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Fair Value of Financial Investments
 9 Months Ended
Sep. 30, 2012
Fair Value of Financial Investments
E. The Company has maintained investments in available-for-sale securities and a number of private equity funds, principally as part of its tax planning strategies, as any gains enhance the utilization of any current and future tax capital losses. Financial investments included in other assets were as follows, in millions:

 

     September 30,      December 31,  
     2012      2011  

Auction rate securities

    $ 22       $ 22   
  

 

 

     

 

 

  

Total recurring investments

      22         22   
  

 

 

     

 

 

  

Private equity funds

      71         86   

Other investments

      4         4   
  

 

 

     

 

 

  

Total non-recurring investments

      75         90   
  

 

 

     

 

 

  

Total

    $ 97       $ 112   
  

 

 

     

 

 

  

The Company’s investments in available-for-sale securities at September 30, 2012 and December 31, 2011 were as follows, in millions:

 

            Pre-tax         
     Cost Basis      Unrealized
Gains		      Unrealized
Losses		      Recorded
Basis		  

September 30, 2012

    $ 19       $ 3       $ —         $ 22   

December 31, 2011

    $ 19       $ 3       $ —         $ 22   

Recurring Fair Value Measurements. Financial investments measured at fair value on a recurring basis at each reporting period and the amounts for each level within the fair value hierarchy were as follows, in millions:

 

            Fair Value Measurements Using  
     Sep. 30,
2012		      Quoted
Market
Prices
(Level 1)		      Significant
Other
Observable
Inputs
(Level 2)		      Significant
Unobservable
Inputs
(Level 3)		  

Auction rate securities

    $ 22         —           —         $ 22   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 22       $ —         $ —         $ 22   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

            Fair Value Measurements Using  
     Dec. 31,
2011		      Quoted
Market
Prices
(Level 1)		      Significant
Other
Observable
Inputs
(Level 2)		      Significant
Unobservable
Inputs
(Level 3)		  

Auction rate securities

      22       $ —         $ —           22   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 22       $ —         $ —         $ 22   
  

 

 

     

 

 

     

 

 

     

 

 

  

The fair value of the auction rate securities held by the Company have been estimated, on a recurring basis, using a discounted cash flow model (Level 3 input). The significant inputs in the discounted cash flow model used to value the auction rate securities include expected maturity of auction rate securities, discount rate used to determine the present value of expected cash flows and the assumptions for credit defaults, since the auction rate securities are backed by credit default swap agreements.

The following table summarizes the changes in Level 3 financial assets measured at fair value on a recurring basis for the nine months ended September 30, 2012 and the year ended December 31, 2011, in millions:

 

     September 30, 2012      December 31, 2011  
     Auction Rate      Auction Rate  
     Securities      Securities  

Fair value at beginning of period

    $ 22       $ 22   

Total losses included in earnings

      —           —     

Unrealized (losses)

      —           —     

Purchases

      —           —     

Settlements

      —           —     

Transfer from Level 3 to Level 2

      —           —     
  

 

 

     

 

 

  

Fair value at period end

    $ 22       $ 22   
  

 

 

     

 

 

  

Non-Recurring Fair Value Measurements. Financial investments measured at fair value on a non-recurring basis during the nine-month period ended September 30, 2012 and the amounts for each level within the fair value hierarchy were as follows, in millions:

 

            Fair Value Measurements Using         
                   Significant                
            Quoted      Other      Significant         
            Market      Observable      Total         
     Sep. 30,      Prices      Inputs      Inputs      Gains  
     2012      (Level 1)      (Level 2)      (Level 3)      (Losses)  

Private equity funds

    $ 2         —           —         $ 2       $ (2 ) 
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 2       $ —         $ —         $ 2       $ (2 ) 
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

The remaining private equity investments at September 30, 2012, with an aggregate carrying value of $69 million, were not reviewed for impairment, as there were no indicators of impairment or identified events or changes in circumstances that would have a significant adverse effect on the fair value of the investment.

During the nine-month period ended September 30, 2011, the Company did not measure any financial investments at fair value on a non-recurring basis, as there was no other-than-temporary decline in the estimated value of private equity funds.

The Company did not have any transfers between Level 1 and Level 2 financial assets in the third quarter or in the first nine months of 2012 or 2011.

Realized Gains (Losses). Income (loss) from financial investments, net, included in other, net, within other income (expense), net, was as follows, in millions:

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2012      2011      2012     2011  

Realized gains - distributions from private equity funds

    $ 2       $ 19       $ 20      $ 28   

Realized gains - sale of TriMas Corporation common stock

      —           —           —          41   
  

 

 

     

 

 

     

 

 

    

 

 

  

Total income from financial investments

    $ 2       $ 19       $ 20      $ 69   
  

 

 

     

 

 

     

 

 

    

 

 

  

Impairment charges - private equity funds

    $ —         $ —         $ (2 )    $ —     
  

 

 

     

 

 

     

 

 

    

 

 

  

 

     The fair value of the Company’s short-term and long-term fixed-rate debt instruments is based principally upon quoted market prices for the same or similar issues or the current rates available to the Company for debt with similar terms and remaining maturities. The aggregate estimated market value of short-term and long-term debt at September 30, 2012 was approximately $3.9 billion, compared with the aggregate carrying value of $3.6 billion. The aggregate estimated market value of short-term and long-term debt at December 31, 2011 was approximately $4.0 billion, compared with the aggregate carrying value of $4.0 billion.