Citrix 2007 Annual Report Download - page 97

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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
included $218.7 million of investments with original contractual maturities ranging from one to 37 years. The
average remaining maturities of the Company’s short-term and long-term available-for-sale investments,
including restricted investments, at December 31, 2007 were approximately five months and 13 years,
respectively. In addition, included in short-term available-for-sale investments were auction rate securities of
$57.6 million that generally reset every 28 days. The Company also owns $2.5 million in equity investments not
due at a single maturity date classified as long-term investments at December 31, 2007.
The Company had an investment in an instrument with an aggregate face value of $32.0 million that
includes structured credit risk features related to certain referenced entities. Under the terms of this debt
instrument, the Company assumed the default risk, above a certain threshold, of a portfolio of specific referenced
issuers in exchange for a fixed yield that is added to the London Interbank Offered Rate (“LIBOR”)-based yield
on the debt instrument. In the event of default by any of the underlying referenced issuers above specified
amounts, the Company would pay the counterparty an amount equivalent to its loss, not to exceed the face value
of the instrument. The primary risk associated with this instrument is the default risk of the underlying issuers.
The credit rating of this instrument was equivalent to the likelihood of an event of default under a “AA” rated
individual security. The purpose of this instrument was to provide additional yield on certain of the Company’s
available-for-sale investments. The instrument matured in February 2008. There were no credit events for the
underlying referenced entities resulting in losses to the Company. The Company separately accounted for
changes in the fair value of the investment and as of December 31, 2007 and 2006 there was no material change
in fair value.
The change in net unrealized securities gains (losses) recognized in other comprehensive income includes
unrealized gains (losses) that arose from changes in market value of specifically identified securities that were
held during the period and gains (losses) that were previously unrealized, but have been recognized in current
period net income due to sales or maturities of available-for-sale securities. This reclassification has no effect on
total comprehensive income or stockholders’ equity and was immaterial for all periods presented. The unrealized
gain (loss) associated with each individual category of cash and investments was not significant for either of the
periods presented.
In February 2008, the Company held approximately $45.5 million in triple-A rated municipal auction rate
securities whose underlying assets are generally student loans which are substantially backed by the federal
government. The market for municipal auction rate securities in our portfolio began experiencing auction failures
on February 13, 2008. For the securities that experienced a failure the issuer will pay interest at a failure rate on
the regular auction date , which is every 28 days for the investments in our portfolio. The securities will not be
liquid until the auctions are successful or the issuers are able to refinance, call and/or restructure their obligations
to a different interest rate mode. In the event the Company needs to access the funds related to the affected
securities, it may not be able to do so without a potential loss of principal unless future auctions on these
securities are successful. If the issuers are unable to successfully close future auctions or refinance their
obligations and their credit ratings deteriorate, the Company may be required to adjust the carrying value of these
securities and recognize an impairment charge for an other-than-temporary decline in the fair values. Based on
the Company’s available cash and other investments, it does not currently anticipate that the lack of liquidity
caused by the failed auctions of these securities will have a material adverse effect on its operating cash flows or
financial position.
F-23