3. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Short-term and long-term investments consist of the following:


		As of December 31, 2011				As of June 30, 2011
		Amortized		Aggregate		Amortized		Aggregate
(in thousands)		Cost Basis		Fair Value		Cost Basis		Fair Value
Time deposit – international	$	91,941	$	91,941	$	74,745	$	74,745
Auction rate securities		57,625		39,956		57,625		41,345
U.S. government debt securities		10,018		10,018		30,222		30,222
Foreign corporate debt securities		17,067		17,067		18,920		18,920
Total investments	$	176,651	$	158,982	$	181,512	$	165,232

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The following hierarchy prioritizes the inputs (generally, assumptions that market participants use in pricing an asset or liability) used to measure fair value based on the quality and reliability of the information provided by the inputs:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets that are not active; inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and inputs that are derived principally from or corroborated by observable market data or other means.
Level 3 - Measured based on prices or valuation models using unobservable inputs to the extent relevant observable inputs are not available (i.e., where there is little or no market activity for the asset or liability).

The following table provides information regarding the financial assets accounted for at fair value and the type of inputs used to value the assets:


(in thousands)		Level 1		Level 2		Level 3		Total
Balance, December 31, 2011:
Short-term and long-term investments:
Time deposit – international	$	0	$	91,941	$	0	$	91,941
Auction rate securities		0		0		39,956		39,956
U.S. government debt securities		10,018		0		0		10,018
Foreign corporate debt securities		17,067		0		0		17,067
Total short-term and long-term investments	$	27,085	$	91,941	$	39,956	$	158,982

Balance, June 30, 2011:
Short-term and long-term investments:
Time deposit – international	$	0	$	74,745	$	0	$	74,745
Auction rate securities		0		0		41,345		41,345
U.S. government debt securities		30,222		0		0		30,222
Foreign corporate debt securities		18,920		0		0		18,920
Total short-term and long-term investments	$	49,142	$	74,745	$	41,345	$	165,232

At December 31, 2011 and June 30, 2011, all of the Company's investments, other than the Company's investments in auction rate securities, were recognized at fair value determined based upon observable input information provided by the Company's pricing service vendors for identical or similar assets. For these investments, cost approximated fair value. During the six months ended December 31, 2011 and 2010, the Company did not recognize any gains or losses on its investments, other than those related to the Company's investments in auction rate securities during the six months ended December 31, 2010. See "Auction Rate Securities" below for further discussion on the valuation of the Company's investments in auction rate securities.

The contractual maturities of investments held at December 31, 2011 are as follows:


		Amortized		Aggregate
(in thousands)		Cost Basis		Fair Value
Due within one year	$	113,457	$	113,457
Due between 1 – 2 years		5,569		5,569
Due after 10 years – auction rate securities		57,625		39,956
Total short-term and long-term investments	$	176,651	$	158,982

AUCTION RATE SECURITIES

The Company's investments in auction rate securities, carried at estimated fair values, were its only assets valued on the basis of Level 3 inputs. Auction rate securities are long-term debt instruments with variable interest rates that are designed to reset to prevailing market interest rates every 7 to 35 days through the auction process. The auction rate securities held by the Company are supported by student loans for which repayment is guaranteed either by the Federal Family Education Loan Program or insured by AMBAC Financial Group. AMBAC Financial Group commenced a voluntary case under Chapter 11 of the U.S. Bankruptcy Code in November 2010, which may enable it to limit or avoid its obligations to provide insurance for repayment of the relevant securities. Before February 2008, due to the liquidity previously provided by the interest rate reset mechanism and the anticipated short-term nature of the Company's investment, the auction rate securities were classified as short-term investments available-for-sale in the Company's consolidated balance sheets. Beginning in February 2008, auctions for these securities failed to obtain sufficient bids to establish a clearing rate, and the securities were not saleable in auction, thereby no longer providing short-term liquidity. As a result, the auction rate securities have been classified as long-term investments available-for-sale as of December 31, 2011 and June 30, 2011 instead of being classified as short-term investments, as was the case before February 2008.

