5. Investments and Fair Value Measurements

Fixed income debt securities are classified as available-for-sale and carried at fair value. Net unrealized gains and losses are reported as a separate component of accumulated other comprehensive income ("OCI") in stockholders' equity, net of tax, except for the credit portion of any other-than-temporary impairment, which is included in net income (loss).

We review our debt security investments for other-than-temporary impairment whenever an investment's fair value is less than its amortized cost and evidence indicates the investment's carrying amount is not recoverable within a reasonable period of time. To determine whether an impairment is other-than-temporary, we consider whether we have the intent to sell the impaired security or if it will be more likely than not that we will be required to sell the impaired security before a market price recovery and whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. We have determined that gross unrealized losses on short-term investments at September 30, 2011 are temporary in nature because each investment meets our investment policy and credit quality requirements. We have the ability and intent to hold these investments until they recover their unrealized losses, which may not occur until maturity. Evidence that we will recover the unrealized losses on these investments outweighs evidence to the contrary.

Our available-for-sale short-term investments as of September 30, 2011 and December 31, 2010 are as follows (in thousands):


	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
September 30, 2011
U.S. Government securities and sponsored entities	$	24,373	$	98	$	(15	)	$	24,456
Foreign government securities		2,900		—		—			2,900
Corporate debt securities		69,314		201		(177	)		69,338
Mortgage-backed securities – residential		8,715		24		(44	)		8,695

Total short-term investments	$	105,302	$	323	$	(236	)	$	105,389


December 31, 2010
U.S. Government securities and sponsored entities	$	26,635	$	89	$	(11	)	$	26,713
Corporate debt securities		64,825		300		(51	)		65,074
Mortgage-backed securities – residential		11,451		80		(18	)		11,513

Total short-term investments	$	102,911	$	469	$	(80	)	$	103,300

The fair value and duration that investments, including cash equivalents, have been in a gross unrealized loss position as of September 30, 2011 and December 31, 2010 are as follows (in thousands):


	Less than 12 Months					More than 12 Months					TOTAL
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2011
U.S. Government securities and sponsored entities	$	7,819	$	(15	)	$	—	$	—		$	7,819	$	(15	)
Corporate debt securities		22,700		(170	)		1,010		(7	)		23,710		(177	)
Mortgage-backed securities – residential		4,370		(39	)		215		(5	)		4,585		(44	)

Total	$	34,889	$	(224	)	$	1,225	$	(12	)	$	36,114	$	(236	)


December 31, 2010
U.S. Government securities and sponsored entities	$	8,839	$	(11	)	$	—	$	—		$	8,839	$	(11	)
Corporate debt securities		17,964		(51	)		—		—			17,964		(51	)
Mortgage-backed securities – residential		3,127		(16	)		72		(2	)		3,199		(18	)

Total	$	29,930	$	(78	)	$	72	$	(2	)	$	30,002	$	(80	)

Amortized cost and estimated fair value of investments at September 30, 2011 is summarized by maturity date as follows (in thousands):


	Amortized cost		Fair value
Mature in less than one year	$	46,916	$	46,954
Mature in one to three years		58,386		58,435

Total short-term investments	$	105,302	$	105,389

For the three months ended September 30, 2011 and 2010, net realized gains of $0 and $0.1 million, respectively, from sales of investments were recognized in interest and other income (expense), net. For the nine months ended September 30, 2011 and 2010, net realized gains of $0 and $0.4 million, respectively, from sales of investments were recognized in interest and other income (expense), net. As of September 30, 2011 and December 31, 2010, net unrealized gains (losses) of $0.1 and $0.4 million were included in OCI in the accompanying unaudited Condensed Consolidated Balance Sheets.

Fair Value Measurements

ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy as follows:

Level 1: Inputs that are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

Level 2: Inputs that are other than quoted prices included within Level 1, that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date for the duration of the instrument's anticipated life or by comparison to similar instruments; and

Level 3: Inputs that are unobservable or inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. These include management's own judgments about market participant assumptions developed based on the best information available in the circumstances.

