Citrix 2006 Annual Report Download - page 25

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Citrix Systems, Inc.  Annual Report
The cumulative effect of the restatement adjustments
on the consolidated balance sheet at December 31,
2005 was an increase in additional paid-in capital, offset
by a corresponding decrease in retained earnings and
deferred compensation, which results in no net effect on
stockholders’ equity. There were also adjustments made
to increase our short and long-term deferred tax assets
and our accrued expenses due to the tax effects of the
restatement. The adjustments decreased previously
reported basic net income per share by $0.01 for the
year ended December 31, 2005 and had no impact on
previously reported basic net income per share for the
year ended December 31, 2004. The adjustments had no
impact on previously reported diluted net income per share
for the years ended December 31, 2005 and 2004.
Judgment
Most of the revised measurement dates could not be
determined with certainty, and we made judgments,
as described above, to establish the revised dates.
Judgments different from those used by us regarding
the timing of the revised measurement dates would have
resulted in different compensation expense charges than
those recorded by us in the restatement. We therefore
prepared a sensitivity analysis to determine the hypothetical
minimum and maximum compensation expense charge
that could occur if different judgments to determine the
revised measurement dates were used. We provided a
minimum and maximum range to the sensitivity analysis as
a result of significant volatility in prices versus the revised
measurement date prices. In reviewing all available data,
we considered other possible alternative grant dates for
determining a sensitivity analysis, but were unable to find
any such data or evidence that would provide an alternative
we believed to be better than the one we selected.
We applied our sensitivity methodology on a grant date
by grant date basis to examine the largest hypothetical
variations in stock-based compensation expense within a
range of possible approval dates for each grant event. We
developed this range by generally using the date that the
allocation and recipients were determined to be final as the
earliest possible date and the revised measurement date as
the end date. In some cases, the earliest possible date was
the original date of grant, while for others it was a date that
the allocation and recipients were subsequently determined
to have been completed based on documentary evidence,
such as (for example) e-mails, electronic and printed
dating evidence on grant recommendation listings and the
metadata creation dates on unanimous written consent
forms. In the few cases where there was some evidence
suggesting the possibility that the grant had been approved
after the revised measurement date, the end date was
subsequent to the revised measurement date. Based on
all available evidence, such as (for example) unanimous
written consents, email dates, and Board of Director or
committee meeting dates, we were unable to identify dates
that would provide a more reasonable range of dates for
this sensitivity analysis. While we believe the evidence and
methodology used to determine the revised measurement
dates to be the most appropriate, we also believe that
illustrating differences in stock-based compensation
expense using these alternative date ranges provides some
insight into the extent to which hypothetical stock-based
compensation expense would have fluctuated if we chose
other dates.
After developing the range for each grant event, we
selected the highest closing price of our stock within
the range and calculated the difference in stock-based
compensation expense to determine the maximum
possible compensation expense. We then selected the
lowest closing price within the range and calculated the
difference in stock-based compensation expense to
determine the minimum possible compensation expense. If
the low closing price was less than the closing price on the
original date of grant, there was no resulting compensation
charge. We compared these aggregated amounts to the
stock-based compensation that we recorded. If we had
used the highest closing price of our stock within the range,
our total restated stock-based compensation adjustment
relating to the revision in measurement dates would
have been increased by approximately $183.5 million.
Conversely, had we used the lowest closing price of our
stock within the range, our total restated compensation
expense would have decreased by $133.9 million.
Our hypothetical ranges of stock-based compensation
expense were affected by the high level of volatility in our
stock price and the date ranges used in our sensitivity
analysis, generally the time period between the original
grant dates of certain stock options and the revised