Fair Value Of Financial Instruments

9 Months Ended

Sep. 30, 2014

Fair Value of Financial Instruments

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013:



			Fair Value Measurement Using
	Total Fair Value		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
As of September 30, 2014:
Assets:
Investments in money market funds	$	161,942	$	161,942	$	—	$	—
Debt securities issued by the U.S. Treasury	1,248,969		1,248,969		—		—
Foreign currency forward contracts (1)	229		—		229		—
Total	$	1,411,140	$	1,410,911	$	229	$	—
Liabilities:
Contingent interest derivative on the Subordinated Convertible Debentures	$	25,051	$	—	$	—	$	25,051
Foreign currency forward contracts (2)	333		—		333		—
Total	$	25,384	$	—	$	333	$	25,051
As of December 31, 2013:
Assets:
Investments in money market funds	$	246,492	$	246,492	$	—	$	—
Debt securities issued by the U.S. Treasury	1,409,062		1,409,062		—		—
Foreign currency forward contracts (1)	141		—		141		—
Total	$	1,655,695	$	1,655,554	$	141	$	—
Liabilities:
Contingent interest derivative on the Subordinated Convertible Debentures	$	29,004	$	—	$	—	$	29,004
Foreign currency forward contracts (2)	131		—		131		—
Total	$	29,135	$	—	$	131	$	29,004


(1)	Included in Income taxes receivable and other current assets


(2)	Included in Accounts payable and accrued liabilities

The fair value of the Company’s investments in money market funds approximates their face value. Such instruments are classified as Level 1 and are included in Cash and cash equivalents.

The fair value of the debt securities consisting of U.S. Treasury bills is based on their quoted market prices and are classified as Level 1. Debt securities purchased with original maturities in excess of three months are included in Marketable securities.

The fair value of the Company’s foreign currency forward contracts is based on foreign currency rates quoted by banks or foreign currency dealers and other public data sources.

The Company utilizes a valuation model to estimate the fair value of the contingent interest derivative on the subordinated convertible debentures due 2037 (“the Subordinated Convertible Debentures”). The inputs to the model include stock price, bond price, risk free interest rates, volatility, and credit spread observations. As several significant inputs are not observable, the overall fair value measurement of the derivative is classified as Level 3. The volatility and credit spread assumptions used in the calculation are the most significant unobservable inputs. As of September 30, 2014, the valuation of the contingent interest derivative assumed a volatility rate of approximately 32%. A hypothetical 5% increase or decrease in the volatility rate would not significantly change the fair value of the contingent interest derivative. The credit spread assumed in the valuation was approximately 4% at September 30, 2014. A hypothetical 1% increase or decrease in the credit spread would not significantly change the fair value of the contingent interest derivative.

The following table summarizes the change in the fair value of the Company’s contingent interest derivative on the Subordinated Convertible Debentures during the three and nine months ended September 30, 2014 and 2013:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014			2013
	(In thousands)
Beginning balance	$	18,489	$	15,640	$	29,004		$	11,203
Unrealized loss (gain)	6,562		5,286		(3,953		)	9,723
Ending balance	$	25,051	$	20,926	$	25,051		$	20,926

On August 14, 2014, the upside trigger on the Subordinated Convertible Debentures was met for the six month interest period from August 15, 2014 through February 14, 2015. On February 15, 2015, the Company will pay contingent interest of $5.2 million in addition to the normal coupon interest to holders of record of the Subordinated Convertible Debentures as of February 1, 2015. The value of the contingent interest payable in February 2015 is included in the balance of the contingent interest derivative on the Subordinated Convertible Debentures as of September 30, 2014.

Other

The Company’s other financial instruments include cash, accounts receivable, restricted cash, and accounts payable. As of September 30, 2014, the carrying value of these financial instruments approximated their fair value. The fair values of the Company’s Subordinated Convertible Debentures and the senior notes due 2023 (the “Senior Notes”) as of September 30, 2014, are $2.1 billion and $742.5 million, respectively, and are based on available market information from public data sources. These fair value measurements are classified as Level 2.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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