We utilize the market approach to measure the fair value of our fixed income securities. The market approach is a valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The fair value of our fixed income securities are obtained using readily-available market prices from a variety of industry standard data providers, large financial institutions, and other third-party sources for the identical underlying securities. The fair value of our investments in certain money market funds is expected to maintain a Net Asset Value of $1 per share and, as such, is priced at the expected market price.

Our investments have been presented in accordance with the fair value hierarchy specified in ASC 820 as of September 30, 2011 and December 31, 2010 as follows (in thousands):


			Fair Value Measurements at Reporting Date using
			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
September 30, 2011
Assets:
U.S. Government securities and sponsored entities	$	24,483	$	9,317	$	15,166	$	—
Foreign Government securities		2,900		—		2,900		—
Corporate debt securities		74,011		—		73,964		47
Mortgage-backed securities – residential		8,695		—		8,695		—
Money market funds		37,027		37,027		—		—

	$	147,116	$	46,344	$	100,725	$	47

Liabilities:
Contingent consideration, current and noncurrent	$	6,306	$	—	$	—	$	6,306


December 31, 2010
Assets:
U.S. Government securities and sponsored entities	$	26,713	$	4,778	$	21,935	$	—
Foreign Government securities		2,500		—		2,500		—
Corporate debt securities		69,272		—		69,223		49
Mortgage-backed securities – residential		11,513		—		11,513		—
Money market funds		73,864		73,864		—		—

	$	183,862	$	78,642	$	105,171	$	49

Liabilities:
Contingent consideration, current and noncurrent	$	2,744	$	—	$	—	$	2,744

Money market funds consist of $37.0 and $73.9 million, which have been classified as cash equivalents as of September 30, 2011 and December 31, 2010, respectively. There are no foreign government securities classified as cash equivalents as of September 30, 2011 and $2.5 million is classified as cash equivalents as of December 31, 2010. Included in corporate debt securities is $4.7 and $4.2 million, which have been classified as cash equivalents as of September 30, 2011 and December 31, 2010, respectively.

Investments are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices or alternative pricing sources with reasonable levels of price transparency. Investments in U.S. Treasury obligations and overnight money market mutual funds have been classified as Level 1 because these securities are valued based upon quoted prices in active markets. Money market mutual funds are actively traded at $1 per share Net Asset Value. There have been no transfers between Level 1 and 2 during the nine months ended September 30, 2011 and 2010.

Government agency investments and corporate debt instruments, including investments in asset-backed and mortgage-backed securities, have generally been classified as Level 2 because markets for these securities are less active or valuations for such securities utilize significant inputs, which are directly or indirectly observable.

At September 30, 2011 and December 31, 2010, one corporate debt instrument has been classified as Level 3 due to its significantly low level of trading activity.

Investments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2011 and 2010 are reconciled as follows (in thousands):


	Level 3
	2011			2010
	Corporate Debt Securities			Corporate Debt Securities			Money Market Funds
Balance at January 1,	$	49		$	82		$	962
Included in interest and other income (expense), net		—			(8	)		33
Included in OCI		8			(5	)		—
Purchases, sales, and maturities		(10	)		(16	)		(995	)

Balance at September 30,	$	47		$	53		$	—


Impairment charges for the nine months ended September 30 included in other income (expense), net, attributable to assets still held as of September 30	$	—		$	—		$	—

Money market funds of $1.0 million at January 1, 2010, net of reserves, represented funds in The Reserve Primary Fund ("Fund") reclassified from cash and cash equivalents as the Fund had adopted a plan of liquidation. As a result, the Fund's shares were not tradable at January 1, 2010. Our interest in the Fund was $14.8 million prior to their adoption of the liquidation plan. We have received $14.6 million in liquidation of our interest in the Fund, net of reserves, which has been invested in alternative money market funds, all of which are highly liquid and currently tradable at $1 per share Net Asset Value. We have no remaining exposure to the Fund.

