Note 2 — Marketable Investments

The following table summarizes the Company’s marketable investments (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
September 30, 2013
Available-for-sale securities
State and municipal obligations	$	9,660	$	5	$	—		$	9,665
Federal agency and corporate obligations		77,330		131		(165	)		77,296

Total short-term available-for-sale securities		86,990		136		(165	)		86,961
ARS, long-term		11,000		—		(1,908	)		9,092

Total available-for-sale securities	$	97,990	$	136	$	(2,073	)	$	96,053


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
December 31, 2012
Available-for-sale securities
State and municipal obligations	$	18,859	$	27	$	(14	)	$	18,872
Federal agency and corporate obligations		115,653		380		(29	)		116,004

Total short-term available-for-sale securities		134,512		407		(43	)		134,876
ARS, long-term		11,000		—		(2,030	)		8,970

Total available-for-sale securities	$	145,512	$	407	$	(2,073	)	$	143,846

Realized gains and losses on securities are included in earnings and are determined using the specific identification method. Realized gains or losses on the sale of the Company’s federal agency, state, municipal and corporate obligations were not material in the three and nine months ended September 30, 2013 or 2012.

The following table summarizes the maturity periods of the marketable securities in the Company’s portfolio as of September 30, 2013. In February 2008, certain auction rate securities (“ARS”) that Forrester held experienced failed auctions that limited the liquidity of these securities. These auction failures have continued through September 30, 2013. On October 30, 2013 the Company sold the entire portfolio of ARS for net proceeds of $9.1 million. The following table reflects the ARS at their contractual maturity dates of between 2024 and 2034 (in thousands).


	FY 2013		FY2014		FY2015		Thereafter		Total
State and municipal obligations	$	2,772	$	4,821	$	2,072	$	—	$	9,665
Federal agency and corporate obligations		7,385		25,035		28,919		15,957		77,296
ARS		—		—		—		9,092		9,092

Total	$	10,157	$	29,856	$	30,991	$	25,049	$	96,053

The following table shows the gross unrealized losses and market value of Forrester’s available-for-sale securities with unrealized losses that are not deemed to be other-than-temporary, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):


	As of September 30, 2013
	Less Than 12 Months				12 Months or Greater
	Market Value		Unrealized Losses		Market Value		Unrealized Losses
State and municipal bonds	$	—	$	—	$	—	$	—
Federal agency and corporate obligations		35,843		165		—		—
ARS		—		—		9,092		1,908

Total	$	35,843	$	165	$	9,092	$	1,908


	As of December 31, 2012
	Less Than 12 Months				12 Months or Greater
	Market Value		Unrealized Losses		Market Value		Unrealized Losses
State and municipal bonds	$	9,430	$	14	$	—	$	—
Federal agency and corporate obligations		17,716		29		—		—
ARS		—		—		8,970		2,030

Total	$	27,146	$	43	$	8,970	$	2,030

Fair Value

The Company measures certain financial assets at fair value on a recurring basis, including cash equivalents, available-for-sale securities and trading securities. The fair values of these financial assets have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.

Level 1 — Fair value based on quoted prices in active markets for identical assets or liabilities.

Level 2 — Fair value based on inputs other than Level 1 inputs 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 — Fair value based on unobservable inputs that are supported by little or no market activity and such inputs are significant to the fair value of the assets or liabilities.

The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012 (in thousands):


	As of September 30, 2013
	Level 1		Level 2		Level 3		Total
Money market funds (1)	$	7,111	$	—	$	—	$	7,111
State and municipal obligations		—		9,665		—		9,665
Federal agency and corporate obligations		—		77,296		—		77,296
ARS		—		—		9,092		9,092

Total	$	7,111	$	86,961	$	9,092	$	103,164


	As of December 31, 2012
	Level 1		Level 2		Level 3		Total
Money market funds (1)	$	815	$	—	$	—	$	815
State and municipal obligations		—		18,872		—		18,872
Federal agency and corporate obligations (2)		—		148,117		—		148,117
ARS		—		—		8,970		8,970

Total	$	815	$	166,989	$	8,970	$	176,774

(1)	Included in cash and cash equivalents.

(2)	$32.1 million are included in cash and cash equivalents at December 31, 2012 as original maturities at the time of purchase were 90 days or less.

Level 2 assets consist of the Company’s entire portfolio of federal, state, municipal and corporate bonds, excluding those municipal bonds described below with an auction reset feature. Level 2 assets have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, typically utilizing third party pricing services or other market observable data. The pricing services utilize industry standard valuation methods, including both income and market based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events.

Level 3 assets at September 30, 2013 and December 31, 2012 consist entirely of municipal bonds with an auction reset feature (ARS). Prior to 2008, the fair value of the ARS investments approximated par value due to the frequent resets through the auction process. While the Company continues to receive interest income on its ARS investments at each interest reset date (which occurs at either seven or 35 day intervals for each security), these investments trade infrequently and therefore do not have a readily determinable market value. Interest rates on the securities ranged from 0.1% to 0.4% and 0.1% to 0.5% during the nine months ended September 30, 2013 and 2012, respectively. The Company values the ARS using a discounted cash flow model that includes unobservable inputs including estimates of future interest rates, discount rates and expected holding periods of the securities, which is considered a Level 3 valuation. Unobservable inputs included in the valuation as of September 30, 2013 include a weighted average interest rate of 1.7%, a weighted average discount rate of 4.9%, and a weighted average holding period of 8.7 years. The valuation resulted in an unrealized loss recorded in accumulated other comprehensive income in the Consolidated Balance Sheets of $1.9 million at September 30, 2013 and $2.0 million at December 31, 2012. As of September 30, 2013, the Company classified the loss as temporary due to the strong underlying credit rating of the securities and the fact that the Company, as of September 30, 2013, did not intend to sell the securities and was not likely to be required to sell the securities. The assumptions used in valuing the ARS are volatile and subject to change as the underlying sources of these assumptions and market conditions change. Significant increases or decreases in any of the valuation assumptions in isolation would result in a significant change in the fair value.

On October 22, 2013 the Company made the decision to sell its entire portfolio of ARS. On October 30, 2013 the Company completed the sale of the ARS for net proceeds of $9.1 million, resulting in a realized loss of $1.9 million that will be recognized as an investment loss in the consolidated statement of income for the three months ended December 31, 2013.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets for the nine months ended September 30, 2013 and 2012 (in thousands):


	ARS
Balance at December 31, 2011	$	9,565
Sales		—
Gains included in other comprehensive income		224

Balance at September 30, 2012	$	9,789


	ARS
Balance at December 31, 2012	$	8,970
Sales		—
Gains included in other comprehensive income		122

Balance at September 30, 2013	$	9,092