Citrix 2012 Annual Report Download - page 91

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CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-25
The Company measures its cash flow hedges, which are classified as Prepaid expenses and other current assets and
Accrued expenses and other current liabilities, at fair value based on indicative prices in active markets (Level 2 inputs).
Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
The Company has invested in convertible debt securities of certain early-stage entities that are classified as available-for-
sale investments. As quoted prices in active markets or other observable inputs were not available for these investments, in
order to measure them at fair value, the Company utilized a discounted cash flow model using a discount rate reflecting the
market risk inherent in holding securities of an early-stage enterprise, adjusted by the probability-weighted exit possibilities
associated with the convertible debt securities. This methodology required the Company to make assumptions that were not
directly or indirectly observable regarding the fair value of the convertible debt securities; accordingly they are a Level 3
valuation and is included in the "Purchases of Level 3 securities" line in the table below. During 2012, one of these investments
in a convertible debt security with a carrying amount of $5.0 million was determined to be impaired based on the discounted
cash flow model referenced above and has been written down to its fair value of $2.5 million, resulting in an impairment charge
of $2.5 million. The valuation performed to determine the fair value of the convertible debt security required the Company to
make assumptions that were not directly or indirectly observable; accordingly it is a Level 3 valuation and is included in the
table below. See Note 4 for more information regarding the Company’s available-for-sale investments.
Investments
(in thousands)
Balance at December 31, 2011 $ 3,696
Purchases of Level 3 securities 7,605
Transfers out of Level 3 (5,460)
Total realized losses included in earnings (2,500)
Balance at December 31, 2012 $ 3,341
Transfers out of Level 3 relate to certain of the Company's investments in convertible debt securities of early-stage
entities that were classified as available-for-sale investments to cost method investments upon conversion to equity ownership,
which are included in Other assets in the accompanying consolidated balance sheets. Realized losses included in earnings for
the period are reported in Other income (expense), net in the accompanying consolidated statements of income.
Assets Measured at Fair Value on a Non-recurring Basis Using Significant Unobservable Inputs (Level 3)
During 2012, certain cost method investments with a combined carrying value of $13.0 million were determined to be
impaired and have been written down to their fair value of $9.5 million, resulting in an impairment charge of $3.5 million. The
impairment charge is included in Other income (expense), net in the accompanying consolidated financial statements for the
year ended December 31, 2012. In determining the fair value of cost method investments, the Company considers many factors
including but not limited to operating performance of the investee, the amount of cash that the investee has on-hand, the ability
to obtain additional financing and the overall market conditions in which the investee operates. The fair value of the cost
method investment represents a Level 3 valuation as the assumptions used in valuing this investment were not directly or
indirectly observable. See Note 4 for more information regarding cost method investments.
Additional Disclosures Regarding Fair Value Measurements
The carrying value of accounts receivable, accounts payable and accrued expenses and other current liabilities
approximate their fair value due to the short maturity of these items.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses consist of the following:
December 31,
2012 2011
(In thousands)
Accrued compensation and employee benefits $ 130,835 $ 106,474
Other accrued expenses 125,424 108,362
Total $ 256,259 $ 214,836