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FINANCIAL INSTRUMENTS
 9 Months Ended
Sep. 30, 2012
FINANCIAL INSTRUMENTS

6. FINANCIAL INSTRUMENTS

Cash and Cash Equivalents and Investments

Cash and cash equivalents and investments from our continuing operations consist of the following as of September 30, 2012 and December 31, 2011:

 

      September 30, 2012  
          (Dollars in thousands)
Gross Unrealized		        
   Cost          Gain              (Loss)         Fair Value  

Cash and cash equivalents:

           

Cash

    $ 211,098       $ —         $ —        $ 211,098   

Money market funds

      31,730         —           —          31,730   
  

 

 

     

 

 

     

 

 

    

 

 

  

Total cash and cash equivalents

      242,828         —           —          242,828   
  

 

 

     

 

 

     

 

 

    

 

 

  

Short-term investments (available-for-sale):

           

U.S. Treasury bills

      103,984         —           (11 )      103,973   

U.S. Government Agencies

      26,523         —           (1 )      26,522   
  

 

 

     

 

 

     

 

 

    

 

 

  

Total short-term investments (available-for-sale)

      130,507         —           (12 )      130,495   
  

 

 

     

 

 

     

 

 

    

 

 

  

Total cash and cash equivalents and short-term investments

    $ 373,335       $ —         $ (12 )    $ 373,323   
  

 

 

     

 

 

     

 

 

    

 

 

  

Long-term investments (available-for-sale):

           

Municipal bonds

    $ 11,150       $ —         $ (535 )    $ 10,615   
  

 

 

     

 

 

     

 

 

    

 

 

  

 

      December 31, 2011  
          (Dollars in thousands)
Gross Unrealized		        
   Cost          Gain              (Loss)         Fair Value  

Cash and cash equivalents:

           

Cash

    $ 157,317       $ —         $ —        $ 157,317   

Money market funds

      122,827         448         —          123,275   
  

 

 

     

 

 

     

 

 

    

 

 

  

Total cash and cash equivalents

      280,144         448         —          280,592   
  

 

 

     

 

 

     

 

 

    

 

 

  

Short-term investments (available-for-sale):

           

U.S. Treasury bills

      133,648         31         (5 )      133,674   

U.S. Government Agencies

      26,962         —           (29 )      26,933   
  

 

 

     

 

 

     

 

 

    

 

 

  

Total short-term investments (available-for-sale)

      160,610         31         (34 )      160,607   
  

 

 

     

 

 

     

 

 

    

 

 

  

Total cash and cash equivalents and short-term investments

    $ 440,754       $ 479       $ (34 )    $ 441,199   
  

 

 

     

 

 

     

 

 

    

 

 

  

Long-term investments (available-for-sale):

           

Municipal bonds

    $ 11,150       $ —         $ (735 )    $ 10,415   
  

 

 

     

 

 

     

 

 

    

 

 

  

In the table above, unrealized holding losses as of September 30, 2012 relate to short-term investments that have been in a continuous unrealized loss position for less than one year. The table also includes unrealized holding losses that relate to our long-term investments in municipal bonds, which are auction rate securities (“ARS”). When evaluating our investments for possible impairment, we review factors such as the length of time and extent to which fair value has been less than the cost basis, the financial condition of the investee, and our ability and intent to hold the investment for a period of time that may be sufficient for anticipated recovery in fair value. The decline in the fair value of our municipal bonds through September 30, 2012 is attributable to the continued lack of activity in the ARS market, exposing these investments to liquidity risk.

Included in cash and cash equivalents above are amounts related to certain of our European campuses that are operated on a not-for-profit basis. The cash and cash equivalents related to these schools have restrictions which require that the funds be utilized for these particular not-for-profit schools. The amount of cash and cash equivalents of our not-for-profit schools with restrictions was $70.2 million and $74.5 million at September 30, 2012 and December 31, 2011, respectively. Restrictions on cash balances have not affected our ability to fund operations.

Money market funds: Mutual funds that invest in lower risk securities and generate low yields. Such funds maintain clear investment guidelines and seek to limit credit, market and liquidity risks.

U.S. Treasury bills: Debt obligations issued by the U.S. government that pay interest at maturity. U.S. Treasury bills are generally traded at discounts to par value and mature in one year or less.

