Fair Value Measurements

9 Months Ended

Sep. 30, 2020

In accordance with the provisions of ASC 820: Fair Value Measurements, the following tables provide the valuation hierarchy classification of assets and liabilities that are carried at fair value and measured on a recurring and non-recurring basis in our Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019:


	September 30, 2020
(dollars in millions)	Total		Level 1		Level 2		Level 3
Recurring fair value measurements:
Equity securities	$	51	$	51	$	—	$	—
Derivative assets	51		—		51		—
Derivative liabilities	(33)		—		(33)		—


	December 31, 2019
(dollars in millions)	Total		Level 1		Level 2		Level 3
Recurring fair value measurements:
Equity securities	$	3	$	3	$	—	$	—
Derivative assets	9		—		9		—
Derivative liabilities	(5)		—		(5)		—

Valuation Techniques. Our equity securities include equity investments that are traded in active markets, either domestically or internationally, and are measured at fair value using closing stock prices from active markets. The fair value gains or losses related to our equity securities are recorded through net income. Our derivative assets and liabilities include foreign exchange contracts that are measured at fair value using internal models based on observable market inputs such as forward rates, interest rates, our own credit risk and our counterparties' credit risks. Our notes are measured at fair value using closing bond prices from active markets. Our term loan is measured at fair value using external interest rates and market conditions to derive a market interest rate.

As of September 30, 2020, there has not been any significant impact to the fair value of our derivative liabilities due to our own credit risk. Similarly, there has not been any significant adverse impact to our derivative assets based on our evaluation of our counterparties' credit risks.

The following table provides carrying amounts and fair values of financial instruments that are not carried at fair value in our Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019:


	September 30, 2020				December 31, 2019
(dollars in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term receivables, net	$	61	$	62	$	62	$	62
Customer financing notes receivable, net	99		99		62		62
Short-term borrowings	(538)		(538)		(34)		(34)
Long-term debt (excluding leases and other)	(5,550)		(5,760)		—		—
Long-term liabilities	(275)		(263)		(4)		(4)

Long-term liabilities as of September 30, 2020 includes $239 million of payables to UTC for reimbursement of tax payments UTC is responsible to pay after the Separation as a result of the TMA.

The following tables provide the valuation hierarchy classification of assets and liabilities that are not carried at fair value in the Condensed Consolidated Balance Sheet at September 30, 2020 and December 31, 2019:


	September 30, 2020
(dollars in millions)	Total		Level 1		Level 2		Level 3
Long-term receivables, net	$	62	$	—	$	62	$	—
Customer financing notes receivable, net	99		—		99		—
Short-term borrowings	(538)		—		(538)		—
Long-term debt (excluding leases and other)	(5,760)		—		(5,760)
Long-term liabilities	(263)		—		(263)		—


	December 31, 2019
(dollars in millions)	Total		Level 1		Level 2		Level 3
Long-term receivables	$	62	$	—	$	62	$	—
Customer financing notes receivable, net	62		—		62		—
Short-term borrowings	(34)		—		(34)		—

Long-term liabilities	(4)		—		(4)		—

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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