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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, 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 September 30,
2011 and December 31, 2010 approximates their carrying value as reflected in our consolidated
condensed balance sheets.
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 (“5.75% Notes”).
Debt
The estimated fair value of total debt at September 30, 2011 and December 31, 2010 was $4,635
million and $4,298 million, respectively, which differs from the carrying amount of $3,900 million
and $3,885 million, respectively, included in our consolidated condensed balance sheets. The fair
value was determined using Level 2 inputs including quoted period end market prices.
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 $157
million and $156 million to hedge exposure to currency fluctuations in various foreign currencies
at September 30, 2011 and December 31, 2010, respectively. These contracts are designated and
qualify as fair value hedging instruments. The fair value was determined using 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. We may use interest rate swaps to manage the economic
effect of fixed rate obligations associated with certain debt.
In September 2011, we redeemed in full our $500 million 6.5% fixed rate senior notes maturing
November 2013 (“6.5% Notes”). Consequently, we terminated two related interest rate swap agreements resulting in
a gain on the swap agreements of $25 million. The two swap agreements were entered into in June
2009 for a notional amount of $250 million each in order to hedge changes in the fair market value
of the debt. The swap agreements had been designated and each qualified as a fair value hedging
instrument.
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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