FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES

12 Months Ended

Dec. 31, 2011

FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES

FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES

3.FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES

ASC 820 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. ASC 820 defines fair value as 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. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The three levels of inputs required by the standard that the Company uses to measure fair value are summarized below.

·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 for similar assets or liabilities; 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 related assets or liabilities.

·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.

ASC 820 requires the use of observable market inputs (quoted market prices) when measuring fair value and requires a Level 1 quoted price to be used to measure fair value whenever possible.

The following tables present the Company’s held-to-maturity investments at amortized costs as well as the fair value of the Company’s financial assets that are recorded at fair value on a recurring basis, segregated among the appropriate levels within the fair value hierarchy at:

December 31, 2011	Level 1		Level 2		Level 3		Total
Cash	$	81,879	$	-	$	-	$	81,879
Money market funds	230,029		-		-		230,029
U.S. Treasuries	8,034		-		-		8,034
Certificates of deposit	-		69,078		-		69,078
Corporate bonds	-		2,022		-		2,022
Municipal securities	-		291,984		-		291,984
U.S. government agency securities	-		16,005		-		16,005
Variable rate demand notes	-		58,924		-		58,924
Auction rate securities	-		-		35,852		35,852
Put options related to auction rate securities	-		-		3,041		3,041
Total	$	319,942	$	438,013	$	38,893	$	796,848
Amounts included in:
Cash and cash equivalents	$	311,908	$	47,423	$	-	$	359,331
Short-term investments	8,034		390,590		12,658		411,282
Investments	-		-		23,194		23,194
Prepaid expenses and other current assets	-		-		873		873
Other assets	-		-		2,168		2,168
Total	$	319,942	$	438,013	$	38,893	$	796,848
December 31, 2010	Level 1		Level 2		Level 3		Total
Cash	$	50,202	$	-	$	-	$	50,202
Money market funds	242,001		-		-		242,001
U.S. Treasuries	85,521		-		-		85,521
Certificates of deposit	-		40,010		-		40,010
Municipal securities	-		81,899		-		81,899
U.S. government agency securities	-		19,688		-		19,688
Variable rate demand notes	-		56,107		-		56,107
Auction rate securities	-		-		68,252		68,252
Put option related to auction rate securities	-		-		3,768		3,768
Total	$	377,724	$	197,704	$	72,020	$	647,448
Amounts included in:
Cash and cash equivalents	$	311,202	$	43,640	$	-	$	354,842
Short-term investments	66,522		154,064		24,063		244,649
Investments	-		-		44,189		44,189
Prepaid expenses and other current assets	-		-		2,983		2,983
Other assets	-		-		785		785
Total	$	377,724	$	197,704	$	72,020	$	647,448

A large portion of the Company’s short-term investments are classified within Level 1 or Level 2 of the fair value hierarchy as they are valued using quoted market prices, market prices for similar securities, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued within Level 1 are those based on quoted market prices in active markets for identical securities, which include the Company’s investment in money market funds and U.S. Treasuries.  The types of instruments valued within Level 2 are those based on other observable inputs, specifically vendor pricing for similar securities, which include the Company’s certificates of deposit, corporate bonds, municipal securities, U.S. government agency securities and VRDNs. Such instruments are classified within Level 2 of the fair value hierarchy. VRDNs are floating rate municipal bonds with embedded put options that allow the bondholder to sell the security at par plus accrued interest. All of the put options are secured by a pledged liquidity source. While they are classified as marketable investment securities, the put option allows the VRDNs to be liquidated at par on a same day, or generally, on a seven day settlement basis.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets for the years ended December 31, 2011 and 2010:

	December 31, 2011				December 31, 2010
	Level 3 Auction Rate Securities		Put Options		Level 3 Auction Rate Securities		Put Options
Beginning Balance	$	68,252	$	3,768	$	84,325	$	-
Transfers to Level 3	-		-		-		-
Recognized (loss) gain included in income	(44)		(727)		(4,526)		3,768
Unrealized gain included in other comprehensive income	2,409		-		5,253		-
Settlements	(34,765)		-		(16,800)		-
Ending Balance	$	35,852	$	3,041	$	68,252	$	3,768

The Company’s Level 3 assets are comprised of auction rate securities and put options. A large portion of these auction rate securities carry an investment grade credit rating and are additionally backed by various federal agencies and/or monoline insurance companies. The applicable interest rate is reset at pre-determined intervals, usually every 7 to 35 days. Liquidity for these auction rate securities was typically provided by an auction process which allowed holders to sell their notes at periodic auctions.  Since 2008, the auctions for these auction rate securities failed. The auction failures have been attributable to inadequate buyers and/or buying demand and/or the lack of support from financial advisors and sponsors. In the event that there is a failed auction, the indenture governing the security in some cases requires the issuer to pay interest at a default rate that may be above market rates for similar instruments. The securities for which auctions have failed will continue to accrue and/or pay interest at their pre-determined rates and be auctioned every 7 to 35 days until their respective auction succeeds, the issuer calls the securities, they mature or the Company is able to sell the securities to third parties. As a result, the Company’s ability to liquidate and fully recover the carrying value of its auction rate securities in the near term may be limited. Consequently, these securities, except those that the Company intends to sell prior to December 31, 2012 as a result of the agreements described below, or those that were redeemed at par after December 31, 2011 and 2010, respectively, are classified as long-term investments in the accompanying consolidated balance sheets.

