Citrix 2013 Annual Report Download - page 40

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of selling price is established by evaluating competitor products or services in stand-alone sales to similarly situated customers.
However, as our products contain a significant element of proprietary technology and our solutions offer substantially different
features and functionality, the comparable pricing of products with similar functionality typically cannot be obtained.
Additionally, as we are unable to reliably determine what competitors products’ selling prices are on a stand-alone basis, we are
not typically able to determine TPE. The estimate of selling price is established considering multiple factors including, but not
limited to, pricing practices in different geographies and through different sales channels and competitor pricing strategies.
For our non-software transactions we allocate the arrangement consideration based on the relative selling price of the
deliverables. For our hardware appliances we use ESP as our selling price. For our support and services, we generally use
VSOE as our selling price. When we are unable to establish selling price using VSOE for our support and services, we use ESP
in our allocation of arrangement consideration.
Our SaaS products are considered service arrangements per the authoritative guidance; accordingly, fees related to online
service agreements are recognized ratably over the contract term. In addition, SaaS revenues may also include set-up fees,
which are recognized ratably over the contract term or the expected customer life, whichever is longer. Generally, our SaaS is
sold separately and not bundled with Enterprise and Service Provider division products and services. See Note 2 to our
consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2013 for
further information on our revenue recognition.
Stock-Based Compensation
Under the fair value recognition provisions of the authoritative guidance, stock-based compensation cost is measured at
the grant date based on the fair value of the award and is recognized as expense over the requisite service or performance
period, which is the vesting period. We currently use the Black-Scholes option pricing model to determine the fair value of
stock options and a Monte Carlo simulation model to determine the fair of non-vested stock unit awards that vest based on
market and service conditions. The determination of the fair value of stock-based payment awards on the date of grant using an
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. In years when a
significant number of stock options are granted, we analyze our historical pattern of option exercises based on certain
demographic characteristics annually and have historically 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.
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, 2013, there was $267.6 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 2.14 years.