Citrix 2007 Annual Report Download - page 47

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. 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, 2007, there was $217.7 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 2.38 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.
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 2 and 6 to our
consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31,
2007 for further information regarding our adoption of SFAS No. 123R.
Core and Product Technology Assets
We have acquired our core and product technology assets from our business combinations and other third
party agreements. In applying purchase accounting, we allocate a portion of purchase price of acquired
companies to the core and product technology assets acquired based on their estimated fair values. We typically
engage third party appraisal firms to assist us in determining the fair values of core and product technology assets
acquired. Such valuations require us to make significant estimates and assumptions. These estimates are based on
historical experience and information obtained from the management of the acquired companies and are
inherently uncertain. Critical estimates in determining the fair value of the core and product technology assets
include but are not limited to future expected cash flows earned from the core and product technology and
discount rates applied in determining the present value of those cash flows. Unanticipated events and
circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual
results.
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