v2.4.0.6
Fair Value Measurements
 12 Months Ended
Dec. 31, 2011
Fair Value Measurements

Note 6.    Fair Value Measurements

We measure our cash equivalents, marketable securities, auction rate securities (ARS), and foreign currency and interest rate derivative contracts at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Include other inputs that are directly or indirectly observable in the marketplace.

Level 3—Unobservable inputs that are supported by little or no market activities.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

We classify our cash equivalents and marketable securities within Level 1 or Level 2. This is because we value our cash equivalents and marketable securities using quoted market prices or alternative pricing sources and models utilizing market observable inputs. We classify our investments in ARS within Level 3 because they are valued using valuation models with significant unobservable marketable inputs (see below). We classify our foreign currency and interest rate derivative contracts primarily within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.

 

Assets and liabilities measured at fair value on a recurring basis are summarized below (in millions):

 

Description

    As of
December 31,
2010		      Fair Value Measurement at Reporting Date Using  
      Quoted Prices
in Active Markets
for Identical Assets
(Level 1)		      Significant Other
Observable
Inputs
(Level 2)		     Significant
Unobservable
Inputs
(Level 3)		  

Assets

           

Cash equivalents:

           

Time deposits

    $ 973       $ 0       $ 973      $ 0   

Money market and other funds

      7,547         5,936         1,611 (1)      0   

U.S. government notes

      300         300         0        0   

Foreign government bonds

      150         0         150        0   

Corporate debt securities

      8         0         8        0   

Marketable securities:

           

Time deposits

      307         0         307        0   

U.S. government agencies

      1,857         0         1,857        0   

U.S. government notes

      3,930         3,930         0        0   

Foreign government bonds

      1,172         0         1,172        0   

Municipal securities

      2,503         0         2,503        0   

Corporate debt securities

      5,742         0         5,742        0   

Agency residential mortgage-backed securities

      5,673         0         5,673        0   

Marketable equity security

      161         161         0        0   

Derivative contracts

      342         0         342        0   

Auction rate securities

      153         0         0        153   
  

 

 

     

 

 

     

 

 

    

 

 

  

Total

    $ 30,818       $ 10,327       $ 20,338      $ 153   
  

 

 

     

 

 

     

 

 

    

 

 

  

Liabilities

           

Derivative contracts

    $ 8       $ 0       $ 8      $ 0   
  

 

 

     

 

 

     

 

 

    

 

 

  

Total

    $ 8       $ 0       $ 8      $ 0   
  

 

 

     

 

 

     

 

 

    

 

 

  

 

Description

           Fair Value Measurement at Reporting Date Using  
   As of
December 31,
2011		      Quoted Prices
in Active Markets
for Identical Assets
(Level 1)		      Significant Other
Observable
Inputs
(Level 2)		     Significant
Unobservable
Inputs
(Level 3)		  

Assets

           

Cash equivalents:

           

Time deposits

    $ 534       $ 0       $ 534      $ 0   

Money market and other funds

      4,462         3,202         1,260 (1)      0   

U.S. government agencies

      275         0         275        0   

Marketable securities:

           

Time deposits

      495         0         495        0   

U.S. government agencies

      6,226         0         6,226        0   

U.S. government notes

      11,579         11,579         0        0   

Foreign government bonds

      1,629         0         1,629        0   

Municipal securities

      1,794         0         1,794        0   

Corporate debt securities

      6,112         0         6,112        0   

Agency residential mortgage-backed securities

      6,501         0         6,501        0   

Marketable equity securities

      307         307         0        0   

Derivative contracts

      337         0         337        0   

Auction rate securities

      118         0         0        118   
  

 

 

     

 

 

     

 

 

    

 

 

  

Total

    $ 40,369       $ 15,088       $ 25,163      $ 118   
  

 

 

     

 

 

     

 

 

    

 

 

  

Liabilities

           

Derivative contracts

    $ 6       $ 0       $ 6      $ 0   
  

 

 

     

 

 

     

 

 

    

 

 

  

Total

    $ 6       $ 0       $ 6      $ 0   
  

 

 

     

 

 

     

 

 

    

 

 

  

 

(1) 

This balance represents cash collateral received in connection with our securities lending program, which was invested in reverse repurchase agreements maturing within three months.

At December 31, 2011, we held $118 million of ARS. Historically, these securities have provided liquidity through a Dutch auction process. However, these auctions began to fail in the first quarter of 2008. To estimate their fair values at December 31, 2011, we used a discounted cash flow model based on estimated interest rates, timing and amount of cash flows, the credit quality of the underlying securities, and illiquidity considerations.

At December 31, 2011, the estimated fair value of these ARS was $23 million below their costs. As we have no intent to sell these ARS and it is more likely than not that we will not be required to sell these ARS prior to recovery of our entire cost basis, we concluded the decline in the fair value was temporary and recorded the unrealized loss to AOCI on the accompanying Consolidated Balance Sheet at December 31, 2011. To the extent we determine that any impairment is other-than-temporary, we would record a charge to earnings. In addition, we have concluded that the auctions for these securities may continue to fail for at least the next 12 months and as a result, we classified them as non-current assets on the accompanying Consolidated Balance Sheet at December 31, 2011.

The following table presents reconciliations for our assets measured and recorded at fair value on a recurring basis, using significant unobservable inputs (Level 3) (in millions):

 

     Level 3  

Balance at January 1, 2009

    $ 197   

Change in unrealized loss included in other comprehensive income

      12   

Net settlements

      (27 ) 
  

 

 

  

Balance at December 31, 2009

      182   

Change in unrealized loss included in other comprehensive income

      4   

Net settlements

      (33 ) 
  

 

 

  

Balance at December 31, 2010

      153   

Change in unrealized loss included in other comprehensive income

      (3 ) 

Net settlements

      (32 ) 
  

 

 

  

Balance at December 31, 2011

    $ 118