Clearwire 2009 Annual Report Download - page 113

12. Fa
i
r Valu
e
Th
e
f
o
ll
ow
i
ng ta
bl
e
i
sa
d
escr
i
pt
i
on o
f
t
h
epr
i
c
i
ng assumpt
i
ons use
df
or
i
nstruments measure
d
an
d
recor
d
e
d
a
t
f
a
i
rva
l
ue on a recurr
i
n
gb
as
i
s,
i
nc
l
u
di
n
g
t
h
e
g
enera
l
c
l
ass
ifi
cat
i
on o
f
suc
hi
nstruments pursuant to t
h
eva
l
uat
i
o
n
hierarchy. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of
i
nput that is significant to the fair value measurement.
F
inancial Instrument Hierarchy Pricin
g
Assumptions
C
ash equivalents: Mone
y
market mutual
fu
n
ds
Level 1 Market
q
uote
s
Short-term investment: U.S. Governmen
t
a
nd A
g
enc
y
Issues
Level 1 Market
q
uote
s
Lon
g
-term investment: U.S. Governmen
t
a
nd A
g
enc
y
Issues
Level 1 Market
q
uote
s
Lon
g
-term investment: Other deb
t
secu
ri
t
i
es
Level 3 Discount of forecasted cash flows ad
j
uste
d
for default/loss
p
robabilities and estimat
e
of final maturit
y
D
erivative: Interest rate swaps Level 3 Discount of forecasted cash flows ad
j
uste
d
for risk of non-
p
erformance
C
ash Equivalents and Investment
s
W
h
ere quote
d
pr
i
ces
f
or
id
ent
i
ca
l
secur
i
t
i
es are ava
il
a
bl
e
i
n an act
i
ve mar
k
et, we use quote
d
mar
k
et pr
i
ces t
o
determine the fair value of investment securities and cash equivalents, and the
y
are classified in Level 1 of the
va
l
uat
i
on
hi
erarc
h
y. Leve
l
1 secur
i
t
i
es
i
nc
l
u
d
e U.S. Treasur
i
es an
d
money mar
k
et mutua
lf
un
d
s
f
or w
hi
c
h
t
h
ere are
q
uote
d
pr
i
ces
i
n act
i
ve mar
k
ets.
For ot
h
er
d
e
b
t secur
i
t
i
es w
hi
c
h
are c
l
ass
ifi
e
di
nLeve
l
3
,
we use
di
scounte
d
cas
hfl
ow mo
d
e
l
s to est
i
mate t
he
f
a
i
rva
l
ue us
i
n
g
var
i
ous met
h
o
d
s
i
nc
l
u
di
n
g
t
h
e mar
k
et an
di
ncome approac
h
es. In
d
eve
l
op
i
n
g
t
h
ese mo
d
e
l
s, w
e
utilize certain assumptions that market participants would use in pricing the investment, including assumption
s
a
b
out r
i
s
k
an
d
t
h
er
i
s
k
s
i
n
h
erent
i
nt
h
e
i
nputs to t
h
eva
l
uat
i
on tec
h
n
i
que. We max
i
m
i
ze t
h
e use o
f
o
b
serva
bl
e
i
nput
s
i
nt
h
epr
i
c
i
n
g
mo
d
e
l
sw
h
ere quote
d
mar
k
et pr
i
ces
f
rom secur
i
t
i
es an
dd
er
i
vat
i
ves exc
h
an
g
es are ava
il
a
bl
ean
d
r
eliable. We also use certain unobservable inputs that cannot be validated b
y
reference to a readil
y
observable
m
ar
k
et or exc
h
ange
d
ata an
d
re
l
y, to a certa
i
n extent, on management’s own assumpt
i
ons a
b
out t
h
e assumpt
i
ons t
h
at
m
ar
k
et part
i
c
i
pants wou
ld
use
i
npr
i
c
i
ng t
h
e secur
i
ty. We use many
f
actors t
h
at are necessary to est
i
mate mar
k
et
values, includin
g
interest rates, market risks, market spreads, timin
g
of contractual cash flows, market liquidit
y
,
r
ev
i
ew o
f
un
d
er
l
y
i
ng co
ll
atera
l
an
d
pr
i
nc
i
pa
l
,
i
nterest an
ddi
v
id
en
d
payments
.
Derivative
s
D
erivatives are classified in Level 3 of the valuation hierarch
y
. To estimate fair value, we use an incom
e
approach whereby we estimate net cash flows and discount the cash flows at a risk-adjusted rate. The inputs includ
e
th
e contractua
l
terms o
f
t
h
e
d
er
i
vat
i
ves,
i
nc
l
u
di
ng t
h
e per
i
o
d
to matur
i
ty, payment
f
requency an
dd
ay-coun
t
c
onventions, and market-based parameters such as interest rate forward curves and interest rate volatilit
y
. A level of
s
ub
j
ectivit
y
is used to estimate the risk of our non-performance or that of our counterparties
.
1
03
C
LEARWIRE
CO
RP
O
RATI
O
N AND
SU
B
S
IDIARIE
S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —
(
Continued
)