D. Fair value
Financial assets and financial liabilities measured at fair value on a recurring basis
The following table presents the company’s financial assets and financial liabilities that are measured at fair value on a recurring basis at December 31, 2008 consistent with the fair value hierarchy provisions of SFAS No. 157.
| ($ in millions) | |||||
| For the year ended December 31: |
Level 1 | Level 2 | Level 3 | Netting(1) | Total |
|---|---|---|---|---|---|
|
(1) Represents netting of derivative exposures covered by a qualifying master netting agreement in accordance with FASB Interpretation No. 39, “Offsetting of Amounts Relating to Certain Contracts,” and credit risk adjustments, if material. (2) The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in the Consolidated Statement of Financial Position at December 31, 2008 are $773 million and $1,117 million, respectively. (3) The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Statement of Financial Position at December 31, 2008 are $1,414 million and $702 million, respectively. |
|||||
| Assets: | |||||
| Cash and cash equivalents | $1,950 | $8,059 | $ — | $ — | $10,009 |
| Marketable securities | — | 166 | — | — | 166 |
| Derivative assets(2) | 56 | 1,834 | — | (875) | 1,015 |
| Investments and sundry assets | 165 | 6 | — | — | 171 |
| Total assets | $2,171 | $10,065 | $ — | $(875) | $11,361 |
| Liabilities: | |||||
| Derivative liabilities(3) | $ — | $2,116 | $ — | $(875) | $1,241 |
| Total liabilities | $ — | $2,116 | $ — | $(875) | $1,241 |
At December 31, 2008, the company did not have any assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) in the Consolidated Statement of Financial Position.
Items measured at fair value on a nonrecurring basis
In the fourth quarter, the company recorded an other-than-temporary impairment of $81 million for an equity method investment. The resulting investment which is classified as Level 3 in the fair value hierarchy was valued using a discounted cash flow model. The valuation inputs included an estimate of future cash flows, expectations about possible variations in the amount and timing of cash flows and a discount rate based on the risk-adjusted cost of capital. Potential results were assigned probabilities that resulted in a weighted average or most-likely discounted cash flow fair value as of December 31, 2008. The fair value of the investment after impairment was $7 million at December 31, 2008.
