5. FINANCIAL INSTRUMENTS

Investments consist of the following as of September 30, 2016 and December 31, 2015 (dollars in thousands):

	September 30, 2016
			Gross Unrealized
	Cost		Gain		(Loss)			Fair Value
Short-term investments (available for sale):
Municipal bonds	$	2,250	$	-	$	-		$	2,250
Non-governmental debt securities		108,987		37		(67	)		108,957
Treasury and federal agencies		39,946		23		(23	)		39,946
Total short-term investments		151,183		60		(90	)		151,153
Restricted short-term investments (available for sale):
Non-governmental debt securities		9,597		-		-			9,597
Total investments (available for sale)	$	160,780	$	60	$	(90	)	$	160,750

	December 31, 2015
			Gross Unrealized
	Cost		Gain		(Loss)			Fair Value
Short-term investments (available for sale):
Municipal bonds	$	1,500	$	-	$	(11	)	$	1,489
Non-governmental debt securities		76,999		-		(242	)		76,757
Treasury and federal agencies		36,779		3		(127	)		36,655
Total short-term investments		115,278		3		(380	)		114,901
Long-term investments (available for sale):
Municipal bond		7,850		-		(476	)		7,374
Total investments (available for sale)	$	123,128	$	3	$	(856	)	$	122,275

In the table above, unrealized holding gains (losses) as of September 30, 2016 relate to short-term investments that have been in a continuous unrealized gain (loss) position for less than one year.

Our unrestricted non-governmental debt securities primarily consist of corporate bonds and commercial paper. Our treasury and federal agencies primarily consist of U.S. Treasury bills and federal home loan debt securities. We do not intend to sell our investments in these securities and it is not likely that we will be required to sell these investments before recovery of the amortized cost basis.

Our restricted short-term investments are comprised entirely of certificates of deposit, which secure our letters of credit. Prior to the second quarter of 2016, these funds were held as cash by the letter of credit issuer and reported by the Company as restricted cash on our condensed consolidated balance sheets.

During the third quarter of 2016, our long-term municipal bond investment was called by the issuer at face value. The cumulative unrealized loss of $0.5 million was subsequently reversed out of accumulated other comprehensive loss, a component of stockholders’ equity during the current year quarter.

Fair Value Measurements

FASB ASC Topic 820 – Fair Value Measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of September 30, 2016, we held investments that are required to be measured at fair value on a recurring basis. These investments (available-for-sale) consist of municipal bonds, non-governmental debt securities, and treasury and federal agencies securities. Available for sale securities included in Level 1 are valued at quoted prices in active markets for identical assets and liabilities. Available for sale securities included in Level 2 are estimated based on observable inputs other than quoted prices in active markets for identical assets and liabilities, such as quoted prices for identical or similar assets or liabilities in inactive markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Investments measured at fair value on a recurring basis subject to the disclosure requirements of FASB ASC Topic 820 – Fair Value Measurements at September 30, 2016 and December 31, 2015 were as follows (dollars in thousands):

	As of September 30, 2016
	Level 1		Level 2		Level 3		Total
Municipal bonds	$	-	$	2,250	$	-	$	2,250
Non-governmental debt securities		35,368		83,186		-		118,554
Treasury and federal agencies		-		39,946		-		39,946
Totals	$	35,368	$	125,382	$	-	$	160,750

	As of December 31, 2015
	Level 1		Level 2		Level 3		Total
Municipal bonds	$	-	$	1,489	$	7,374	$	8,863
Non-governmental debt securities		-		76,757		-		76,757
Treasury and federal agencies		-		36,655		-		36,655
Totals	$	-	$	114,901	$	7,374	$	122,275

Equity Method Investment

Our investment in an equity affiliate, which is recorded within other noncurrent assets on our condensed consolidated balance sheets, represents an international investment in a private company. As of September 30, 2016, our investment in an equity affiliate equated to a 30.7%, or $3.3 million, non-controlling interest in CCKF, a Dublin-based educational technology company providing intelligent adaptive systems to power the delivery of individualized and personalized learning.

During the quarters ended September 30, 2016 and 2015, we recorded approximately $0.2 million and less than $0.1 million of loss, respectively, and during the years to date ended September 30, 2016 and September 30, 2015, we recorded approximately $1.0 million and $0.2 million of loss, respectively, related to our proportionate investment in CCKF within miscellaneous (expense) income on our unaudited condensed consolidated statements of (loss) income and comprehensive (loss) income.

We make periodic operating maintenance payments for our use of intellipath^TM. The total fees paid to CCKF for the quarters and years to date ended September 30, 2016 and 2015 were as follows (dollars in thousands):

	Maintenance Fee Payments
For the quarter ended September 30, 2016	$	340
For the quarter ended September 30, 2015	$	337
For the year to date ended September 30, 2016	$	1,027
For the year to date ended September 30, 2015	$	1,036

Credit Agreement

During the fourth quarter of 2015, the Company; its wholly-owned subsidiary, CEC Educational Services, LLC (“CEC-ES”); and the subsidiary guarantors thereunder entered into a Fourth Amendment to its Amended and Restated Credit Agreement dated as of December 30, 2013 (as amended, the “Credit Agreement”) with BMO Harris Bank N.A., in its capacities as the initial lender and letter of credit issuer thereunder and the administrative agent for the lenders which from time to time may be parties to the Credit Agreement, to among other things, decrease the revolving credit facility to $95.0 million and require pre-approval by the lenders for each credit extension (other than letter of credit extensions) occurring after December 31, 2015. The revolving credit facility under the Credit Agreement is scheduled to mature on December 31, 2018. The loans and letter of credit obligations under the Credit Agreement are required to be secured by 100% cash collateral. As of September 30, 2016, there were no outstanding borrowings under the revolving credit facility.