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Investments

9 Months Ended

Oct. 01, 2011

3. Investments

Our investment portfolio is comprised of short-term and long-term investments. Investments classified as short-term available-for-sale consist primarily of municipal bonds, corporate bonds, variable demand notes and auction rate securities. Investments classified as long-term available-for-sale consist of auction rate securities, whose underlying assets are student loans.

Our investments in available-for-sale securities are recorded at estimated fair value on our financial statements, and the temporary differences between cost and estimated fair value are presented as a separate component of accumulated other comprehensive loss.

As of October 1, 2011, we had gross unrealized gains before tax of $0.2 million from our investment in municipal bonds, corporate bonds and variable demand notes and gross unrealized losses before tax of $3.1 million on our long-term and short-term auction rate securities. As of January 1, 2011, we had gross unrealized gains before tax of $0.6 million, net of gross unrealized losses of $0.1 million, from our investment in municipal bonds, corporate bonds and variable demand notes and gross unrealized losses before tax of $3.3 million on our auction rate securities.

The aggregate market value, cost basis and net unrealized gains and losses of available-for-sale investments as of October 1, 2011 and as of January 1, 2011 by major security type are as follows:

	Amortized cost		Net unrealized gains (losses)			Fair value
	(in thousands)
As of October 1, 2011:
Short-term investments:
Municipal bonds	$	102,389	$	188		$	102,577
Variable demand notes	44,862		—			44,862
Corporate bonds	2,911		—			2,911
Auction rate securities	3,600		(54		)	3,546
Total short-term investments	$	153,762	$	134		$	153,896
Long-term investments:
Auction rate securities	$	18,900	$	(2,965	)	$	15,935

As of January 1, 2011:
Short-term investments:
Municipal bonds	$	255,785	$	336		$	256,121
Variable demand notes	119,080		—			119,080
Corporate bonds	15,899		156			16,055
Total short-term investments	$	390,764	$	492		$	391,256
Long-term investments:
Auction rate securities	$	24,700	$	(3,321	)	$	21,379

As of October 1, 2011, we owned approximately $18.9 million face amount of auction rate securities classified as long-term and $3.6 million classified as short-term. The assets underlying these investments are student loans backed by the U.S. government under the Federal Family Education Loan Program or by private insurers and are rated between CCC- and AAA. Historically, these securities have provided liquidity through a Dutch auction process that resets the applicable interest rate periodically every seven to thirty-five days. Beginning in February of 2008, these auctions began to fail. The principal amount of these auction rate securities will not be accessible until future auctions for these securities are successful, a secondary market is established, these securities are called for redemption, or they are paid at maturity.

As of October 1, 2011, we had recorded an estimated cumulative unrealized loss of $3.1 million ($1.9 million, net of tax) related to the temporary impairment of the auction rate securities, which was included in accumulated other comprehensive income (loss) within shareholders’ equity. In addition, our management reviews impairments and credit loss associated with our investments, including auction rate securities, to determine the classification of the impairment as “temporary” or “other-than-temporary” and to bifurcate the credit and non-credit component of an other-than-temporary impairment event. We (i) do not intend to sell any of the auction rate securities prior to maturity at an amount below the original purchase value; (ii) intend to hold the investment to recovery and, based on a more-likely-than-not probability assessment, will not be required to sell the security before recovery; and (iii) deem that it is not probable that we will receive less than 100% of the principal and accrued interest from the issuer. Therefore, 100% of the impairment was charged to other comprehensive income (loss). Our auction rate securities are classified as long-term and are valued at $15.9 million and as short-term valued at $3.5 million, using significant unobservable inputs. Further, we continue to liquidate investments in auction rate securities as opportunities arise. During the nine months ended October 1, 2011, we liquidated $2.2 million of our auction rate securities as they were called at par. Subsequent to October 1, 2011, we liquidated $3.6 million of our auction rate securities as they were called at par.

If the issuers of the auction rate securities are unable to successfully complete future auctions and their credit ratings deteriorate, we may in the future be required to record an impairment charge to earnings on these investments. It could conceivably take until the final maturity of the underlying notes (up to 30 years) to realize the investments’ carrying value.

Our deferred compensation plan includes our corporate owned life insurance policies and mutual fund investments. The underlying investments in the deferred compensation plan assets are trading securities and are classified in the condensed consolidated balance sheets in “Other long term assets.” The aggregate value of our deferred compensation plan assets as of October 1, 2011 and January 1, 2011 was as follows:

	October 1, 2011		January 1, 2011
	(in thousands)
Deferred compensation plan	$	3,369	$	3,188

The investments associated with the deferred compensation plan are included in “Other long-term assets” on our unaudited condensed consolidated balance sheets at the cash surrender value of our corporate-owned life insurance policies and the fair value of the mutual fund investments. The realized gain before tax from the change in the value of the deferred compensation plan was $0.2 million for each of the nine months ended October 1, 2011 and October 2, 2010 and is included in “Interest income and other.”