Note 8 - Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Text Block]

8. Fair Value Measurements

The following is a schedule of Company's cash and cash equivalents, short-term investments and long-term investments as of September 30, 2012 and December 31, 2011 (in thousands):

	Estimated Fair Market Value as of
	September 30, 2012		December 31, 2011
Cash, Cash Equivalents and Investments
Cash in Banks	$	51,153	$	43,305
Money Market Funds		27,094		51,066
Government Agencies/ Treasuries		107,279		79,827
Auction-Rate Securities backed by Student-Loan Notes		11,756		13,675
Total Cash, Cash Equivalents and Investments	$	197,282	$	187,873

	September 30,		December 31,
Reported as:	2012		2011
Cash and Cash Equivalents	$	78,247	$	96,371
Short-term Investments		107,279		77,827
Long-term Investments		11,756		13,675
Total Cash, Cash Equivalents and Investments	$	197,282	$	187,873

The contractual maturities of the Company's investments classified as available-for-sale as of September 30, 2012 and December 31, 2011 is as follows (in thousands):

	September 30,		December 31,
	2012		2011
Due in less than 1 year		33,998		45,133
Due in 1 - 5 years		73,281		32,694
Due in greater than 5 years		11,756		13,675
		119,035		91,502

The following table details the fair value measurements as of September 30, 2012 and December 31, 2011 within the fair value hierarchy of the financial assets that are required to be recorded at fair value (in thousands):

	Fair Value Measurements at September 30, 2012 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	$	27,094	$	27,094	$	-	$	-
US Treasuries and US Government Agency Bonds		107,279				107,279		-
Long-term available-for-sale auction-rate securities		11,756		-		-		11,756
	$	146,129	$	27,094	$	107,279	$	11,756

	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

At September 30, 2012, fixed income available-for-sale securities included $107.3 million in US government agencies and treasuries, all of which were classified as short-term investments. The Company also had $27.1 million invested in money market funds. From these investments, there were $9,000 in unrealized losses. The impact of gross unrealized gains and losses was not material. At September 30, 2012, the Company also had $12.3 million in face value of auction-rate securities, all of which were classified as long-term available-for-sale investments.

At December 31, 2011, fixed income available-for-sale securities included securities issued by US government agencies and treasuries, $77.8 million of which were classified as short-term investments and $2.0 million of which were classified as cash equivalents. The Company also had $51.1 million invested in money market funds. At December 31, 2011, there were $17,000 in net 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 were classified as long-term available-for-sale investments.

Temporary impairment charges are recorded in accumulated other comprehensive income (loss) within stockholders' equity and have no impact on net income. Other-than-temporary impairment exists when the Company either 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 (expense) in the Condensed Consolidated Statement of Operations.

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

	As of September 30, 2012
	Adjusted Cost		Unrealized gains or losses			Total Fair Value		Fair Value of Investments in Unrealized Loss Position
Money Market Funds	$	27,094	$	-		$	27,094	$	-
US Treasuries and US Government Agency Bonds		107,241		37			107,279		22,080
Auction-rate securities backed by Student-Loan Notes		12,245		(489	)		11,756		11,756
	$	146,580	$	(452	)	$	146,129	$	33,836

	As of December 31, 2011
	Adjusted Cost		Unrealized Gains or Losses			Total Fair Value		Fair Value of Investments in Unrealized Loss Position
Money Market Funds	$	51,066	$	-		$	51,066	$	-
US Treasuries and US Government Agency Bonds		79,830		(3	)		79,827		25,281
Auction-rate securities backed by Student-Loan Notes		14,305		(630	)		13,675		13,675
	$	145,201	$	(633	)	$	144,568	$	38,956

The Company's level 2 assets consist of US treasuries, US government agency bonds, corporate notes and commercial paper. These securities generally have market prices available 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
Ending balances at December 31, 2011	$	13,675
Sales and Settlement at Par		(100	)
Total realized and unrealized gains (losses):
Included in other income (expense)		-
Included in other comprehensive income		90
Ending balances at March 31, 2012	$	13,665
Sales and Settlement at Par		(2,000	)
Total realized and unrealized gains (losses):
Included in other income (expense)		40
Included in other comprehensive income		9
Ending balances at June 30, 2012	$	11,714
Sales and Settlement at Par		-
Total realized and unrealized gains (losses):
Included in other income (expense)		-
Included in other comprehensive income		42
Ending balances at September 30, 2012	$	11,756

At September 30, 2012, the Company's investment portfolio included $11.8 million in government-backed student loan auction-rate securities, net of impairment charges of $0.52 million; of which, $0.49 million was temporary and $0.03 million was other-than-temporary. This compares to an investment balance of auction-rate securities as of December 31, 2011 of $13.7 million net of impairment charges of $0.7 million; of which, $0.6 million was temporary and $0.1 million was other-than-temporary.

The underlying maturities of these auction-rate securities are up to 35 years. As of September 30, 2012 and December 31, 2011 the portion of the impairment classified as temporary was based on the following analysis:

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

● 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;

● 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;

● Except for the credit loss of $70,000 recognized during 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;

● A face value of $6.0 million of the auction-rate securities remain AAA rated and a face value of $6.3 million of the auction-rate securities having been downgraded by Moody's to A3-Baa3, during the year ended December 31, 2009 have not been downgraded since;

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

● All redemptions of auction-rate securities representing 68% of the original portfolio purchased by the Company 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% Federal Family Education Loan Program (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: 2.0 year expected term, cash flows based on the 90-day t-bill rates for 2.0 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. During the nine months ended September 30, 2012, the Company was able to redeem one of these two securities at par and therefore, recognized a gain of $40,000 in other expense in its Consolidated Statement of Operations.

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

Determining the fair value of the auction-rate securities requires significant management judgment regarding projected future cash flows which will depend on many factors, including the quality of the underlying collateral, estimated time for liquidity including potential to be called or restructured, underlying final maturity, insurance guaranty and market conditions, among others. To determine the fair value of the auction-rate securities at December 31, 2011 and September 30, 2012, the Company used a discounted cash flow model, for which there are four unobservable inputs: estimated time-to-liquidity, discount rate, credit quality of the issuer and expected interest receipts. A significant increase in the time-to-liquidity or the discount rate inputs or a significant decrease in the credit quality of the issuer or the expected interest receipts inputs in isolation would result in a significantly lower fair value measurement.

The following are the values used in the discounted cash flow model:

	September 30, 2012	December 31, 2011
Time-to-Liquidity (months)	24	24
Expected Return (Based on the requisite treasury rate, plus a contractual penalty rate)	1.8%	1.8%
Discount Rate (Based on the requisite LIBOR, the cost of debt and a liquidity risk premium and depending on the credit-rating of the security)	2.4% - 7.2%	3.1% - 7.9%

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.