v2.3.0.15

Fair Value Measurements and Financial Instruments | 9 Months Ended
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Sep. 30, 2011
Fair Value Measurements and Financial Instruments |
Fair Value Measurements and Financial Instruments |
15. Fair Value Measurements and Financial Instruments Accounting standards establish a three tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: · Level 1 — observable inputs such as quoted prices for identical assets in active markets; · Level 2 — inputs other than quoted prices for identical assets in active markets, that are observable either directly or indirectly; and · Level 3 — unobservable inputs in which there is little or no market data which requires the use of valuation techniques and the development of assumptions. The following methods and assumptions are used to estimate the fair values of the Company’s financial instruments: Money market funds and highly liquid debt securities are carried at cost and amortized cost, respectively, as an approximation of fair value. Based on market convention, the Company considers cost a practical and expedient measure of fair value. Fixed maturity investments are carried at fair value, which is based on quoted market prices or on estimated values if they are not actively traded. In some cases where a market price is not available, the Company will make use of acceptable expedients (such as matrix pricing) to estimate fair value. Derivatives are carried at fair value, based upon industry standard valuation techniques that use, where possible, current market-based or independently sourced pricing inputs, such as interest rates, currency exchange rates, or implied volatilities. Debt is carried at outstanding principal balance, less any unamortized discount or premium. Fair value is based on quoted market prices or estimates using discounted cash flow analyses based on current borrowing rates for similar types of borrowing arrangements. The following tables present the categorization of the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2011 and December 31, 2010 (in millions):
|  |  |  | Fair Value Measurements Using |
|  |  |  | Quoted Prices in |  | Significant |  | Significant |
|  |  |  | Active Markets |  | Other |  | Unobservable |
|  | Balance at |  | for Identical |  | Observable |  | Inputs |
|  | September 30, 2011 |  | Assets (Level 1) |  | Inputs (Level 2) |  | (Level 3) |
Assets: |  |  |  |  |  |  |  |  |
Money market funds and highly liquid debt securities (1) |  | $ | 2,500 |  | $ | 2,450 |  | $ | 50 |  | $ | — |
Other investments |  |  |  |  |  |  |  |  |
Fixed maturity securities |  |  |  |  |  |  |  |  |
Corporate bonds |  | 12 |  | — |  | — |  | 12 |
Government bonds |  | 3 |  | — |  | 3 |  | — |
Derivatives |  |  |  |  |  |  |  |  |
Interest rate contracts |  | 15 |  | — |  | 15 |  | — |
Foreign exchange contracts |  | 137 |  | — |  | 137 |  | — |
Liabilities: |  |  |  |  |  |  |  |  |
Derivatives |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | 180 |  | — |  | 180 |  | — |
(1) Includes $2,450 million of money market funds and $50 million of highly liquid debt securities that are classified as fiduciary assets, short-term investments or cash equivalents in the condensed consolidated statements of financial position, depending on their nature and initial maturity. See Note 8 “Investments” for additional information regarding the Company’s investments.
|  |  |  | Fair Value Measurements Using |
|  |  |  | Quoted Prices in |  | Significant |  | Significant |
|  |  |  | Active Markets |  | Other |  | Unobservable |
|  | Balance at |  | for Identical |  | Observable |  | Inputs |
|  | December 31, 2010 |  | Assets (Level 1) |  | Inputs (Level 2) |  | (Level 3) |
Assets: |  |  |  |  |  |  |  |  |
Money market funds and highly liquid debt securities (1) |  | $ | 2,618 |  | $ | 2,591 |  | $ | 27 |  | $ | — |
Other investments |  |  |  |  |  |  |  |  |
Fixed maturity securities |  |  |  |  |  |  |  |  |
Corporate bonds |  | 12 |  | — |  | — |  | 12 |
Government bonds |  | 3 |  | — |  | 3 |  | — |
Derivatives |  |  |  |  |  |  |  |  |
Interest rate contracts |  | 15 |  | — |  | 15 |  | — |
Foreign exchange contracts |  | 159 |  | — |  | 159 |  | — |
Liabilities: |  |  |  |  |  |  |  |  |
Derivatives |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | 158 |  | — |  | 158 |  | — |
(1) Includes $2,591 million of money market funds and $27 million of highly liquid debt securities that are classified as fiduciary assets, short-term investments or cash equivalents in the condensed consolidated statements of financial position, depending on their nature and initial maturity. See Note 8 “Investments” for additional information regarding the Company’s investments. The following table presents the changes in the Level 3 fair-value category (in millions):
|  | Three months ended September 30, |  | Nine months ended September 30, |
|  | 2011 |  | 2010 |  | 2011 |  | 2010 |
|  | Other Investments |  | Other Investments |  | Other Investments |  | Other Investments |
Balance at beginning of period |  | $ | 12 |  | $ | 21 |  | $ | 12 |  | $ | 100 |
Total gains (losses): |  |  |  |  |  |  |  |  |
Included in earnings |  | — |  | — |  | — |  | — |
Included in other comprehensive income |  | — |  | 1 |  | — |  | — |
Purchases |  | — |  | — |  | — |  | — |
Sales |  | — |  | (10 | ) | — |  | (1 | )
Transfers (1) |  | — |  | — |  | — |  | (87 | )
Balance at end of period |  | $ | 12 |  | $ | 12 |  | $ | 12 |  | $ | 12 |
(1) Transfers represent the removal of the investment in PEPS I preferred stock as a result of consolidating PEPS I on January 1, 2010. There are no realized or unrealized gains or losses related to assets and liabilities measured at fair value using level three inputs included in income for either the three or six months ended September 30, 2011. The following table discloses the Company’s financial instruments where the carrying amounts and fair values differ (in millions):
|  | September 30, 2011 |  | December 31, 2010 |
|  | Carrying |  | Fair |  | Carrying |  | Fair |
|  | Value |  | Value |  | Value |  | Value |
Long-term debt |  | $ | 4,415 |  | $ | 4,685 |  | $ | 4,014 |  | $ | 4,172 |

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- Definition This item represents the complete disclosure regarding the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the Company is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risk is are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 + Details
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