(3) Fair Value Measurement

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. ASC Topic 820, "Fair Value Measurement and Disclosures," establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are market inputs participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

Level 1 – quoted prices in active markets for identical assets or liabilities;

 

Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable; and,

Level 3 – inputs that are unobservable (for example, cash flow modeling inputs based on assumptions).

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

We measure cash and cash equivalents and derivative contracts at fair value on a recurring basis. The tables below set forth, by level, the fair value of these financial assets and liabilities as of September 30, 2011 and December 31, 2010, respectively. The table does not include assets and liabilities which are measured at historical cost or on any basis other than fair value. In the first nine months of 2011 and 2010, there were no significant transfers between Level 1 and Level 2 and no significant transfers in or out of Level 3.

 

			Significant Other				Significant Other				Significant Other				Significant Other
As of September 30, 2011:						Quoted Prices in Active Markets for Identical Assets				Significant  Other Observable Inputs				Significant Unobservable Inputs
		Total				(Level 1)				(Level 2)				(Level 3)
Assets
Money market mutual funds (1)		$	329			$	329			$	—			$	—
Time deposits (1)			184				184				—				—
Foreign currency derivative contracts (2)			2				—				2				—
Interest rate cap agreements (3)			—				—				—				—
Total Assets		$	515			$	513			$	2			$	—
Liabilities
Interest rate swap agreements (4)		$	8			$	—			$	8			$	—
Commodity derivative contracts (4)			3				—				3				—
Foreign currency derivative contracts (2)			3				—				3				—
Total Liabilities		$	14			$	—			$	14			$	—

 

			Significant Other				Significant Other				Significant Other				Significant Other
As of December 31, 2010:						Quoted Prices in Active Markets for Identical Assets				Significant Other Observable Inputs				Significant Unobservable Inputs
		Total				(Level 1)				(Level 2)				(Level 3)
Assets
Money market mutual funds (1)		$	754			$	754			$	—			$	—
Time deposits (1)			166				166				—				—
Foreign currency derivative contracts (2)			6				—				6				—
Interest rate cap arrangements (3)			1				—				1				—
Total Assets		$	927			$	920			$	7			$	—
Liabilities
Interest rate swap agreements (4)		$	12			$	—			$	12			$	—
Foreign currency derivative contracts (2)			2				—				2				—
Total Liabilities		$	14			$	—			$	14			$	—

The following footnotes indicate where the noted items are recorded in our accompanying Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010:

 

(1)

Money market funds and time deposits are reported as cash and cash equivalents.

(2)

Foreign currency derivative contracts are reported as other current assets or accrued liabilities and other.

(3)

Interest rate cap arrangements are reported as other assets.

(4)

Interest rate swap agreements and commodity derivative contracts are reported as accrued liabilities and other or other liabilities.

 

Valuation Methodologies

In determining the fair value of our interest rate swap derivatives, we use the present value of expected cash flows based on market observable interest rate yield curves commensurate with the term of each instrument. The fair value of our interest rate caps was also estimated based on market observable interest rate yield curves as well as market observable interest rate volatility indexes. For foreign currency and commodity derivatives, our approach is to use forward contract valuation models employing market observable inputs, such as spot currency and commodity rates, time value and option volatilities. Since we only use observable inputs in our valuation of our derivative assets and liabilities, they are considered Level 2. Refer to Note 5, "Risk Management," for further discussion of our interest rate swap and cap contracts, our foreign currency derivatives contracts and our commodity derivative contracts. The following table summarizes the change in the fair value for Level 3 instruments for the nine months ended October 1, 2010:

 

		Level 3 - Significant Unobservable Inputs
Changes in Fair Value for the Nine Months Ended October 1, 2010		Auction rate securities (2)				Other derivatives  (2)				Total Gains (Losses)
Balance as of January 1, 2010		$	30			$	3
Total gains or losses (realized or unrealized):
Included in earnings (1)			1				(1	)			—
Included in OCI			—				—				—
Purchases, sales, issuances and settlements, net			(31	)			(2	)
Transfers in and/or out of Level 3			—				—
Balance as of October 1, 2010		$	—			$	—			$	—
The amount of total gains or losses for the nine months ended October 1, 2010 included in earnings attributable to the changes in unrealized gains or losses related to assets and liabilities still held as of October 1, 2010 (1)		$	—			$	—			$	—

(1)

The realized and unrealized gains (losses) reflected in the table above for the nine months ended October 1, 2010 are recorded in other, net in the accompanying Condensed Consolidated Statements of Operations.

(2)

We sold our ARS and related redemption rights to UBS in the second quarter of 2010.

Fair value of Other Financial Instruments

In addition to the assets and liabilities described above, our financial instruments also include accounts receivable, other investments, accounts payable, accrued liabilities and long-term debt. Except for the fair value of the principal amount of our long-term debt, which was $6,427 million and $7,863 million at September 30, 2011 and December 31, 2010 (as determined based upon quoted market prices), the fair values of these financial instruments were not materially different from their carrying or contract values at those dates.

Assets and Liabilities Measured and Recorded at Fair Value on a Non-recurring Basis

We measure certain financial and non-financial assets and liabilities, including cost and equity method investments, at fair value on a non-recurring basis. These assets are adjusted to fair value when they are deemed to be other-than-temporarily impaired. As of September 30, 2011 and December 31, 2010, the carrying value of these assets was $2 million and $6 million, respectively.