INVESTMENTS

Short-term investments represent the investment of cash in instruments that are available to fund current operations with remaining maturities of greater than three months on the date of purchase. Short-term investments as of March 31, 2013 primarily consisted of corporate debt instruments, commercial paper and liquid municipals with maturities ranging from less than one month to less than two years and were classified as available-for-sale securities. Long-term investments as of March 31, 2013 consisted of auction rate notes secured by student loans and were classified as available-for-sale securities. Available-for-sale securities are stated at market value with unrealized gains and losses included in accumulated other comprehensive income. Unrealized losses are charged against income when a decline in the fair market value of an individual security is determined to be other than temporary. Realized gains and losses on investments are included in other income or expense. A summary of the Company’s short-term investments at March 31, 2013 and December 31, 2012 is as follows (in thousands):



	As of March 31, 2013								As of December 31, 2012
	Cost		Gross Gains		Gross Losses		Fair Value		Cost		Gross Gains		Gross Losses			Fair Value
Municipal Securities	$	12,384	$	15	$	—	$	12,399	$	12,520	$	—	$	(116	)	$	12,404
Corporate Debt Securities	28,855		25		—		28,880		26,575		—		(139		)	26,436
Commercial Paper	14,931		4		—		14,935		18,464		—		(2		)	18,462
Certificates of Deposits	—		—		—		—		19,047		—		—			19,047
Total	$	56,170	$	44	$	—	$	56,214	$	76,606	$	—	$	(257	)	$	76,349

The Company recorded a temporary gain of $28,000 net of tax ($44,000 pre-tax) for its short-term securities as of March 31, 2013 to accumulated other comprehensive income, a component of shareholders' equity. As of March 31, 2013, $2.1 million of the Company’s short-term investments were in a continuous unrealized loss position of an immaterial amount for more than twelve months.

To determine the fair value of financial instruments, the Company uses a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below:


•	Level 1 - Quoted prices in active markets for identical assets or liabilities.


•	Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, 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 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.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Most of the Company’s financial instruments are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

The types of instruments valued based on unobservable inputs include the auction rate securities held by the Company. Such instruments are generally classified within Level 3 of the fair value hierarchy. The Company estimated the fair value of these auction rate securities using a discounted cash flow model incorporating assumptions that market participants would use in their estimates of fair value. Some of these assumptions include estimates for interest rates, timing and amount of cash flows and expected holding periods of the auction rate securities.

Financial assets measured at fair value on a recurring basis as of March 31, 2013 were as follows (in thousands):



	Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total
Money Market Funds (1)	$	31,265	$	—	$	—	$	31,265
Certificates of Deposits (2)	—		—		—		—
Corporate Debt Securities (2)	—		28,880		—		28,880
Commercial Paper (2)	—		14,935		—		14,935
Municipal Securities (2)	—		12,399		—		12,399
Auction rate notes (3)	—		—		4,241		4,241
Total	$	31,265	$	56,214	$	4,241	$	91,720

Financial assets measured at fair value on a recurring basis as of December 31, 2012 were as follows (in thousands):



	Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total
Money Market Funds (1)	$	13,845	$	—	$	—	$	13,845
Certificates of Deposits (2)	19,047		—		—		19,047
Corporate Debt Securities (2)	—		26,437		—		26,437
Commercial Paper (2)	—		18,462		—		18,462
Municipal Securities (2)	—		12,404		—		12,404
Auction rate notes (3)	—		—		4,159		4,159
Total	$	32,892	$	57,303	$	4,159	$	94,354

__________

(1) Included in cash and cash equivalents

(2) Included in short-term investments

(3) Included in long-term investments

There were no significant transfers between Level 1 and Level 2 of the fair value hierarchy.

As of March 31, 2013, the Company had $4.7 million of auction rate notes, the fair value of which has been measured using Level 3 inputs. Auction rate notes are securities that are structured with short-term interest rate reset dates of generally less than ninety days, but with contractual maturities that can be in excess of ten years. At the end of each reset period, which occurs every seven or twenty eight days for the securities held by the Company, investors can sell or continue to hold the securities at par. As a result of sell orders exceeding buy orders, auctions for the student loan-backed notes held by the Company have failed as of March 31, 2013. To date the Company has collected all interest payable on all of its auction-rate securities when due and expects to continue to do so in the future. The principal associated with failed auctions will not be accessible until a successful auction occurs, a buyer is found outside of the auction process, the issuers redeem the securities, the issuers repay principal over time from cash flows prior to final maturity or final payments come due according to contractual maturities ranging from 19 to 35 years. As a result, the Company has classified all auction rate notes as long-term investments as of March 31, 2013 and December 31, 2012. In the event of a failed auction, the notes bear interest at a predetermined maximum rate based on the credit rating of notes as determined by one or more nationally recognized statistical rating organizations. For the auction rate notes held by the Company as of March 31, 2013 and December 31, 2012, the maximum interest rate is generally one month LIBOR plus 1.5% or 2.5% based on the notes’ rating as of that date.

The Company has used a combination of discounted cash flow models and observable transactions for similar securities to determine the estimated fair value of its investment in auction rate notes as of March 31, 2013 and December 31, 2012. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, estimates for discount rates using yields of comparable traded instruments adjusted for illiquidity and other risk factors, amount of cash flows and expected holding periods of the auction rate notes. Based on this assessment of fair value, as of March 31, 2013, the Company determined there was a cumulative decline in the fair value of its auction rate notes and recorded a $292,000 net of tax ($459,000 pre-tax) temporary impairment of these securities to accumulated other comprehensive income, a component of shareholders’ equity.

For the three months ended March 31, 2013, the changes in the Company’s Level 3 securities (consisting of auction rate notes) were as follows (in thousands):



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Beginning balance, December 31, 2012	$	4,159
Transfers in and/or out of Level 3	—
Total unrealized gains, before tax	82
Settlements	—
Ending balance, March 31, 2013	$	4,241