Citrix 2013 Annual Report Download - page 84

CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-20
make adjustments to the carrying value of the securities in its investment portfolio and recognize impairment charges for
declines in fair value that are determined to be other-than-temporary.
Other-Than-Temporary Impairment on Available-for-Sale Investments
There were no other-than-temporarily impaired available-for-sale investments during the twelve months ended
December 31, 2013. During 2012, one of the Company’s available-for-sale investments with a carrying amount of $5.0 million
was determined to be other-than-temporarily impaired. As a result of this determination, the investment was written down to its
fair value of $2.5 million, resulting in an impairment charge of $2.5 million. The impairment charge is included in Other
(expense) income, net in the accompanying consolidated statements of income.
Unrealized Losses on Available-for-Sale Investments
The gross unrealized losses on the Company’s available-for-sale investments that are not deemed to be other-than-
temporarily impaired were $0.6 million and $0.2 million as of December 31, 2013 and 2012, respectively. Because the
Company does not intend to sell any of its investments in an unrealized loss position and it is more likely than not that it will
not be required to sell the securities before the recovery of its amortized cost basis, which may not occur until maturity, it does
not consider the securities to be other-than-temporarily impaired.
Cost Method Investments
The Company held direct investments in privately-held companies of approximately $24.3 million and $26.2 million as
of December 31, 2013 and 2012, respectively, which are accounted for based on the cost method and are included in Other
assets in the accompanying consolidated balance sheets. The Company periodically reviews these investments for impairment.
If the Company determines that an other-than-temporary impairment has occurred, it will write-down the investment to its fair
value. During 2013 and 2012, certain companies in which the Company held direct investments were acquired by third parties
and as a result of these sales transactions the Company recorded gains of $6.0 million and $16.5 million, respectively, which
was included in Other (expense) income, net in the accompanying consolidated statements of income. The Company
determined that certain cost method investments were impaired during 2013, 2012 and 2011 and recorded a total charge of $3.7
million, $3.5 million, and $3.5 million, respectively, which is included in Other (expense) income, net in the accompanying
consolidated statements of income. See Note 5 for more information.
5. FAIR VALUE MEASUREMENTS
The authoritative guidance defines fair value as an exit price, representing the amount that would either be received to
sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a
market-based measurement that should be determined based on assumptions that market participants would use in pricing an
asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value as follows:
• Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
• Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
• Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop
its own assumptions.
Available-for-sale securities included in Level 2 are valued utilizing inputs obtained from an independent pricing service
(the “Service”) which uses quoted market prices for identical or comparable instruments rather than direct observations of
quoted prices in active markets. The Service gathers observable inputs for all of the Company’s fixed income securities from a
variety of industry data providers including, for example, large custodial institutions and other third-party sources. Once the
observable inputs are gathered by the Service, all data points are considered and an average price is determined. The Service’s
providers utilize a variety of inputs to determine their quoted prices. These inputs may include interest rates, known historical
trades, yield curve information, benchmark data, prepayment speeds, credit quality and broker/dealer quotes. Substantially all
of the Company’s available-for-sale investments are valued utilizing inputs obtained from the Service and accordingly are
categorized as Level 2 in the table below. The Company periodically independently assesses the pricing obtained from the
Service and historically has not adjusted the Service's pricing as a result of this assessment. Available-for-sale securities are
included in Level 3 when relevant observable inputs for a security are not available.
The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and
may affect the classification of assets and liabilities within the fair value hierarchy. In certain instances, the inputs used to