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Fair Value Measurements
9 Months Ended
Sep. 30, 2011
Fair Value Disclosures [Abstract] 
Fair Value Measurements
Fair Value Measurements:
The Company follows the provisions of ASC 820 (Topic 820, “Fair Value Measurements and Disclosures”) which establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as follows:
 
•
Level 1 - Unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.
•
Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.
•
Level 3 - Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use.
ASC 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation. The Company’s financial assets and liabilities measured at fair value on a recurring basis include cash and cash equivalents, short and long-term investments securities and derivative financial instruments.
 
Included in the Company’s cash equivalents are investments in money market funds consisting of U.S. Treasury securities with an original maturity of 90 days or less. Included in the Company’s short-term investments are securities classified as available-for-sale, which are stated at fair value. These securities include U.S. Treasury securities with an original maturity of over 90 days. Fair value is determined based on observable quotes from banks and unadjusted quoted market prices from identical securities in an active market at the reporting date. Significant inputs to the valuation are observable in the active markets and are classified as Level 1 in the hierarchy.
Included in the Company’s long-term investments are certain auction rate securities, some of which are secured by collateralized debt obligations with a portion of the underlying collateral being mortgage securities or related to mortgage securities. Due to the lack of availability of observable market quotes on the Company’s investment portfolio of auction rate securities, the fair value was estimated based on valuation models that rely exclusively on unobservable Level 3 inputs including those that are based on expected cash flow streams and collateral values, including assessments of counterparty credit quality, default risk underlying the security, discount rates and overall capital market liquidity. The valuation of the Company’s investment portfolio is subject to uncertainties that are difficult to predict. Factors that may impact the Company’s valuation include changes to credit ratings of the securities as well as the underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral values, discount rates, counterparty risk and ongoing strength and quality of market credit and liquidity. Significant inputs to the investments valuation are unobservable in the active markets and are classified as Level 3 in the hierarchy.
Included in the Company’s derivative financial instruments are interest rate swaps. Derivative financial instruments are valued in the market using discounted cash flow techniques. These techniques incorporate Level 1 and Level 2 inputs such as interest rates. These market inputs are utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation for interest rate swaps are observable in the active markets and are classified as Level 2 in the hierarchy.
The following table summarizes assets and liabilities measured at fair value on a recurring basis at September 30, 2011, as required by ASC 820 (in thousands):
 
 
Fair Value Measurements
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Cash equivalents
 
$
1,713,379

 
$
—

 
$
—

 
$
1,713,379

Short-term investments
 
299,981

 
—

 
—

 
299,981

Restricted cash and investments
 
2,576

 
—

 
—

 
2,576

Long-term investments
 
—

 
—

 
6,319

 
6,319

Total assets measured at fair value
 
$
2,015,936

 
$
—

 
$
6,319

 
$
2,022,255

Liabilities
 

 

 

 

Derivative liabilities
 
$
—

 
$
26,901

 
$
—

 
$
26,901

Total liabilities measured at fair value
 
$
—

 
$
26,901

 
$
—

 
$
26,901

 
The following table summarizes assets and liabilities measured at fair value on a recurring basis at December 31, 2010, as required by ASC 820 (in thousands):
 
 
Fair Value Measurements
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Cash equivalents
 
$
787,829

 
$
—

 
$
—

 
$
787,829

Short-term investments
 
374,862

 
—

 
—

 
374,862

Restricted cash and investments
 
2,876

 
—

 
—

 
2,876

Long-term investments
 
—

 
—

 
6,319

 
6,319

Derivative assets
 
—

 
10,381

 
—

 
10,381

Total assets measured at fair value
 
$
1,165,567

 
$
10,381

 
$
6,319

 
$
1,182,267

Liabilities
 

 

 

 

