Marketable Securities and Investments

The Company accounts for financial assets and liabilities in accordance with a fair value measurement accounting standard. The accounting standard provides a framework for measuring fair value under GAAP and requires expanded disclosures regarding fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting standard also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs, other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in markets that are inactive, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques.

The following is a summary of marketable securities held at September 30, 2011 and December 31, 2010 (in thousands):



			Gross Unrealized							Classification on Balance Sheet
As of September 30, 2011	Cost		Gains		Losses			Aggregate Fair Value		Short-term Marketable Securities		Long-term Marketable Securities
Available-for-sale securities:
Certificates of deposit	$	96	$	—	$	—		$	96	$	51	$	45
Commercial paper	59,989		—		(23		)	59,966		59,966		—
U.S. corporate debt securities	539,365		867		(995		)	539,237		261,922		277,315
U.S. government agency obligations	117,227		102		(7		)	117,322		10,028		107,294
Auction rate securities	135,350		—		(16,575		)	118,775		—		118,775
	$	852,027	$	969	$	(17,600	)	$	835,396	$	331,967	$	503,429
			Gross Unrealized							Classification on Balance Sheet
As of December 31, 2010	Cost		Gains		Losses			Aggregate Fair Value		Short-term Marketable Securities		Long-term Marketable Securities
Available-for-sale securities:
Certificates of deposit	$	96	$	—	$	—		$	96	$	51	$	45
Commercial paper	59,912		34		(2		)	59,944		59,944		—
U.S. corporate debt securities	651,855		1,416		(736		)	652,535		301,625		350,910
U.S. government agency obligations	161,722		102		(119		)	161,705		13,385		148,320
Auction rate securities	150,800		—		(13,544		)	137,256		—		137,256
	$	1,024,385	$	1,552	$	(14,401	)	$	1,011,536	$	375,005	$	636,531

Unrealized gains and unrealized temporary losses on investments classified as available-for-sale are included within accumulated other comprehensive income (loss). Upon realization, those amounts are reclassified from accumulated other comprehensive income (loss) to gain (loss) on investments, net in the statement of operations. Realized gains and losses and gains and losses on other-than-temporary impairments on investments are reflected in the income statement as gain (loss) on investments, net. As of September 30, 2011, the Company had recorded $135.4 million of auction rate securities ("ARS") at cost with gross unrealized losses that have been in a continuous loss position for more than 12 months.

The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets, including investments and cash equivalents, at September 30, 2011 and December 31, 2010 (in thousands):



			Fair Value Measurements at Reporting
	Total Fair Value at		Date Using
	September 30, 2011		Level 1		Level 2		Level 3
Money market funds	$	21,057	$	21,057	$	—	$	—
Certificates of deposit	96		96		—		—
Commercial paper	195,707		—		195,707		—
U.S. corporate debt securities	570,062		—		570,062		—
U.S. government agency obligations	117,322		—		117,322		—
Auction rate securities	118,775		—		—		118,775
	$	1,023,019	$	21,153	$	883,091	$	118,775

			Fair Value Measurements at Reporting
	Total Fair Value at		Date Using
	December 31, 2010		Level 1		Level 2		Level 3
Money market funds	$	55,648	$	55,648	$	—	$	—
Certificates of deposit	96		96		—		—
Commercial paper	59,944		—		59,944		—
U.S. corporate debt securities	652,535		—		652,535		—
U.S. government agency obligations	161,705		—		161,705		—
Auction rate securities	137,256		—		—		137,256
	$	1,067,184	$	55,744	$	874,184	$	137,256

The following tables reflect the activity for the Company’s major classes of financial assets measured at fair value using Level 3 inputs, consisting solely of ARS, for the nine month periods ended September 30, 2011 and 2010 (in thousands):



	Auction Rate Securities
Balance as of December 31, 2010	$	137,256
Redemptions of securities	(15,450		)
Unrealized loss included in accumulated other comprehensive income (loss), net	(3,031		)
Balance as of September 30, 2011	$	118,775



