Fair Value Measurements

9 Months Ended

Sep. 30, 2013

4. Fair Value Measurements

ASC Topic 820, Fair Value Measurement (ASC 820) clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term for the assets or liabilities; and

Level 3 — Unobservable inputs for which there is little or no market data and that are significant to the fair value of the assets or liabilities.

The tables below present the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012:

	Fair Value Measurements as of September 30, 2013
	Total		Level 1		Level 2		Level 3
	(in thousands)
Cash equivalents	$	303,816	$	303,816	$	—	$	—
Restricted cash	21,000		21,000		—		—
Fuel derivative contracts	6,717		—		6,717		—
Foreign currency derivatives	4,856		—		4,856		—
Interest rate derivative	457		—		457		—
Total assets measured at fair value	$	336,846	$	324,816	$	12,030	$	—

Fuel derivative contracts	$	736	$	—	$	736	$	—
Foreign currency derivatives	2,675		—		2,675		—
Negative arbitrage derivative	12,865		—		—		12,865
Total liabilities measured at fair value	$	16,276	$	—	$	3,411	$	12,865

	Fair Value Measurements as of December 31, 2012
	Total		Level 1		Level 2		Level 3
	(in thousands)
Cash equivalents	$	304,159	$	304,159	$	—	$	—
Fuel derivative contracts	13,094		—		13,094		—
Total assets measured at fair value	$	317,253	$	304,159	$	13,094	$	—

Fuel derivative contracts	$	397	$	—	$	397	$	—
Total liabilities measured at fair value	$	397	$	—	$	397	$	—

Cash equivalents and restricted cash. The Company’s cash equivalents and restricted cash consist of money market securities, which are classified as Level 1 investments and are valued using inputs observable in markets for identical securities.

Fuel derivative contracts. The Company’s fuel derivative contracts consist of Brent crude oil call options and collars (a combination of purchased call options and sold put options of crude oil) which are not traded on a public exchange. The fair value of these instruments is determined based on inputs available or derived from public markets including contractual terms, market prices, yield curves and measures of volatility among others.

Foreign currency derivatives. The Company’s foreign currency derivatives consist of Japanese Yen, Korean Won, Australian Dollar and New Zealand Dollar forward contracts and are valued based primarily on data available or derived from public markets.

Interest rate derivative. The Company’s interest rate derivative consists of an interest rate swap and is valued based primarily on data available or derived from public markets.

Negative arbitrage derivative. The Company’s negative arbitrage derivative represents the net interest owed to the trusts that issued the Company’s enhanced equipment trust certificates during the periods prior to the issuance of the related equipment notes, and is valued based primarily on the discounted amount of future cash flows using the appropriate rate of borrowing. Changes to those discount rates would be unlikely to cause material changes in the fair value of the negative interest arbitrage derivative (refer to Notes 5 and 9 for more information). The table below presents disclosures about the activity for the Company’s “Level 3” financial liability:

	Three Months		Nine Months
	Ended		Ended
	September 30, 2013		September 30, 2013
	(in thousands)
Beginning balance	$	12,865	$	—
Enhanced equipment trust certificates activity	—		12,865
Ending balance	$	12,865	$	12,865

The table below presents the Company’s debt (excluding obligations under capital leases) measured at fair value as of September 30, 2013 and December 31, 2012:

Fair Value of Debt
September 30, 2013										December 31, 2012
Carrying		Fair Value								Carrying		Fair Value
Amount		Total		Level 1		Level 2		Level 3		Amount		Total		Level 1		Level 2		Level 3
		(in thousands)										(in thousands)
$	649,976	$	655,093	$	—	$	88,517	$	566,576	$	554,568	$	547,943	$	—	$	81,091	$	466,852

The fair value estimates of the Company’s debt were based on either market prices or the discounted amount of future cash flows using the Company’s current incremental rate of borrowing for similar liabilities.

The carrying amounts of cash, other receivables and accounts payable approximate their fair value due to its short-term nature.

- 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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