Fair value of financial instruments

9 Months Ended

Sep. 30, 2012

Fair value of financial instruments

Fair value of financial instruments

3.     Fair value of financial instruments

FASB accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (“the exit price”) in an orderly transaction between market participants at the measurement date. The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value we use quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

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

Level 2—Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.

Level 3—Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement.

Our marketable securities consist of investments in corporate debt securities, U.S. Treasury notes, and other U.S. government agency and non-agency mortgage-backed securities that are classified as available-for-sale.

At September 30, 2012 and December 31, 2011, our Level 2 mortgage-backed securities are valued using readily available pricing sources which utilize market observable inputs, including the current interest rate and other characteristics for similar types of instruments.

Restricted cash and investments primarily consist of amounts held in escrow for interest payments on our 4.75% Convertible Senior Notes due 2015 (the “4.75% Senior Notes”) through October 2012. The restricted investments consist of U.S. Treasury notes.

The following fair value hierarchy table presents information about each major category of our financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 (in thousands):

	Fair value measurement at reporting date using:
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Balance as of September 30, 2012
Cash and cash equivalents	$	239,083	$	—	$	—	$	239,083
Mortgage-backed securities	—		4,516		—		4,516
Restricted cash and investments	9,500		—		—		9,500
Total assets	$	248,583	$	4,516	$	—	$	253,099

The following fair value hierarchy table presents information about each major category of our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 (in thousands):

	Fair value measurement at reporting date using:
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Balance as of December 31, 2011
Cash and cash equivalents	$	273,164	$	—	$	—	$	273,164
Mortgage-backed securities	—		4,430		—		4,430
Restricted cash and investments	19,294		—		—		19,294
Total assets	$	292,458	$	4,430	$	—	$	296,888

The following is a summary of our marketable security portfolio as of September 30, 2012 and December 31, 2011, respectively.

	Amortized Cost		Net Unrealized Gains		Net Unrealized Losses		Estimated Fair Value
	(in thousands)
September 30, 2012
Mortgage-backed securities	$	2,697	$	1,819	$	—	$	4,516
	$	2,697	$	1,819	$	—	$	4,516
December 31, 2011
Mortgage-backed securities	$	3,343	$	1,087	$	—	$	4,430
	$	3,343	$	1,087	$	—	$	4,430

Because of the potential for prepayment on mortgage-backed securities, they are not categorized by contractual maturity.