Financial Instruments (excluding derivatives)

9 Months Ended

Sep. 30, 2011

Financial Instruments (excluding derivatives)

Financial Instruments (excluding derivatives)

4. Financial Instruments (excluding derivatives): Cash and cash equivalents, debt and marketable equity securities are recognized and measured at fair value in the company’s Consolidated Financial Statements. Notes and other accounts receivable and other investments are financial assets with carrying values that approximate fair value. Accounts payable, other accrued expenses and short-term debt are financial liabilities with carrying values that approximate fair value. In the absence of quoted prices in active markets, judgment is required in developing estimates of fair value. Estimates are not necessarily indicative of the amounts the company could realize in a current market transaction. The following methods and assumptions are used to estimate fair values:

Loans and Long-term Receivables

Fair values are based on discounted future cash flows using current interest rates offered for similar loans to clients with similar credit ratings for the same remaining maturities. At September 30, 2011 and December 31, 2010, the difference between the carrying amount and estimated fair value for loans and long-term receivables was immaterial.

Long-term Debt

Fair value of publicly-traded long-term debt is based on quoted market prices for the identical liability when traded as an asset in an active market. For other long-term debt for which a quoted market price is not available, an expected present value technique that uses rates currently available to the company for debt with similar terms and remaining maturities is used to estimate fair value. The carrying amount of long-term debt is $24,089 million and $21,846 million and the estimated fair value is $26,592 million and $24,006 million at September 30, 2011 and December 31, 2010, respectively.

Debt and Marketable Equity Securities

The following tables summarize the company’s debt and marketable equity securities all of which are considered available-for-sale and recorded at fair value in the Consolidated Statement of Financial Position.

			Gross		Gross
(Dollars in millions)	Adjusted		Unrealized		Unrealized			Fair
At September 30, 2011	Cost		Gains		Losses			Value
Cash and cash equivalents(1)
Time deposits and certificates of deposit	$	3,602	$	—	$	(0	)	$	3,602
Commercial paper	2,794		—		(0		)	2,794
Money market funds	319		—		—			319
U.S. government securities	1,110		—		—			1,110
Other securities	40		—		—			40
Total	$	7,864	$	—	$	(0	)	$	7,864
Debt securities — noncurrent(2)
Other securities	$	7	$	1	$	—		$	8
Total	$	7	$	1	$	—		$	8
Available-for-sale equity investments(2)	$	57	$	19	$	(2	)	$	74

(1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position.

(2) Included within investments and sundry assets in the Consolidated Statement of Financial Position.

			Gross		Gross
(Dollars in millions)	Adjusted		Unrealized		Unrealized			Fair
At December 31, 2010	Cost		Gains		Losses			Value
Cash and cash equivalents(1)
Time deposits and certificates of deposit	$	2,473	$	—	$	(0	)	$	2,473
Commercial paper	2,673		—		(0		)	2,673
Money market funds	1,532		—		—			1,532
Foreign government securities	1,054		—		—			1,054
U.S. government securities	44		0		(0		)	44
U.S. government agency securities	22		0		(0		)	22
Other securities	3		—		—			3
Total	$	7,801	$	0	$	(0	)	$	7,801
Debt securities — current(2)
Commercial paper	$	490	$	—	$	(0	)	$	490
U.S. government securities	500		—		(0		)	500
Other securities	1		—		(0		)	1
Total	$	990	$	—	$	(0	)	$	990
Debt securities — noncurrent(3)
Other securities	$	6	$	1	$	(0	)	$	7
Total	$	6	$	1	$	(0	)	$	7
Available-for-sale equity investments(3)	$	194	$	264	$	(0	)	$	458

(1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position.

(2) Reported as marketable securities within the Consolidated Statement of Financial Position.

(3) Included within investments and sundry assets in the Consolidated Statement of Financial Position.

Based on an evaluation of available evidence as of September 30, 2011, the company believes that unrealized losses on debt and marketable equity securities are temporary and do not represent a need for an other-than-temporary impairment.

Proceeds from sales of debt securities and marketable equity securities were approximately $402 million for the first nine months of 2011. The gross realized gains (before taxes) on these sales totaled $232 million and gross realized losses (before taxes) totaled less than $1 million. There were no sales of debt and marketable equity securities in the third quarter of 2011. Proceeds from sales of debt securities and marketable equity securities were approximately $1 million and $14 million for the third quarter and first nine months of 2010, respectively. The gross realized gains (before taxes) on these sales were less than $1 million and $5 million for the third quarter and first nine months of 2010, respectively. The gross realized losses (before taxes) on these sales were less than $1 million in the third quarter and first nine months of 2010.

The after tax net unrealized holding gains/(losses) on available-for-sale debt and marketable equity securities that have been included in accumulated other comprehensive income/(loss) and the after tax net (gains)/losses reclassified from accumulated other comprehensive income/(loss) to net income were as follows:

(Dollars in millions)
For the three months ended September 30:	2011			2010
Net unrealized gains/(losses) arising during the period	$	(9	)	$	56
Net unrealized (gains)/losses reclassified to net income*	0			0

* Includes writedowns of $0.2 million and $0.5 million for the three months ended September 30, 2011 and 2010, respectively.

(Dollars in millions)
For the nine months ended September 30:	2011			2010
Net unrealized gains/(losses) arising during the period	$	(12	)	$	50
Net unrealized (gains)/losses reclassified to net income*	(142		)	0

* Includes writedowns of $0.2 million and $3.6 million for the nine months ended September 30, 2011 and 2010, respectively.

The contractual maturities of substantially all available-for-sale debt securities are less than one year at September 30, 2011.