As of September 30, 2012, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis. These included the Company's short-term and long-term investments, including investments in auction rate floating securities, and the liability associated with the Counterparty Settlement Agreement (see Note 15).

The Company has invested in auction rate floating securities, which are classified as available-for-sale securities and reflected at fair value. Due to events in credit markets, the auction events for some of these instruments held by the Company failed during the three months ended March 31, 2008 (See Note 7). Therefore, the fair values of these auction rate floating securities, which are primarily rated AAA, are estimated utilizing a discounted cash flow analysis as of September 30, 2012. These analyses consider, among other items, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the expectation of the next time the security is expected to have a successful auction. These investments were also compared, when possible, to other observable market data with similar characteristics to the securities held by the Company. Changes to these assumptions in future periods could result in additional declines in fair value of the auction rate floating securities.

The Company's assets and liabilities measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820, Fair Value Measurements and Disclosures, at September 30, 2012 and December 31, 2011, were as follows (in thousands):

			Fair Value Measurement at Reporting Date Using
			Quoted		Significant
			Prices in		Other		Significant
			Active		Observable		Unobservable
			Markets		Inputs		Inputs
	Sept. 30, 2012		(Level 1)		(Level 2)		(Level 3)

Corporate notes and bonds	$	326,357	$	4,155	$	322,202	$	-
Federal agency notes and bonds		254,381		-		254,381		-
Auction rate floating securities		12,778		-		-		12,778
Asset-backed securities		49,070		-		49,070		-
Total assets measured at fair value	$	642,586	$	4,155	$	625,653	$	12,778

Counterparty Settlement Agreement
liability	$	24,925	$	-	$	-	$	24,925
Total liabilities measured at fair value	$	24,925	$	-	$	-	$	24,925

			Fair Value Measurement at Reporting Date Using
			Quoted		Significant
			Prices in		Other		Significant
			Active		Observable		Unobservable
			Markets		Inputs		Inputs
	Dec. 31, 2011		(Level 1)		(Level 2)		(Level 3)

Corporate notes and bonds	$	138,166	$	-	$	138,166	$	-
Federal agency notes and bonds		125,289		-		125,289		-
Auction rate floating securities		12,793		-		-		12,793
Asset-backed securities		9,519		-		9,519		-
Total assets measured at fair value	$	285,767	$	-	$	272,974	$	12,793

The following tables present the Company's assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2012 (in thousands):

	Fair Value
	Measurements Using
	Significant
	Unobservable
	Inputs (Level 3)
				Counterparty
	Auction Rate			Settlement
	Floating			Agreement
	Securities			Liability

Balance at June 30, 2012	$	12,766	$	-
Transfers to (from) Level 3		-		17,182
Total losses (gains)
included in other expense
(income), net		-		7,743
Total gains included in other
comprehensive income		12		-
Purchases		-		-
Settlements		-		-
Balance at September 30, 2012	$	12,778	$	24,925


	Fair Value
	Measurements Using
	Significant
	Unobservable
	Inputs (Level 3)
				Counterparty
	Auction Rate			Settlement
	Floating			Agreement
	Securities			Liability

Balance at December 31, 2011	$	12,793	$	-
Transfers to (from) Level 3		-		17,182
Total losses (gains)
included in other expense
(income), net		-		7,743
Total gains included in other
comprehensive income		35		-
Purchases		-		-
Settlements		(50)		-
Balance at September 30, 2012	$	12,778	$	24,925

The following is a description of the valuation techniques used for the assets and liabilities measured at fair value classified within Level 2 or Level 3 of the fair value hierarchy:

Available-for-sale securities classified within Level 2 of the fair value hierarchy are valued utilizing reports from third-party asset managers that hold the Company's investments, showing closing prices on the last business day of the period presented. These asset managers utilize an independent pricing source to obtain quotes for most fixed income securities, and utilize internal procedures to validate the prices obtained. In addition, the Company uses an independent third-party to perform price testing, comparing a sample of quoted prices listed in the asset managers' reports to quotes listed through a public quotation service.

Available-for-sale securities classified within Level 3 of the fair value hierarchy (auction rate floating securities) are valued utilizing a discounted cash flow model. Key variables that are included in the Company's calculation of the fair value of its auction rate floating securities utilizing a discounted cash flow model are weighted average cost of capital (“WACC”), liquidity horizon and estimated coupon rate. The liquidity horizon is an estimation of how long the liquidity issue of the auction rate floating securities will continue to exist. As part of its calculation of the fair value of its auction rate floating securities as of September 30, 2012, the Company used a WACC of 5.0%, a liquidity horizon of nine years, and an estimated coupon rate of a 12-month historical average for the indexes. The 12-month historical averages for 1-Month LIBOR and 90-Day T-Bills were 0.25% and 0.06%, respectively. As part of its assessment of these variables used in calculating the fair value of its auction rate floating securities, the Company performs a sensitivity analysis to understand the potential impact of using different amounts for these variables. As of September 30, 2012, the sensitivity analysis did not produce calculated fair values that were significantly different from those calculated using the variables described above.

The fair value of the Note Hedge and Warrant Transactions before the execution of the Counterparty Settlement Agreement was calculated utilizing potential settlement outcomes with the Counterparty under the original terms of the Note Hedge and Warrant Transactions considering merger and non-merger events as probability weighted and discounted using a credit adjusted risk free rate. This valuation model utilizes inputs including market based settlement terms upon a merger or non-merger event for the respective Note Hedge and Warrant Transactions, a credit adjusted discount rate, and probability weighting (Level 3 inputs). The probability-weighting was based on a market participant's expectation as to the outcome of a merger event. The fair value of the Note Hedge and Warrant Transactions after the execution of the Counterparty Settlement Agreement was calculated using potential settlement outcomes considering merger and non-merger events as probability weighted and discounted using a credit adjusted risk free rate. This valuation model utilizes inputs including a fixed settlement amount based on the terms of the Counterparty Settlement Agreement, the assumed payment to be made under the Consulting Agreement as discounted for counterparty credit risk, a counterparty credit risk adjusted discount rate, and probability weighting (Level 3 inputs).

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

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