Note 7 - Fair Value Measurements

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Text Block]

7.    Fair Value Measurements

Fair value is defined as the price that would be received for selling an asset or paid to transfer a liability 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 surrounding fair value measurements establishes a fair value hierarchy, consisting of three levels, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Financial Assets Measured at Fair Value on a Recurring Basis

The Company utilized levels 1, 2 and 3 to value its financial assets on a recurring basis.  Level 1 instruments use quoted prices in active markets for identical assets or liabilities, which include the Company’s cash accounts, short-term deposits and money market funds as these specific assets are liquid.  Level 1 instruments also include securities of the United States government, government agencies, and state and municipalities, as these securities are backed by the federal or state governments and frequently traded in active markets with sufficient volume.

Level 2 instruments are valued using the market approach, which uses quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities and include mortgage-backed securities, corporate obligations and asset-backed securities as similar or identical instruments can be found in active markets.

Level 3 instruments are supported by little or no market activity and requires a high level of judgment to determine fair value, which includes the Company’s two venture fund investments and an acquisition-related contingent consideration. The carrying amount of the contingent consideration is measured at fair value on a recurring basis using unobservable inputs in which little or no market activity exists. The Company periodically monitors its two venture capital funds and records these investments within “Other long-term assets” on the Condensed Balance Sheets based on quarterly statements the Company receives from each of the funds.  The statements are generally received one quarter in arrears, as more timely valuations are not practical. The statements reflect the net asset value, which the Company uses to determine the fair value for these investments, which (a) do not have a readily determinable fair value and (b) either have the attributes of an investment company or prepare their financial statements consistent with the measurement principles of an investment company. The assumptions used by the Company, due to lack of observable inputs, may impact the fair value of these equity investments in future periods. In the event that the carrying value of its equity investments exceeds their fair value, or the decline in value is determined to be other-than-temporary, the carrying value is reduced to its current fair value, with such reduction recorded in “Interest and other income, net,” in the Condensed Statements of Operations. At March 31, 2013, there were no significant transfers that occurred between any of the levels of the Company’s financial assets.

A summary of financial assets measured at fair value on a recurring basis at March 31, 2013 is as follows:

				Fair Value Measurements at Reporting Date Used
	Total			Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Assets
Cash, including short-term deposits(1)	$	60,581		$	60,581	$	-	$	-
United States government securities(2)		78,476			78,476		-		-
Corporate securities(2)		32,537			32,531		-		6
Commercial paper(2)		21,546			-		21,546		-
Corporate obligations(2)		54,929			-		33,210		21,719
Non-controlling interests in certain funds(3)		1,021			-		-		1,021
	$	249,090		$	171,588	$	54,756	$	22,746
Liabilities
Acquisition-related contingent consideration(4)	$	(475	)	$	-	$	-	$	(475	)

(1)	At March 31, 2013, the Company recorded $47.5 million and $13.1 million within “Cash and cash equivalents” and “Marketable securities,” respectively.
(2)	Recorded within “Marketable securities.”
(3)	Recorded within “Other long-term assets.”
(4)	Recorded within “Other long-term liabilities.”

A summary of financial assets measured at fair value on a recurring basis at December 31, 2012 is as follows:

				Fair Value Measurements at Reporting Date Used
	Total			Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Assets
Cash, including short-term deposits(1)	$	80,085		$	80,085	$	-	$	-
United States government securities(2)		99,477			99,477		-		-
Corporate securities(2)		20,117			20,117		-		-
Commercial paper(2)		22,291			-		22,291		-
Corporate obligations(2)		48,714			-		46,931		1,783
Non-controlling interests in certain funds(3)		1,021			-		-		1,021
	$	271,705		$	199,679	$	69,222	$	2,804
Liabilities
Acquisition-related contingent consideration(4)	$	(475	)	$	-	$	-	$	(475	)

(1)	At December 31 2012, the Company recorded $68.2 million and $11.9 million within “Cash and cash equivalents” and “Marketable securities,” respectively.
(2)	Recorded within “Marketable securities.”
(3)	Recorded within “Other long-term assets.”
(4)	Recorded within “Other long-term liabilities.”

The following is a reconciliation of the beginning and ending balances of the Level 3 assets and liabilities for the three-month period ended March 31, 2013:

	Assets		Liabilities
	(in thousands)
Balance, December 31, 2012	$	2,804	$	(475	)
Purchases/distributions		19,900		-
Change in fair value		42		-
Balance, March 31, 2013	$	22,746	$	(475	)

The increase in Corporate Obligations during the three-month period ended March 31, 2013 was the result of a debtor-in-possession loan. In November 2012, the Company purchased $11.9 million face amount of 3.75% Unsecured Convertible Subordinated Debentures Due 2026 in School Specialty Inc., a market leader in school supplies and educational materials (“School Specialties”), at a total cost of $6.0 million. On January 28, 2013, School Specialties filed a Chapter 11 bankruptcy petition. On February 26, 2013, the Company committed to participate, with a share in the amount of approximately $22.0 million, in a $155.0 million debtor-in-possession loan to School Specialties. The Company believes the loan, in conjunction with other sources of financing, will enable School Specialties to successfully execute a plan of reorganization or other alternative transaction. While there is no active trading of this investment, it will be marked to fair value based on quoted interest rates and other observable inputs. Based on the limited period such investment was outstanding, cost was deemed to be reasonable approximation of fair value at March 31, 2013.

The Company’s other financial instruments include accounts payable and accrued and other liabilities. Carrying values of these financial liabilities approximate their fair values due to the relatively short maturity of these items. The related cost basis for the Company’s 3/4% Convertible Senior Notes due December 22, 2023 (the “3/4% Notes”) at March 31, 2013 and December 31, 2012 was approximately $0.3 million on both dates. Although the remaining balance of its 3/4% Notes is relatively small and the market trading is very limited, the Company believes the cost basis for the 3/4% Notes of approximately $0.3 million at March 31, 2013 to approximate fair value. The Company’s convertible debt is recorded at its carrying value, not the estimated fair value. The Company may seek to make open market repurchases of the remaining balance of its 3/4% Notes within the next twelve months.

Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis

The Company had no non-financial assets measured at fair value on a non-recurring basis as of March 31, 2013 and December 31, 2012.