Note 2 - Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Disclosures [Text Block]

2.  Fair Value Measurements

The following is a schedule of the Company’s cash and cash equivalents and short-term and long-term investments as of December 31, 2011 and 2010 (in thousands):

	Estimated Fair Market Value as of December 31,
	2011		2010
Cash, Cash Equivalents and Investments
Cash in Banks	$	43,305	$	32,430
Money Market Funds		51,066		15,580
Government Agencies / Treasuries		79,827		117,302
Commercial Paper / Corporate Notes		-		12,407
Auction-Rate Securities backed by Student-Loan Notes		13,675		19,180
Total Cash, Cash Equivalents and Investments	$	187,873	$	196,899
Reported as:
Cash and Cash Equivalents	$	96,371	$	48,010
Short-term Investments		77,827		129,709
Long-term Investments		13,675		19,180
Total Cash, Cash Equivalents and Investments	$	187,873	$	196,899

The contractual maturities of the Company’s investments classified as available-for-sale as of December 31, 2011 and 2010 is as follows (in thousands):

	2011		2010
Less than 1 year	$	45,133	$	100,637
1 - 5 years		32,694		29,072
Greater than 5 years		13,675		19,180
	$	91,502	$	148,889

Effective January 1, 2010, the Company adopted the provisions of ASU 2010-06, “Disclosures About Fair Value Measurements”, which adds new requirements for disclosures about transfers into and out of levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to level 3 measurements.

The following tables detail the fair value measurements as of December 31, 2011 and 2010 within the fair value hierarchy of the financial assets that are required to be recorded at fair value (in thousands):

	Fair Value Measurements at December 31, 2011 Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		Level 1		Level 2		Level 3
Money Market Funds	$	51,066	$	51,066	$	-	$	-
US Treasuries and US Government Agency Bonds		79,827		-		79,827		-
Long-term available-for-sale auction-rate securities		13,675		-		-		13,675
	$	144,568	$	51,066	$	79,827	$	13,675

	Fair Value Measurements at December 31, 2010 Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		Level 1		Level 2		Level 3
Money Market Funds	$	15,580	$	15,580	$	-	$	-
US Treasuries and US Government Agency Bonds		117,302		-		117,302		-
Commercial Paper / Corporates		12,407		-		12,407		-
Long-term available-for-sale auction-rate securities		19,180		-		-		19,180
	$	164,469	$	15,580	$	129,709	$	19,180

Subsequent to the issuance of the 2010 financial statements, we determined that $117.3 million of securities should have been classified as level 2 investments rather than level 1 in 2010, as such investments are not actively traded. Accordingly, we have corrected the classification of US treasuries and U.S. government agency bonds from level 1 to level 2 in the table above. Additionally, $15.6 million of money market funds previously omitted from the table have been included within level 1.

The following tables summarize unrealized gains and losses related to our investments in marketable securities designated as available-for-sale (in thousands):

	As of December 31, 2011
			Gross
			Unrealized
	Adjusted		Gains or			Fair
	Cost		Losses			Value
Money market fund	$	51,066	$	-		$	51,066
US Treasuries and agency bonds		79,830		(3	)		79,827
Commercial paper / Corporate notes		-		-			-
Auction-Rate Securities backed by student-loan notes		14,305		(630	)		13,675
	$	145,201	$	(633	)	$	144,568
	As of December 31, 2010
			Gross
			Unrealized
	Adjusted		Gains or			Fair
	Cost		Losses			Value
Money market fund	$	15,580	$	-		$	15,580
US Treasuries and agency bonds		117,254		48			117,302
Commercial paper / Corporate notes		12,420		(13	)		12,407
Auction-Rate Securities backed by student-loan notes		20,080		(900	)		19,180
	$	165,334	$	(865	)	$	164,469

At December 31, 2011, fixed income available-for-sale securities include securities issued by government agencies and treasuries, $77.8 million of which are classified as short-term investments and $2.0 million which are classified as cash equivalents on the Consolidated Balance Sheet. The Company also had $51.1 million invested in money market funds.  At December 31, 2011, there was $17,000 in unrealized losses from these investments. The impact of gross unrealized gains and losses was not material.  At December 31, 2011, the Company also had $14.4 million in face value of auction-rate securities, all of which are classified as long-term available-for-sale investments.

