Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2011

Fair Value of Financial Instruments [Abstract]

Fair Value Disclosures

Fair Value of Financial Instruments

The Company measures at fair value certain financial assets and liabilities. GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs have created the following fair-value hierarchy:

Level 1— Quoted 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 significant inputs and significant value drivers are observable in active markets; and

Level 3— Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Foreign currency forward contracts are measured at fair value using models based on observable market inputs such as foreign currency exchange rates; therefore, they are classified within Level 2 of the valuation hierarchy. The cash surrender value of life insurance contracts is measured at fair value using quoted market prices for similar instruments; therefore, they are classified within Level 2 of the valuation hierarchy.

The contingent consideration liability represents future amounts we may be required to pay in conjunction with the acquisition of Continuous Computing and is based on the amount of royalty revenues generated by a specified set of contracts associated with certain of Continuous Computing's products over a period of 36 months after closing. The Company estimates the fair value of the contingent consideration liability using a probability-weighted scenario of estimated qualifying earn-out revenues calculated at net present value (level 3 of the fair value hierarchy).

The following table summarizes the fair value measurements as of December 31, 2011 for the Company's financial instruments (in thousands):

	Fair Value Measurements as of December 31, 2011
	Total			Level 1		Level 2			Level 3
Cash surrender value of life insurance contracts	$	3,394		$	—	$	3,394		$	—
Foreign currency forward contracts	(647		)	—		(647		)	—
Contingent consideration liability	(7,594		)	—		—			(7,594		)
Total	$	(4,847	)	$	—	$	2,747		$	(7,594	)

The following table summarizes the fair value measurements as of December 31, 2010, for the Company’s financial instruments, including its ARS (in thousands):

	Fair Value Measurements as of December 31, 2010
	Total		Level 1		Level 2		Level 3
Cash surrender value of life insurance contracts	$	3,618	$	—	$	3,618	$	—
Foreign currency forward contracts	432		—		432		—
Total	$	4,050	$	—	$	4,050	$	—

The following table summarizes our level 3 activity for the Company's ARS, ARS settlement right and contingent consideration liability (in thousands):

	Fair Value
	Short-term Investments			ARS Settlement Right			Contingent Consideration
Balance as of December 31, 2009	$	54,321		$	7,833		$	—
Realized gain (A)	7,854			—			—
Exercise of ARS settlement right (B)	—			(7,833		)	—
Sales of ARS	(62,175		)	—			—
Balance as of December 31, 2010	$	—		$	—		$	—
Additions	—			—			7,400
Increase in liability due to re-measurement (C)	—			—			143
Interest accretion (C)	—			—			51
Balance at December 31, 2011	$	—		$	—		$	7,594

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(A) Valuation of the Company's ARS was performed using the income approach which considered various inputs including the estimated time believed to allow the market for such investments to recover, projected estimates of future risk-free rates, as well as premiums designed to account for liquidity and credit risks associated with its ARS holdings. Unrealized gains on the Company’s ARS, which totaled $3.7 million for the year ended December 31, 2009, are included in other income (expense), net in the Company’s Consolidated Statements of Operations. Realized gains on the Company’s ARS which totaled $7.9 million for the year ended December 31, 2010, are included in other income (expense), net in the Company’s Consolidated Statements of Operations.

(B) Valuation of the Company's ARS settlement right was performed using a present value approach on the difference between the estimated fair value and the par value of the ARS investments. Therefore, there was an inverse relationship between changes in the value of the Company's ARS investment and its settlement right. Unrealized losses on the Company's ARS settlement right, which totaled $3.2 million for the year ended December 31, 2009, are included in other income (expense), net in the Company’s Consolidated Statements of Operations. Realized losses on the Company's ARS settlement right, which totaled $7.8 million for the year ended December 31, 2010, are included in other income (expense), net in the Company’s Consolidated Statements of Operations.

(C) The Company records all gains and losses and interest accretion on the contingent consideration liability to restructuring and acquisition-related charges, net in the Consolidated Statements of Operations.