U.S. Government Agencies: Debt obligations issued by a Government Sponsored Enterprise (“GSE”) which pay interest. GSEs are privately-held corporations with public purposes created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy. Our debt obligations are issued by Federal Home Loan Banks and generally trade at discounts to par value. These obligations mature in one year or less and have the implicit backing of the U.S. Government although they are not direct obligations of the U.S. Government.

Municipal bonds: Debt obligations issued by states, cities, counties, and other governmental entities, which earn federally tax-exempt interest. ARS generally have stated terms to maturity of greater than one year. We classify investments in ARS as non-current on our consolidated balance sheets within other assets. Auctions can “fail” when the number of sellers of the security exceeds the buyers for that particular auction period. In the event that an auction fails, the interest rate resets at a rate based on a formula determined by the individual security. The ARS for which auctions have failed continue to accrue interest and are auctioned on a set interval until the auction succeeds, the issuer calls the securities, or they mature. As of September 30, 2012, we have determined these investments are at risk for impairment due to the nature of the liquidity of the market over the past year. Cumulative unrealized losses as of September 30, 2012 amount to $0.5 million and are reflected within accumulated other comprehensive loss as a component of stockholders’ equity. We believe this impairment is temporary, as we do not intend to sell the investments and it is unlikely we will be required to sell the investments before recovery of their amortized cost basis.

Fair Value Measurements

The fair value measure of accounting for financial instruments establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of September 30, 2012, we held investments that are required to be measured at fair value on a recurring basis. These investments (available-for-sale) consist of U.S. Treasury bills and U.S. Government Agencies that are publicly traded and for which market prices are readily available.

As of September 30, 2012, our investments in municipal bonds are classified as available-for-sale and reflected at fair value. The auction events for these investments have been failing for over three years. The fair values of these securities are estimated utilizing a discounted cash flow analysis as of September 30, 2012. These analyses consider, among other items, the collateralization underlying the security investments, the credit worthiness of the counterparty, the timing of expected future cash flows, and the expectation of the next time the security is expected to have a successful auction. These securities were also compared, when possible, to other observable market data with similar characteristics.

Investments measured at fair value on a recurring basis subject to the disclosure requirements issued by FASB ASC Topic 820 – Fair Value Measurements at September 30, 2012 and December 31, 2011 were as follows:

 

     As of September 30, 2012  
            (Dollars in thousands)         
      Level 1      Level 2      Level 3      Total  

Municipal bonds

    $ —         $ —         $ 10,615       $ 10,615   

U.S. Treasury bills

      103,973         —           —           103,973   

U.S. Government Agencies

      26,522         —           —           26,522   
  

 

 

     

 

 

     

 

 

     

 

 

  

Totals

    $ 130,495       $ —         $ 10,615       $ 141,110   
  

 

 

     

 

 

     

 

 

     

 

 

  
      As of December 31, 2011  
            (Dollars in thousands)         
      Level 1      Level 2      Level 3      Total  

Municipal bonds

    $ —         $ —         $ 10,415       $ 10,415   

U.S. Treasury bills

      133,674         —           —           133,674   

U.S. Government Agencies

      26,933         —           —           26,933   
  

 

 

     

 

 

     

 

 

     

 

 

  

Totals

    $ 160,607       $ —         $ 10,415       $ 171,022   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

The following table presents a rollforward of our assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as defined in FASB ASC Topic 820 for the year to date ended September 30, 2012:

 

     (Dollars in thousands)  

Balance at December 31, 2011

    $ 10,415   

Unrealized gain

      200   
  

 

 

  

Balance at September 30, 2012

    $ 10,615   
  

 

 

  

Credit Agreement

As of September 30, 2012, we had letters of credit totaling $6.2 million outstanding under our $185.0 million U.S. Credit Agreement. Borrowing availability under our U.S. Credit Agreement as of September 30, 2012, was $178.8 million. Our U.S. Credit Agreement expired on October 31, 2012. Discussions surrounding the level and terms of a replacement credit facility are ongoing. Effective October 31, 2012, we have provided cash that will be restricted in use to provide securitization for the letters of credit previously covered under our U.S. Credit Agreement.