Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2011

FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract]

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the fair value information for those assets and liabilities measured at fair value on a recurring basis:

	December 31, 2011								December 31, 2010
$ in millions	Carrying Value				Fair Value				Carrying Value				Fair Value
Financial Assets (Liabilities)
Marketable Securities
Trading		$	219			$	219			$	320			$	320
Available-for-Sale			4				4				10				10
Held-to-Maturity time deposits			250				250
Derivatives			7				7				11				11
Long-term debt, including current portion			(3,940	)			(4,675	)			(4,724	)			(5,100	)

There were no material transfers of financial instruments between the three levels of fair value hierarchy during the years ended December 31, 2011 and 2010.

The carrying value of all other financial instruments approximate fair value due to their short-term nature.

Investments in Marketable Securities – The company holds a portfolio of marketable securities, consisting of equity securities that are classified as either trading or available-for-sale and can be liquidated without restriction. These assets are recorded at fair value and are valued using Level 1 inputs. In June 2011, the company sold marketable securities classified as trading securities for $69 million, resulting in a $3 million realized gain recorded in Other, net in the consolidated statements of operations. In addition, the company holds short term investments classified as held-to-maturity that are recorded at cost. As of December 31, 2011, held-to-maturity investments of $250 million were included in prepaid expenses and other current assets and $223 million of trading or available-for-sale securities were included in miscellaneous other assets on the consolidated statements of financial position. As of December 31, 2010, marketable securities of $68 million were included in prepaid expenses and other current assets and $262 million were included in miscellaneous other assets on the consolidated statements of financial position.

Derivative Financial Instruments and Hedging Activities – The company utilizes derivative financial instruments in order to manage exposure to interest rate risk and foreign currency exchange rate risk. Foreign currency forward contracts are used to manage foreign currency exchange rate risk related to receipts from customers and payments to suppliers denominated in foreign currencies.

The notional values of our derivative portfolio are summarized below:

	December 31
$ in millions	2011			2010
Designated as cash flow hedges:
Foreign currency buy		$	36		$	40
Foreign currency sell			109			86
Interest rate swaps						200
Not designated as cash flow hedges:
Foreign currency buy			12			8
Foreign currency sell			76			75
Total notional value		$	233		$	409

Derivative financial instruments are recognized as assets or liabilities in the financial statements and are measured at fair value, and substantially all of these instruments are valued using Level 2 inputs. Where model-derived valuations are appropriate, the company utilizes the income approach to determine fair value and uses the applicable London Interbank Offered Rate (LIBOR) swap rate as the discount rate.

Unrealized gains or losses on the effective cash flow hedges are reclassified from other comprehensive income to earnings upon the settlement of the underlying transactions. The derivative fair values and related unrealized gains and losses at December 31, 2011 and 2010, were not material.

Cash Surrender Value of Life Insurance Policies – The company maintains whole life insurance policies on a group of executives which are recorded at their cash surrender value as determined by the insurance carrier. Additionally, the company has split-dollar life insurance policies on former officers and executives from acquired businesses which are recorded at the lesser of their cash surrender value or premiums paid. The policies are utilized as a partial funding source for deferred compensation and other non-qualified employee retirement plans. As of December 31, 2011 and 2010, the carrying values associated with these policies of $257 million and $257 million, respectively, were recorded in miscellaneous other assets.

Long-Term Debt –The fair value of long-term debt was calculated using Level 2 inputs based on interest rates available for debt with terms and maturities similar to the company’s existing debt arrangements.