In June 2011, the Company entered into an agreement (the “2011 ARS Agreement”), related to $24.5 million of par value auction rate securities (the “2011 ARS Securities”).  Under the 2011 ARS Agreement, the Company has the right to sell the 2011 ARS Securities including all accrued but unpaid interest thereon (the “2011 Put Option”) as follows: (i) on or after July 1, 2013, up to $1.0 million aggregate par value; (ii) on or after October 1, 2013, up to an additional $1.0 million aggregate par value; and (iii) in quarterly installments thereafter based on a formula of the then outstanding 2011 ARS securities, as adjusted for normal market redemptions, with full sale rights available on or after April 1, 2016. The 2011 ARS Securities will continue to accrue interest until redeemed through the 2011 Put Option, or as determined by the auction process or the terms outlined in the prospectus of the respective 2011 ARS Securities when the auction process fails. Under the 2011 ARS Agreement, the Company has the obligation, should it receive written notification from the put issuer, to sell the 2011 ARS Securities at par plus all accrued but unpaid interest. During the year ended December 31, 2011, $3.7 million of par value 2011 ARS Securities were redeemed at par through normal market channels.

In March 2010, the Company entered into an agreement (the “2010 ARS Agreement”), related to $54.2 million of par value auction rate securities (the “2010 ARS Securities”).  Under the 2010 ARS Agreement, the Company has the right, but not the obligation, to sell the 2010 ARS Securities including all accrued but unpaid interest thereon (the “2010 Put Option”) as follows: (i) on or after March 22, 2011, up to $13.6 million aggregate par value; and (ii) equal semi-annual or annual installments thereafter with full sale rights available on or after March 22, 2013. The 2010 ARS Securities will continue to accrue interest until redeemed through the 2010 Put Option, or as determined by the auction process or the terms outlined in the prospectus of the respective 2010 ARS Securities when the auction process fails. During the year ended December 31, 2011, $27.1 million of par value 2010 ARS Securities were redeemed at par through the exercise of the 2010 Put Option and $4.0 million of par value 2010 ARS Securities were redeemed at par through normal market channels ($7.4 million of par value 2010 ARS Securities were redeemed at par through normal market channels during the year ended December 31, 2010).

The 2011 ARS Agreement and the 2010 ARS Agreement (collectively the “ARS Agreements”) represent firm commitments in accordance with ASC 815, which defines a firm commitment with an unrelated party, binding on both parties and usually legally enforceable, with the following characteristics: (i) the commitment specifies all significant terms, including the quantity to be exchanged, the fixed price, and the timing of the transaction; and (ii) the commitment includes a disincentive for nonperformance that is sufficiently large to make performance probable. The enforceability of the ARS Agreements results in the 2010 Put Option and the 2011 Put Option (collectively the “Put Options”), which are recognized as separate freestanding assets and are accounted for separately from the Company’s auction rate securities. The Put Options do not meet the definition of derivative instruments under ASC 815.  Therefore, the Company elected the fair value option under ASC 825-10 in accounting for the Put Options.  As of December 31, 2011, the Company recorded $3.0 million as the fair market value of the Put Options ($0.9 million current portion included in prepaid expenses and other current assets and $2.1 million long-term portion included in other assets) in the consolidated balance sheet, with a corresponding (loss) of ($0.7) million recorded in other income (expense) in the consolidated statement of income for the year ended December 31, 2011, respectively (a $3.8 million gain was previously recognized through earnings during the year ended December 31, 2010).  The valuation of the Put Options utilized a mark-to-model approach which included estimates for interest rates, timing and amount of cash flows, adjusted for any bearer risk associated with the put issuer’s ability to repurchase the 2010 ARS Securities and the 2011 ARS Securities in installments, as indicated above, beginning March 22, 2011 and July 1, 2013, respectively, as well as the expected holding periods for the Put Options. These assumptions are typically volatile and subject to change as the underlying data sources and market conditions evolve. The Put Options will continue to be adjusted on each balance sheet date based on their then fair values, with any changes in fair values recorded in earnings.

At December 31, 2011, the Company held auction rate securities with a face value of $44.8 million (amortized cost basis of $35.9 million). A Level 3 valuation was performed on the Company’s auction rate securities as of December 31, 2011 resulting in a fair value of $3.3 million for the Company’s available-for-sale auction rate securities (after a $5.0 million impairment) and $32.5 million for the Company’s trading auction rate securities (after a $4.0 million impairment), which are included in short-term and long-term investments.  This valuation utilized a mark-to-model approach which included estimates for interest rates, timing and amount of cash flows, credit and liquidity premiums, as well as expected holding periods for the auction rate securities. These assumptions are typically volatile and subject to change as the underlying data sources and market conditions evolve.

