Avid 2009 Annual Report Download - page 57

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52
ASC topic 820 also establishes a fair value hierarchy that requires the use of observable market data, when available, and
prioritizes the inputs to valuation techniques used to measure fair value in the following categories:
Level 1 – Quoted unadjusted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments
in markets that are not active and model-derived valuations in which all observable inputs and significant value
drivers are observable in active markets.
Level 3 – Model derived valuations in which one or more significant inputs or significant value drivers are
unobservable, including assumptions developed by the Company.
On a recurring basis, the Company measures certain financial assets and liabilities at fair value, including cash equivalents,
marketable securities and foreign-currency forward contracts. All of the Company’s financial assets and liabilities were
classified as either Level 1 or Level 2 in the fair value hierarchy at December 31, 2009. Instruments valued using quoted
market prices in active markets and classified as Level 1 are primarily money market securities and deferred compensation
investments. Investments valued based on other observable inputs and classified as Level 2 include commercial paper;
certificates of deposit; asset-backed obligations; discount notes; foreign currency contracts; and corporate, municipal,
agency and foreign bonds.
The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair
value on a recurring basis at December 31, 2009 (in thousands):
Fair Value Measurements at Reporting Date Using
December 31,
2009
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Financial Assets:
Available for sale securities
$
30,586
$
10,977
$
19,609
$
—
Deferred compensation plan investments
808
808
—
—
Foreign currency forward contracts
1,162
—
1,162
—
Financial Liabilities:
Deferred compensation plan
$
808
$
808
$
—
$
—
Foreign currency forward contracts
546
—
546
—
The Company uses the following valuation techniques to determine fair values of its investment instruments
Money Market: The fair value of the Company’s money market fund investment is determined using the
unadjusted quoted price from an active market of identical assets.
Commercial Paper and Certificates of Deposit: The fair values for the Company’s commercial paper holdings
and certificates of deposit are derived from a pricing model, using the straight-line amortized cost method, and
incorporating observable inputs including maturity date, issue date, credit rating of the issuer, current commercial
paper rate and settlement date.
Corporate, Municipal and Foreign Bonds: The determination of the fair value of corporate, municipal and foreign
bonds includes the use of observable inputs from market sources and incorporating relative credit information,
observed market movements and sector news into a pricing model.
Asset-Backed Obligations: The fair value of asset-backed obligations is determined using a pricing methodology
based on observable market inputs including an analysis of pricing, spread and volatility of similar asset-backed
obligations. Using the market inputs, cash flows are generated for each tranche, the benchmark yield is
determined and deal collateral performance and other market information is incorporated to determine the
appropriate spreads.
Agency Bonds & Discount Notes: The fair value of agency bonds and discount note investments is determined
using observable market inputs for benchmark yields, base spreads, yield to maturity and relevant trade data.
The fair values of our foreign currency forward contracts are measured at fair value on a recurring basis based on the
changes in fair value of the foreign currency forward contracts. See Note P for information on the Company’s foreign
currency forward contracts.