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Fair Value Measurements
 12 Months Ended
Dec. 31, 2011
Fair Value Measurements [Abstract]  
FAIR VALUE MEASUREMENTS

5.  FAIR VALUE MEASUREMENTS

Assets measured at fair value on a recurring basis include the following as of December 31, 2011 (in thousands):

 

                                 
    Using        
    Quoted Prices
in Active
Markets
(Level 1)		     Significant
Other
Observable
Inputs
(Level 2)		     Significant
Unobservable
Inputs
(Level 3)		     Total Fair
Value as of
December 31,
2011		  

Cash Equivalents:

                                

Money market funds

   $ 14,940     $ —     $ —     $ 14,940  

Long-term investments:

                                

Auction rate securities

     —       —       7,472       7,472  

Brokered certificates of deposit

     —       1,648       —       1,648  

Certificates of deposit

     465       —       —       465  

The Company has brokered certificates of deposit classified as Level 2 because the fair value for these investments has been determined utilizing observable inputs from non-active markets. The fair values fluctuate with changes in market interest rates obtained from information available in publicly quoted markets. Management tested the reported fair values by comparing them to net present value calculations utilizing a discount rate based on U.S. Treasury “Strip” securities for similar maturities.

As of December 31, 2011, there was insufficient observable auction rate security market information available to determine the fair value of the Failed Auction Securities using Level 1 or Level 2 inputs. As such, the Company’s investments in Failed Auction Securities were deemed to require valuation using Level 3 inputs. Management, after consulting with advisors, valued the Failed Auction Securities using analyses and pricing models similar to those used by market participants (i.e., buyers, sellers, and the broker-dealers responsible for execution of the Dutch auction pricing mechanism by which each issue’s interest rate was set). Management utilized a probability weighted discounted cash flow (“DCF”) model to determine the estimated fair value of these securities as of December 31, 2011. The major assumptions used in preparing the DCF model included: estimates for the amount and timing of future interest and principal payments based on default probability assumptions used to measure the credit loss of 3.3%; the rate of return required by investors to own these securities in the current environment, which we estimate to be 5.0% above the risk free rate of return; and an estimated timeframe of three to five years for successful auctions for these securities to occur. In making these assumptions, management considered relevant factors including: the formula applicable to each security defining the interest rate paid to investors in the event of a failed auction (the “Penalty Rate”); forward projections of the interest rate benchmarks specified in such formulas; the likely timing of principal repayments; the probability of full repayment considering the guarantees by the U.S. Department of Education of the underlying student loans, guarantees by other third parties, and additional credit enhancements provided through other means; and publicly available pricing data for recently issued student loan asset-backed securities not subject to auctions. In developing its estimate of the rate of return required by investors to own these securities, management compared the Penalty Rates of the Failed Auction Securities with yields of actively traded long-term bonds with similar characteristics and, reflecting the limited liquidity for auction rate securities and the discounts to par value seen in recent tender offers by issuers and arms’ length market transactions between informed buyers and sellers, estimated the implied yield (i.e., the discount to par value) necessary to complete a sale of the Failed Auction Securities. Management has calculated an increase or decrease in the liquidity risk premium of 5.0% referenced above of 1.0% (i.e., 100 basis points) as used in the model, would decrease or increase, respectively, the fair value of the Failed Auction Securities by approximately $400,000.

 

The following table summarizes the change in the fair values for those assets valued on a recurring basis utilizing Level 3 inputs for the year ended December 31, 2011 (in thousands):

 

         

Balance at the beginning of the period

   $ 16,219  

Redemptions

     (9,975 ) 

Credit losses on available for sales securities included in Other income, net

     302  

Unrealized gain included in Other comprehensive (loss) income

     926  
   

 

 

  

Balance at the end of the period

   $ 7,472