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Financial Instruments
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Jun. 30, 2011
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| Financial Instruments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FINANCIAL INSTRUMENTS |
NOTE 8. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents and short-term investments,
accounts receivable, accounts payable, debt, foreign currency forward contracts and interest rate
swaps. Except as described below, the estimated fair value of such financial instruments at June
30, 2011 and December 31, 2010 approximates their carrying value as reflected in our consolidated
condensed balance sheets. The fair value of our debt, foreign currency forward contracts and
interest rate swaps has been estimated based on quoted period end market prices.
Short-term Investments
During the year ended December 31, 2010, we purchased short-term investments consisting of
$250 million in U.S. Treasury Bills, which matured in May 2011 and were used to repay the $250
million principal amount of our 5.75% notes that matured in June 2011.
Debt
The estimated fair value of total debt at June 30, 2011 and December 31, 2010, was $4,045
million and $4,298 million, respectively, which differs from the carrying amount of $3,608 million
and $3,885 million, respectively, included in our consolidated condensed balance sheets.
Foreign Currency Forward Contracts
We conduct our business in over 80 countries around the world, and we are exposed to market
risks resulting from fluctuations in foreign currency exchange rates. A number of our significant
foreign subsidiaries have designated the local currency as their functional currency. We transact
in various foreign currencies and have established a program that primarily utilizes foreign
currency forward contracts to reduce the risks associated with the effects of certain foreign
currency exposures. Under this program, our strategy is to have gains or losses on the foreign
currency forward contracts mitigate the foreign currency transaction gains or losses to the extent
practical. These foreign currency exposures typically arise from changes in the value of assets
and liabilities which are denominated in currencies other than the functional currency. Our
foreign currency forward contracts generally settle in less than 180 days. We do not use these
forward contracts for trading or speculative purposes. We designate these forward contracts as
fair value hedging instruments and, accordingly, we record the fair value of these contracts as of
the end of our reporting period to our consolidated condensed balance sheet with changes in fair
value recorded in our consolidated condensed statement of operations along with the change in fair
value of the hedged item.
We had outstanding foreign currency forward contracts with notional amounts aggregating $150
million and $156 million to hedge exposure to currency fluctuations in various foreign currencies
at June 30, 2011 and December 31, 2010, respectively. These contracts are designated and qualify
as fair value hedging instruments. The fair value was determined using a model with Level 2 inputs
including quoted market prices for contracts with similar terms and maturity dates.
Interest Rate Swaps
We are subject to interest rate risk on our debt and investment of cash and cash equivalents
arising in the normal course of our business, as we do not engage in speculative trading
strategies. We maintain an interest rate management strategy, which primarily uses a mix of fixed
and variable rate debt that is intended to mitigate the exposure to changes in interest rates in
the aggregate for our investment portfolio. In addition, we are currently using interest rate swaps to manage the
economic effect of fixed rate obligations associated with certain debt so that the interest payable
on this debt effectively becomes linked to variable rates. Our interest rate
swaps are designated
and each qualifies as a fair value hedging instrument. The fair value of our interest rate swaps
was determined using a model with Level 2 inputs including quoted market prices for contracts with
similar terms and maturity dates.
Fair Value of Derivative Instruments
The fair values of derivative instruments included in our consolidated condensed balance
sheets were as follows:
The effects of derivative instruments in our consolidated condensed statements of operations
were as follows (amounts exclude any income tax effects):
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