Derivative liabilities
 
$
—

 
$
18,690

 
$
—

 
$
18,690

Total liabilities measured at fair value
 
$
—

 
$
18,690

 
$
—

 
$
18,690


The following table summarizes the changes in fair value of the Company’s net derivative liabilities included in Level 2 assets (in thousands):
Fair Value Measurements of Net Derivative Liabilities Using Level 2 Inputs
 
Net Derivative Liabilities
 
 
Three Months Ended September 30,
 
 
2011
 
2010
Beginning balance
 
$
18,249

 
$
22,273

Total losses (realized or unrealized):
 

 

Included in earnings (1)
 
6,424

 
4,663

Included in accumulated other comprehensive income (loss)
 
(15,076
)
 
(5,591
)
Transfers in and/or out of Level 2
 
—

 
—

Purchases, sales, issuances and settlements
 
—

 
—

Ending balance
 
$
26,901

 
$
23,201

 ————————————
(1)
Losses included in earnings that are attributable to the reclassification of the effective portion of those derivative liabilities still held at the reporting date as reported in interest expense in the condensed consolidated statements of income and comprehensive income.

Fair Value Measurements of Net Derivative Liabilities Using Level 2 Inputs
 
Net Derivative Liabilities
 
 
Nine Months Ended September 30,
 
 
2011
 
2010
Beginning balance
 
$
8,309

 
$
24,859

Total losses (realized or unrealized):
 

 

Included in earnings (2)
 
17,182

 
23,904

Included in accumulated other comprehensive income (loss)
 
(35,774
)
 
(22,246
)
Transfers in and/or out of Level 2
 
—

 
—

Purchases, sales, issuances and settlements
 
—

 
—

Ending balance
 
$
26,901

 
$
23,201

 ————————————
(2)
Losses included in earnings that are attributable to the reclassification of the effective portion of those derivative liabilities still held at the reporting date as reported in interest expense in the condensed consolidated statements of income and comprehensive income.
The following table summarizes the changes in fair value of the Company’s Level 3 assets (in thousands):
Fair Value Measurements of Assets Using Level 3 Inputs
 
Long-Term Investments
 
 
Three Months Ended September 30,
 
 
2011
 
2010
Beginning balance
 
$
6,319

 
$
6,319

Total losses (realized or unrealized):
 

 

Included in earnings
 
—

 
—

Included in accumulated other comprehensive income (loss)
 
—

 
—

Transfers in and/or out of Level 3
 
—

 
—

Purchases, sales, issuances and settlements
 
—

 
—

Ending balance
 
$
6,319

 
$
6,319


Fair Value Measurements of Assets Using Level 3 Inputs
 
Long-Term Investments
 
 
Nine Months Ended September 30,
 
 
2011
 
2010
Beginning balance
 
$
6,319

 
$
6,319

Total losses (realized or unrealized):
 

 

Included in earnings
 
—

 
—

Included in accumulated other comprehensive income (loss)
 
—

 
—

Transfers in and/or out of Level 3
 
—

 
—

Purchases, sales, issuances and settlements
 
—

 
—

Ending balance
 
$
6,319

 
$
6,319


The carrying value of the Company’s financial instruments, with the exception of long-term debt including current maturities, reasonably approximate the related fair values as of September 30, 2011 and December 31, 2010. The fair value of the Company’s long-term debt, excluding capital lease obligations, is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. As of September 30, 2011, the carrying value and fair value of long-term debt, including current maturities, were $4.5 billion and approximately $4.2 billion, respectively. As of December 31, 2010, the carrying value and fair value of long-term debt, including current maturities, were $3.5 billion and $3.5 billion, respectively.
 
Although the Company has determined the estimated fair value amounts using available market information and commonly accepted valuation methodologies, considerable judgment is required in interpreting market data to develop fair value estimates. The fair value estimates are based on information available at September 30, 2011 and December 31, 2010 and have not been revalued since those dates. As such, the Company’s estimates are not necessarily indicative of the amount that the Company, or holders of the instruments, could realize in a current market exchange and current estimates of fair value could differ significantly.