices in active markets for
identical securities.
Due to the illiquidity in the municipal auction rate securities market caused by failed auctions, our valuation
technique for certain of our municipal auction rate securities is to measure such securities at fair value using a
discounted cash flow model. In our discounted cash flow model, we used several assumptions to derive a fair
value for our 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
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