Cash, Cash Equivalents And Marketable Securities

3 Months Ended

Jun. 30, 2011

Cash, Cash Equivalents And Marketable Securities

Cash, Cash Equivalents And Marketable Securities

4. Cash, Cash Equivalents and Marketable Securities

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents and those investments with original maturities greater than three months to be marketable securities. Cash and cash equivalents consisted of money market instruments and cash maintained with various financial institutions at June 30, 2011 and March 31, 2011.

Marketable Securities

The following is a summary of marketable securities held by NetScout at June 30, 2011 classified as short-term and long-term (in thousands):

	Amortized Cost		Unrealized Gains (Losses)			Fair Value
Type of security:
U.S. government and municipal obligations	$	87,814	$	9		$	87,823
Commercial paper		27,829		0			27,829
Corporate bonds		25,157		4			25,161
Certificates of deposit		1,501		5			1,506
Total short-term marketable securities		142,301		18			142,319
Auction rate securities		19,505		(2,257	)		17,248
U.S. government and municipal obligations		9,109		17			9,126
Corporate bonds		1,070		(2	)		1,068
Total long-term marketable securities		29,684		(2,242	)		27,442
Total marketable securities	$	171,985	$	(2,224	)	$	169,761

Maturity dates for short-term marketable securities held at June 30, 2011 range from July 2011 to June 2012. Maturity dates for long-term marketable securities held at June 30, 2011, which consist of auction rate securities, U.S. Treasury bills and corporate bonds, range from July 2012 to June 2038.

The following is a summary of marketable securities held by NetScout at March 31, 2011, classified as short-term and long-term (in thousands):

	Amortized Cost		Unrealized Gains (Losses)			Fair Value
Type of security:
U.S. government and municipal obligations	$	86,670	$	(1	)	$	86,669
Commercial paper		24,111		(1	)		24,110
Corporate bonds		13,364		17			13,381
Certificates of deposit		5,251		12			5,263
Auction rate securities		4,007		0			4,007
Total short-term marketable securities		133,403		27			133,430
Auction rate securities		19,784		(2,302	)		17,482
U.S. government and municipal obligations		8,716		3			8,719
Corporate bonds		1,678		1			1,679
Total long-term marketable securities		30,178		(2,298	)		27,880
Total marketable securities	$	163,581	$	(2,271	)	$	161,310

Maturity dates for short-term marketable securities held at March 31, 2011 ranged from April 2011 to March 2012. Maturity dates for long-term marketable securities held at March 31, 2011, which consist of auction rate securities, corporate bonds and certificates of deposit, ranged from April 2012 to June 2038.

The Company's long-term marketable securities include investments in auction rate securities. Beginning in February 2008 and continuing through June 30, 2011, auctions have failed resulting in a lack of short-term liquidity for these securities, which has caused the Company to classify $17.2 million as long-term on its consolidated balance sheet. As of June 30, 2011, the Company's auction rate securities consisted of three positions issued by municipal agencies with a total par value of $19.5 million and a current estimated market value totaling $17.2 million. As of June 30, 2011, these marketable securities were AAA rated. The securities are collateralized by student loans with underlying support by the federal government through the Federal Family Education Loan Program and by monoline insurance companies.

During the quarter ended June 30, 2011, redemptions by the issuers for certain of the Company's auction rate securities totaling securities totaling $4.25 million were settled at par, $4.0 million of which was classified under current marketable securities as of March 31, 2011 and another $250 thousand redeemed from long-term marketable securities. 

At June 30, 2011, the Company valued its outstanding long-term auction rate securities at fair value using a discounted cash flow model. This model estimated future interest income using maximum rate formulas applicable to each of these securities which consider historical spreads for benchmark rates included in these formulas as well as rates for U.S. Treasuries. The model then discounts the estimated future interest income using a risk based discount rate that considers known U.S. Treasury yields as of June 30, 2011, historical spreads in comparison to U.S. Treasuries, and a liquidity risk premium of 350 basis points. As these securities have retained investment grade credit ratings with Standard and Poor's, the Company has not applied a credit spread to its discount rate. The valuation also includes assumptions as to when these securities will return to liquidity, of which the weighted average period is estimated at between 51 and 55 months depending on the security being valued. This valuation resulted in a cumulative temporary decline in value of $2.3 million ($1.4 million, net of tax) as of June 30, 2011 recorded within accumulated other comprehensive income (loss) on the balance sheet. This represents a reduction in the valuation reserve of $45 thousand ($28 thousand, net of tax) during the three months ended June 30, 2011 reflecting redemptions at par. To the extent the Company determines that any impairment is other-than-temporary, the Company would record a charge to earnings.

The Company has the ability and intent to hold these securities until a recovery in the auction process or other liquidity event occurs. Based on the Company's current cash position, expected operating cash flows and the Company's other sources of cash, the Company does not believe that it is more likely than not that it will be required to sell the securities before a recovery in the auction process or other liquidity event occurs. Additionally, the Company believes that the present value of expected future cash flows consisting of interest payments and the return of principal is sufficient to recover the amortized cost basis of the securities and expects to collect these cash flows. Therefore, the Company does not believe that the decline in value of its auction rate securities is other than temporary, or that any portion of the temporary decline is the result of a credit loss.