XML 55 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES
 3 Months Ended
Mar. 31, 2012
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 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:

 

March 31, 2012

 

 Level 1

 

Level 2

 

Level 3

 

Total

 

Cash

 

$

112,725

 

$

-

 

$

-

 

$

112,725

 

Money market funds

 

258,096

 

-

 

-

 

258,096

 

U.S. Treasuries

 

402

 

-

 

-

 

402

 

Certificates of deposit

 

-

 

42,197

 

-

 

42,197

 

Municipal securities

 

-

 

346,560

 

-

 

346,560

 

U.S. government agency securities

 

-

 

19,988

 

-

 

19,988

 

Variable rate demand notes

 

-

 

31,058

 

-

 

31,058

 

Auction rate securities

 

-

 

-

 

21,864

 

21,864

 

Put option related to auction rate securities

 

-

 

-

 

1,649

 

1,649

 

Total

 

$

371,223

 

$

439,803

 

$

23,513

 

$

834,539

 

 

 

 

 

 

 

 

 

 

 

Amounts included in:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

370,821

 

$

20,617

 

$

-

 

$

391,438

 

Short-term investments

 

402

 

419,186

 

-

 

419,588

 

Investments

 

-

 

-

 

21,864

 

21,864

 

Other assets

 

-

 

-

 

1,649

 

1,649

 

Total

 

$

371,223

 

$

439,803

 

$

23,513

 

$

834,539

 

 

 

 

 

 

 

 

 

 

 

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

 

 

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 and U.S. Treasuries, is based on quoted market prices in active markets for identical securities. The Company’s valuation of its Level 2 investments, which include certificates of deposit, corporate bonds, municipal securities, U.S. government agency securities and VRDNs, is based on other observable inputs, specifically a valuation model which utilized vendor pricing for similar securities. There were no transfers between Level 1 and Level 2 measurements during the three-months ended March 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, 2012.

 

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, 2012.

 

 

 

Valuation Technique

 

Unobservable Input

 

Range (Weighted Average)

Auction Rate Securities:

 

 

 

 

 

 

Trading

 

Discounted cash flow

 

Maximum rate probability

 

0.02%-6.68% (1.04%)

 

 

 

 

Principal returned probability

 

81.84%-95.79% (87.93%)

 

 

 

 

Default probability

 

4.08%-12.29% (11.03%)

 

 

 

 

Liquidity risk

 

3.50%-3.50% (3.50%)

 

 

 

 

Recovery rate

 

60-80 (60.76)

Auction Rate Securities:

 

 

 

 

 

 

Available-for-sale

 

Market comparable bonds

 

Market price

 

51-64 (55)

 

 

 

 

 

 

 

Put Options

 

Discounted cash flow

 

Counterparty risk

 

1.79%-2.50% (2.15%)

 

At March 31, 2012, the Company held auction rate securities with a face value of $29.1 million (amortized cost basis of $21.9 million). A Level 3 valuation was performed on the Company’s auction rate securities as of March 31, 2012 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 $18.6 million for the Company’s trading auction rate securities (after a $2.2 million impairment), which are included in 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, 2012, no 2011 ARS Securities were redeemed through normal market channels ($3.7 million of par value 2011 ARS Securities were redeemed at par through normal market channels during the year ended December 31, 2011). 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, 2012, the Company recorded $1.6 million as the fair market value of the 2011 Put Option, included 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 (as of December 31, 2011, $38.5 million of par value 2010 ARS Securities had been redeemed at par through the exercise of the 2010 Put Option as well as through normal market channels).

 

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 such investments until the earlier of the anticipated recovery in market value or maturity.

 

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 income for the three-months ended March 31, 2012. The net effect of (i) the revaluation of the 2010 Put Option as of March 31, 2011; (ii) the revaluation of the Company’s trading auction rate securities as of March 31, 2011; (iii) the redemption at par of certain 2010 ARS Securities; and (iv) 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 gain of $0.3 million, which is included in other income for the three-months ended March 31, 2011.

 

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) for the three-months ended:

 

 

 

March 31, 2012

 

March 31, 2011

 

 

 

Auction
Rate
Securities

 

Put Options

 

Auction
Rate
Securities

 

Put Options

 

Opening Balance

 

$

35,852

 

$

3,041

 

$

68,252

 

$

3,768

 

Transfers into Level 3

 

-

 

-

 

-

 

-

 

Transfers out of Level 3

 

-

 

-

 

-

 

-

 

Total gains (losses) for the period:

 

 

 

 

 

 

 

 

 

Included in earnings

 

1,787

 

(1,392)

 

278

 

20

 

Included in other comprehensive income

 

-

 

-

 

164

 

-

 

Settlements

 

(15,775)

 

-

 

(1,050)

 

-

 

Closing Balance

 

$

21,864

 

$

1,649

 

$

67,644

 

$

3,788