Citrix 2012 Annual Report Download - page 42

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option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective
variables. These variables include our expected stock price volatility over the term of the awards, the expected term of the
award, the risk-free interest rate and any expected dividends.
For stock options, we determine the expected volatility factor, by utilizing the implied volatility in two-year market-
traded options on our common stock based on third party volatility quotes in accordance with the provisions of Staff
Accounting Bulletin, or SAB, No. 107. Our decision to use implied volatility was based upon the availability of actively traded
options on our common stock and our assessment that implied volatility is more representative of future stock price trends than
historical volatility. The expected term of our options is based on historical employee exercise patterns. We also periodically
analyze our historical pattern of option exercises based on certain demographic characteristics and we determined that there
were no meaningful differences in option exercise activity based on demographic characteristics. The approximate risk free
interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with remaining terms equivalent to the
expected term on our options. We do not intend to pay dividends on our common stock in the foreseeable future and,
accordingly, we used a dividend yield of zero in the option pricing model.
For non-vested stock unit awards that vest based on market and service conditions, the attainment level under each award
will be based on our total return to stockholders over the performance period compared to the return on the Nasdaq Composite
Total Return Index, or the XCMP. The range of expected volatilities utilized was based on the historical volatilities of our
common stock and the XCMP. We utilize historical volatility to value these awards because historical stock prices were used to
develop the correlation coefficients between our stock performance and the XCMP in order to model the stock price
movements. The volatilities used were calculated over the most recent 2.75 year period, which was the remaining term of the
performance period at the date of grant. The risk free interest rate was based on the implied yield available on U.S. Treasury
zero-coupon issues with remaining terms equivalent to the remaining performance period. We do not intend to pay dividends on
our common stock in the foreseeable future; accordingly, we used a dividend yield of zero in our model.
In 2010 and 2011, we issued non-vested stock units with performance goals to senior level employees. The number of
non-vested stock units 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 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.
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.
As of December 31, 2012, there was $264.4 million of total unrecognized compensation cost related to options and non-
vested stock units. That cost is expected to be recognized over a weighted-average period of 1.98 years.
If factors change and we employ different assumptions for estimating grant date fair value for our stock-based awards or
in future periods 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 models and Monte Carlo simulations, 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, 2012 for further information regarding our adoption of the authoritative guidance for stock-based compensation.