Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE

 v2.3.0.11
FAIR VALUE
6 Months Ended
Jun. 30, 2011
FAIR VALUE  
FAIR VALUE

9. FAIR VALUE

        The fair values of financial instruments were as follows (dollars in millions):

 
  June 30, 2011   December 31, 2010  
 
  Carrying
Amount
  Estimated
Fair Value
  Carrying
Amount
  Estimated
Fair Value
 

Non-qualified employee benefit plan investments

  $ 12   $ 12   $ 11   $ 11  

Cross-currency interest rate contracts

    (5 )   (5 )   19     19  

Interest rate contracts

    (12 )   (12 )   (9 )   (9 )

Long-term debt (including current portion)

    (4,175 )   (4,372 )   (4,146 )   (4,371 )

        The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of nonqualified employee benefit plan investments is estimated using prevailing market prices. The estimated fair values of our long-term debt are based on quoted market prices for the identical liability when traded as an asset in an active market.

        The fair value estimates presented herein are based on pertinent information available to management as of June 30, 2011 and December 31, 2010. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since June 30, 2011, and current estimates of fair value may differ significantly from the amounts presented herein.

        The following assets and liabilities are measured at fair value on a recurring basis (dollars in millions):

 
   
  Fair Value Amounts Using  
Description
  June 30,
2011
  Quoted prices in
active
markets for
identical
assets (Level 1)
  Significant
other
observable
inputs
(Level 2)
  Significant
unobservable
inputs
(Level 3)
 

Assets:

                         
 

Available-for-sale equity securities:

                         
   

Equity mutual funds

  $ 12   $ 12   $ —   $ —  
                   

Liabilities:

                         
 

Derivatives:

                         
   

Cross-currency interest rate contracts(1)

  $ (5 ) $ —   $ —   $ (5 )
   

Interest rate contracts(2)

    (12 )   —     (12 )   —  
                   

Total liabilities

  $ (17 ) $ —   $ (12 ) $ (5 )
                   

 

 
   
  Fair Value Amounts Using  
Description
  December 31,
2010
  Quoted prices in
active
markets for
identical
assets (Level 1)
  Significant
other
observable
inputs
(Level 2)
  Significant
unobservable
inputs
(Level 3)
 

Assets:

                         
 

Available-for-sale equity securities:

                         
   

Equity mutual funds

  $ 11   $ 11   $ —   $ —  
 

Derivatives:

                         
   

Cross-currency interest rate contracts(1)

    19     —     —     19  
                   

Total assets

  $ 30   $ 11   $ —   $ 19  
                   

Liabilities:

                         
 

Derivatives:

                         
   

Interest rate contracts(2)

  $ (9 ) $ —   $ (9 ) $ —  
                   

(1)
The income approach is used to calculate the fair value of these instruments. Fair value represents the present value of estimated future cash flows, calculated using relevant interest rates, exchange rates, and yield curves at stated intervals.

(2)
The income approach is used to calculate the fair value of these instruments. Fair value represents the present value of estimated future cash flows, calculated using relevant interest rates and yield curves at stated intervals.

        The following table shows a reconciliation of beginning and ending balances for instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (dollars in millions):

 
  Three months ended June 30, 2011   Six months ended June 30, 2011  
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
  Cross-Currency
Interest Rate
Contracts
  Cross-Currency
Interest Rate
Contracts
 

Beginning balance

  $ 4   $ 19  

Total gains or losses

             
 

Included in earnings

    —     —  
 

Included in other comprehensive income (loss)

    (9 )   (24 )

Purchases, issuances, sales and settlements

    —     —  
           

Ending balance June 30, 2011

  $ (5 ) $ (5 )
           

The amount of total gains (losses) for the period included in earnings earnings attributable to the change in unrealized gains (losses) relating to assets still held at June 30, 2011

  $ —   $ —  

 

 
  Three months ended June 30, 2010   Six months ended June 30, 2010  
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
  Cross-Currency
Interest Rate
Contract
  Retained Interest
in Securitized
Receivables
  Cross-Currency
Interest Rate
Contract
  Total  

Beginning balance

  $ 4   $ 262   $ —   $ 262  

Total gains or losses

                         
 

Included in earnings

    15     —     14     14  
 

Included in other comprehensive income (loss)

    32     —     37     37  

Purchases, issuances, sales and settlements (1)

    —     (262 )   —     (262 )
                   

Ending balance June 30, 2010

  $ 51   $ —   $ 51   $ 51  
                   

The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at June 30, 2010

  $ 15   $ —   $ 14   $ 14  
                   

(1)
Upon adoption of ASU 2009-16, sales of our accounts receivable under our A/R Programs no longer met the criteria for derecognition. Accordingly, beginning January 1, 2010, the amounts outstanding under the A/R Programs were accounted for as secured borrowings and the retained interest in securitized receivables was no longer relevant.

        Gains and losses (realized and unrealized) included in earnings for the three and six months ended June 30, 2011 and 2010, respectively, are reported in interest expense and other comprehensive loss as follows (dollars in millions):

 
  Three months ended
June 30, 2011
  Six months ended
June 30, 2011
 
 
  Interest
expense
  Other
comprehensive
loss
  Interest
expense
  Other
comprehensive
loss
 

Total net gains included in earnings

  $ —   $ —   $ —   $ —  

Changes in unrealized losses relating to assets still held at June 30, 2011

    —     (9 )   —     (24 )

 

 
  Three months ended
June 30, 2010
  Six months ended
June 30, 2010
 
 
  Interest
expense
  Other
comprehensive
loss
  Interest
expense
  Other
comprehensive
loss
 

Total net gains included in earnings

  $ 15   $ —   $ 14   $ —  

Changes in unrealized gains (losses) relating to assets still held at June 30, 2010

    15     32     14     37