FAIR VALUE OF FINANCIAL INSTRUMENTS
The accounting guidance for fair value measurements and disclosures provides a single definition of fair value and requires certain disclosures about assets and liabilities measured at fair value. A hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value is established by this guidance. The three levels in the hierarchy are described in Note 11 of the Notes to Consolidated Financial Statements.
Specific valuation methods include the following:
Cash, accounts receivable, short-term borrowings, and accounts payable carrying amounts approximated the fair value because of the short-term maturity of the instruments.
Long-term debt fair values were estimated using the published quoted market price, if available, or the discounted cash flow analysis, based on the current rates available using a risk-free rate (a U.S. Treasury securities yield curve) plus a risk premium of 1.0%.
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| | December 31, 2025 |
| | | | Fair Value |
| | Cost | | Level 1 | | Level 2 | | Level 3 | | Total |
| Long-term debt, including current maturities, net | $ | 1,474,238 | | | $ | — | | | $ | 1,284,272 | | | $ | — | | | $ | 1,284,272 | |
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| | December 31, 2024 |
| | | | Fair Value |
| | Cost | | Level 1 | | Level 2 | | Level 3 | | Total |
| Long-term debt, including current maturities, net | $ | 1,176,993 | | | $ | — | | | $ | 998,401 | | | $ | — | | | $ | 998,401 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.