FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES

3 Months Ended

Mar. 31, 2013

FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES

FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES

4. FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES

Accounting Standards Codification (“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 on the sale of 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 cost 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:

March 31, 2013	Level 1		Level 2		Level 3		Total
Cash	$	153,066	$	-	$	-	$	153,066
Money market funds	76,930		-		-		76,930
U.S. Treasuries	-		16,023		-		16,023
Certificates of deposit	-		11,708		-		11,708
Municipal securities	-		83,206		-		83,206
Auction rate securities	-		-		17,370		17,370
Put option related to auction rate securities	-		-		2,011		2,011
Total	$	229,996	$	110,937	$	19,381	$	360,314
Amounts included in:
Cash and cash equivalents	$	229,996	$	12,537	$	-	$	242,533
Short-term investments	-		98,400		3,739		102,139
Investments	-		-		13,631		13,631
Prepaid expenses and other current assets	-		-		491		491
Other assets	-		-		1,520		1,520
Total	$	229,996	$	110,937	$	19,381	$	360,314
December 31, 2012	Level 1		Level 2		Level 3		Total
Cash	$	147,113	$	-	$	-	$	147,113
Money market funds	63,974		-		-		63,974
U.S. Treasuries	-		24,065		-		24,065
Certificates of deposit	-		5,603		-		5,603
Municipal securities	-		77,038		-		77,038
Auction rate securities	-		-		23,156		23,156
Put option related to auction rate securities	-		-		1,929		1,929
Total	$	211,087	$	106,706	$	25,085	$	342,878
Amounts included in:
Cash and cash equivalents	$	211,087	$	11,427	$	-	$	222,514
Short-term investments	-		95,279		1,763		97,042
Investments	-		-		21,393		21,393
Prepaid expenses and other current assets	-		-		225		225
Other assets	-		-		1,704		1,704
Total	$	211,087	$	106,706	$	25,085	$	342,878

The majority of the Company’s short-term investments are classified within Level 1 or Level 2 of the fair value hierarchy.  The Company’s valuation of its Level 1 investments, which include money market funds, is based on quoted market prices in active markets for identical securities. The Company’s valuation of its Level 2 investments, which include U.S. Treasuries, certificates of deposit and municipal securities, is based on other observable inputs, specifically a valuation model which utilizes vendor pricing for similar securities. There were no transfers between Level 1 and Level 2 measurements during the three-months ended March 31, 2013 or the year ended December 31, 2012, and there were no changes in the Company’s valuation techniques.

The Company’s Level 3 assets are comprised of auction rate securities and put options. The Company’s Level 3 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. A significant change in any single input could have a significant valuation impact; however, no single input has a more significant impact on valuation than another. There were no changes in the Company’s valuation techniques of its Level 3 assets during the three-months ended March 31, 2013.

The following table presents quantitative information related to the significant unobservable inputs utilized in the Company’s Level 3 recurring fair value measurements as of March 31, 2013.

	Valuation Technique	Unobservable Input	Range (Weighted-Average)
Auction Rate Securities:
Trading	Discounted cash flow	Maximum rate probability	0.40%-1.84% (1.0%)
		Principal returned probability	86.69%-95.49% (87.8%)
		Default probability	3.88%-11.69% (11.2%)
		Liquidity risk	3.50%-3.50% (3.50%)
		Recovery rate	60-60 (60)
Put Options	Discounted cash flow	Counterparty risk	0.68%-1.29% (0.89%)

At March 31, 2013, the Company held auction rate securities with a face value of $19.5 million (amortized cost basis of $17.4 million). A Level 3 valuation was performed on the Company’s auction rate securities as of March 31, 2013 resulting in a fair value of $17.4 million for the Company’s trading auction rate securities (after a $2.1 million impairment), which are included in short-term and long-term investments.

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 should the auction process fail, the terms outlined in the prospectus of the respective 2011 ARS Securities. 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 three-months ended March 31, 2013, no 2011 ARS Securities were redeemed through normal market channels ($1.3 million and $3.7 million of par value 2011 ARS Securities were redeemed at par through normal market channels during the years ended December 31, 2012 and 2011, respectively). The 2011 Put Option does 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 2011 Put Option. As of March 31, 2013, the Company recorded $2.0 million as the fair market value of the 2011 Put Option, included in prepaid expenses and other assets, as well as in other assets, in the condensed consolidated balance sheet.

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 had the right, but not the obligation, to sell the 2010 ARS Securities including all accrued but unpaid interest thereon (the “2010 Put Option”), under various terms. During the three-months ended March 31, 2012, the remaining $15.7 million of par value 2010 ARS Securities were redeemed at par through the exercise of the 2010 Put Option, which exhausted the Company’s rights under the 2010 ARS Agreement.

The net effect of (i) the revaluation of the 2011 Put Option as of March 31, 2013; (ii) the revaluation of the Company’s trading auction rate securities as of March 31, 2013; and (iii) a recognized gain resulting from the redemption of previously other-than-temporary impaired securities; resulted in a gain of $2.6 million, which is included in other (expense) income for the three-months ended March 31, 2013. The net effect of (i) the revaluation of the 2011 Put Option and the 2010 Put Option as of March 31, 2012; (ii) the revaluation of the Company’s trading auction rate securities as of March 31, 2012; (iii) the redemption at par of certain 2010 ARS Securities, including those redeemed at par through the exercise of the 2010 Put Option; and (iv) a recognized gain resulting from the redemption at par of a previously other-than-temporary impaired security; resulted in a gain of $0.4 million, which is included in other (expense) income for the three-months ended March 31, 2012.

The following table provides a summary reconciliation of the Company’s financial assets that are recorded at fair value on a recurring basis using significant unobservable inputs (Level 3):

	Three-Months Ended March 31, 2013					Three-Months Ended March 31, 2012
	Auction Rate Securities			Put Options		Auction Rate Securities			Put Options
Opening Balance	$	23,156		$	1,929	$	35,852		$	3,041
Transfers into Level 3	-			-		-			-
Transfers out of Level 3	-			-		-			-
Total gains (losses) for the period:
Included in earnings	2,489			82		1,787			(1,392		)
Included in other comprehensive income	(2,483		)	-		-			-
Settlements	(5,792		)	-		(15,775		)	-
Closing Balance	$	17,370		$	2,011	$	21,864		$	1,649