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16. FAIR VALUE
The fair values of our financial instruments were as follows (dollars in millions):
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December 31, |
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2011 |
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2010 |
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Carrying
Value |
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Estimated
Fair Value |
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Carrying
Value |
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Estimated
Fair Value |
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Non-qualified employee benefit plan investments
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$ |
12 |
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$ |
12 |
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$ |
11 |
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$ |
11 |
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Cross-currency interest rate contacts
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27 |
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27 |
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19 |
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19 |
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Interest rate contracts
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(17 |
) |
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(17 |
) |
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(9 |
) |
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(9 |
) |
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Long-term debt (including current portion)
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(3,942 |
) |
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(4,061 |
) |
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(4,146 |
) |
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(4,371 |
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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 December 31, 2011 and 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 December 31, 2011, and current estimates of fair value may differ significantly from the amounts presented herein.
The following assets are measured at fair value on a recurring basis (dollars in millions):
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Fair Value Amounts Using |
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Description
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December 31,
2011 |
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Quoted prices
in active
markets for
identical assets
(Level 1) |
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Significant
other
observable
inputs
(Level 2) |
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Significant
unobservable
inputs
(Level 3) |
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Assets:
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Available-for sale equity securities:
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Equity mutual funds
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$ |
12 |
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$ |
12 |
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$ |
— |
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$ |
— |
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Derivatives:
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Cross-currency interest rate contract(1)
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27 |
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— |
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— |
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27 |
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| |
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Total assets
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$ |
39 |
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$ |
12 |
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$ |
— |
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$ |
27 |
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Liabilities:
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Derivatives:
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Interest rate contracts(2)
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$ |
(17 |
) |
$ |
— |
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$ |
(17 |
) |
$ |
— |
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Fair Value Amounts Using |
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Description
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December 31,
2010 |
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Quoted prices
in active
markets for
identical assets
(Level 1) |
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Significant
other
observable
inputs
(Level 2) |
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Significant
unobservable
inputs
(Level 3) |
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Assets:
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Available-for sale equity securities:
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Equity mutual funds
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$ |
11 |
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$ |
11 |
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$ |
— |
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$ |
— |
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Derivatives:
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Cross-currency interest rate contract(1)
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19 |
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— |
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— |
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19 |
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Total assets
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$ |
30 |
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$ |
11 |
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$ |
— |
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$ |
19 |
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Liabilities:
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Derivatives:
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Interest rate contracts(2)
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$ |
(9 |
) |
$ |
— |
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$ |
(9 |
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$ |
— |
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(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.
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(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.
During the year ended December 31, 2011, no changes were made to the valuation techniques used to measure fair value.
The following table shows a reconciliation of beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (dollars in millions):
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Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
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Cross-currency
interest
rate contracts |
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Total |
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Beginning balance, January 1, 2011
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$ |
19 |
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$ |
19 |
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Total gains (losses):
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Included in earnings
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— |
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— |
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Included in other comprehensive income (loss)
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8 |
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8 |
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Purchases, issuances and settlements
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— |
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— |
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Ending balance, December 31, 2011
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$ |
27 |
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$ |
27 |
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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 December 31, 2011
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$ |
— |
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$ |
— |
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Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
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Realized
interest in
securitized
receivables |
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Cross-currency
interest
rate contracts |
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Total |
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Beginning balance, January 1, 2010
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$ |
262 |
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$ |
— |
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$ |
262 |
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Total gains (losses):
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Included in earnings
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— |
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12 |
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12 |
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Included in other comprehensive income (loss)
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— |
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7 |
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7 |
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Purchases, issuances and settlements(1)
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(262 |
) |
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— |
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(262 |
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Ending balance, December 31, 2010
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$ |
— |
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$ |
19 |
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$ |
19 |
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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 December 31, 2010
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$ |
— |
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$ |
12 |
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$ |
12 |
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(1)
- Upon adoption of ASU 2009-16, transfers 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 (realized and unrealized) included in earnings for 2011 and 2010 are reported in interest expense and other comprehensive income (loss) as follows (dollars in millions):
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Interest expense |
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Other
comprehensive
income (loss) |
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2011
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Total net gains included in earnings
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$ |
— |
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$ |
— |
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Changes in unrealized gains relating to assets still held at December 31, 2011
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$ |
— |
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$ |
8 |
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Interest expense |
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Other
comprehensive
income (loss) |
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2010
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Total net gains included in earnings
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$ |
12 |
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$ |
— |
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Changes in unrealized gains relating to assets still held at December 31, 2010
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$ |
12 |
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$ |
7 |
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