Financial Instruments

6 Months Ended

Jun. 30, 2011

Financial Instruments

Financial Instruments

5. FINANCIAL INSTRUMENTS

Cash and Cash Equivalents and Investments

Cash and cash equivalents and investments from our continuing operations consist of the following as of June 30, 2011 and December 31, 2010:

	June 30, 2011
			(Dollars in thousands) Gross Unrealized
	Cost		Gain		(Loss)			Fair Value
Cash and cash equivalents:
Cash	$	123,146	$	—	$	—		$	123,146
Money market funds		105,221		454		—			105,675
Total cash and cash equivalents		228,367		454		—			228,821
Short-term investments (available-for-sale):
U.S. Treasury bills		159,878		66		(5	)		159,939
Total cash and cash equivalents and short-term investments	$	388,245	$	520	$	(5	)	$	388,760
Long-term investments:
Municipal bonds	$	11,750	$	—	$	(673	)	$	11,077
	December 31, 2010
			(Dollars in thousands) Gross Unrealized
	Cost		Gain		(Loss)			Fair Value
Cash and cash equivalents:
Cash	$	176,250	$	—	$	—		$	176,250
Money market funds		112,936		296		—			113,232
Total cash and cash equivalents		289,186		296		—			289,482
Short-term investments (available-for-sale):
U.S. Treasury bills		159,672		7		(8	)		159,671
Total cash and cash equivalents and short-term investments	$	448,858	$	303	$	(8	)	$	449,153
Long-term investments:
Municipal bonds	$	11,750	$	—	$	(439	)	$	11,311

In the table above, unrealized holding losses as of June 30, 2011 relate to cash equivalents and short-term investments that have been in a continuous unrealized loss position for less than one year. The table also includes unrealized holding losses that relate to our long-term investments in municipal bonds, which are auction rate securities ("ARS"). When evaluating our investments for possible impairment, we review factors such as the length of time and extent to which fair value has been less than the cost basis, the financial condition of the investee, and our ability and intent to hold the investment for a period of time that may be sufficient for anticipated recovery in fair value. The decline in the fair value of our municipal bonds through June 30, 2011 is attributable to the continued lack of activity in the ARS market, exposing these investments to liquidity risk.

Included in cash and cash equivalents above are amounts related to certain of our European campuses that are operated on a not-for-profit basis. The cash and cash equivalents related to these schools have restrictions which require that the funds be utilized for these particular not-for-profit schools. The amount of cash and cash equivalents of our not-for-profit schools with restrictions was $53.9 million and $58.5 million at June 30, 2011 and December 31, 2010, respectively. Restrictions on cash balances have not affected our ability to fund operations.

Money market funds. Money market funds are mutual funds that invest in lower risk securities and generate low yields. Such funds maintain clear investment guidelines and seek to limit credit, market and liquidity risks.

Municipal bonds: Municipal bonds represent debt obligations issued by states, cities, counties, and other governmental entities, which earn federally tax-exempt interest. ARS generally have stated terms to maturity of greater than one year. We classify investments in ARS as non-current on our unaudited consolidated balance sheets within other assets. Auctions can "fail" when the number of sellers of the security exceeds the buyers for that particular auction period. In the event that an auction fails, the interest rate resets at a rate based on a formula determined by the individual security. The ARS for which auctions have failed continue to accrue interest and are auctioned on a set interval until the auction succeeds, the issuer calls the securities, or they mature. As of June 30, 2011, we have determined these investments are at risk for impairment due to the nature of the liquidity of the market over the past year. Cumulative unrealized losses as of June 30, 2011, amount to $0.7 million and are reflected within other comprehensive income as a component of stockholders' equity. We believe this impairment is temporary, as we do not intend to sell the investments and it is unlikely we will be required to sell the investments before recovery of their amortized cost basis.

U.S. Treasury bills: Debt obligations issued by the U.S. government that pay interest at maturity. U.S. Treasury bills are traded at discounts to par value and mature in one year or less.

Fair Value Measurements

The fair value measure of accounting for financial instruments establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of June 30, 2011, we held investments that are required to be measured at fair value on a recurring basis. These investments (available-for-sale) consist of U.S. Treasury bills that are publicly traded and for which market prices are readily available.

As of June 30, 2011, we also held investments in ARS, which are classified as available-for-sale and reflected at fair value. The auction events for these investments have been failing for over two years. The fair values of these securities are estimated utilizing a discounted cash flow analysis as of June 30, 2011. These analyses consider, among other items, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the expectation of the next time the security is expected to have a successful auction. These securities were also compared, when possible, to other observable market data with similar characteristics.

Investments measured at fair value on a recurring basis subject to the disclosure requirements issued by the FASB ASC under Topic 820 – Fair Value Measurements and Disclosures at June 30, 2011 and December 31, 2010, were as follows:

	As of June 30, 2011
	(Dollars in thousands)
	Level 1		Level 2		Level 3		Total
Municipal bonds	$	—	$	—	$	11,077	$	11,077
U.S. Treasury bills		159,939		—		—		159,939
Totals	$	159,939	$	—	$	11,077	$	171,016
	As of December 31, 2010
	(Dollars in thousands)
	Level 1		Level 2		Level 3		Total
Municipal bonds	$	—	$	—	$	11,311	$	11,311
U.S. Treasury bills		159,671		—		—		159,671
Totals	$	159,671	$	—	$	11,311	$	170,982

The following table presents our assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as defined in FASB ASC Topic 820 at June 30, 2011:

	(Dollars in thousands)
Balance at December 31, 2010	$	11,311
Unrealized loss		(234	)
Balance at June 30, 2011	$	11,077

Credit Agreement

As of June 30, 2011, we had letters of credit totaling $6.7 million outstanding under our $185.0 million U.S. Credit Agreement. Borrowing availability under our U.S. Credit Agreement as of June 30, 2011, was $178.3 million.