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Notes to Consolidated Financial Statements 2012 ANNUAL REPORT 89
The following table summarizes the fair value of derivative
instruments as of December 31, 2012 and December 31, 2011
which consist solely of foreign exchange contracts:
December 31, 2012 December 31, 2011
(DOLLARS IN MILLIONS)
Derivatives
designated
as hedging
instruments
Derivatives not
designated as
hedging
instruments
Derivatives
designated
as hedging
instruments
Derivatives not
designated as
hedging
instruments
Balance Sheet Asset
Locations:
Other assets,
current $48 $ 47 $69 $40
Other assets 30 3 32
78 50 72 42
Total Asset Derivative
Contracts $ 128 $ 114
Balance Sheet
Liability Locations:
Accrued liabilities $ 10 $ 136 $81 $40
Other long-term
liabilities 1243 1
11 138 124 41
Total Liability
Derivative Contracts $ 149 $ 165
The impact from foreign exchange derivative instruments that quali-
fied as cash flow hedges for the period was as follows:
December 31,
(DOLLARS IN MILLIONS) 2012 2011
Gain (loss) recorded in Accumulated other comprehensive
loss $88 $ (46)
Gain reclassified from Accumulated other comprehensive
loss into Product sales (effective portion) 31 96
Assuming current market conditions continue, a $40 million
pre-tax gain is expected to be reclassified from Accumulated other
comprehensive loss into Product sales to reflect the fixed prices
obtained from foreign exchange hedging within the next 12 months.
At December 31, 2012, all derivative contracts accounted for as
cash flow hedges mature by December 2015.
The effect on the Consolidated Statement of Operations
from foreign exchange contracts not designated as hedging
instruments was as follows:
December 31,
(DOLLARS IN MILLIONS) 2012 2011
Loss recognized in Other income, net $ (120) $ (39)
Fair Value Disclosure. As of January 1, 2012, we
adopted the provisions of the FASB issued ASU No. 2011-04,
“Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRSs.” This ASU
clarifies many of the existing concepts for measuring fair value and
does not result in a change in our application of the FASB ASC
Topic “Fair Value Measurements and Disclosures.” The guidance
includes enhanced disclosure requirements about recurring Level 3
fair value measurements for each class of assets and liabilities
measured at fair value in the balance sheet, which has no impact
on our financial statements or disclosures as there are presently no
Level 3 fair value measurements in our Consolidated Balance
Sheet. This ASU also requires additional disclosures for items that
are not measured at fair value in the balance sheet but for which
the fair value is required to be disclosed.
Valuation Hierarchy. The FASB ASC Topic “Fair Value
Measurements and Disclosure” establishes a valuation hierarchy for
disclosure of the inputs to the valuations used to measure fair value.
This hierarchy prioritizes the inputs into three broad levels as fol-
lows: Level 1 inputs are quoted prices (unadjusted) in active mar-
kets for identical assets or liabilities. Level 2 inputs are quoted
prices for similar assets and liabilities in active markets, quoted
prices for identical or similar assets in markets that are not active,
inputs other than quoted prices that are observable for the asset or
liability, including interest rates, yield curves and credit risks, or
inputs that are derived principally from or corroborated by
observable market data through correlation. Level 3 inputs are
unobservable inputs based on our own assumptions used to
measure assets and liabilities at fair value. A financial asset or liabili-
ty’s classification within the hierarchy is determined based on the
lowest level input that is significant to the fair value measurement.
The following table provides the assets and liabilities car-
ried at fair value measured on a recurring basis as of December 31,
2012 and 2011:
(DOLLARS IN MILLIONS)
Total
Carrying
Value at
December 31,
2012
Quoted
price in
active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Unobservable
inputs
(Level 3)
Recurring fair value
measurements:
Available-for-sale
securities $ 781 $ 781 $ – $ –
Derivative assets 128 – 128 –
Derivative liabilities (149) – (149) –
Nonrecurring fair
value measurements:
Equity method
investments 432 – 432 –
Business
dispositions 84 –84 –