Fair Value Measurements

3 Months Ended

Mar. 31, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Company follows the provisions of FASB ASC Topic 820 for financial assets and liabilities. FASB ASC Topic 820 establishes a three-tiered fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation.

The three levels of inputs are defined as follows:

Level 1 - unadjusted quoted prices for identical assets or liabilities in active markets accessible by the Company

Level 2 - inputs that are observable in the marketplace other than those inputs classified as Level 1

Level 3 - inputs that are unobservable in the marketplace and significant to the valuation

The Company’s financial assets and liabilities are measured at fair value on a recurring basis and include securities available for sale and derivative financial instruments. Securities available for sale include equity securities. Derivative financial instruments include interest rate swaps and foreign currency forwards and swaps.

Marketable Securities. Where possible, the Company utilizes quoted prices in active markets to measure debt and equity securities; such items are classified as Level 1 in the hierarchy and include equity securities and US government bonds. When quoted market prices for identical assets are unavailable, varying valuation techniques are used. Common inputs in valuing these assets include, among others, benchmark yields, issuer spreads and recently reported trades. Such assets are classified as Level 2 in the hierarchy and typically include corporate bonds and other US government securities. Mutual funds are valued at the net asset value per share or unit multiplied by the number of shares or units held as of the measurement date.

Derivatives. Derivative financial instruments are valued in the market using discounted cash flow techniques. These techniques incorporate Level 1 and Level 2 inputs such as interest rates and foreign currency exchange rates. These market inputs are utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation for interest rate swaps and foreign currency forwards and swaps are observable in the active markets and are classified as Level 2 in the hierarchy.

Assets and liabilities measured at fair value on a recurring basis are as follows:

	Fair Value Measurement Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Total
	(In $ millions)
Marketable securities, at fair value
Mutual funds	63	—		63
Derivatives designated as cash flow hedging instruments
Interest rate swaps	—	3		3		(1)
Derivatives not designated as hedging instruments
Foreign currency forwards and swaps	—	3		3		(2)
Total assets as of March 31, 2012	63	6		69
Derivatives designated as cash flow hedging instruments
Interest rate swaps	—	(16	)	(16	)	(3)
Interest rate swaps	—	(9	)	(9	)	(4)
Derivatives not designated as hedging instruments
Interest rate swaps	—	—		—		(3)
Foreign currency forwards and swaps	—	(7	)	(7	)	(3)
Total liabilities as of March 31, 2012	—	(32	)	(32	)
Marketable securities, at fair value
Mutual funds	64	—		64
Derivatives not designated as hedging instruments
Foreign currency forwards and swaps	—	9		9		(2)
Total assets as of December 31, 2011	64	9		73
Derivatives designated as cash flow hedging instruments
Interest rate swaps	—	(21	)	(21	)	(3)
Interest rate swaps	—	(13	)	(13	)	(4)
Derivatives not designated as hedging instruments
Interest rate swaps		(2	)	(2	)	(3)
Foreign currency forwards and swaps	—	(3	)	(3	)	(3)
Total liabilities as of December 31, 2011	—	(39	)	(39	)

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⁽¹⁾  Included in noncurrent Other assets in the unaudited consolidated balance sheets.

⁽²⁾  Included in current Other assets in the unaudited consolidated balance sheets.

⁽³⁾  Included in current Other liabilities in the unaudited consolidated balance sheets.

⁽⁴⁾  Included in noncurrent Other liabilities in the unaudited consolidated balance sheets.

Carrying values and fair values of financial instruments that are not carried at fair value are as follows:

		Fair Value Measurement Using
	Carrying Amount	Significant Other Observable Inputs (Level 2)	Unobservable Inputs (Level 3)	Total
		(In $ millions)
As of March 31, 2012
Cost investments	148	—	—	—
Insurance contracts in nonqualified trusts	65	65	—	65
Long-term debt, including current installments of long-term debt	2,914	2,735	248	2,983
As of December 31, 2011
Cost investments	147	—	—	—
Insurance contracts in nonqualified trusts	69	69	—	69
Long-term debt, including current installments of long-term debt	2,911	2,719	248	2,967

In general, the cost investments included in the table above are not publicly traded and their fair values are not readily determinable; however, the Company believes the carrying values approximate or are less than the fair values.

As of March 31, 2012 and December 31, 2011, the fair values of cash and cash equivalents, receivables, trade payables, short-term borrowings and the current installments of long-term debt approximate carrying values due to the short-term nature of these instruments. These items have been excluded from the table with the exception of the current installments of long-term debt. Additionally, certain noncurrent receivables, principally insurance recoverables, are carried at net realizable value.

The fair value of long-term debt is based on valuations from third-party banks and market quotations.