At December 31, 2010, fixed income available-for-sales securities included $117.3 million in US government agencies and treasuries and $12.4 million in corporate notes and commercial paper, all of which are classified as short-term investments. From these investments, there was $18,000 in unrealized losses. The impact of gross unrealized gains and losses was not material. At December 31, 2010, the Company also had $20.2 million in face value of auction-rate securities, all of which are classified as long-term available-for-sale investments and $15.6 million in money market funds.

Impairment charges are recorded in accumulated other comprehensive income (loss) within stockholders’ equity and have no impact on net income. Other-than-temporary impairment charges exist when the entity has the intent to sell the security, it will more likely than not be required to sell the security before anticipated recovery, or it does not expect to recover the entire amortized cost basis of the security. Other-than-temporary impairment charges are recorded in other income (expenses) in the Consolidated Statement of Operations.

The Company's level 2 assets consist of U.S. treasuries, U.S. government agency bonds, corporate notes and commercial paper. These securities generally have market prices availible from multiple sources, which are used as inputs into a distribution-curve based algorithm to determine fair value.

The Company’s level 3 assets consist of government-backed student loan auction-rate securities, with interest rates that reset through a Dutch auction every 7 to 35 days and which became illiquid in 2008. The following table provides a reconciliation of the beginning and ending balances for the assets measured at fair value using significant unobservable inputs (level 3) (in thousands):

	Auction-Rate Securities			Put Right			Total
Ending balances at December 31, 2009	$	35,570		$	725		$	36,295
Sales and Settlement at Par		(17,275	)		-			(17,275	)
Unrealized Gain		160			-			160
Gain (loss) from UBS auction rate securities and put right		725			(725	)		-
Ending balances at December 31, 2010	$	19,180		$	-		$	19,180
Sales and Settlement at Par		(5,775	)		-			(5,775	)
Unrealized Gain		270			-			270
Ending balances at December 31, 2011	$	13,675		$	-		$	13,675

During the year ended December 31, 2011, the Company sold $5.8 million in auction-rate securities at par, all of which were classified as long-term investments.

During the year ended December 31, 2010, the Company sold $17.3 million in auction rate securities at par. Of this amount, $16.9 million was classified as short-term investments and the remaining $0.4 million was classified as long-term investments.

In October 2008, the Company accepted an offer to participate in an auction-rate security rights offering from UBS to sell up to $18.2 million in face value of eligible auction-rate securities commencing in June 2010. Between October 2008 and June 2010, $9.6 million of these auction-rate securities were called at par. On June 30, 2010, the Company exercised the UBS put right and sold the remaining $8.6 million in auction rate securities at par, for which the sale was completed and proceeds were received on July 1, 2010. At December 31, 2009, the Company had $16.9 million in eligible auction-rate securities remaining at UBS. The impairment related to these auction-rate securities and the corresponding put right were valued at $0.7 million. The change in the impairment and the fair value of the put right was recorded in accordance with the provisions of ASC 320-10-35 and ASC 320-10-50 in other income (expense) in the Consolidated Statement of Operations.

