Value of Financial Instruments. The Company’s estimate of fair value for assets and liabilities is based on a framework that establishes a hierarchy of the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect our significant market assumptions. The three levels of the hierarchy are as follows:
Value of Financial Instruments. The carrying amounts of financial instruments, including cash and cash equivalents, short-term investments, receivables, accrued expenses, and accounts payable, approximated fair value as of December 31, 2010 and 2009 because of the relatively short duration of these instruments. Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three to seven years. Leasehold improvements and assets held under capital leases are depreciated over the estimated useful life of the asset or the term of the lease, whichever is shorter. Significant additions or improvements extending the useful life of an asset are capitalized; maintenance and repair costs are expensed as incurred. At the time property and equipment are sold or retired, the cost of the asset and the related accumulated depreciation are removed from their respective accounts and any gains or losses are included in the statements of operations.
Value of Financial Instruments. SFAS No. 107 requires disclosures about the fair value for all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about fair value of financial instruments is based on pertinent information available to management as of December 31, 1998. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Management estimates the fair value of (i) accounts receivable, accounts payable and accrued expenses approximate carrying value due to the relatively short maturity of these instruments; (ii) the notes receivable approximate carrying value based upon effective borrowing rates for issuance of debt with similar terms and remaining maturities; and (iii) the borrowings under the Credit Facility, Term Loan and various other mortgage notes approximate carrying value because these borrowings accrue interest at floating interest rates based on market or accrue interest at fixed rates which approximate market rates. Patriot manages its debt portfolio by using interest rate caps and swaps to achieve an overall desired position of fixed and floating rates. The fair value of interest rate hedge contracts is estimated based on quotes from the market makers of these instruments and represents the estimated amounts that Patriot would expect to receive or pay to terminate the contracts. Credit and market risk exposures are limited to the net interest differentials. The estimated unrealized loss on the interest rate swaps was approximately $24,836 at December 31, 1998, which represents the amount Patriot would pay to terminate the swap agreements based upon current market rates. The fair value of the interest rate cap agreements is based upon quoted market prices and approximated $144 at December 31, 1998.