ASC 320-10-35 indicates that an other-than-temporary impairment must be recognized through earnings if an investor has the intent to sell the debt security or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost basis.  However, even if an investor does not expect to sell a debt security, it must compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, the entire amortized cost basis of the security will not be recovered (that is, a “Credit Loss” exists), and an other-than-temporary impairment shall be considered to have occurred. In the event of a Credit Loss and absent the intent or requirement to sell a debt security before recovery of its amortized cost, only the amount associated with the Credit Loss is recognized as a loss in the income statement. The amount of loss relating to other factors is recorded in accumulated other comprehensive income (loss). ASC 320-10-35 also requires additional disclosures regarding the calculation of the Credit Loss and the factors considered in reaching a conclusion that an investment is not other-than-temporarily impaired.

In connection with the 2011 ARS Agreement, during the second fiscal quarter of 2011, the Company reclassified $24.5 million of auction rate securities from available-for-sale to trading in accordance with ASC 320, as the Company has the ability and intent to exercise the related 2011 Put Option beginning July 1, 2013.  In connection with the 2010 ARS Agreement, during the first fiscal quarter of 2010, the Company reclassified $54.2 million of auction rate securities from available-for-sale to trading in accordance with ASC 320, as the Company had the ability and intent to exercise the related 2010 Put Option beginning March 22, 2011.

The Company recognized a net loss through earnings on its trading securities as follows for the years ended December 31:

	2011			2010			2009
(Loss) on transfer from available-for-sale to trading	$	(2,438	)	$	(4,876	)	$	-
Gain on trading securities sold	2,604			375			-
(Loss) gain on trading securities held	(210		)	572			-
Loss on trading securites	$	(44	)	$	(3,929	)	$	-

The Company determined that the $5.0 million impairment of its available-for-sale auction rate securities at December 31, 2011 was deemed other-than-temporary. The other-than-temporary impairment was deemed Credit Loss related.  The Company recorded no additional other-than-temporary impairment during the year ended December 31, 2011 ($0.6 million, $3.9 million and $0.5 million were previously deemed other-than-temporary Credit Loss related and were charged through earnings for the years ended December 31, 2010, 2009 and 2008, respectively). The factors evaluated to differentiate between temporary impairment and other-than-temporary impairment included the projected future cash flows, credit ratings actions, and assessment of the credit quality of the underlying collateral, as well as the other factors included in the valuation model for debt securities described above.

The net effect of (i) the acquisition of the 2011 Put Option during the second fiscal quarter of 2011; (ii) the revaluation of the Put Options as of December 31, 2011; (iii) the transfer from available-for-sale to trading of the 2011 ARS Securities during the second fiscal quarter of 2011; (iv) the revaluation of the Company’s trading auction rate securities as of December 31, 2011; (v) the redemption at par of certain 2011 ARS Securities and 2010 ARS Securities, including those redeemed at par through the exercise of the 2010 Put Option; and (vi) a recognized gain resulting from the redemption at par of a previously other-than-temporary impaired security during the first fiscal quarter of 2011, resulted in a (loss) of ($0.8) million included in other income (expense) for the year ended December 31, 2011. The net effect of (i) the acquisition of the 2010 Put Option during the first fiscal quarter of 2010; (ii) the revaluation of the 2010 Put Option as of December 31, 2010; (iii) the transfer from available-for-sale to trading of the 2010 ARS Securities during the first fiscal quarter of 2010; (iv) the revaluation of the Company’s trading auction rate securities as of December 31, 2010; (v) the redemption at par of certain 2010 ARS Securities; (vi) a recognized gain resulting from the redemption at par of a previously other-than-temporary impaired security during the first fiscal quarter of 2010; and (vii) an increase in the other-than-temporary impairment of certain auction rate securities, resulted in a (loss) of ($0.8) million included in other income (expense) for the year ended December 31, 2010. The net effect of an other-than-temporary impairment of certain auction rate securities, resulted a (loss) of ($3.9) million, included in other income (expense) for the year ended December 31, 2009.

The Company holds additional auction rate securities that do not have a related put option.  These auction rate securities continue to be classified as available-for-sale securities.  The Company intends to retain its investment in the issuers until the earlier of the anticipated recovery in market value or maturity.

Based on the Company’s ability to access cash and cash equivalents and other short-term investments and based on the Company’s expected operating cash flows, the Company does not anticipate that the current lack of liquidity of these investments will have a material adverse effect on its liquidity or working capital. If uncertainties in the credit and capital markets continue, or uncertainties in the expected performance of the issuer of the Put Option arise, or there are rating downgrades on the auction rate securities held by the Company, the Company may be required to recognize additional impairments on these investments.