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DERIVATIVE INSTRUMENTS AND FAIR VALUE MEASUREMENTS | 9 Months Ended
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Sep. 24, 2016
DERIVATIVE INSTRUMENTS AND FAIR VALUE MEASUREMENTS | NOTE 9. DERIVATIVE INSTRUMENTS AND FAIR VALUE MEASUREMENTS Derivative Instruments and Hedging Activities As a global supplier of office products and services the Company is exposed to risks associated with changes in foreign currency exchange rates, fuel and other commodity prices and interest rates. Depending on the exposure, settlement timeframe and other factors, the Company may enter into derivative transactions to mitigate those risks. Financial instruments authorized under the Company’s established risk management policy include spot trades, swaps, options, caps, collars, forwards and futures. Use of derivative financial instruments for speculative purposes is expressly prohibited by the Company’s policies. The Company may designate and account for such qualifying arrangements as hedges or reflect current mark-to-market impacts of non-qualifying economic hedge arrangements currently in earnings. As of September 24, 2016, the foreign exchange and fuel contracts extended through December 2016 and January 2017, respectively. The fair values of the Company’s foreign currency contracts and fuel contracts are the amounts receivable or payable to terminate the agreements at the reporting date, taking into account current interest rates, exchange rates and commodity prices. The values are based on market-based inputs or unobservable inputs that are corroborated by market data. Amounts associated with derivative financial instruments were not significant for the reported periods. The Company’s foreign currency risk will be substantially reduced upon completion of the sale of the discontinued operations. Financial Instruments The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. In developing its fair value estimates, the Company uses the following hierarchy:
Level 1: |  | Quoted prices in active markets for identical assets or liabilities.
Level 2: |  | Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: |  | Significant unobservable inputs that are not corroborated by market data. Generally, these fair value measures are model-based valuation techniques such as discounted cash flows or option pricing models using the Company’s own estimates and assumptions or those expected to be used by market participants.
The fair values of cash and cash equivalents, receivables, trade accounts payable and accrued expenses and other current liabilities approximate their carrying values because of their short-term nature. The following table presents information about financial instruments at the balance sheet dates indicated.
|  | September 24, 2016 |  |  | December 26, 2015 |
(In millions) |  | Carrying Value |  |  | Fair Value |  |  | Carrying Value |  |  | Fair Value |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Timber notes receivable |  | $ | 890 |  |  | $ | 910 |  |  | $ | 905 |  |  | $ | 909 |
Company-owned life insurance |  |  | 87 |  |  |  | 87 |  |  |  | 88 |  |  |  | 88 |
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Recourse debt |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
9.75% senior secured notes, due 2019 |  |  | — |  |  |  | — |  |  |  | 250 |  |  |  | 265 |
7.35% debentures, due 2016 |  |  | — |  |  |  | — |  |  |  | 18 |  |  |  | 18 |
Revenue bonds, due in varying amounts periodically through 2029 |  |  | 186 |  |  |  | 186 |  |  |  | 186 |  |  |  | 186 |
American & Foreign Power Company, Inc. 5% debentures, due 2030 |  |  | 14 |  |  |  | 11 |  |  |  | 14 |  |  |  | 13 |
Non-recourse debt |  |  | 803 |  |  |  | 822 |  |  |  | 819 |  |  |  | 825 |
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
| • |  | Timber notes receivable: Fair value is determined as the present value of expected future cash flows discounted at the current interest rate for loans of similar terms with comparable credit risk (Level 2 measure).
| • |  | Company-owned life insurance: In connection with the Merger, the Company acquired company owned life insurance policies on certain former employees. The fair value of the company-owned life insurance policies is derived using determinable net cash surrender value (Level 2 measure).
| • |  | Recourse debt: Recourse debt for which there were no transactions on the measurement date was valued based on quoted market prices near the measurement date when available or by discounting the future cash flows of each instrument using rates based on the most recently observable trade or using rates currently offered to the Company for similar debt instruments of comparable maturities (Level 2 measure).
| • |  | Non-recourse debt: Fair value is estimated by discounting the future cash flows of the instrument at rates currently available to the Company for similar instruments of comparable maturities (Level 2 measure).
Fair Value Estimates Used in Impairment Analyses North American Retail Division The Company recognized $9 million of asset impairment charges associated with continuing operations in the third quarter and year-to-date 2016 and $1 million and $10 million in the third quarter and year-to-date 2015, respectively. The third quarter 2016 impairment charge includes $5 million related to impairment of favorable lease intangible assets and $4 million related to operating retail store assets. The impairment of store assets reflects the impact of shortening the anticipated use periods of certain retail store locations in accordance with the Comprehensive Business Review. The analysis of future cash flows included a projection of declining sales, constant gross margins and operating expenses consistent with recent performance. A 100 basis point decrease in anticipated sales for all periods in the forecast horizon would have increased the impairment charge $4 million. A 50 basis point decrease in anticipated gross margins for all periods would have increased the impairment charge $1 million. Additionally, the planned early closure of certain locations and assessment of likely termination of lease renewal options resulted in impairment of favorable lease intangible assets remaining from the Merger. The year-to-date 2015 charges include approximately $1 million impairment of favorable lease intangible asset values following the identification of closing locations where future intangible asset recovery was considered unlikely.

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- Definition The entire disclosure for derivatives and fair value of assets and liabilities. + References No definition available. + Details
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