Fair Value Measurements

9 Months Ended

Jun. 30, 2012

Fair Value Measurements

12. Fair Value Measurements

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified in the following three categories:

Level 1 –	Quoted prices for identical instruments in active markets
Level 2 –	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets
Level 3 –	Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable

The Company’s assets and liabilities measured at fair value are summarized by level in the following tables:

	Fair Value Measurement at June 30, 2012
	Level 1		Level 2			Level 3		Total
Assets
Investments	$	105	$	—		$	—	$	105
Derivatives (1)
Interest rate		—		224			—		224
Foreign exchange		—		519			—		519
Liabilities
Derivatives (1)
Foreign exchange		—		(129	)		—		(129	)
Other		—		(3	)		—		(3	)
Total recorded at fair value	$	105	$	611		$	—	$	716
Fair value of borrowings	$	8,580	$	3,823		$	3,218	$	15,621

	Fair Value Measurements at October 1, 2011
	Level 1		Level 2			Level 3		Total
Assets
Investments	$	143	$	43		$	—	$	186
Derivatives (1)
Interest rate		—		214			—		214
Foreign exchange		—		498			—		498
Residual Interests		—		—			40		40
Liabilities
Derivatives (1)
Interest rate		—		(18	)		—		(18	)
Foreign exchange		—		(262	)		—		(262	)
Other derivatives		—		(1	)		—		(1	)
Total recorded at fair value	$	143	$	474		$	40	$	657
Fair value of borrowings	$	8,953	$	2,128		$	3,070	$	14,151

⁽¹⁾  The Company has a master netting arrangement by counterparty with respect to certain derivative contracts. Contracts in a liability position totaling $111 million and $167 million have been netted against contracts in an asset position in the Condensed Consolidated Balance Sheets at June 30, 2012 and October 1, 2011, respectively.

Level 1 borrowings consist of U.S. medium-term notes.

The fair values of Level 2 investments are primarily determined by reference to market prices based on recent trading activity and other relevant information including pricing for similar securities as determined by third-party pricing services.

The fair values of Level 2 derivatives are primarily determined based on the present value of future cash flows using internal models that use observable inputs such as interest rates, yield curves and foreign currency exchange rates. Counterparty credit risk, which is mitigated by master netting agreements and collateral posting arrangements with certain counterparties, did not have a material impact on derivative fair value estimates.

Level 2 borrowings, which include commercial paper and U.S. medium-term notes, are valued based on quoted prices for similar instruments in active markets.

Level 3 residual interests relate to securitized vacation ownership mortgage receivables and are valued using a discounted cash flow model that considers estimated interest rates, discount rates, prepayment, and defaults. On June 5, 2012, the Company repurchased previously sold mortgage receivables.

Level 3 borrowings, which include International Theme Parks borrowings and other foreign currency denominated borrowings, are valued based on historical market transactions, interest rates, credit risk and market liquidity.

The Company’s financial instruments also include cash, cash equivalents, receivables and accounts payable. The carrying values of these financial instruments approximate the fair values.

The Company also has assets and liabilities that are required to be recorded at fair value on a non-recurring basis when certain circumstances occur. During the nine months ended June 30, 2012 and July 2, 2011, the Company recorded impairment charges of $111 million and $43 million, respectively, on film productions. These impairment charges are reported in “Costs and expenses” in the Condensed Consolidated Statements of Income. The film impairment charges reflected the excess of the unamortized cost of the films over the estimated fair value using discounted cash flows. The discounted cash flow analysis is a level 3 valuation technique. The aggregate carrying values of the films for which we prepared the fair value analyses were $124 million and $94 million as of June 30, 2012 and July 2, 2011, respectively.

Transfers of Financial Assets

Through December 4, 2008, the Company sold mortgage receivables arising from sales of its vacation ownership units under a facility that expired on December 4, 2008 and was not renewed. The Company continued to service the sold receivables and had a residual interest in those receivables. On June 5, 2012, the Company repurchased these receivables for $191 million which equaled the outstanding principal balance and approximated fair value.