FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2012

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

Financial Assets

ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value and requires a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value based on the quality and reliability of the inputs or assumptions used in fair value measurements. 

The Company’s Level 1 securities primarily consist of U.S. Treasury securities and cash. The Company determines the estimated fair value for its Level 1 securities using quoted (unadjusted) prices for identical assets or liabilities in active markets. 

The Company’s Level 2 securities primarily consist of government-sponsored enterprise securities, state and municipal bonds, mortgage-backed securities, asset-backed securities, corporate debt and money market funds. The Company determines the estimated fair value for its Level 2 securities using the following methods: quoted prices for similar assets/liabilities in active markets, quoted prices for identical or similar assets in non-active markets (few transactions, limited information, non-current prices and high variability over time), inputs other than quoted prices that are observable for the asset/liability (e.g., interest rates, yield curves, volatilities and default rates, among others), and inputs that are derived principally from or corroborated by other observable market data. 

For the Company’s Level 2 assets, the following inputs and valuation techniques were utilized in determining the fair value of its financial instruments: 

Cash Equivalents:  Level 2 cash equivalents are valued using inputs that are principally from, or corroborated by, observable market data, primarily quoted prices for like or similar assets. 

Government-Sponsored Enterprises:  These securities primarily consist of bonds issued by government-sponsored enterprises, such as the Federal Home Loan Bank, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.  The fair value of government-sponsored enterprises is based upon observable market inputs such as quoted prices for like or similar assets, benchmark yields, reported trades and credit spreads. 

State and Municipal Bonds, Corporate Debt and Other Securities:  The fair value of the Company’s debt securities is determined by observable market inputs which include quoted prices for identical or similar assets that are traded in an active market, benchmark yields, new issuances, issuer ratings, reported trades of comparable securities and credit spreads. 

Residential and Commercial Mortgage-Backed Securities and Asset-Backed Securities:  The fair value of these securities is determined either by observable market inputs, which include quoted prices for identical or similar assets that are traded in an active market, or by a cash flow model which utilizes the following inputs:  benchmark yields, prepayment speeds, collateral performance, credit spreads and default rates that are observable at commonly quoted intervals. 

The Company no longer has Level 3 securities. During the quarter ended March 31, 2011, the Company transferred all Level 3 securities to Level 2.  Prior to March 31, 2011, the Company’s Level 3 securities primarily consisted of corporate financial holdings, mortgage-backed securities and asset-backed securities that were thinly traded due to market volatility and lack of liquidity.  The Company determined the estimated fair value for its Level 3 securities using unobservable inputs that could not be corroborated by observable market data; including, but not limited to, broker quotes, default rates, benchmark yields, credit spreads and prepayment speeds. The transfer from Level 3 to Level 2 resulted from increased trading activity of these securities and, therefore, a transition from unobservable inputs to inputs corroborated by observable market data or transactions.

The Company obtains one price for each security from an independent third-party valuation service provider, which uses quoted or other observable inputs for the determination of fair value as noted above.  As the Company is responsible for the determination of fair value, the Company performs quarterly analyses on the prices received from the third-party provider to determine whether the prices are reasonable estimates of fair value. 

The following table presents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis at December 31, 2012 and 2011 (in thousands): 

			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
At December 31, 2012	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	1,399,162	$	1,218,046	$	181,116	$	—
State and municipal bonds	1,253,789		—		1,253,789		—
U.S. Treasury securities	78,931		78,931		—		—
Government-sponsored enterprise securities	73,532		—		73,532		—
Residential mortgage-backed securities	312,641		—		312,641		—
Commercial mortgage-backed securities	21,590		—		21,590		—
Asset-backed securities	23,626		—		23,626		—
Corporate debt and other securities	991,610		—		991,610		—
Total	$	4,154,881	$	1,296,977	$	2,857,904	$	—

			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
At December 31, 2011	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	1,579,003	$	1,449,883	$	129,120	$	—
State and municipal bonds	1,032,954		—		1,032,954		—
U.S. Treasury securities	91,340		91,340		—		—
Government-sponsored enterprise securities	143,278		—		143,278		—
Residential mortgage-backed securities	368,798		—		368,798		—
Commercial mortgage-backed securities	14,825		—		14,825		—
Asset-backed securities	13,504		—		13,504		—
Corporate debt and other securities	1,065,500		11,598		1,053,902		—
Total	$	4,309,202	$	1,552,821	$	2,756,381	$	—

Transfers between levels, if any, are recorded as of the end of the reporting period. During the years ended December 31, 2012 and December 31, 2011, there were no transfers between Level 1 and Level 2. During the year ended December 31, 2012, there were no transfers to (from) Level 3 and, accordingly, a table summarizing changes in fair value of the Company’s financial assets for that period is not presented. The following table provides a summary of changes in the fair value of the Company’s Level 3 financial assets for the year ended December 31, 2011 (in thousands): 

Year Ended December 31, 2011	Total Level 3			Mortgage-backed securities			Asset-backed securities			Corporate and other
Beginning Balance, January 1, 2011	$	1,077		$	220		$	127		$	730
Transfers to (from) Level 3 (1)	(856		)	(258		)	(119		)	(479		)
Total gains or losses (realized / unrealized)
Included in earnings	107			16			7			84
Included in other comprehensive  income	(55		)	38			(8		)	(85		)
Purchases, issuances, sales and settlements
Purchases	—			—			—			—
Issuances	—			—			—			—
Sales	(273		)	(16		)	(7		)	(250		)
Settlements	—			—			—			—
Ending Balance, December 31, 2011	$	—		$	—		$	—		$	—

⁽¹⁾  The Company no longer relied upon broker quotes or other models involving unobservable inputs to value these securities, as there were sufficient observable inputs (e.g., trading activity) to validate the reported fair value.  As a result, the Company transferred all securities from Level 3 to Level 2 during the year ended December 31, 2011.

Financial Liabilities

The Company’s fair value of publicly-traded debt (senior notes) is based on Level 2 inputs, including quoted market prices for the same or a similar debt or, if no quoted market prices are available, on the current market observable rates estimated to be available to the Company for debt of similar terms and remaining maturities.  The carrying value of the senior notes (including the long-term and current portions) was $1.59 billion at December 31, 2012 and $1.82 billion at December 31, 2011.  The estimated fair value of the Company’s senior notes (including the long-term and current portions) was $1.81 billion at December 31, 2012 and $1.99 billion at December 31, 2011. 

The carrying value of the revolving credit facility approximates the fair value due to the short maturity dates of the draws.  The Company had no outstanding borrowings under its current credit facility at December 31, 2012 or 2011.