	Auction Rate Securities			Put Option Related to Auction Rate Securities			Total
Balance as of December 31, 2009	$	244,505		$	9,614		$	254,119
Redemptions of securities	(109,700		)	—			(109,700		)
Unrealized gain included in accumulated other comprehensive income (loss), net	5,721			—			5,721
Unrealized gain on auction rate securities included in the statement of operations	9,614			—			9,614
Unrealized loss on other investment-related assets included in the statement of operations	—			(9,614		)	(9,614		)
Balance as of September 30, 2010	$	150,140		$	—		$	150,140

As of September 30, 2011, the Company had grouped money market funds and certificates of deposit using a Level 1 valuation because market prices for such investments are readily available in active markets. As of September 30, 2011, the Company had grouped commercial paper, U.S. government agency obligations and U.S. corporate debt securities using a Level 2 valuation because quoted prices for identical or similar assets are available in markets that are inactive. As of September 30, 2011, the Company’s assets grouped using a Level 3 valuation consisted of ARS.

Historically, the carrying value (par value) of the Company’s ARS holdings approximated fair market value due to the resetting of variable interest rates in a “Dutch auction” process. Beginning in mid-February 2008 and continuing throughout the period ended September 30, 2011, however, the auctions for ARS held by the Company failed. As a result, the interest rates on ARS reset to the maximum rate per the applicable investment offering statements. The Company will not be able to liquidate affected ARS until a future auction on these investments is successful, a buyer is found outside the auction process, the securities are called or refinanced by the issuer, or the securities mature. Due to these liquidity issues, the Company used a discounted cash flow analysis to determine the estimated fair value of these investments. The discounted cash flow analysis considered the timing of expected future successful auctions, the impact of extended periods of maximum interest rates, collateralization of underlying security investments and the creditworthiness of the issuer. The discounted cash flow analysis as of September 30, 2011 assumed a weighted average discount rate of 4.11% and expected term of five years. The discount rate was determined using a proxy based upon the current market rates for recent debt offerings. The expected term was based on management’s estimate of future liquidity. As a result, as of September 30, 2011, the Company has estimated an aggregate loss of $16.6 million, which was related to the impairment of ARS deemed to be temporary and included in accumulated other comprehensive income (loss) within stockholders’ equity. The discounted cash flow analysis performed as of December 31, 2010 for ARS assumed a weighted average discount rate of 3.21% and expected term of five years. As a result, as of that date, the Company estimated an aggregate loss of $13.5 million, which was related to the impairment of ARS deemed to be temporary and included in accumulated other comprehensive income (loss) within stockholders’ equity.

The ARS the Company holds are primarily AAA-rated bonds, most of which are collateralized by federally guaranteed student loans as part of the Federal Family Education Loan Program through the U.S. Department of Education. The Company believes the quality of the collateral underlying these securities will enable it eventually to recover the Company’s principal balance.

Despite the failed auctions, the Company has continued to receive cash flows in the form of specified interest payments from the issuers of ARS. In addition, the Company does not believe it will be required to sell the ARS prior to a recovery of par value and currently intends to hold the investments until such time because it believes it has sufficient cash, cash equivalents and other marketable securities on-hand and from expected operating cash flows to fund its operations.

As of September 30, 2011 and December 31, 2010, the Company classified $118.8 million and $137.3 million, respectively, of ARS as long-term marketable securities on its consolidated balance sheet due to management’s estimate of its inability to liquidate these investments within the succeeding twelve months.

Contractual maturities of the Company’s marketable securities held at September 30, 2011 and December 31, 2010 were as follows (in thousands):



	September 30, 2011		December 31, 2010
Available-for-sale securities:
Due in 1 year or less	$	331,967	$	375,005
Due after 1 year through 5 years	384,654		499,275
Due after 10 years	118,775		137,256
	$	835,396	$	1,011,536