This excerpt taken from the VRSN 10-Q filed May 8, 2009.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes the Companys financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2009:
The fair value of the Companys investments in certain money market funds approximates their face value. Such instruments are classified as Level 1 and are included in Cash and cash equivalents.
The fair value of the Companys foreign currency forward contracts is based on foreign currency rates quoted by banks or foreign currency dealers and other public data sources. The Company recorded unrealized gains and losses related to changes in the fair value of its foreign currency forward contracts in Other loss, net. The Company recorded an unrealized loss of $0.9 million and an unrealized gain of $0.1 million during the three months ended March 31, 2009 and March 31, 2008, respectively, related to changes in the fair value of its foreign currency forward contracts.
Equity investments relate to the Companys investments in the securities of other public companies. The fair value of these investments is based on the quoted market prices of the underlying shares. Such investments are included in Prepaid expenses and other current assets.
The Companys Convertible Debentures have contingent interest payments that are considered to be an embedded derivative. The Company accounts for the embedded derivative separately from the Convertible Debentures at fair value, with gains and losses reported in Other loss, net. The Company has utilized a valuation model based on simulations of stock prices, interest rates, credit ratings and bond prices to estimate the value of the embedded derivative. The inputs to the model include risk adjusted interest rates, volatility and average yield curve observations and stock price. As several significant inputs are not observable, the overall fair value measurement of the embedded derivative is classified as Level 3.
The following table summarizes the change in the fair value of the Companys Level 3 contingent interest derivative on Convertible Debentures during the three months ended March 31, 2009 (in thousands):