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FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES | 9 Months Ended
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Sep. 30, 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 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:
September 30, 2012 |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Cash |  | $ | 165,754 |  |  | $ | - |  |  | $ | - |  |  | $ | 165,754 |
Money market funds |  | 116,684 |  |  | - |  |  | - |  |  | 116,684 |
Certificates of deposit |  | - |  |  | 17,015 |  |  | - |  |  | 17,015 |
Municipal securities |  | - |  |  | 253,899 |  |  | - |  |  | 253,899 |
U.S. government agency securities |  | - |  |  | 29,982 |  |  | - |  |  | 29,982 |
Variable rate demand notes |  | - |  |  | 6,501 |  |  | - |  |  | 6,501 |
Auction rate securities |  | - |  |  | - |  |  | 20,755 |  |  | 20,755 |
Put option related to auction rate securities |  | - |  |  | - |  |  | 1,931 |  |  | 1,931 |
Total |  | $ | 282,438 |  |  | $ | 307,397 |  |  | $ | 22,686 |  |  | $ | 612,521 |
Amounts included in: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 282,438 |  |  | $ | 616 |  |  | $ | - |  |  | $ | 283,054 |
Short-term investments |  | - |  |  | 306,781 |  |  | 873 |  |  | 307,654 |
Investments |  | - |  |  | - |  |  | 19,882 |  |  | 19,882 |
Prepaid expenses and other current assets |  | - |  |  | - |  |  | 121 |  |  | 121 |
Other assets |  | - |  |  | - |  |  | 1,810 |  |  | 1,810 |
Total |  | $ | 282,438 |  |  | $ | 307,397 |  |  | $ | 22,686 |  |  | $ | 612,521 |
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 utilizes vendor pricing for similar securities. There were no transfers between Level 1 and Level 2 measurements during the three- and nine-months ended September 30, 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- and nine-months ended September 30, 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 September 30, 2012.
|  | Valuation Technique |  | Unobservable Input |  | Range (Weighted-Average)
Auction Rate Securities: |  |  |  |  |  |
Trading |  | Discounted cash flow |  | Maximum rate probability |  | 0.37%-1.67% (0.91%)
|  |  |  | Principal returned probability |  | 86.66%-95.61% (87.72%)
|  |  |  | Default probability |  | 3.88%-11.86% (11.36%)
|  |  |  | Liquidity risk |  | 3.50%-3.50% (3.50%)
|  |  |  | Recovery rate |  | 60-60 (60)
Auction Rate Securities: |  |  |  |  |  |
Available-for-sale |  | Market comparable bonds |  | Comparable price |  | 54-64 (60)
Put Options |  | Discounted cash flow |  | Counterparty risk |  | 1.40%-1.99% (1.74%)
At September 30, 2012, the Company held auction rate securities with a face value of $28.0 million (amortized cost basis of $20.8 million). A Level 3 valuation was performed on the Company’s auction rate securities as of September 30, 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 $17.4 million for the Company’s trading auction rate securities (after a $2.3 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 nine-months ended September 30, 2012, $1.0 million of 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 September 30, 2012, the Company recorded $1.9 million as the fair market value of the 2011 Put Option, included in, prepaid expenses and other assets, and 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 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 September 30, 2012; (ii) the revaluation of the Company’s trading auction rate securities as of September 30, 2012; (iii) the redemption at par of certain 2011 ARS Securities; (iv) the redemption at par of certain 2010 ARS Securities, including those redeemed at par through the exercise of the 2010 Put Option; and (v) a recognized gain resulting from the redemption at par of a previously other-than-temporary impaired security; resulted in a gain of $0.2 million and $0.6 million, which is included in other income (expense) for the three- and nine-months ended September 30, 2012, respectively. The net effect of (i) the acquisition of the 2011 Put Option during the second fiscal quarter of 2011; (ii) the revaluation of the 2011 Put Option and the 2010 Put Option as of September 30, 2011; (iii) the transfer from available-for-sale to trading of the 2011 ARS Securities during the second fiscal quarter of 2011; (iv) the revaluation of the Company’s trading auction rate securities as of September 30, 2011; (v) the redemption at par of certain 2011 ARS Securities and 2010 ARS Securities, including those redeemed through the exercise of the 2010 Put Option; and (vi) 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 (loss) of ($0.8) million included in other income (expense) for both the three- and nine-months ended September 30, 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):
|  | Three-Months Ended September 30, 2012 |  | Three-Months Ended September 30, 2011
|  | Auction Rate Securities |  |  | Put Options |  | Auction Rate Securities |  |  | Put Options
Opening Balance |  |  | $ | 20,873 |  |  |  | $ | 1,816 |  |  |  | $ | 55,636 |  |  |  | $ | 4,091 |
Transfers into Level 3 |  | - |  |  | - |  |  | - |  |  | - |
Transfers out of Level 3 |  | - |  |  | - |  |  | - |  |  | - |
Total gains (losses) for the period: |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings |  | 107 |  |  | 115 |  |  | 115 |  |  | (914 | )
Included in other comprehensive income |  | - |  |  | - |  |  | - |  |  | - |
Settlements |  | (225 | ) |  | - |  |  | (16,375 | ) |  | - |
Closing Balance |  |  | $ | 20,755 |  |  |  | $ | 1,931 |  |  |  | $ | 39,376 |  |  |  | $ | 3,177 |
|  | Nine-Months Ended September 30, 2012 |  | Nine-Months Ended September 30, 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 |  | 1,693 |  |  | (1,110 | ) |  | (259 | ) |  | (591 | )
Included in other comprehensive income |  | - |  |  | - |  |  | 2,408 |  |  | - |
Settlements |  | (16,790 | ) |  | - |  |  | (31,025 | ) |  | - |
Closing Balance |  |  | $ | 20,755 |  |  |  | $ | 1,931 |  |  |  | $ | 39,376 |  |  |  | $ | 3,177 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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