FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2012

FAIR VALUE MEASUREMENTS

12. FAIR VALUE MEASUREMENTS

The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. These tiers include: Level 1, defined as quoted market prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3, defined as unobservable inputs that are not corroborated by market data.

The Company’s financial assets and liabilities recorded at fair value on a recurring basis include derivative instruments and restricted assets. The Company’s derivative instruments are pay-fixed, receive-variable interest rate swaps and pay-fixed, receive-variable diesel fuel hedges. The Company’s interest rate swaps are recorded at their estimated fair values based on quotes received from financial institutions that trade these contracts. The Company verifies the reasonableness of these quotes using similar quotes from another financial institution as of each date for which financial statements are prepared. The Company uses a discounted cash flow (“DCF”) model to determine the estimated fair values of the diesel fuel hedges. The assumptions used in preparing the DCF model include: (i) estimates for the forward DOE index curve; and (ii) the discount rate based on risk-free interest rates over the term of the agreements. The DOE index curve used in the DCF model was obtained from financial institutions that trade these contracts and ranged from $3.75 to $4.12 at September 30, 2012. The weighted average DOE index curve used in the DCF model was $3.86 at September 30, 2012. Significant increases (decreases) in the forward DOE index curve would result in a significantly higher (lower) fair value measurement. For the Company’s interest rate swaps and fuel hedges, the Company also considers the Company’s creditworthiness in its determination of the fair value measurement of these instruments in a net liability position and the banks’ creditworthiness in its determination of the fair value measurement of these instruments in a net asset position. The Company’s restricted assets are valued at quoted market prices in active markets for identical assets, which the Company receives from the financial institutions that hold such investments on its behalf. The Company’s restricted assets measured at fair value are invested primarily in U.S. government and agency securities.

The Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2012 and December 31, 2011, were as follows:

	Fair Value Measurement at September 30, 2012 Using
	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Interest rate swap derivative instruments – net liability position	$	(12,441	)	$	—	$	(12,441	)	$	—
Fuel hedge derivative instruments – net asset position	$	2,634		$	—	$	—		$	2,634
Restricted assets	$	31,599		$	31,599	$	—		$	—

	Fair Value Measurement at December 31, 2011 Using
	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Interest rate swap derivative instruments – net liability position	$	(9,118	)	$	—	$	(9,118	)	$	—
Fuel hedge derivative instruments – net asset position	$	3,506		$	—	$	—		$	3,506
Restricted assets	$	30,728		$	30,728	$	—		$	—

The following table summarizes the change in the fair value for Level 3 derivatives for the nine months ended September 30, 2012:

	Level 3 Derivatives
Balance as of December 31, 2011	$	3,506
Realized gains included in earnings		(3,327	)
Unrealized gains included in AOCL		2,455
Balance as of September 30, 2012	$	2,634

The following table summarizes the change in the fair value for Level 3 derivatives for the nine months ended September 30, 2011:

	Level 3 Derivatives
Balance as of December 31, 2010	$	4,730
Realized gains included in earnings		(3,189	)
Unrealized gains included in AOCL		2,882
Balance as of September 30, 2011	$	4,423