Our investment portfolio as of December 31, 2011 included $13.7 million, in government-backed student loan auction-rate securities, net of impairment charges of $0.7 million; of which, $0.6 million was temporary and $0.1 million was recorded as other-than-temporary.  This compares to an investment balance for auction-rate securities as of December 31, 2010 of $19.2 million, net of impairment charges of $1.0 million; of which, $0.9 million was temporary and $0.1 million was recorded as other-than-temporary.  In both 2011 and 2010, the portion of the impairment classified as temporary was based on the following analysis:

1. The decline in the fair value of these securities is not attributable to adverse conditions specifically related to these securities or to specific conditions in an industry or in a geographic area;

2. Management possesses both the intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value;

3. Management believes that it is more likely than not that the Company will not have to sell these securities before recovery of its cost basis;

4. Except for the credit loss of $70,000 recognized in the year ended December 31, 2009 for the Company’s holdings in auction rate securities described below, the Company does not believe that there is any additional credit loss associated with other auction-rate securities because the Company expects to recover the entire amortized cost basis;

5. While the majority of the securities in the Company’s entire portfolio remain AAA rated, $6.4 million of auction rate securities were downgraded by Moody’s to A3-Baa3 during the year ended December 31, 2009.  There have been no further downgrades since;

6. All scheduled interest payments have been made pursuant to the reset terms and conditions; and

7. All redemptions of auction-rate securities representing 67% of the original portfolio purchased by us in February 2008 have been at par.

Based on the guidance of ASC 320-10-35 and ASC 320-10-50, the Company evaluated the potential credit loss of each of the auction-rate securities that are currently held by the Company. Based on such analysis, the Company determined that those securities that are not 100% FFELPS guaranteed are potentially subject to credit risks based on the extent to which the underlying debt is collateralized and the security-specific student-loan default rates. The Company’s portfolio includes two such securities. The senior parity ratio for the two securities is approximately 106%. If, therefore, the student-loan default rate and borrowing rate increases for these issuers, the remaining balance in these trusts may not be sufficient to cover the senior debt. The Company therefore concluded that there is potential credit risk for these two securities and as such, used the discounted cash flow model to determine the amount of credit loss to be recorded. In valuing the potential credit loss, the following parameters were used: 20 year expected term, cash flows based on the 90-day t-bill rates for 20 year forwards and a risk premium of 5.9%, the amount of interest that the Company was receiving on these securities when the market was last active. During the year ended December 31, 2009, the potential credit loss associated with these securities was $70,000, which the Company deemed other-than-temporary and recorded in other expense in its Consolidated Statement of Operations during 2009. There have been no such losses since.

Unless a rights offering or other similar offer is made to redeem at par and accepted by us, we intend to hold the balance of these investments through successful auctions at par, which we believe could take approximately 2.0 years.

The valuation of the auction-rate securities is subject to fluctuations in the future, which will depend on many factors, including the collateral quality, potential to be called or restructured, underlying final maturity, insurance guaranty, liquidity and market conditions, among others. To determine the fair value of the auction-rate securities at December 31, 2010, March 31, 2011, June 30, 2011, September 30, 2011 and December 31, 2011, we used a discounted cash flow model, for which there are three valuation parameters, including time-to-liquidity, discount rate and expected return. The following are the values used in the discounted cash flow model:

	December 31, 2010	March 31, 2011	June 30, 2011	September 30, 2011	December 31, 2011
Time-to-Liquidity	24 months	24 months	24 months	24 months	24 months
Expected Return (Based on the requisite treasury rate, plus a contractual penalty rate)	2.9%	3.3%	2.5%	1.8%	1.8%
Discount Rate (Based on the requisite LIBOR, the cost of debt and a liquidity risk premium)	4.1% - 8.9%, depending on the credit-rating of the security	4.5% - 9.3%, depending on the credit-rating of the security	3.8% - 8.6%, depending on the credit-rating of the security	2.9% - 7.7%, depending on the credit-rating of the security	3.1% - 7.9% depending on the credit-rating of the security

The gross accumulated impairment charge was $0.7 million as of December 31, 2011, of which $0.6 million was recorded as temporary and the remaining $0.1 million was recorded as other-than-temporary. The gross accumulated impairment charge was $1.0 million as of December 31, 2010, of which $0.9 million was recorded as temporary and $0.1 million was previously recorded as other-than-temporary. If the auctions continue to fail, the liquidity of the Company’s investment portfolio may be negatively impacted and the value of its investment portfolio could decline.