Our investments could suffer declines in fair value and become other-than-temporarily impaired. We continuously assess the fair value of individual securities as part of our ongoing portfolio management. Our other-than-temporary assessment includes reviewing the length of time and extent to which fair value has been less than amortized cost, the seniority and durations of the securities, adverse conditions related to a security, industry, or sector, historical and projected issuer financial performance, credit ratings, issuer specific news, and other available relevant information. Based on this analysis, there were no other-than-temporary impairments, including credit-related impairments, during the nine months ended September 30, 2011 and 2010.

In determining whether a credit loss existed, we used our best estimate of the present value of cash flows expected to be collected from each debt security. For asset-backed and mortgage-backed securities, cash flow estimates including prepayment assumptions rely on data from widely accepted third party data sources or internal estimates. In addition to prepayment assumptions, cash flow estimates vary based on assumptions regarding the underlying collateral including default rates, recoveries, and changes in value. Expected cash flows were discounted using the effective interest rate implicit in the securities.

Accumulated other-than-temporary credit-related impairments charged to retained earnings and other income (expense), net, consists of the following:


	Impairments Charged to Retained Earnings		Impairments Recognized in Other Income (Expense), Net		TOTAL
Accumulated impairments, net, attributable to assets still held at September 30, 2011	$	58	$	824	$	882

No other-than-temporary impairments have been recognized related to factors that are not credit-related. There has been no change in these impairment balances during 2011 or 2010.

Liabilities for Contingent Consideration

Level 3 liabilities consist of acquisition-related current and noncurrent liabilities for contingent consideration (i.e., earnouts) related to the acquisitions of Entrac, Streamline, and Golflane Limited, a U.K. private limited company, the parent holding company of Radius Solutions Incorporated ("Radius"), which was acquired on July 2, 2010. The fair value of these earnouts is estimated to be $6.3 and $2.7 million as of September 30, 2011 and December 31, 2010, respectively, by applying the income approach in accordance with ASC 805-30-25-5. Key assumptions include discount rates between 5.8% and 6.3% and probability-adjusted revenue levels. Probability-adjusted revenue is a significant input that is not observable in the market, which ASC 820-10-35 refers to as a Level 3 input. These contingent liabilities have been reflected in the Condensed Consolidated Balance Sheet as of September 30, 2011, as a current liability of $4.2 million and a noncurrent liability of $2.1 million.

Updated probability-adjusted revenue estimates indicate that the 2011 Radius earnout performance targets will be achieved. The 2010 Radius performance targets were achieved. Consequently, the fair value of the Radius earnout increased by $1.5 and $0.4 million as of September 30, 2011, and December 31, 2010, respectively. In accordance with ASC 805-30-35-1, changes in the fair value of contingent consideration subsequent to the acquisition date have been recognized in general and administrative expense.


Liabilities for Contingent Consideration
Fair value of Radius contingent consideration at July 2, 2010	$	2,350
Changes in valuation		394

Fair value at December 31, 2010	$	2,744

Fair value of Streamline contingent consideration at February 16, 2011		1,320
Fair value of Entrac contingent consideration at July 25, 2011		2,730
Changes in valuation		1,612
Less: Radius payment		(2,125	)

Fair value at September 30, 2011	$	6,281

Investment in Privately-Held Company

Other investments, included within other assets, consist of equity and debt investments in privately-held companies that develop products, markets, and services that are considered to be strategic to us. Each of these investments had been fully impaired in prior years. On September 1, 2011, we received the proceeds from the sale of one of these investments for $2.9 million.

Fair Value of Derivative Assets and Liabilities

Effective January 1, 2009, we adopted the provisions of ASC 820 regarding nonfinancial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a nonrecurring basis. The adoption of these provisions did not materially impact our financial position or results of operations.

We utilize the income approach to measure the fair value of our derivative assets and liabilities. The income approach uses pricing models that rely on market observable inputs such as yield curves, currency exchange rates, and forward prices, which are defined as Level 2 measurements. The fair value of our derivative assets and liabilities having notional amounts of $4.2 and $2.5 million at September 30, 2011 and December 31, 2010, respectively, was not material.