XML 21 R10.htm IDEA: XBRL DOCUMENT  v2.3.0.11
Fair Value
 3 Months Ended
Jun. 30, 2011
Fair Value Disclosures [Abstract]  
Fair Value
Note 5: Fair Value
Effective April 1, 2008, the Company adopted ASC Topic 820 (“Fair Value Measurements”), except as it applies to non-financial assets and non-financial liabilities subject to ASC Topic 320. ASC Topic 320 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. ASC Topic 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.
Level 3 - Unobservable inputs which are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s cash equivalents are classified within Level 1, with the exception of the investments in ARS. The Company’s investments in ARS are classified within Level 3 because they are valued using a discounted cash flow model. Some of the inputs to this model are unobservable in the market and are significant. Assets and liabilities measured at fair value are summarized below:
Fair Value Measurement at June 30, 2011 Using
Quoted Prices
Significant
in Active
Other
Significant
Markets for
Observable
Unobservable
June 30,
Identical Assets
Inputs
Inputs
(In thousands)
2011
(Level 1)
(Level 2)
(Level 3)
Assets:
Cash and cash equivalents - money market funds
$ 49,413 $ 49,413 $ - $ -
Short term investments - bond mutual funds
10,219 10,219 - -
Long term investments - auction rate securities
4,761 - - 4,761
$ 64,393 $ 59,632 $ - $ 4,761

The following table is a reconciliation of financial assets measured at fair value using unobservable inputs (Level 3) during the quarter ended June 30, 2011:
Auction Rate
Securities
Quarter Ended
(In thousands)
June 30, 2011
Balance, beginning of period
$ 12,390
Redemption of securities
(7,676 )
Recovery of valuation
47
Balance, end of period
$ 4,761

Long term investments measured at fair value using Level 3 inputs are comprised of ARS. Although ARS would typically be measured using Level 2 inputs, the recent failure of auctions and the lack of market activity and liquidity required that these securities be measured using Level 3 inputs. The Company’s ARS consist of closed-end fund preferred ARS, with interest rates that reset, typically every seven to twenty-eight days. The fair value of our ARS investments was assessed by management with the assistance of an outside third party appraisal firm, which was conducted during the fourth quarter of fiscal 2011. The fair value was calculated using a discounted cash flow valuation model. The three inputs used in determining the fair values of the ARS were:
(1) Forecasted interest payments cash flows - In failed ARS auctions, interest rates are set by the terms of the prospectus. For almost all of the securities the terms are a combination of two components: the determination of a base rate that is based on the maximum of two indexes, or a single index as defined in the prospectus. Base rates are adjusted through either a multiplication factor or an addition of a spread factor as defined in the prospectus, which is dependent on the credit rating of the security. Our ARS are currently rated AAA, the highest rating available by a rating agency.
(2) Discount rate calculation - The discount rates were calculated from the applicable forward curve plus a credit risk/liquidity spread. The credit risk spread was estimated via the credit spreads for 1-3 year term, AAA rated, debt over US Treasury notes and bonds which were determined to be 50 basis points (0.50%). To address the continued illiquidity of the Company’s ARS portfolio, an additional spread of 0.30% was added to the credit risk spread. This spread is based on the required yield attributable to liquidity for AAA rated debt, as determined by empirical studies. Specifically, research on municipal bond yields indicate that for AAA rated securities, the liquidity component represents approximately 7-10% of the required yield. In total, a credit risk/liquidity spread of 0.80% was utilized.

(3) A present value calculation was performed utilizing the cash flow of the forecasted interest payments combined with the discount rate determined above.

As of June 30, 2011, the Company held $4.8 million in ARS, at par, which were classified as long term investments and the Company recorded an unrealized recovery of $47,000 for the quarter then ended. As of June 30, 2011, cumulative losses of $64,000 were recognized within the accumulated other comprehensive loss account, based upon an assessment by the outside third party appraisal firm. The $64,000 impairment was recorded as temporary due to the fact that the Company has the intent and the ability to hold these securities until anticipated recovery or maturity, and does expect to fully recover the cost basis of the investment.