Citrix 2006 Annual Report Download - page 33

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Citrix Systems, Inc.  Annual Report
stock-based compensation expense only for those awards
that are expected to vest. All stock-based payment
awards, 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. Beginning in 2006, we began issuing non-vested
stock units and non-vested stock with performance goals
to certain senior members of management. The number
of non-vested stock units or non-vested stock 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 or non-vested stock 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.
As of December 31, 2006, there was $64.8 million of
total unrecognized compensation cost related to options,
non-vested stock and non-vested stock units. That cost is
expected to be recognized over a weighted-average period
of 1.92 years.
If factors change and we employ different assumptions for
estimating stock-based compensation expense in future
periods or 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 and employee stock purchase plan shares.
Existing valuation models, including the Black-Scholes and
lattice binomial models, 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. The guidance in SFAS No. 123R and SAB
No. 107 is relatively new from an application perspective
and the application of these principles may be subject to
further interpretation and refinement over time. See Notes
3 and 7 to our consolidated financial statements included
elsewhere in this Annual Report for further information
regarding our adoption of SFAS No. 123R.
For information regarding our Audit Committee’s voluntary,
independent review of our historical stock option granting
practices and the related accounting see Note 2 to our
consolidated financial statements included elsewhere in
this Annual Report.
Core and Product Technology Assets
We review acquired core and product technology assets
for impairment on a periodic basis by comparing the
estimated net realizable value to the unamortized cost of
the technology. We have acquired our core and product
technology assets from our business combinations and
other third party agreements. The recoverability of these
technologies is primarily dependent upon our ability to
commercialize products utilizing these technologies. The
estimated net realizable value of the purchased technology