As of December 31, 2011, the Company updated its assessment as to whether it would likely recover the entire cost basis of each of the auction rate securities, and the extent to which the securities had incurred an other-than-temporary impairment. Determination of whether the impairment is temporary or other-than-temporary requires significant judgment. The primary factors that are considered in assessing the nature of the impairment include (a) the credit quality of the underlying security, (b) the extent to

which and time period during which the fair value of each investment has been below cost, (c) the expected holding or recovery period for each investment, (d) the Company's intent to hold each investment until recovery and likelihood that the Company will not be required to sell the security before recovery, and (e) the existence of any evidence of default by the issuer of the securities. The Company engaged an independent valuation firm to perform a valuation of its auction rate securities in conjunction with the Company's assessment as to whether any impairment was temporary rather than other-than-temporary. The valuation firm used a discounted cash flow model that considered various inputs including: (a) the coupon rate specified under the debt instruments, (b) the current credit ratings of the underlying issuers, (c) collateral characteristics, (d) discount rates, (e) severity of default and (f) probability that the securities will be sold at auction or through early redemption. The valuation firm used a mark to model approach to arrive at this valuation, which the Company reviewed and with which it agreed.

Based on its fair value assessments, the Company determined that its investments in auction rate securities as of December 31, 2011 were impaired by approximately $17.7 million as compared to an impairment of approximately $16.3 million as of June 30, 2011. Approximately $10.0 million of this impairment at December 31, 2011 and June 30, 2011 was deemed to be other-than-temporary. The fair value assessment also included an evaluation of the amount of the other-than-temporary impairment attributable to credit loss. The factors considered in making an evaluation of the amount attributable to credit loss included the following: (a) default probability and the likelihood of restructuring of the security, (b) payment structure of the security to determine how the expected underlying collateral cash flows will be distributed to holders of the issuer's securities and (c) performance indicators of the underlying assets in the trust (including default and delinquency rates). These assumptions are subject to change as the underlying market conditions change. Based on its evaluations, the Company determined that, consistent with the June 30, 2011 valuation, all of the cumulative other-than-temporary impairment losses of approximately $10.0 million as of December 31, 2011 were credit based.

The remaining cumulative impairment losses of approximately $7.7 million (approximately $4.7 million, net of tax) were recorded in accumulated other comprehensive income, net of tax, as of December 31, 2011.

A reconciliation of changes in the fair value of auction rate securities, and the related unrealized losses were as follows:


	Cost		Temporary Impairment Loss (1)			OTTI – Non-Credit Loss (1)		OTTI – Credit Loss (2)			Fair Value

(in thousands)
Balance, June 30, 2011	$	57,625	$	(6,280	)	$	0	$	(10,000	)	$	41,345
Changes in losses related to investments		0		(1,389	)		0		0			(1,389	)
Balance, December 31, 2011	$	57,625	$	(7,669	)	$	0	$	(10,000	)	$	39,956

(1) OTTI means "other-than-temporary impairment." The amounts in this column are recorded, net of tax, in the accumulated other comprehensive income (loss) component of stockholders' equity.

(2) The amounts in this column are recorded in the condensed consolidated statement of operations.

A summary of redemptions and sales of auction rate securities were as follows:


		Three Months Ended					Six Months Ended
		December 31,					December 31,
(in thousands)		2011		2010			2011		2010
Original cost, par value	$	0	$	3,650		$	0	$	6,650
Impairment losses previously recorded in:
Accumulated other comprehensive income		0		(249	)		0		(281	)
Consolidated statement of operations		0		0			0		(342	)
Carrying value		0		3,401			0		6,027
Proceeds from redemption/sale		0		3,577			0		6,384
Gain on redemption/sale		0		176			0		357
Reversal of impairment losses previously recorded in
accumulative other comprehensive income		0		(249	)		0		(281	)
(Loss) gain from redemption/sale recorded in consolidated
statement of operations	$	0	$	(73	)	$	0	$	76

The Company plans to continue to monitor its investments, including the liquidity and creditworthiness of the issuers of its auction rate securities, on an ongoing basis for indications of further impairment and, if an impairment is identified, for proper classification of the impairment. Based on the Company's expected operating cash flows and sources of cash, the Company does not believe that any further reduction in the liquidity of its auction rate securities will have a material impact on its overall ability to meet its liquidity needs.