2. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

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


		As of June 30, 2012				As of June 30, 2011
		Amortized		Aggregate		Amortized		Aggregate
(in thousands)		Cost Basis		Fair Value		Cost Basis		Fair Value
Time deposit – international	$	19,419	$	19,419	$	74,745	$	74,745
Auction rate securities		52,625		34,289		57,625		41,345
U.S. government debt securities		0		0		30,222		30,222
Foreign corporate debt securities		0		0		18,920		18,920
Total investments	$	72,044	$	53,708	$	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; 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 on a recurring basis and the type of inputs used to value the assets:


(in thousands)		Level 1		Level 2		Level 3		Total
Balance, June 30, 2012:
Short-term and long-term investments:
Time deposit – international	$	0	$	19,419	$	0	$	19,419
Auction rate securities		0		0		34,289		34,289
Total short-term and long-term investments	$	0	$	19,419	$	34,289	$	53,708

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 June 30, 2012 and 2011, 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 fiscal years 2012, 2011 and 2010, the Company did not recognize any gains or losses on its investments, other than related to the Company's investments in auction rate securities. 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 June 30, 2012 are as follows:


		Amortized		Aggregate
(in thousands)		Cost Basis		Fair Value
Due within one year	$	19,252	$	19,252
Due between 1 – 2 years		167		167
Due after 10 years – auction rate securities		52,625		34,289
Total short-term and long-term investments	$	72,044	$	53,708

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 ("FFELP") or insured by AMBAC Financial Group ("AMBAC"). AMBAC commenced a voluntary case under Chapter 11 of the US Bankruptcy Code in November 2010, which may limit it or enable it to 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 June 30, 2012 and 2011 instead of being classified as short-term investments, as was the case prior to February 2008.

As of June 30, 2012, the Company updated its assessment as to whether it would likely recover the entire cost basis of each of the auction rate securities, and, therefore, whether 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 prior to recovery, and (e) the existence of any evidence of default by the issuer. 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.

At June 30, 2012 approximately $29.8 million of the fair value of auction rate securities are supported by student loans guaranteed by FFELP and carry aggregate discount from cost of 9%. The remaining approximately $4.5 million of the fair value of auction rate securities, carried at 55% discount from cost, are supported by student loan guaranteed by AMBAC and are therefore more sensitive to changes in significant observable inputs described below. However, due to the nature of the guarantees noted, combined with the relative amounts invested, the sensitivity of the fair value measures to change in significant unobservable inputs is not considered material.

The significant assumptions used in the valuation of the Company's investments in auction rate securities are as follows:


Fair value at June 30, 2012 (in thousands)	$	34,289
Valuation technique		Probability Weighted Discounted cash flow

Unobservable input:		Range (weighted average)
Cumulative probability of default		40.5	%
Cumulative probability of principal returned prior to maturity		59.4	%
Cumulative probability of earning maximum rate until maturity		0.1	%
Liquidity risk premium		4.3	%
Recovery rate in default		32.4	%
Maximum coupon rate		1.9	%

The most significant unobservable inputs used in the fair value measurement of the Company's investments in auction rate securities relate to the Company's assessment of the maximum rate, the cumulative probability of earning the maximum rate until maturity, the cumulative probability of principal return prior to maturity, the cumulative probability of default, the liquidity risk premium and the recovery rate in case of default related to each instrument. A small change in any of these assumptions could significantly increase or decrease the valuation conclusion for some of the auction rate securities, the cumulative probability of default could especially impact the ones with credit based other-than-temporary-impairment losses.

Based on its fair value assessments, the Company determined that its investments in auction rate securities as of June 30, 2012 were impaired by approximately $18.3 million as compared to an impairment of approximately $16.3 million as of June 30, 2011. Approximately $14.0 million and $10.0 million of this impairment at June 30, 2012 and 2011, respectively, 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 recorded other-than-temporary impairment losses as of approximately $4.0 million, $4.3 million and $4.8 million, respectively, in its fiscal years 2012, 2011 and 2010 consolidated statements of operations. The credit based other-than-temporary impairment losses for the three years ended June 30, 2012 are primarily due to continued declines in the credit ratings of the underlying issuers and the worsening performance of the underlying student loan collateral.

The remaining cumulative impairment losses of approximately $4.3 million (approximately $2.7 million, net of tax) and approximately $6.3 million (approximately $3.9 million, net of tax) were recorded in accumulated other comprehensive income, net of tax, as of June 30, 2012 and 2011, respectively.

A reconciliation of changes in the fair value of auction rate securities were as follows:


					Temporary			OTTI –			OTTI –
					Impairment			Non-Credit			Credit
(in thousands)		Cost			Loss(1)			Loss(1)			Loss(2)			Fair Value
Balance, June 30, 2010	$	64,275		$	(4,936	)	$	(32	)	$	(6,049	)	$	53,258
Changes in losses related to investments		0			(1,593	)		0			(4,293	)		(5,886	)
Changes in losses related to		(6,650	)		249			32			342			(6,027	)
redemption/sale
Balance, June 30, 2011		57,625			(6,280	)		0			(10,000	)		41,345
Changes in losses related to investments		0			1,404			0			(4,000	)		(2,596	)
Changes in losses related to		(5,000	)		540			0			0			(4,460	)
redemption/sale
Balance, June 30, 2012	$	52,625		$	(4,336	)	$	0		$	(14,000	)	$	34,289

(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 consolidated statement of operations.

Sales of auction rate securities during fiscal 2012, 2011, and 2010 were as follows:


	Fiscal Year Ended June 30,
(in thousands)		2012			2011			2010
Original cost, par value	$	5,000		$	6,650		$	0
Impairment losses previously recorded in:
Accumulated other comprehensive income		(540	)		(281	)		0
Consolidated statement of operations		0			(342	)		0
Carrying value		4,460			6,027			0
Proceeds from redemption/sale		5,000			6,384			0
Gain from redemption/sale	$	540		$	357		$	0

The Company plans to continue to monitor its investments, including the liquidity of 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 reduction in the liquidity of its auction rate securities will have a material impact on its overall ability to meet its liquidity needs.