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9. FAIR VALUE
The fair values of financial instruments were as follows (dollars in millions):
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September 30, 2011 |
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December 31, 2010 |
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Carrying
Amount |
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Estimated
Fair Value |
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Carrying
Amount |
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Estimated
Fair Value |
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Non-qualified employee benefit plan investments
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$ |
10 |
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$ |
10 |
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$ |
11 |
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$ |
11 |
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Cross-currency interest rate contracts
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19 |
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19 |
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19 |
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19 |
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Interest rate contracts
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(15 |
) |
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(15 |
) |
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(9 |
) |
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(9 |
) |
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Long-term debt (including current portion)
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(4,077 |
) |
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(4,095 |
) |
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(4,146 |
) |
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(4,371 |
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The carrying amounts reported in our condensed consolidated balance sheets (unaudited) of 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 September 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 September 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):
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Fair Value Amounts Using |
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Description
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September 30,
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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| |
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Equity mutual funds
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$ |
10 |
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$ |
10 |
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$ |
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$ |
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Derivatives:
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| |
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Cross-currency interest rate contracts(1)
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19 |
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19 |
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| |
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Total assets
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$ |
29 |
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$ |
10 |
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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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$ |
(15 |
) |
$ |
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$ |
(15 |
) |
$ |
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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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| |
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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 contracts(1)
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19 |
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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.
- (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):
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Three months ended
September 30, 2011 |
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Nine months ended
September 30, 2011 |
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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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Cross-Currency
Interest Rate
Contracts |
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Beginning balance
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$ |
(5 |
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$ |
19 |
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Total gains or losses
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Included in earnings
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Included in other comprehensive income (loss)
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24 |
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Purchases, issuances, sales and settlements
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Ending balance September 30, 2011
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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 attributable to the change in unrealized gains (losses) relating to assets still held at September 30, 2011
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$ |
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$ |
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Three months ended
September 30, 2010 |
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Nine months ended
September 30, 2010 |
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Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
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Cross-Currency
Interest Rate
Contract |
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Retained Interest
in Securitized
Receivables |
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Cross-Currency
Interest Rate
Contract |
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Total |
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Beginning balance
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$ |
51 |
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$ |
262 |
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$ |
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$ |
262 |
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Total gains or losses
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Included in earnings
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(2 |
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12 |
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12 |
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Included in other comprehensive income (loss)
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(34 |
) |
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3 |
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3 |
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Purchases, issuances, sales and settlements(1)
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(262 |
) |
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(262 |
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Ending balance September 30, 2010
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$ |
15 |
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$ |
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$ |
15 |
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$ |
15 |
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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 September 30, 2010
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$ |
(2 |
) |
$ |
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$ |
12 |
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$ |
12 |
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- (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 nine months ended September 30, 2011 and 2010, respectively, are reported in interest expense and other comprehensive loss as follows (dollars in millions):
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Three months ended
September 30, 2011 |
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Nine months ended
September 30, 2011 |
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Interest
expense |
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Other
comprehensive
loss |
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Interest
expense |
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Other
comprehensive
loss |
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Total net gains included in earnings
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$ |
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$ |
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$ |
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$ |
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Changes in unrealized losses relating to assets still held at September 30, 2011
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24 |
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Three months ended
September 30, 2010 |
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Nine months ended
September 30, 2010 |
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Interest
expense |
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Other
comprehensive
loss |
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Interest
expense |
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Other
comprehensive
loss |
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Total net gains included in earnings
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$ |
(2 |
) |
$ |
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$ |
12 |
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$ |
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Changes in unrealized gains (losses) relating to assets still held at September 30, 2010
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(2 |
) |
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(34 |
) |
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12 |
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3 |
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