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.

Reclassifications. Certain 2012 amounts have been reclassified to conform to the September 30, 2013 presentation.

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 September 30, 2013, our cash equivalents consist primarily of institutional money market funds, commercial paper, and time deposits held at major banks.

As of September 30, 2013, we had $4.9 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 September 30, 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.

Our short-term investments and certain of our 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 September 30, 2013 and December 31, 2012 have contractual maturities of less than two years. Proceeds from the sale/maturity of short-term investments for the nine months ended September 30, 2013 and 2012 were $62.7 million and $33.2 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):

	September 30, 2013
	Level 1			Level 2		Total	Level 1			Level 2			Total
Assets:
Cash equivalents:
Money market funds	$	33,365	$	—	$	33,365	$	23,119	$		—	$		23,119
Commercial paper		—		20,798		20,798		—			35,856			35,856
Short-term investments:
Commercial paper		—		48,574		48,574		—			34,826			34,826
Municipal bonds		—		29,353		29,353		—			—			—
U.S. government agency bonds		—		23,235		23,235		—			748			748
Total	$	33,365	$	121,960	$	155,325	$	23,119	$		71,430	$		94,549
Liabilities:
Interest rate swap contracts (1)	$	—	$	377	$	377	$	—	$		1,069	$		1,069
Total	$	—	$	377	$	377	$	—	$		1,069	$		1,069

(1) As of September 30, 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. The following table indicates the carrying value and estimated fair value of our debt as of the indicated periods (in thousands):

	September 30, 2013				December 31, 2012
	Carrying Value		Fair Value		Carrying Value			Fair Value
Credit Agreement (carrying value including current maturities)	$	138,750	$	138,750		$	150,000		$	150,000
Convertible debt (par value)		150,000		182,355			150,000			158,400

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. During the third quarter of 2013, we recognized incremental research and development (“R&D”) tax credits claimed for development activities from previous years and the reduction of certain tax allowances related to foreign operations. The benefit of these events is reflected in our results of operations for the three and nine months ended September 30, 2013.

Additionally, during the first quarter of 2013, we recognized an income tax benefit related to 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 results of operations for the nine months ended September 30, 2013.