2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates in Preparation of Financial Statements. The preparation of the accompanying Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our Financial Statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Postage. We pass through to our clients the cost of postage that is incurred on behalf of those clients, and typically require an advance payment on expected postage costs. These advance payments are included in “Client deposits” in the accompanying Condensed Consolidated Balance Sheets (the “Balance Sheet” or “Balance Sheets”) and are classified as current liabilities regardless of the contract period. We net the cost of postage against the postage reimbursements for those clients where we require advance deposits, and include the net amount in processing and related services revenues.

Cash and Cash Equivalents. We consider all highly liquid investments with original maturities of three months or less at the date of the purchase to be cash equivalents. As of March 31, 2013, our cash equivalents consist primarily of institutional money market funds, commercial paper, and time deposits held at major banks.

As of March 31, 2013, we had $4.1 million of restricted cash that serves to collateralize outstanding letters of credit. This restricted cash is included in “Cash and cash equivalents” in our Balance Sheet.

Short-term Investments and Other Financial Instruments. Our financial instruments as of March 31, 2013 include cash and cash equivalents, short-term investments, accounts receivable, accounts payable, interest rate swap contracts, and debt. Because of their short maturities, the carrying amounts of cash equivalents, accounts receivable, and accounts payable approximate their fair value.

Certain of our short-term investments and cash equivalents are considered “available-for-sale” and are reported at fair value in our Balance Sheets, with unrealized gains and losses, net of the related income tax effect, excluded from earnings and reported in a separate component of stockholders’ equity. Realized and unrealized gains and losses were not material in any period presented.

All short-term investments held by us as of March 31, 2013 and December 31, 2012 have contractual maturities of less than one year from the time of acquisition. Proceeds from the sale/maturity of short-term investments for the three months ended March 31, 2013 and 2012 were $29.5 million and $12.1 million, respectively.

The following table represents the fair value hierarchy based upon three levels of inputs, of which Levels 1 and 2 are considered observable and Level 3 is unobservable, for financial assets and liabilities measured at fair value on a recurring basis (in thousands):

	March 31, 2013

	Level 1	Level 2	Total	Level 1	Level 2	Total

Assets:
Cash and cash equivalents:
Money market funds	$ 57,879	$ —	$ 57,879	$ 23,119	$ —	$ 23,119
Commercial paper	—	24,297	24,297	—	38,582	38,582
Short-term investments:
Commercial paper	—	25,795	25,795	—	32,100	32,100
U.S. government agency bonds	—	750	750	—	748	748

Total	$ 57,879	$ 50,842	$ 108,721	$ 23,119	$ 71,430	$ 94,549

Liabilities:
Interest rate swap contracts (1)	$ —	$ 896	$ 896	$ —	$ 1,069	$ 1,069

Total	$ —	$ 896	$ 896	$ —	$ 1,069	$ 1,069

(1) As of March 31, 2013, the fair value of the interest rate swap contract was classified on our Balance Sheet in “Other current liabilities”. As of December 31, 2012, the fair value of the interest rate swap contracts were classified on our Balance Sheet in “Other non-current liabilities”.

Valuation inputs used to measure the fair values of our money market funds were derived from quoted market prices. The fair values of all other financial instruments are based upon pricing provided by third-party pricing services. These prices were derived from observable market inputs.

We have chosen not to measure our debt at fair value, with changes recognized in earnings each reporting period.

The following table indicates the carrying value and estimated fair value of our debt as of the indicated periods (in millions):


	March 31, 2013		December 31, 2012

	Carrying Value	Fair Value	Carrying Value	Fair Value

Credit Agreement (carrying value including current maturities)	$ 146	$ 158	$ 150	$ 163
Convertible debt (par value)	150	167	150	158

The fair value for our Credit Agreement was estimated using a discounted cash flow methodology, while the fair value for our convertible debt was estimated based upon quoted market prices or recent sales activity, both of which are considered Level 2 inputs.

Income Taxes. The income tax benefit recognized in the first quarter of 2013 reflects the benefit of research and development (“R&D”) tax credits that we generated during 2012. As a result of the American Taxpayer Relief Act of 2012 being signed into law on January 2, 2013, we were unable to include these credits in our 2012 results of operations, as a change in tax law is accounted for in the period of enactment. Thus, the benefit of these credits is reflected in our first quarter 2013 results of operations.