Citrix 2013 Annual Report Download - page 78

F-14
Derivatives and Hedging Activities
In accordance with the authoritative guidance, the Company records derivatives at fair value as either assets or liabilities
on the balance sheet. For derivatives that are designated as and qualify as effective cash flow hedges, the portion of gain or loss
on the derivative instrument effective at offsetting changes in the hedged item is reported as a component of Accumulated other
comprehensive income (loss) and reclassified into earnings as operating expense, net, when the hedged transaction affects
earnings. Derivatives not designated as hedging instruments are adjusted to fair value through earnings as Other (expense)
income, net, in the period during which changes in fair value occur. The application of the authoritative guidance could impact
the volatility of earnings.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-
management objective and strategy for undertaking various hedge transactions. This process includes attributing all derivatives
that are designated as cash flow hedges to floating rate assets or liabilities or forecasted transactions. The Company also
formally assesses, both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in
offsetting changes in cash flows of the hedged item. Fluctuations in the value of the derivative instruments are generally offset
by changes in the hedged item; however, if it is determined that a derivative is not highly effective as a hedge or if a derivative
ceases to be a highly effective hedge, the Company will discontinue hedge accounting prospectively for the affected derivative.
The Company is exposed to risk of default by its hedging counterparties. Although this risk is concentrated among a
limited number of counterparties, the Company’s foreign exchange hedging policy attempts to minimize this risk by placing
limits on the amount of exposure that may exist with any single financial institution at a time.
Pension Liability
The Company provides retirement benefits to certain employees who are not U.S. based. Generally, benefits under these
programs are based on an employee’s length of service and level of compensation. The majority of these programs are
commonly referred to as termination indemnities, which provide retirement benefits in accordance with programs mandated by
the governments of the countries in which such employees work.
The Company had accrued $9.2 million and $9.8 million for these pension liabilities at December 31, 2013 and 2012,
respectively. Expenses for the programs for 2013, 2012 and 2011 amounted to $3.5 million, $1.5 million and $1.8 million,
respectively.
Advertising Costs
The Company expenses advertising costs as incurred. The Company has advertising agreements with, and purchases
advertising from, online media providers to advertise its SaaS. The Company also has cooperative advertising agreements with
certain distributors and resellers whereby the Company will reimburse distributors and resellers for qualified advertising of
Company products. Reimbursement is made once the distributor, reseller or provider provides substantiation of qualified
expenses. The Company estimates the impact of these expenses and recognizes them at the time of product sales as a reduction
of net revenue in the accompanying consolidated statements of income. The total costs the Company recognized related to
advertising were approximately $146.5 million, $137.5 million and $130.8 million, during the years ended December 31, 2013,
2012 and 2011, respectively.
Income Taxes
The Company and one or more of its subsidiaries is subject to United States federal income taxes, as well as income taxes
of multiple state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and
local, or non-U.S. income tax examinations by tax authorities for years prior to 2009.
In the ordinary course of global business, there are transactions for which the ultimate tax outcome is uncertain; thus,
judgment is required in determining the worldwide provision for income taxes. The Company provides for income taxes on
transactions based on its estimate of the probable liability. The Company adjusts its provision as appropriate for changes that
impact its underlying judgments. Changes that impact provision estimates include such items as jurisdictional interpretations on
tax filing positions based on the results of tax audits and general tax authority rulings. Due to the evolving nature of tax rules
combined with the large number of jurisdictions in which the Company operates, estimates of its tax liability and the
realizability of its deferred tax assets could change in the future, which may result in additional tax liabilities and adversely
affect the Company’s results of operations, financial condition and cash flows.
The Company is required to estimate its income taxes in each of the jurisdictions in which it operates as part of the
process of preparing its consolidated financial statements. The authoritative guidance requires a valuation allowance to reduce
the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the