PROGRESS SOFTWARE CORP /MA - 10-Q filing on 2014-07-08

Cash, Cash Equivalents and Investments

6 Months Ended

May 31, 2014

Cash, Cash Equivalents and Investments

A summary of our cash, cash equivalents and available-for-sale investments at May 31, 2014 is as follows (in thousands):



	Amortized Cost Basis		Unrealized Gains		Unrealized Losses			Fair Value
Cash	$	127,279	$	—	$	—		$	127,279
Money market funds	74,692		—		—			74,692
State and municipal bond obligations	24,470		135		—			24,605
Auction rate securities – municipal bonds	25,250		—		(3,063		)	22,187
Auction rate securities – student loans	3,500		—		(631		)	2,869
Total	$	255,191	$	135	$	(3,694	)	$	251,632

A summary of our cash, cash equivalents and available-for-sale investments at November 30, 2013 is as follows (in thousands):



	Amortized Cost Basis		Realized Losses			Unrealized Gains		Unrealized Losses			Fair Value
Cash	$	144,305	$	—		$	—	$	—		$	144,305
Money market funds	54,513		—			—		—			54,513
State and municipal bond obligations	30,938		—			164		—			31,102
Auction rate securities – municipal bonds	27,150		(380		)	—		(3,317		)	23,453
Auction rate securities – student loans	3,500		—			—		(672		)	2,828
Total	$	260,406	$	(380	)	$	164	$	(3,989	)	$	256,201

Such amounts are classified on our condensed consolidated balance sheets as follows (in thousands):



	May 31, 2014						November 30, 2013
	Cash and Equivalents		Short-Term Investments		Long-Term Investments		Cash and Equivalents		Short-Term Investments		Long-Term Investments
Cash	$	127,279	$	—	$	—	$	144,305	$	—	$	—
Money market funds	74,692		—		—		54,513		—		—
State and municipal bond obligations	—		24,605		—		—		31,102		—
Auction rate securities – municipal bonds	—		—		22,187		—		1,520		21,933
Auction rate securities – student loans	—		—		2,869		—		—		2,828
Total	$	201,971	$	24,605	$	25,056	$	198,818	$	32,622	$	24,761

For each of our auction rate securities (ARS) for which the issuer is not in default, we evaluated the risks related to the structure, collateral and liquidity of the investment and forecasted the probability of issuer default, auction failure and a successful auction at par or a redemption at par for each future auction period. The weighted average cash flow for each period was then discounted back to present value for each security. Based on this methodology, we determined that the fair value of our ARS investments is $25.1 million and $24.8 million at May 31, 2014 and November 30, 2013, respectively. The temporary impairment recorded in accumulated other comprehensive loss to reduce the value of our available-for-sale ARS investments was $3.7 million and $4.0 million at May 31, 2014 and November 30, 2013, respectively. We will not be able to access the funds associated with our ARS investments until future auctions for these ARS are successful, we sell the securities in a secondary market, or they are redeemed by the issuer. As such, these remaining investments currently lack short-term liquidity and are therefore classified as long-term investments on the condensed consolidated balance sheets at May 31, 2014 and November 30, 2013.

During the fourth quarter of fiscal year 2013, the exit bankruptcy plan for an issuer of one of our ARS, which was in default and on whose behalf the underlying bond insurer was making interest payments, was approved by a federal bankruptcy judge in federal court. The exit bankruptcy plan included a settlement provision with the holders of the ARS, which were given the option to receive 80% of the par value of their holdings, but renounce their claim with the bond issuer, or receive 65% of the par value of their holdings and retain their insurance rights. We accepted the 80% settlement offer and as a result we adjusted the fair value of this ARS to the amount of the settlement as of November 30, 2013. The previously recorded unrealized loss associated with this ARS has been recorded as a realized loss in fiscal year 2013 due to the settlement. As this investment no longer lacked short-term liquidity, it was classified as a short-term investment on our consolidated balance sheet at November 30, 2013. We received the settlement in December 2013 and the related ARS is no longer held and, accordingly, is not included in our ARS investments as of May 31, 2014.

Based on our cash, cash equivalents and short-term investments balance of $226.6 million, expected operating cash flows and the availability of funds under our revolving credit facility, we do not anticipate that the lack of liquidity associated with our ARS will adversely affect our ability to conduct business and believe we have the ability to hold the affected securities throughout the currently estimated recovery period. Therefore, the impairment of these securities is considered only temporary in nature. If the credit rating of either the security issuer or the third-party insurer underlying the investments deteriorates significantly, we may be required to adjust the carrying value of the ARS through an other-than-temporary impairment charge to earnings.

The fair value of debt securities by contractual maturity is as follows (in thousands):



	May 31, 2014		November 30, 2013
Due in one year or less ⁽¹⁾	$	39,943	$	42,198
Due after one year ⁽²⁾	9,718		15,185
Total	$	49,661	$	57,383


(1)	Includes ARS which are tendered for interest-rate setting purposes periodically throughout the year. Beginning in February 2008, auctions for these securities began to fail, and therefore these investments currently lack short-term liquidity. The remaining contractual maturities of these securities range from 10 to 29 years.


(2)	Includes state and municipal bond obligations, which are securities representing investments available for current operations and are classified as current in the consolidated balance sheets.

Investments with continuous unrealized losses and their related fair values are as follows at May 31, 2014 (in thousands):



	Less Than 12 Months				12 Months or Greater					Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Auction rate securities – municipal bonds	$	—	$	—	$	22,187	$	(3,063	)	$	22,187	$	(3,063	)
Auction rate securities – student loans	—		—		2,869		(631		)	2,869		(631		)
Total	$	—	$	—	$	25,056	$	(3,694	)	$	25,056	$	(3,694	)

Investments with continuous unrealized losses and their related fair values are as follows at November 30, 2013 (in thousands):



	Less Than 12 Months				12 Months or Greater					Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Auction rate securities – municipal bonds	$	—	$	—	$	21,933	$	(3,317	)	$	21,933	$	(3,317	)
Auction rate securities – student loans	—		—		2,828		(672		)	2,828		(672		)
Total	$	—	$	—	$	24,761	$	(3,989	)	$	24,761	$	(3,989	)