Citrix 2006 Annual Report Download - page 104

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during the period, and gains or losses that were previously
unrealized, but have been recognized in current period
net income due to termination or maturities of derivative
contracts. This reclassification has no effect on total
comprehensive income (loss) or stockholders’ equity. The
following table presents these components of accumulated
other comprehensive income (loss), net of tax for the
Company’s derivative instruments (in thousands):
For the Year Ended December 31,
2006 2005 2004
Unrealized gains on derivative instruments $ 6,395 $ 10,230 $ 6,258
Reclassification of realized gains 2,011 1,255 (6,422)
Net change in other comprehensive income due to derivative instruments $ 8,406 $ 11,485 $ (164)
The total cumulative unrealized gain (loss) on derivative
instruments was $3.9 million and $(4.5) million at
December 31, 2006 and 2005, respectively, and is included
in accumulated other comprehensive income (loss) in the
accompanying consolidated balance sheets.
Cash Flow Hedges. At December 31, 2006 and 2005,
the Company had in place foreign currency forward sale
contracts with a notional amount of $56.0 million and $81.7
million, respectively, and foreign currency forward purchase
contracts with a notional amount of $220.0 million and
$191.5 million, respectively. The fair value of these contracts
at December 31, 2006 and 2005 were assets of $7.4 million
and $3.2 million, respectively and liabilities of $2.8 million
and $8.3 million, respectively. A substantial portion of
the Company’s overseas expenses are and will continue
to be transacted in local currencies. To protect against
fluctuations in operating expenses and the volatility of
future cash flows caused by changes in currency exchange
rates, the Company has established a program that uses
foreign exchange forward contracts to hedge its exposure
to these potential changes. The terms of these instruments,
and the hedged transactions to which they relate, generally
do not exceed 12 months. Currencies hedged are euros,
British pounds sterling, Australian dollars, Swiss francs,
Japanese yen, Hong Kong dollars, Canadian dollars,
Danish krone and Swedish krona. There was no material
ineffectiveness of the Company’s foreign currency forward
contracts for 2006, 2005 or 2004.
Fair Value Hedges. From time to time, the Company
uses interest rate swap instruments to hedge against
the changes in fair value of certain of its available-for-
sale securities due to changes in interest rates. Each
of the instruments swap the fixed rate interest on the
underlying investments for a variable rate based on LIBOR
plus a specified margin. Changes in the fair value of the
swap instruments are recorded in earnings along with
related designated changes in the value of the underlying
investments. During 2005, the Company sold underlying
fixed rate available-for-sale investments with a notional
value of $193.9 million. The Company held no remaining
interest rate swap instruments as of December 31, 2006
and 2005. There was no material ineffectiveness of the
Company’s interest rate swaps for the period that they
were held during 2005.
Derivatives not Designated as Hedges. From time to
time, the Company utilizes certain derivative instruments
that either do not qualify or are not designated for hedge
accounting treatment under SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, and
its related interpretations. Accordingly, changes in the
fair value of these contracts, if any, are recorded in other
(expense) income, net.
During 2005, the Company was a party to three credit
default contracts that had an aggregate notional amount of
$75.0 million. The Company terminated these contracts in
the third quarter of 2005. The purpose of the credit default
contracts was to provide additional yield on certain of
the Company’s underlying available-for-sale investments.
Under the terms of these contracts, the Company had
assumed the default risk, above a certain threshold, of
a portfolio of specified referenced issuers in exchange
for a fixed yield that was recorded in interest income.
In the event of default by underlying referenced issuers
above specified amounts, the Company would have paid